Spirit AeroSystems(SPR) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q3 2020 was $806 million, down 58% from the same quarter last year, primarily due to lower production rates on the 737 Max and the impacts of COVID-19 [20][21] - Earnings per share (EPS) for the quarter was negative $1.50, compared to negative $1.26 in the same quarter last year; adjusted EPS was negative $1.34, down from positive EPS of $1.38 in Q3 2019 [22] - Free cash flow for the quarter was a use of $72 million, compared to a source of $214 million in the same period of 2019, reflecting negative impacts from working capital requirements and lower deliveries [29][30] Business Line Data and Key Metrics Changes - Fuselage segment revenue was $421 million, down from the previous year, with an operating margin of negative 23% compared to 11% in the same period last year [39] - Propulsion segment revenue was $171 million, down from the previous year, with an operating margin of negative 9% compared to 21% in the same quarter of 2019 [41] - Wing segment revenue was $168 million, down from the previous year, with an operating margin of negative 14% compared to positive 14% in the same quarter of 2019 [43] Market Data and Key Metrics Changes - The company expects Boeing commercial revenue to account for 45% of total revenue in 2021, with Airbus at 24%, defense at 15%, business and regional jets at 8%, and aftermarket at 8% [16] - The acquisition of Bombardier assets is expected to generate preliminary revenue between $700 million and $800 million in 2021 [16] Company Strategy and Development Direction - The company has implemented approximately $1 billion in annualized cost reduction actions, representing a 40% reduction in the non-material base [7][48] - The acquisition of Bombardier assets is aimed at accelerating strategic transformation, increasing Airbus content, and expanding the aftermarket and defense business [12][14] - The company plans to reduce the current buffer inventory of 128 737 shipsets to a permanent buffer of 20 to 25 units by lagging Boeing's production rates by about five units per month [9] Management's Comments on Operating Environment and Future Outlook - Management indicated that the aviation industry is in the early stages of a multi-year recovery, with expectations of continued near-term challenges [18] - The company anticipates free cash flow to be negative in 2021 but significantly improved from 2020, with expectations of positive free cash flow in 2022 [10][34] - Management expressed confidence in the recovery of domestic air travel, particularly for narrow-body aircraft, which constitutes 85% of the unit backlog [12] Other Important Information - The company successfully delivered 20,000 critical care ventilators to customers in over 20 countries, which was accretive to results [17] - The adjusted Q3 liquidity position was reported at $2 billion following various financial maneuvers, including the termination of the Asco acquisition and raising $900 million in new secured debt [11][36] Q&A Session Summary Question: Can you discuss underlying margins excluding forward losses? - Management noted substantial improvements in margins quarter-over-quarter, with normalized margins for the 737 program improving from negative 20% to negative 3% [52][53] Question: What should we expect from cash flow next year? - Management indicated that cash usage for the next year could be around low single-digit hundreds of millions, factoring in cash tax benefits and potential positive contributions from Bombardier [60][61] Question: What is the outlook for Bombardier's cash flow profile? - Management stated that the Bombardier business has been impacted by COVID-19, and they are currently working on establishing an annual operating plan for 2021 [76][79] Question: What is the expected production rate for the 737? - Management confirmed that they are planning to ramp up production to 10 aircraft per month by January, lagging Boeing's production rate by about five units [101] Question: How does the company plan to respond to Airbus's rate increase for the A220? - Management stated they are preparing to meet the potential increase in production rates as requested by Airbus, ensuring all necessary resources are in place [92][93]