Spirit posts higher revenue in 2014, reverses 2013 loss

Spirit AeroSystems had a big year for revenue and deliveries in 2014 – and a backlog that reflects solid demand for commercial jetliners going forward, its chief executive said Tuesday.

The Wichita-based aircraft supplier said Tuesday that 2014 revenue increased 14 percent to $6.8 billion, and it delivered a record 1,545 shipsets.

The company recorded a $273 million operating loss in the fourth quarter of 2014 from the divestiture of the Gulfstream wing programs to Triumph Group in December and a negative impact for deferred tax asset valuation allowance not associated with the Gulfstream programs. But operating income for 2014 was positive, at $354 million. That reversed a $364 million operating loss in 2013.

“We’re very optimistic about the future, and there are tangible opportunities to grow the business,” Spirit CEO Larry Lawson said in a conference call with analysts Tuesday morning.

Lawson said that while the company has “made great progress” in the past two years in terms of lowering its costs, boosting productivity and mitigating risk, there’s still more for the company to do.

Lawson said Spirit in 2015 will continue to focus on productivity, costs and investing capital to account for production increases in the Airbus A350XWB, Boeing 737 and Boeing 787 commercial airplane programs. The company expects to increase its capital expenditures in 2015 to between $325 million and $375 million. Spirit’s capital expenditures in 2014 were $220 million.

“The focus in 2015 is on productivity and preparation for sustained growth,” Lawson said during the call.

Spirit builds the 737’s fuselage and the 787’s forward section as well as other parts of those airplanes. It also builds the center fuselage and parts of the wings of the A350.

Spirit also is a supplier to Sikorsky Aircraft Corp.’s CH-53K heavy lift helicopter and Textron’s Bell V-280 Valor tilt-rotor aircraft program.

Spirit said it expected 2015 revenue of between $6.6 billion and $6.7 billion, including a $221 million tax benefit from its Gulfstream wing programs divestiture. Its 2015 fully diluted earnings per share is expected to be between $3.60 and $3.80. That compares with fully diluted earnings per share of $2.53 in 2014.

Analysts were mostly positive about Spirit’s latest financial report.

Sam Pearlstein, a senior analyst at Wells Fargo, said in a Tuesday morning note to investors that he expected “a noisy quarter with the Gulfstream sale,” but “the free cash flow guidance is better than we think the Street was expecting and so expect the stock to move higher on the results.”

Spirit said it expects its free cash flow in 2015 to be between $600 million and $700 million, compared with $302 million in 2014.

“Though a messy quarter due to Gulfstream with limited consensus quality, we see little in the results that is worrisome,” Steven Cahall, an analyst at RBC Capital Markets, said in a note Tuesday. “Free cash flow appears to be very solid.”

Lawson said before wrapping up the call that he was surprised most of the questions he took were about the company’s cash flow expectations in 2015 – without a single query about what he said was a record backlog for Spirit, totaling $47 billion, a 15 percent increase from 2013.

“I can’t think of another industry except for shipbuilding that has an eight-year backlog,” he said before closing the call. “That really tells you … organic demand for the product (commercial airplanes) is there solidly.”

Stern Agee analyst Peter Arment said in an interview after the conference call that Lawson did not overexaggerate prospects for the commercial airplane industry. Based on the backlogs previously reported by Airbus and Boeing, business should remain solid over the next few years.

“We’ve been positive on the commercial aircraft cycle for several years now, and we see it extending out really through the end of the decade,” Arment said.

He added that Lawson’s 2013 strategic review of the company and the plans developed to rein in costs and improve productivity seem to be working so far.

“They’ve continued to be successful in that and setting some achievable goals in ’15,” Arment said. “It’s all about building a consistent track record.”

Shares of Spirit ended trading on the New York Stock Exchange Tuesday at $48.52, up 4.16 percent.

This story was originally published February 3, 2015 at 7:23 AM with the headline "Spirit posts higher revenue in 2014, reverses 2013 loss."