Spirit AeroSystems(SPR) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported revenue of $1.4 billion for the second quarter of 2023, an increase of 8% compared to the same period in 2022 [39] - Earnings per share (EPS) was negative $1.96, compared to negative $1.17 in the second quarter of 2022; adjusted EPS was negative $1.46 compared to negative $1.21 in the prior year [27][28] - Operating margin decreased to negative 7% from negative 4% year-over-year, driven by higher unfavorable changes in estimates and potential customer claims [34] Business Line Data and Key Metrics Changes - The Defense & Space segment saw revenue growth of 30%, reaching $190 million, attributed to higher development program activity and increased P-8 production [19][35] - The Aftermarket segment reported revenue of $92 million, up 15% year-over-year, driven by increased MRO and spares volume with strong operating margins of 26% [21][36] - Commercial revenue increased by 5% over the same period in 2022, primarily due to higher production volumes on the 737 and 787 programs, despite disruptions from the vertical fin issue and IAM work stoppage [47] Market Data and Key Metrics Changes - Global air traffic demand is recovering strongly, reaching 96% of 2019 levels, with domestic air traffic exceeding 2019 levels by 5% [8] - The company's backlog grew from $37 billion to $41 billion in the second quarter, reflecting strong airline demand for new airplanes [9] Company Strategy and Development Direction - The company is focused on executing production rate increases to meet strong recovery in demand, despite ongoing supply chain challenges [10][12] - The new IAM contract is expected to increase labor costs by approximately $80 million annually, which will pressure margins going forward [38] - The company aims to reach $1 billion in Defense and Space revenue by 2025, with a robust new business pipeline [20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain challenges and the impact of the IAM work stoppage on deliveries, particularly for the 737 program [25][31] - The company expects continued challenges in stabilizing production and supply chains but remains optimistic about long-term demand recovery [37][77] - Future cash flow is projected to be negatively impacted by forward losses and increased costs, but management is focused on operational execution to improve cash flow [102][158] Other Important Information - The company recorded a contra-revenue charge of $23 million related to a potential claim from Boeing for repair work [24] - Cash and debt balances at the end of the quarter were $526 million and $3.9 billion, respectively [32] Q&A Session Summary Question: Impact of IAM contract on cash flow - Management indicated that the IAM contract would create additional financial pressure, impacting cash flow projections for 2023 [145] Question: Clarification on vertical fin issue - Management stated that they do not expect any material financial impact from the vertical fin issue based on the current understanding of the fleet disposition [93] Question: Free cash flow forecast - The updated free cash flow forecast indicates a significant burn in 2023, with expectations for improvement in 2024 and 2025 as production stabilizes [62][138]