Spirit AeroSystems(US:SPR)2024-05-07 12:02markdown [Financial Highlights](index=1&type=section&id=Financial%20Highlights) In Q1 2024, Spirit AeroSystems reported a 19% increase in revenue to **$1.7 billion**, but its operating loss widened significantly to $528 million from $95 million in Q1 2023. Net loss per share increased to $5.31 from $2.68. The company experienced a free cash flow usage of $444 million and confirmed it is engaged in acquisition discussions with Boeing Q1 2024 Summary Financial Results | | 1st Quarter | | | :--- | :--- | :--- | | **($ in millions, except per share data)** | **2024** | **2023** | | Net Revenues | $1,703 | $1,431 | | Operating Loss | ($528) | ($95) | | Net Loss | ($617) | ($281) | | Loss Per Share (Fully Diluted) | ($5.31) | ($2.68) | | Adjusted Loss Per Share (Fully Diluted)* | ($3.93) | ($1.69) | - Key performance indicators for Q1 2024 include revenues of **$1.7 billion**, EPS of **$(5.31)**, and free cash flow usage of **$444 million**[4](index=4&type=chunk) - The company is currently engaged in discussions with Boeing regarding a possible acquisition of Spirit AeroSystems[4](index=4&type=chunk) - Spirit has partnered with Boeing to align 737 fuselage product inspection more closely with where the work is performed, aiming to enhance quality and eliminate rework[3](index=3&type=chunk) [Operational and Financial Review](index=2&type=section&id=Operational%20and%20Financial%20Review) The company's financial performance was significantly impacted by operational challenges and forward losses. Revenue increased due to higher production activities, but this was overshadowed by a substantial increase in operating loss, driven by forward loss provisions on Airbus programs and issues related to Boeing production changes. Cash flow was severely strained, with a significant increase in cash used in operations due to production disruptions and inventory buildup [Boeing 737 Update](index=2&type=section&id=Boeing%20737%20Update) The current Boeing 737 production rate is approximately **31 aircraft per month** and is expected to remain at this level for the rest of 2024. Joint product verification processes with Boeing have caused delivery delays, leading to higher inventory levels and a negative impact on operational cash flows - The current Boeing 737 production rate is approximately **31 aircraft per month**, which is anticipated to continue through the end of 2024[6](index=6&type=chunk) - Joint product verification with Boeing, initiated March 1, 2024, has delayed deliveries and increased inventory and contract assets, negatively impacting cash flow[5](index=5&type=chunk) [Revenue and Backlog](index=2&type=section&id=Revenue%20and%20Backlog) Q1 2024 revenue increased to **$1.7 billion**, up from **$1.43 billion** in Q1 2023, primarily due to higher production on Commercial programs and increased Defense and Space revenues. This growth occurred despite a decrease in overall shipset deliveries. The company's backlog remains robust at approximately **$49 billion** - Revenue increased in Q1 2024 due to higher production on Commercial programs and higher Defense and Space revenues[7](index=7&type=chunk) - Overall deliveries decreased to **307 shipsets** in Q1 2024 from **346 in Q1 2023**[7](index=7&type=chunk) - The company's backlog at the end of Q1 2024 was approximately **$49 billion**[7](index=7&type=chunk) [Earnings and Forward Losses](index=2&type=section&id=Earnings%20and%20Forward%20Losses) The operating loss for Q1 2024 was significantly higher than the prior year, largely due to **$495.4 million** in net forward losses and **$39.2 million** in unfavorable cumulative catch-up adjustments. The forward losses were primarily driven by the Airbus A350 (**$280.8 million**) and A220 (**$167.0 million**) programs due to pricing negotiation challenges and cost growth - The Q1 2024 operating loss was higher than Q1 2023, driven by increased unfavorable changes in estimates, Boeing's schedule changes, and quality audits following the Alaska Airlines incident[8](index=8&type=chunk) Q1 2024 Charges vs. Q1 2023 | Charge Type | Q1 2024 ($ millions) | Q1 2023 ($ millions) | | :--- | :--- | :--- | | Net Forward Losses | $495.4M | $110.0M | | Unfavorable Cumulative Catch-up | $39.2M | $11.9M | | Excess Capacity Costs | $26.1M | $43.3M | - Major forward losses in Q1 2024 were on the Airbus A350 (**$280.8 million**) and A220 (**$167.0 million**) programs, and the Boeing 787 program (**$34.1 million**)[9](index=9&type=chunk) [Cash Flow and Liquidity](index=3&type=section&id=Cash%20Flow%20and%20Liquidity) The company experienced significant cash burn in Q1 2024, with cash used in operations at **$416 million** and free cash flow usage at **$444 million**. This was primarily due to Boeing 737 production disruptions and delivery delays. The cash balance decreased sharply to **$352 million** at the end of the quarter Cash Flow and Debt Summary | ($ in millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Cash used in Operations | ($416) | ($46) | | Free Cash Flow* | ($444) | ($69) | | **($ in millions)** | **Mar 28, 2024** | **Dec 31, 2023** | | Cash | $352 | $824 | | Total Debt | $4,072 | $4,084 | - Cash flow was negatively impacted by Boeing 737 production disruptions, delivery delays, and the inability to conclude pricing negotiations with Airbus[11](index=11&type=chunk) [Business Outlook and Subsequent Events](index=3&type=section&id=Business%20Outlook%20and%20Subsequent%20Events) Spirit has suspended its 2024 financial guidance due to ongoing acquisition discussions with Boeing and commercial negotiations with Airbus. Subsequent to the quarter's end, Spirit entered an agreement with Boeing for **$425 million** in cash advances. Additionally, the company anticipates a further forward loss of approximately **$50 to $60 million** in Q2 2024 on the Boeing 787 program due to an expected slowdown in production - The company will not provide a 2024 financial outlook until there is more clarity on acquisition discussions with Boeing, 737 production timing, and negotiations with Airbus[13](index=13&type=chunk) - On April 18, 2024, Spirit entered into a Memorandum of Agreement with Boeing to receive **$425.0 million** in cash advances, expected in Q2 2024[14](index=14&type=chunk) - The company expects to incur an incremental forward loss of approximately **$50 to $60 million** in Q2 2024 on the Boeing 787 program due to an anticipated slower increase in production and deliveries[15](index=15&type=chunk) [Segment Performance](index=4&type=section&id=Segment%20Performance) Segment performance was mixed in Q1 2024. The Commercial segment's revenue grew **18.1%**, but it incurred a massive operating loss of **$484.9 million** due to forward losses. The Defense & Space segment showed strong growth, with revenue up **33.1%** and operating margin expanding to **12.8%**. The Aftermarket segment had a slight revenue increase but saw its operating margin contract due to lower MRO activity Q1 2024 Segment Results | ($ in millions) | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | **Segment Revenues** | | | | | Commercial | $1,356.1 | $1,148.5 | 18.1 % | | Defense & Space | 250.8 | 188.4 | 33.1 % | | Aftermarket | 95.9 | 94.5 | 1.5 % | | **Segment (Loss) Earnings from Operations** | | | | | Commercial | ($484.9) | ($45.5) | ** | | Defense & Space | 32.2 | 19.2 | 67.7 % | | Aftermarket | 17.2 | 19.2 | (10.4 %) | [Commercial](index=4&type=section&id=Commercial) The Commercial segment's revenue increased to **$1.36 billion** due to higher production. However, its operating margin fell sharply to -35.8% from -4.0% in the prior year, resulting in a **$484.9 million** loss. This was primarily caused by **$493.8 million** in net forward losses and **$38.9 million** in unfavorable catch-up adjustments - Commercial revenue increased due to higher production across most programs[16](index=16&type=chunk) - Operating margin decreased significantly, driven by **$493.8 million** of net forward losses and **$38.9 million** of unfavorable cumulative catch-up adjustments[16](index=16&type=chunk) [Defense & Space](index=4&type=section&id=Defense%20%26%20Space) Defense & Space revenue grew by **33.1%** to **$250.8 million**, driven by increased activity on development, classified, Sikorsky