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Market Intelligence Center  Sep 17  Comment 
The patented option trade-picking algorithms behind MarketIntelligenceCenter.com's Artificial Intelligence Center have selected a covered call trade on Spirit Aerosystems Holdings Inc. (SPR) that includes 13.92% downside protection. Sell one...
Market Intelligence Center  Sep 11  Comment 
The patented option trade-picking algorithms behind MarketIntelligenceCenter.com's Artificial Intelligence Center have selected a covered call trade on Spirit Aerosystems Holdings Inc. (SPR) that includes 14.37% downside protection. Sell one...
TheStreet.com  Sep 8  Comment 
Story updated at 9:50 a.m. to reflect market activity. NEW YORK (TheStreet) --aSterne Agee raised its price target for Spirit AeroSystems to $48 Monday, reiterating its "buy" rating. Shares of Spirit AeroSystems fell -0.5% to $39.55 in morning...
Benzinga  Sep 5  Comment 
Ambarella (NASDAQ: AMBA) shares rose 8% to reach a new 52-week high of $38.63 on upbeat quarterly results. Verint Systems (NASDAQ: VRNT) shares gained 6.43% to reach a new 52-week high of $54.38 after the company reported better-than-expected Q2...
OilVoice  Sep 5  Comment 
Russia39s adventurism in Ukraine ISIS39s alarming advances in Syria and Iraq China39s economic slowdown and the continuing US consumer malaise share a common cause high oil prices. Russi
Benzinga  Aug 26  Comment 
Tech Data (NASDAQ: TECD) shares reached a new 52-week high of $68.13 on upbeat quarterly results. American Railcar Industries (NASDAQ: ARII) shares gained 1.12% to reach a new 52-week high of $82.11. American Railcar's PEG ratio is 1.18. Tim...
Market Intelligence Center  Aug 20  Comment 
For a hedged play on Spirit Aerosystems Holdings Inc. (SPR), MarketIntelligenceCenter.com’s option-trade picking algorithms recommend the Jan. '15 $35.00 covered call for a net debit in the $33.55 area. That is also the break-even stock price...
TheStreet.com  Aug 11  Comment 
NEW YORK (The Deal) -- The union representing machinists at Spirit AeroSystems Holdings  said Friday it plans to file suit to block the company from outsourcing union jobs by selling assets, the latest twist to Spirit's long-running auction. The...
Wall Street Journal  Aug 8  Comment 
Spirit AeroSystems Holdings Inc.'s largest union filed suit against the company alleging the aerospace supplier had violated a collective bargaining deal with plans to sell a Kansas-based unit and outsource other work.
StreetInsider.com  Aug 8  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/Spirit+AeroSystems+%28SPR%29+Prices+8.56M+Common+Secondary+Offering+at+%2435.90Share/9734903.html for the full story.




 

Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is the largest independent airplane parts manufacturer in the world. Eighty-seven percent of the company's revenues come from sales to Boeing [1], and SPR maintains an inventory of certified parts for almost all commercial and military Boeing aircraft, which are sold to Boeing who then distributes to the aftermarket. As a result, Spirit's fortunes are closely tied to Boeing's success. Boeing and its competitor Airbus both have record order backlogs, which speaks to the health of the market for these airplanes for years to come. However, high jet fuel prices make airplanes more expensive to operate - a potential wrench that could reduce demand for airplanes in the future.

