Spirit AeroSystems Holdings Inc (SPR) (Q1 2024) Earnings Call Transcript Highlights: Navigating ...

• Revenue: $1.7 billion, up 19% from Q1 2023.

• Net Income: First quarter net forward losses were $495 million.

• Earnings Per Share (EPS): Reported a negative $5.31, adjusted EPS was negative $3.93.

• Free Cash Flow: Usage of $444 million in Q1 2024, compared to usage of $69 million in Q1 2023.

• 737 Production Rate: Approximately 31 aircraft per month, lower than planned.

• 787 Deliveries: Anticipating about 55 units in 2024, down from approximately 80 planned.

• Cash and Debt Balances: Ended the quarter with $352 million in cash and $4.1 billion in debt.

• Commercial Segment Revenue: Increased due to higher production across most programs.

• Defense & Space Segment Revenue: Grew to $251 million, with an operating margin of 13%.

• Aftermarket Segment Revenue: $96 million, primarily driven by higher spare parts sales.

• Warning! GuruFocus has detected 4 Warning Signs with SPR.

Release Date: May 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Spirit AeroSystems Holdings Inc (NYSE:SPR) reported a 19% increase in revenue for the quarter, primarily due to higher production on Commercial programs and increased Defense & Space revenues.

• The company has made significant improvements in quality, achieving a 15% improvement in the first quarter, with expectations of further improvements.

• Spirit AeroSystems Holdings Inc (NYSE:SPR) has successfully implemented a new joint inspection process with Boeing, which has industrialized in 34 days, improving product conformity.

• The Defense and Aftermarket teams at Spirit AeroSystems Holdings Inc (NYSE:SPR) continue to perform strongly, meeting operational and financial commitments.

• Spirit AeroSystems Holdings Inc (NYSE:SPR) received a $425 million advance from Boeing to help manage cash flow amid production adjustments, demonstrating strong support from a key customer.

Negative Points

• Spirit AeroSystems Holdings Inc (NYSE:SPR) faced disruptions due to changes in the Boeing 737 production process, leading to delayed deliveries and increased inventory levels.

• The company reported a significant increase in net forward losses, primarily driven by the A350 and A220 programs, reflecting challenges in reaching a commercial agreement with Airbus.

• Spirit AeroSystems Holdings Inc (NYSE:SPR) experienced a decrease in operating margin compared to the same period in 2023, largely due to higher unfavorable changes in estimates.

• Free cash flow usage for the quarter was significantly higher than the previous year, primarily caused by disruptions to the 737 production and delivery delays.

• Spirit AeroSystems Holdings Inc (NYSE:SPR) is facing challenges in aligning with higher production rates due to supply chain limitations and the need for additional capital investments.

Q & A Highlights

Q: Seth Seifman of JPMorgan asked about the expected trajectory of Spirit's deliveries for the year, considering the current production rate and the deliveries seen in the first quarter. A: CEO Patrick M. Shanahan explained that Spirit will maintain a steady state of 31 aircraft per month for the rest of the year, viewing the ship-in-place as a buffer that allows Boeing to increase production when appropriate. CFO Mark J. Suchinski added that cash deliveries in the second quarter would align with the first quarter as they work through the product process verification, expecting an increase in the third and fourth quarters.

Q: Sheila Kahyaoglu of Jefferies inquired about the assumptions within the A220 and A350 pricing, particularly regarding the forward loss tied to the failure to reach a new pricing agreement with Airbus. A: CFO Mark J. Suchinski clarified that previous assumptions included a higher price based on ongoing discussions, which have not concluded, leading to a reversal of previously booked pricing benefits and additional losses on future performance obligations.

Q: Jason Gursky of Citigroup asked for contextualization on the scale of changes in the aerospace manufacturing ecosystem, particularly regarding the reduction of traveled work. A: CEO Patrick M. Shanahan detailed the extensive changes, including realigning inspection processes and the significant improvements in quality control. He expressed confidence in the substantial progress made and the expected continued improvements.

Q: David Strauss of Barclays sought clarification on the number of MAX units that went through the joint verification process and inquired about the progress in pricing negotiations with Airbus. A: CEO Patrick M. Shanahan responded that by mid-May, they would start processing the first unit from the finished goods buffer and expected to address all advances by the third quarter. He also mentioned ongoing discussions with Airbus about pricing and other economic aspects.

Q: Ken Herbert of RBC Capital Markets asked about the incremental investments required for the A220 line to support the rates discussed by Airbus. A: CFO Mark J. Suchinski explained the need for significant capital investments in the Belfast facility, including autoclaves and other equipment, to meet the production demands.

Q: Myles Walton of Wolfe Research queried CEO Patrick M. Shanahan about his interest in the potential Boeing CEO position. A: CEO Patrick M. Shanahan affirmed his focus on Spirit AeroSystems and its stakeholders, indicating no interest in the Boeing CEO position.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.