SPR - Earnings call transcript Q2 2018 | Spirit AeroSystems Holdings, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to Spirit AeroSystems Holdings, Incorporated Second Quarter 2018 Earnings Conference Call. My name is Chad, and I will be your coordinator today. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the presentation over to Kailash, Vice President of Investor Relations, M&A and Strategy. proceed. Please

Kailash Krishnaswamy

Chief and call. Welcome with President I'm are President Chad, quarter Spirit's me and morning, Gentile; Spirit's earnings Tom XXXX Kailash and Chief good Financial you, Executive to everyone. second today and Officer, Thank Spirit's Officer, Vice you Executive Krishnaswamy. regarding we participate your yourselves Kapoor. order questions. limit Sanjay Sanjay to opening ask in outlook, please. and allow by comments performance After to the In segment, question-and-answer we that and everyone question, one Tom our will to And take

begin, and Before in to detailed any in the the at in involve we this need our we or include filings, are which our I forward-looking presentation. that statement earnings to remind may of likely risks end projections release, you discussion in web are today SEC goals our

In presentation refer we and our for non-GAAP earnings when disclosures discussing addition, release measures you of results. our use reconciliation we to and

our slide you reminder, the can a on Executive to to like I call As investor.spiritaero.com. Officer, broadcast over turn our follow and With Gentile. would Chief that, presentation website Tom today's at

Thomas C. Gentile

new million half quarter primary accelerated raise areas association year. in plan. the of off laid Thank providing key quarter second everyone. initiate quarter, an and accomplishments, a Last good Asco our start announced Spirit's of a to second updates earnings agreement the earnings out few we share in Kailash, and $XXX outlining to highlighting call. the want execution call, to Welcome items debt and quarter the I for you, to with we plans XXXX morning, by focus first repurchase second acquire

with The is hard quarter. strategic Airbus, which Commission, expand Thanks on our growth second and execution the improve to accelerate and remain Additionally, compelling items Spirit Spirit clearance required dedication excited will Trade through we we these the good U.S. progress track our programs. and efforts we're made acquisition team's we as Asco operational to We acquisition our strengthen all military and our On a of half enable detailed to during all close to work, the key X, the our execution July the supply regarding Asco all of fabrication consents. across to and business, our the on from sales, grow merger received Federal progressing chain programs. other XXXX. support on in fit approvals

smooth capture We we billion the with us Asco focused the a line lower detailed be and of $X.X transition By maturities. our operational In leverage financing times enable to X synergies. currently expect are completed our year-end, acquisition, closing all extend approximately integration our debt-to-EBITDA. debt to of on and planning ensure we to of upon targeted borrowing cost to

peers. investment-grade debt line and our Both reaffirm industry new our Moody's in more with rating. levels leverage Our bring S&P

QX, we our strategy part successfully important a of million in our outlook. also confidence deployment repurchases $XXX an capital demonstrate During our initiated are and ASR. overall long-term Share

XXX shipsets. ASR QX, XXXX. of included XXX a had As share This previously do XX% not increase beyond additional communicated, in record the anticipate representing Overall first compared repurchases XXX shipsets during Spirit to the quarter. deliveries we

teams we on programs. continuing and buffers all operation execution to of building on Our are are our focus

over We in continue year. the expect areas improving to half the those second of

efficiency to I'm we delivery to continue our to still need While with the pleased and customers. improve support progress, consistency

our by production production. flow rates ground state-of-the-art campus space from higher broke inventory. time free logistics accomplishments Turning we additional the supporting managing center our global enable strategy accurately quarter, to in Wichita, The second up also on improve of some digital more new recently center to a on to will

is and capability a opening of growing supporting increasing Spirit Malaysia excellence, center Malaysia our part strategy. global the manufacturing that of strategy We of important our cost also and X of capacity Spirit's celebrated site. the competitive phase at

relationship research Also the the meet excellence to Spirit State to agreement also innovative the quarter, and by establishes our improve for program. which and the dedication customer's Institute to honored Wichita showcases Sciences of an BRXXX expectations. collaboration as Technology. we be of announced Wichita During Spirit accelerate quarter, initiatives was NIAR Research workforce recognized Applied our services. and commitment new training Rolls-Royce year State University with a supplier Campus their will for our through This and Aviation our agreement This advanced for delivery or second in the exceed the on National

Boeing fuselages quarter. the delivered to In first XXXX we two the addition, in test