Business Financials

Spirit AeroSystems works in three segments: Fuselage Systems, which includes the forward, mid and rear fuselage sections, Propulsion Systems, which includes nacelles, struts/pylons and engine structural components, and Wing Systems, which manufactures wings, wing components, flight control surfaces, and other miscellaneous structural parts.[2] All other activities fall within the All Other segment. SPR’s most significant customers are original equipment manufacturers (OEMs), Boeing and Airbus. These OEMs are supplied with parts for initial manufacturing and the aftermarket, which are then distributed to the OEMs customers. This service is for the entire life span of aircraft programs. The 1Q 2008 saw a 8.6% revenue increase, from $954.1M in 1Q 2007 to $1,036.4M in 1Q 2008.[3] In fiscal 2007 total assets were $3,339.9M and total liabilities were $2,073.3M with a current ratio of 2.73, a 97% debt-to-equity ratio, and 7.7% net profit margins.[4]

[5] [6]

in millions
Segment Revenues 2007 2006 % change
Fuselage Systems$1,790.70 $1,570.00 14.10%
Propulsion Systems$1,063.60 $887.70 19.90%
Wing Systems$985.50 $720.30 36.80%
All Other$21.00 $29.70 -29.30%
Total$3,860.80 $3,207.70 20.40%
[7]

Fuselage Systems

Fuselage Systems (46% of revenue for fiscal 2007) segment includes development and production of the fuselage systems, primarily to aircraft original equipment manufacturers (OEMs), as well as related spares and maintenance, repair, and overhaul (MRO ) services. Revenue for fiscal 2007 was $1,790.7M, an increase of $220.7 million, or 14.1%, compared with revenues of $1,570.0M for fiscal 2006.[8] During the 1Q 2008 revenue was $492M, an increase of 10.5% from $445.2M in 1Q 2007.[9] This reflects an increase in Boeing B737, B747, B767 and B777 model production in support of customer deliveries and delivery of the first B787 forward fuselage section. Fuselage Systems posted segment operating margins of 18% for fiscal 2007 as compared to 7% reported in the same period in the prior year.[10]

Propulsion Systems

The Propulsion Systems (28% of revenue for fiscal 2007) segment includes the development and production of struts/pylons, nacelles (including thrust reversers) and related engine structural components primarily to the original equipiment manufacturers (OEMs)of aircrafts or engines. Revenue for fiscal 2007 was $1,063.6M, an increase of $175.9M million, or 20%, compared with revenues of $887.7M for fiscal 2006.[11] During the 1Q 2008 revenue was $274.7M, a 5.5% increase from $260.4M in 1Q 2007.[12] This reflects an increase in Boeing B737, B747, B767 and B777 model production in support of customer deliveries and deliveries of the initial B787 ship sets. Propulsion Systems posted segment operating margins of 16% for fiscal 2007 compared to 4% with fiscal 2006.[13]

Wing Systems

The Wing Systems (25% of revenue for fiscal 2007) segment makes aircraft wings and their components for use by original equipment manufacturers (OEMs). Revenue for fiscal 2007 was $985.5M, an increase of $265.2M, or 37%, compared with revenues of $720.3M for fiscal 2006.[14] During the 1Q 2008 revenue was $262.3M, a 8.7% increase from $241.2M in 1Q 2007.[15] BAE Aerostructures was acquired on April 1, 2006; therefore, 2006 includes only nine months of Spirit Europe operations.[16] Wing Systems posted segment operating margins of 11% for fiscal 2007, compared to 2% in fiscal 2006.[17]

All Other

The All Other (1% of revenue for fiscal 2007) segment revenues consist of sundry sales and miscellaneous services, and revenues from the Kansas Industrial Energy Supply Company (KIESC). In fiscal 2007, All Other segment revenue was $21.0M, a decrease of $8.7 million or 29% compared with $29.7 million in fiscal 2006.[18] The reduction in revenue was primarily driven by decreases in natural gas demand associated with KIESC.[19] During the 1Q 2008 revenue was $7.4, a 1.4% increase from $7.3M in 1Q 2007.[20]

Boeing Wichita Acquisiton

On June 16, 2005 SPR acquired Boeing Wichita, a supplier of parts and assemblies primarily for Boeing’s airplane programs.[21] In connection with the Boeing acquisition, SPR entered into a long-term supply agreement to be the exclusive supplier of all the products and services provided by Boeing Wichita to Boeing prior to the acquisition. The supply contract is a requirements contract covering certain products such as fuselages, struts/pylons and wing components for Boeing B737, B747, B767,B777, and Boeing’s new B787 commercial aircraft programs for the life of these programs, including any commercial derivative models. On April 1, 2006, through SPR’s subsidiary, Spirit Europe, acquired BAE Aerostructures.[22] Spirit Europe manufactures leading and trailing wing edges and other wing components for commercial aircraft programs for Airbus and Boeing and produces various aerostructure components for certain Hawker Beechcraft business jets.