CH-53K, and FLRAA programs. Operating margin improved from **10.2%** to **12.8%** year-over-year, attributed to higher activity on classified programs - Revenue increased due to higher activity on development, classified programs, the Sikorsky CH-53K, and FLRAA programs[17](index=17&type=chunk) - Operating margin increased to **12.8%** from **10.2%** in Q1 2023, primarily due to higher activities on classified programs[17](index=17&type=chunk)[19](index=19&type=chunk) [Aftermarket](index=6&type=section&id=Aftermarket) Aftermarket revenue increased slightly by **1.5%** to **$95.9 million**, supported by higher spare part sales which were partially offset by reduced maintenance, repair, and overhaul (MRO) activity. Operating margin decreased to **17.9%** from **20.3%** due to this lower MRO activity - Revenue increased slightly due to higher spare part sales, partially offset by decreased MRO activity[18](index=18&type=chunk) - Operating margin decreased to **17.9%** from **20.3%** in Q1 2023, primarily due to lower MRO activity[18](index=18&type=chunk)[19](index=19&type=chunk) [Shipset Deliveries](index=8&type=section&id=Spirit%20Shipset%20Deliveries) Total shipset deliveries in Q1 2024 decreased to **307** from **346** in Q1 2023. This decline was driven by a significant drop in Boeing 737 deliveries from 95 to 44. In contrast, total deliveries to Airbus increased from 176 to 191 shipsets Shipset Deliveries (one shipset equals one aircraft) | | 1st Quarter | | | :--- | :--- | :--- | | | **2024** | **2023** | | **Total Boeing** | **70** | **116** | | B737 | 44 | 95 | | **Total Airbus** | **191** | **176** | | A320 Family | 153 | 142 | | **Business/Regional Jet** | **46** | **54** | | **Total** | **307** | **346** | [Financial Statements](index=9&type=section&id=Financial%20Statements) This section contains the unaudited condensed consolidated financial statements for the three months ended March 28, 2024, including the Statement of Operations, Balance Sheet, and Statement of Cash Flows, which provide detailed financial data for the period [Condensed Consolidated Statements of Operations](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The Statement of Operations shows a net loss of **$616.6 million** for Q1 2024, a significant increase from the **$281.3 million** loss in Q1 2023. The loss was driven by a cost of sales (**$2.14 billion**) that substantially exceeded net revenues (**$1.70 billion**) [Condensed Consolidated Balance Sheets](index=11&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The Balance Sheet as of March 28, 2024, shows total assets of **$6.76 billion** and total liabilities of **$7.88 billion**, resulting in a total equity deficit of **$1.11 billion**. Cash and cash equivalents stood at **$352.0 million**, down from **$823.5 million** at the end of 2023 [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The Statement of Cash Flows details a net cash usage in operating activities of **$415.6 million** for Q1 2024, a substantial increase from the **$46.2 million** used in the same period last year. The primary drivers of cash usage were the net loss and a significant increase in contract assets [Appendix: Non-GAAP Reconciliations](index=13&type=section&id=Appendix%3A%20Non-GAAP%20Reconciliations) This appendix provides reconciliations for non-GAAP financial measures to their most comparable GAAP figures. It clarifies the adjustments made to calculate Adjusted Diluted Earnings (Loss) Per Share (Adjusted EPS) and Free Cash Flow, which management believes offer additional insight into the company's performance Adjusted EPS Reconciliation | | 1st Quarter | | | :--- | :--- | :--- | | | **2024** | **2023** | | GAAP Diluted Loss Per Share | ($5.31) | ($2.68) | | Deferred Tax Asset Valuation Allowance | 1.38 | 0.50 | | Pension Termination Charges | — | 0.49 | | Adjusted Diluted Earnings (Loss) Per Share | ($3.93) | ($1.69) | Free Cash Flow Reconciliation | ($ in millions) | 1st Quarter | | | :--- | :--- | :--- | | | **2024** | **2023** | | Cash from Operations | ($416) | ($46) | | Capital Expenditures | (29) | (23) | | Free Cash Flow | ($444) | ($69) |