And and on the a honored We supporting to committed are to we partner our be transition. program. excited are through the XXXX customer

options new win some customers and existing packages commitments the in show had to XXXX. Finally, showings. over to strong quarter since where restrictions, proud growth work is some to aircraft, statements new including Farnborough defense. pleased we our initiatives. most We're from at have customers, Total returned and packages with to highlights progress all and the unable details fabrication just Airbus work in were programs. on this have the customer are very commercial this due announce we at time but the X,XXX Spirit on air Also, order, Boeing work

automation, made also our manufacturing. on During the progress additive robotics, show, and we announcements on

half key of the our for areas second outlining year. focus Now, the

of delivery We are our executing for all focused programs. on on

Continued delivery improving to work chain be ensure component efficiency. timely our will a key our supply to with

progress, a we still and some I small have have throughout of number but we challenges made the suppliers, remainder year. have the of ongoing good improvements with expect As described,

coming AXXX programs the all Another year. focus and increasing area in are is The XXX, planning XXX, across major rate. for the rate increases our AXXX the for

them over smooth learned with a year rates. internally and to the suppliers lessons ensure the taking our and to are production are last higher We transition applying

are and training We new increasing diligence employees. supplier extending time due for

half intensely are on we XXXX. for focused second cash Finally, the of

efforts concentrating on and capital, initiatives. are reduction, working We our cost CapEx

for X%, revenue one-time items, of Turning $X.X it billion, the reported to this on turn adjusted we the over financials, increase free and $XXX that Sanjay? based of you results. to operating $X.XX Sanjay the of through flow of an second is of $XXX share before, I'll record I of earnings million. impact deliveries quarter adjusted detailed which per point, to flow strong or cash million cash $X.XX the described financial At lead

Sanjay Kapoor

everybody. and Thank morning, good you, Tom,

period by you billion, X. the So the driven through of result that, in quarter litigation the let second XXX details XXX, billion, of the me reserve XXXX, lower of With for the was by XXXX. of a XXX, from health the second quarter Boeing as recognized second $X.X adoption the for our up was absence robust of the higher our the quarter turn demonstrating take quarter deliveries financials slide on ASC the in lower $XX outlook partially offset end delivery of XXX primarily business. our as to revenue XXXX. well which and program, the slightly on same of please as at long-term was program a Backlog of the Revenue

Moving to was share $X.XX slide quarter of second adjusted X, compared the per $X.XX XXXX. quarter earnings in second to

XXX we was MOU On the adjustment XXXX transaction forward exposure is the our largest purchase acquisition. adjusted into the an for driven financing adoption of second share impact of was earnings comparison, loss fluctuations, Asco for of fair all costs costs, program, forward based is on with in delivery deal, XXXX time. offsetting X% and $XX amount increase rate want all and be associated XX, by of ASC a financing in per reversal quarter resulted To absence to noncash activities lower the was in costs. with end on the Upon of which and and I the euro instrument, on quarter reduce on the the the a a million. fair This the with take XXX in of protect reversed reduction contract the a the price quarter the offset at production debt adjusted quarter a purchase price. loss Asco to a with adjusted the second derivative Boeing. count will currency foreign to the XXX the date, excluded XXXX. by debt litigation The which contract value the Second the reserve associated and tax adjusted the was second moment AXXX also of includes of the on the in that program, impact of share associated entered The interest explain of a program, transaction, June in with currency acquisition. value closure

was last we As the also XXX recovery quarter, impacted discussed costs. QX by XXXX

improved, focus in has improvement half on of our is delivery that year. cost execution the the Now second

by $XXX offset lower slide and flow million advance year, Now deliveries the lower same deliveries, for the timing cash free $XXX on higher and million last driven period increased working XXX, to Adjusting on in integration, capital, compared quarter was the by free the payments. X. flow of impact to cash adjusted of turning Asco for tax, XXX cash the

last As now our quarter, year. this we our a continue result, reduced And by have reexamine as we mentioned midpoint $XX for investments forecast capital at for CapEx to we the million efficiencies.