Trends and Forces

Cyclical Nature of the Aircraft Industry

The commercial jet market is driven by volatile factors, which is why demand is highly cyclical. The two most important factors influencing demand are airline profitability and growth in air traffic. These factors are in turn influenced by fuel prices, interest rates, consumer confidence, and the overall health of the economy. Fuel prices, for example, has been in an upswing reaching over $140 a barrel for crude oil, averaging $3.45 a gallon of fuel for commercial airlines.[23] This has increased fuel bills for all commercial airlines, increasing United Airlines’ from $3.5 B in 2007 to about $9.5B in 2008.[24] Many airlines are trying to reduce costs as their profitability begins to decrease by decreasing their aircraft fleet. SPR will reap the effect of this cycle. Anticipated cyclical slower growth of aircraft sales are predicted to begin in 2010. SPR's repair, spare parts inventory for active aircraft, and worldwide service capabilities and diversification amongst numerous types of aircraft will deliver handsome benefits regardless of new aircraft production. Additionally, as a result of fleet usage, the maintenance, repair, and overhaul (MRO) will continue to see growth in upcoming years.

Dependent on Boeing and Airbus

SPR's largest customers are Boeing (87% of 2007 revenue) and Airbus (10%).[25] 95% of the products SPR sells to Boeing and Airbus are only purchased from SPR.[26] Due to a large amount of sales to both Boeing and Airbus, SPR will be negatively affected if either of these companies experience business difficulties or reduce the number of products they purchase from SPR. Boeing’s backlog increased 40 percent to over 3,400 aircraft.[27] Airbus’ orders have also increased with orders of over 8,800 aircraft.[28]

[29][30]

Jet Fuel Prices

Commercial Airlines will continue to lose earnings with high jet fuel prices. As they increase airfare, demand for airplane transportation will decrease and demand for the production of commercial aircrafts will therefore also decrease. A substantial amount of SPR’s revenue depends on the production of new aircrafts, and if high prices continue, the airline industry and SPR will be affected. Jet fuel has increased by almost 90% since May 2007 to May 2008, and there is an upswing trend in jet fuel prices.[31]

Higher jet fuel prices also increases the demand for better fuel efficient airplanes, such as Boeings 787. The determinant factor is whether the falling demand for air transportation is greater than or less than the increased demand for fuel efficient airfare. If commercial airlines are able to withstand the decreasing demand of air transportation due to higher prices while they wait for the delivery of better fuel efficient airplanes, orders will keep increasing; if they are not, then orders for commercial aircarfts will decrease.

[32]

Raw Material

Increased prices of raw material which SPR uses for manufacturing their products will have adverse effects on their earnings, margins and revenues. The primary material they use are titanium, aluminum, and carbon fiber. Price fluctuation is caused by oil prices, changes in supply and demand, labor costs, import duties, currency exchange rates, among other related reasons. Aluminum prices have been increasing, and hit a record on the London Metal Exchange with a price tag of $3,380.15 a ton, with an official price of $3,340 which has increased 39% from the beginning of 2008.[33] However, titanium prices are decreasing to about $9/kg.[34]

[35]

Competition

Although the aerostructures market remains highly fragmented, SPR has an estimated 20% market share as the largest aerostructure supplier.