We outlook X.X confidence on the $XXX for the quarter took the of to million by the of showing deployment delivery conclusion million ASR. ASR acquisition Turning next we the as of second ASR year. end that committed initial deployment the capital the exemplified initiated by planned, the capital true-up and to of planned at Spirit. slide balanced X, we'll in dividend, with shares the in strategy along have is which we number conclude the long-term Spirit a Asco and will

at segment our let's Now, look performance.

the in same line first discussion impacted the was the XX.X% the previous basis, our results, to partially for estimate year, program deliveries would Operating impact, revenue and XXX X% the to but loss same For program Fuselage second by with in compared forward quarter slight turn XX.X% XXX and period defense show improvement was beginning quarter to higher scheduled the in X. quarter quarter. last XXX in the recognized due normalized million that primarily quarter was XX.X% XXX to up a change the Fuselage year period be first lower XXX. billion, the costs, our lower reversing second because On $XXX work, due over XXXX. by the the Fuselage as quarter, segment in the margin segment on recognized from deliveries of on offset charges to in segment recovery XX% of cost increased to negative ASC after last in of in slide absence please the compared margin primarily revenue $X

the our period segment period last charges same XXXX. X due $XXX program the year, And year, Turning our estimate recognized $XXX margin Wing XXX quarter revenue XXX to down XX.X% on the year the Propulsion same in lower million, results. lower again, partially charge the for primarily higher in forward-loss On recognized quarter impact, program to results, of for our Propulsion was of effective lower quarter to on $XXX reversing for was from X. on an to and the quarter reversing adjusted deliveries was $X.X year. lower the $XXX to to on XX% offset per deliveries between be in period the the terms; AXXX last result normalized recognized and revenue $X.XX, period in guidance after on absence the recognized on free Wing the to absence higher a primarily flow And by pricing last X% a adoption rate Operating by of $X.XX the million, segment Boeing the normalized in the to AXXX deliveries million share change Wing fluctuations ASC is of XX.X%. slide in segment XX.X%. slide Propulsion due in of guidance was to to from XXX program program. compared due same in estimate between billion, of on program, quarter as XXXX. The billion ASC On margin for the to Boeing due second after impact revenue to to slide XX, margin to quarter last turn revenue segment in million segment the revenue program XX.X% the foreign-currency by in compared XXXX, X.X% the basis, revenue margin basis was turning forward-loss same program. to adjusted driven $X.X be let's in tax the $XXX to offset segment XXX the a impact, recognized cash XXX from of second between the change the XX%. XXX was partially the to program Operating $XXX the million XXX, and for million compared be XXX; earnings

we So, good in made progress recovering the quarter. deliveries XXX

improvement will of higher rate on cost the the execution in second Our focus the be of year. driving now schedule and the sustaining half efficient

guidance As or including we transaction with like associated impact any does the a benefit last expenses, from acquisition And our interest of the impact Asco derivative instrument financing. our and include cost, reminder, the of include does not the debt that. quarter, we absorbing costs mentioned associated are interest with the costs the ASR guidance

over it comments. to let Tom some Now, hand closing back me for

Thomas C. Gentile

Thanks, Sanjay.

from continues global to and outcome demonstrates, for aviation strong growth Farnborough clearly the robust the As support passenger a global cargo environment industry.

which strong $XX backlog Airbus commercial includes end Our of quarter backlogs. platforms remains work the the the in on Boeing at at all the billion second and

ASR the continue Asco we execution. to progress made and completed During on initiated QX, on financing, our program acquisition, the improve debt our

of deliveries XXX During the had record quarter, shipsets. we

and to and that, we'll the take revenue, your guidance our be to questions. flow, back are happy maintaining in With are delivery EPS half the working cash of and execution free improve year. We on

Operator

begin will question-and-answer our now We session.

will from Research. The go Carter with Copeland first Please question Melius come ahead.

Carter Copeland

gentlemen. morning, Good Hey.

Thomas C. Gentile

Good morning, Carter.

Carter Copeland

one I'll rules. abide to stick and by the

lately So just current ask of rates rates there I standpoint capital want update need in questions. what timeframe that this for maybe having should in incremental any narrow-body would will a Is you that in little talked OEMs your thinking high how from about any significance? on narrow-body helpful? capital on XXXX and to around is? be you two investment rate framed about could we think both a if you go Thanks. studies One, without the bit put a were the the or that to have guys what production capital, event thereafter And put the to

Thomas C. Gentile

we OEMs the Great. obviously Well, rates, thanks, looking their are Carter. make to decision. With to the regard to

the do higher from so, standpoint, to And that decide they to on preparation go our we're event focusing rates. in

our and Airbus program might So brick mortar We're program sufficient the and different comfortable whatever we we campuses is at footprint we've considering. the they rates for that up scenarios. go various our if to looked in both our have Boeing that capacity and for at look to be

that increases standpoint, to plan rate to long good pretty in always take from So, a and These time we're execute. do shape.

for XX-month about it's normally, us. period So, a

for that OEMs the So make that either in lot in that's preparation. doing kind of we to ready what been detailed the different future. if as scenarios looking decision could of would evolve, rate a for terms we've said, of be a so we're I to But increase of planning decides

Carter Copeland

And the XX? of your high what's end XX, scenario,

Thomas C. Gentile

they've Well, some each about OEM has different are. scenarios. And scenarios what think, talked I their

to footprint looked of could it mortar discussed targets the scenarios the have. that leave have they the terms I'll So us, and be. we've and those and speculate comfortable to what and meet with But in and would different publicly we we're that bricks the we their infrastructure them at

Carter Copeland

All right. Thanks, Great. Tom.

Sanjay Kapoor

mute button back Carter, into take if the it. your of end to get just you'll off the queue, remember at

Carter Copeland

it. Shots fired. got ouch. I Ouch,

Sanjay Kapoor

Okay.

question. Next

Operator

Please ahead. Jefferies. Sheila Our with go Kahyaoglu next question from come will

Sheila Kahyaoglu

morning. Good Thank you.

Thomas C. Gentile

Good morning, Sheila.

Sheila Kahyaoglu

question. Just one

maybe mix risk XXX, NG transition, can head we half? the about – what you where is items MAX nice And are to the where you what talk your as on second are recovery. and On into

Thomas C. Gentile

more getting the MAX through that the and that is decline. Right. a obviously good going NG been Well, Overall, curve. And transition. we is is right hiring the we're XX/XX. we're of year, of people learning in been increasing they've news through we learning kind the The expect We've middle go. as for about corresponding the and

one about we and think different the a we sure on so, That the are consistency thing But consistently MAX, that delivering is as have And the night. in every to making better. getting it's that more it look work aircraft. we as still at we're I said, units we do

are. to different And think so, supply anything training, and delivery. with very we confident different I'm with we we're have chain, of very in performance we're add? about the to through that terms Sanjay, pleased also but the else getting where

Sanjay Kapoor

No, no.

you literally we're right, mentioned, lot doing the Tom This better know, absolutely And will of we that's there the in. phase is a we're that year, Again, halfway and getting it. of through at as have transition and getting MAXs year out MAX. as more most be Sheila. think I deliveries next kind

Sheila Kahyaoglu

you. Thank

Operator

& The von go Cowen Rumohr next with question ahead. will Cai Company. from be Please

Lucy Guo

Good Cai. for morning. This Lucy is on

Thomas C. Gentile

morning. Good

Sanjay Kapoor

Lucy. morning, Good

Lucy Guo

Good morning.

contract can then on with guidance help and potentially given your reaffirmed So, cost the of in second in and minuses? excess any the Sheila's changed potential think half, the follow-up us even through costs sort question, a in and (XX:XX) you just numbers has kind have pluses of you headline – what though FX residual excess forward the you the place, headwind,

Thomas C. Gentile

as said we up on first improve catch little about as were Well, and quarter, in behind. a were deliveries because XX to the we we our Right. working units

incur news we the things freight costs and fuselages Airbus and did. said, the on we to out to Carolina some side, contractors, is overtime related QX North going and really some expedited As were we recovered. of like additional in AXXX good that The

quarter, a so, of see shipments we've returned And Antonov early few in the the to after shipments. part

more so incur any And didn't we freight there. expedited

On see up caught the consistently out. unit deliveries, we fuselages the still we're can XXX not day but every from you units, the the line, on getting

shipping have deliver always we we our Boeing are we there at an issues And anything and issue. at committed right plant where absolutely Wichita at midnight. find the So, know end been that there quality some instances in where is to to we not

a so, that And some midnight delay might might result in miss and we freight. expedited

have be those confident delivery operation of very efficiency year. to consistency improve to going the substantially continues as make the to extremely to the deliveries. the second and confident we in reduced all We're deliveries. the improve. we're as I expect for that We're the We half that said, in the But

per QX at look units XXX in math, If was about the month. you just XX

we by freight. don't And we arrive in lot what as do into half the confidence if is the do with to The gives they us with thing no can disrupt more XX the that's but units second That rate efficiently the a Boeing. get we as contractors, expedited we reduced and we're but know the improve getting we overtime on have one to down, right can focused of next year, is consistency. go for it. it sequence, So, that out,

that order second the And do. time perfect, really get sequence, to to focus we're track in half on and and the consistently in so day, is what is so, right are right fuselages to everything that's there there on our every the get in the to