Their principal competitors among OEMs include Airbus S.A.S., Boeing, Lockheed Martin Corp., Northrop Grumman Corporation, and Textron Inc. All of these OEMs are capable of producing their own aerostructures, and several of them do so. For OEMs, in-house manufacturing capacity is many times a more important factor than cost price when deciding to outsource the production of aerostructures. SPR’s ability to compete and win long-term contracts with both Boeing and Airbus, although competitors, is attributed to their relationship with the OEMs. SPR’s acquisition of Boeing’s commercial aerostructure manufacturing operations and the aerostructures division of BAE Systems (parent of Airbus) has enabled it to outperform both Boeing and Airbus in manufacturing aerostructures.

Direct Competitor Comparison
' SPR Boeing Company (BA) Airbus S.A.S Lockheed Martin (LMT) Northrop Grumman (NOC) Textron (TXT)
Quarterly Revenue Growth (yoy)8.60%4.10%NA7.60%5.60%18.70%
Revenue (ttm)3.94B67.01B34.30B42.57B32.43B13.78B
Operating Margins (ttm)11.30%9.06%NA10.55%8.63%13.39%
Net Income (ttm)312.3M4.39BNA3.07B1.67B953M
[36][37]


SPR is the largest independent non-OEM aerostructure manufacturer. Its principal competitors among non-OEM aerostructures suppliers include GKN Aerospace, Goodrich Corporation (GR), Saab AB, Snecma, and Triumph Group, Inc. SPR’s ability to produce quality products at competitive cost price, with its manufacturing capabilities and business relationships enables it to compete for new contracts.

Direct Competitor Comparison
' SPR GKN Aerospace Goodrich Corporation (GR) Saab AB Snecma Triumph Group (TGI) Industry
Quarterly Revenue Growth (yoy)8.60%NA12.90%NANA21.90%13.20%
Revenue (ttm)3.94B7.12B6.59B3.07BNA1.15B633.22M
Operating Margins (ttm)11.30%NA14.53%NANA10.97%10.44%
Net Income (ttm)312.3M346.6M550.4M196.5MNA75.74M54.71M
[38][39]


References

  1. SPR 2007 10-K, Pg 17
  2. SPR 2007 10-K, Pg 16
  3. SPR 5/2008 10-Q, Pg19
  4. Balance Sheet and Income Statements by Yahoo Finance
  5. SPR 2007 10-K, Pg 18
  6. SPR 2007 10-K, Pg 44
  7. SPR 2007 10-K, Pg 16
  8. SPR 2007 10-K, Pg 16
  9. SPR 5/2008 10-Q, Pg19
  10. SPR 2007 10-K, Pg 59
  11. SPR 2007 10-K, Pg 16
  12. SPR 5/2008 10-Q Pg19
  13. SPR 2007 10-K, Pg 59
  14. SPR 2007 10-K, Pg 16
  15. SPR 5/2008 10-Q, Pg19
  16. SPR 2007 10-K, Pg 3
  17. SPR 2007 10-K, Pg 59-60
  18. SPR 2007 10-K, Pg 16
  19. SPR 2007 10-K, Pg 59-60
  20. SPR 5/2008 10-Q Pg19
  21. SPR 2007 10-K, Pg 3
  22. SPR 2007 10-K, Pg 3
  23. Record Fuel Prices Hurt Continental
  24. Soaring Fuel Prices Pinch Airlines Harder
  25. SPR 2007 10-K, Pg 2
  26. SPR 2007 10-K, Pg 2
  27. Orders and Deliveries, Boeing's Backlog
  28. AIRBUS 2007 RESULTS Press Release
  29. AIRBUS 2007 RESULTS Press Release
  30. Orders and Deliveries, Boeing's Backlog
  31. Commercial airfare price increase news
  32. Bureau of Transportation Statistics
  33. Power Shortages in China Reduce Aluminum Output, Bolster Prices
  34. Titanium Prices
  35. Aluminum Prices
  36. Competitor Analysis
  37. Competitor Analysis
  38. Competitor Analysis
  39. Competitor Analysis
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