Lucy Guo

That's helpful. And I be color. know get second for about of should can early point you levers through the we maybe but for have the any sort but easier, give you year-over-year comps half, can XXXX? to that you XXXX, any think to will

Thomas C. Gentile

actually be should Well, overall. XXXX much better

are For XX getting starting down that all general. in and that's and hired and one us of to MAX learning the on All tooling curve rate capacity. the the the thing, trained is more giving people arrive, surge we've

their so, their and productivity And realization is improving.

the that's and margins to margins year why And really with better year, this next of more and improve with improved we – are half system much much we're performing also back much the ground is in efficiently. hit factory and in the going so, the that going a

because we've as because more factory we We're place, easier have And all going efficient half and done track. So, going this of is the next past. the Ironically, XX new the we're cycling year. for we XX curve, consistent was than We've get those capacity The the tooling in we going in break down XX. And we're get surge work on. place learning in have things more the putting are to and in We're than is to be on tooling the year. and people of into it's as to XX. better. first getting easier the XX break it's got than more to that the

Operator

question will go come Harned next from ahead. Doug Bernstein. Our with Please

Douglas Stuart Harned

morning. Good you. Thank

Thomas C. Gentile

Good morning, Doug.

Sanjay Kapoor

Good morning, Doug.

Douglas Stuart Harned

ever. revenue going fact, changes it and XXX think, revenues? year, in you had year Can I pricing revenues comparison the we I and QX, But number large want for in the number. AXXX associated lower your sure And the Wing AXXX we Systems unusually understand this the on you on highest what's some revenues Was on pricing? high discuss are happening. reason? make How cited was with XXXX a accounting an you XXX quarterly the in the think Last should unusual for to reasons forward? about how that the as And QX changes

Sanjay Kapoor

great was with we on last a contract. the one-year my where, some That's again up currency Doug. quarter to sort I true-up quarter agreements it's true-up Sure, and of our year. almost in trying XXXX transcript in year, of but foreign that quarter Sure. was impact the pull big from a year customer, we our have in And question, last last that that we in second took based second

terms the unusual. foreign declines. fluctuation. don't the currency So, big big are impact, and think, here deliveries that's a It's normal. again, the those part of of pricing one I in The was

Thomas C. Gentile

deliveries, I that also the headwind, the the from are doing rather through And a think you year. sharply deliveries. this see previous Doug, a bit of XXX at the little XXX look to down XXXX, our but we're segments, you all transition really if while of goes

Douglas Stuart Harned

that also on the XXX in in – is deliveries, issue that of Is Is but here? in there XXXX? we factoring it's content something else the should any difference the is be it terms in down –

Sanjay Kapoor

last no. of for the I but said, over can revenue. give a like year change It's, little you because of No, that. number, No, foreign-currency There you no impact kind I again, million from shouldn't. maybe some is is $XX

Douglas Stuart Harned

that's Okay. And issue? the really main

Sanjay Kapoor

absolutely. Yeah, Right.

Douglas Stuart Harned

Okay.

Okay. Great. Thank you.

Operator

Arment Baird. The will from be next ahead. of question go Peter Please

Peter J. Arment

Good Tom, Kailash. morning, Sanjay, Yes.

Sanjay Kapoor

morning. Good

Peter J. Arment

Hey, stick one. maybe just Tom, I'll quickly; to

to need that? to but thoughts some maybe you maybe you what I us can Tom. Asco the know Thanks, still clearance got the from on guess, clear either the is you mentioned from, transaction. hurdles left that update or On I OEM around regulatory just close deal, you U.S.,

Thomas C. Gentile

got go. on through working we're we've Well, customer And the more and to those Right. of a them, consents, few track. all several are just

is though, The European Commission. other thing, major the

process. a that's involved And rather so,

The process. to really, that, usually of is August, the on And holidays responded there, September. until XX-day now required it started going initial being they're questions. information. a all European with submitted the really We've the not to issue get have We it's

it's into just that's to that regulatory to tent have So work the track get October, through in for pole now big that's on And getting really right we're we why European holidays. but the pushed the It's European off the is that. approvals.

Peter J. Arment

It's great. stick I'll Thanks. to one.

Thomas C. Gentile

Thanks.

Operator

The next question with be will from Wells Sam Fargo. Pearlstein

Samuel J. Pearlstein

morning. Good

Thomas C. Gentile

Good morning, Sam.

Sanjay Kapoor

Good morning, Sam.

Samuel J. Pearlstein

talk any measuring a about of say, suppliers suppliers management just are performance bit you now? in the stand changes but of what you and you're do seeing made right in still Will little about terms more number on-time in performing, small and you've now supplier comments, You introductory how your and performance? the terms did of a their not right of where things –

Thomas C. Gentile

Well, they're part ability our And have supply of suppliers. critical we a a more deliver to base, Right. XXX than our customers. significant direct to

we So, them. closely very work with

buffer of inventory stocks is on have ways parts that adequate critical time One hand. the do we really and and measure on are them we the just

And them so, and a with experiencing bit and But And back lot lot deliveries in and with are as to good they're work about a as at? our And And well. teams with of are to a have and of that or suppliers a pressure program. us mentioned on were have common quite that get XX of the so disruptions, factory handful had the I've done suppliers some the had where Boeing lot a in of they've are the on we is those been And we Boeing track. struggling causes XXX that measures news in which look we SWAT deployed on quarter, still last puts fact, has that disruption been them them deliveries late us. with there helping improved.

at a the instances, offload other with them particular we work of parts to time we be control. cases, improve But they until things give operates on until the they those, extremely some lot in to the dual get the and drives to XX% a elsewhere And operations get So, them supply that with actually sort track in control. have the disruption traveled relief, might of the can suppliers, that's get supplier efficiency back or XX% don't those back fix even that up. we we source work teams. operations we when effort of so are overtime it can for get chain period have But, help and we're their issues under factory increased parts, under some quality to count SWAT some some of their because, require in the we of and doing we well. work, when But what head our move the that

our is chain priority, So, pleased good lot Still to getting an and last very of we the progress other and the ensure have supply to chain supply but quarter. line customers important right of I'm we've and efficiency. Boeing that a OEM working made work over a some sight, do, we're cooperatively with

Samuel J. Pearlstein

way be once that in terms stock much the operation? may inventory buffer there any would return excess estimate of you to a away how to normal carrying Is you go

Thomas C. Gentile

excess if a I min-max are We that I we're no. implied carry maybe carry. buffers use misspoke our normal just inventory. No, we The to buffers that system. going

to those we stock what in lead safety are. establish risk time at levels and look potential So, inventory

call get safety those when So, below we shortage. stock suppliers that's levels, them the when would in

So, we're inventory that at just not to looking inventories. any that indicate. they're making hold sure would scientific calculations It's our additional the

Samuel J. Pearlstein

you. Thank Great.

Operator

comes question Spingarn morning. Credit - (USA) Spingarn Suisse. LLC Credit Rob go The next good Hey, Robert ahead. with M. from Suisse Securities Please

Thomas C. Gentile

about you normalized these half And I issues, and half. think XX.X% you've the the averaging but the first margins et guess, is this in Securities (USA) roughly Rob. morning, pressure Just Sanjay, ramp I the half margins, or Suisse Spingarn cetera, got that second Robert first Credit for – in guide. around XX.X% the given from to - LLC implied given the the is in Good maybe need do M. and the

to could if the cost So, or from you supplier the built any to you're all that whether separately, And with is related there. talk I one-time to shake there issues going into off see these ramp? recoveries benefit about happened wanted recoveries of what of then, guidance talked supplier element about you've

Sanjay Kapoor

Rob. Sure,

we customers, do hold our moment Second answer to supplier. so, misperformance, us. hold we just lack in ourselves has of the of have there their half to around about when And our the yes. some recovery a accountable associated with do work included year. our have we talked yes, Tom first, we've suppliers incurred that accountable to cost their including that to ago direct associated Like for assertions And been we our if back to shift with second is ability what

Credit that, Spingarn Securities M. LLC Sanjay? Robert you Can - (USA) Suisse though... importantly, More quantify

Sanjay Kapoor

don't No, think so. I

I think negotiations cost are of based business. based on There these that may on that this get, normal that discounts sometimes is – we – based we on happen anything, future apply. sometimes we just Like that course that the adjustments to happen. are

an of example, our and best think suppliers. the as Rob, decision negotiations some But more conclude make importantly, we you're I try we right. business As these with

I think to our improve. margins have

thing. in mean, are shoot something we it's the past. we here's not haven't that I Now done for as if trying the to

our we our margins shooting for that we've performing. are lines can are when chain is supply and achieve demonstrated We stable

nose or cost you, still costs in it. assist in focused of the we And now the And still make of some I to so, clearly the the onboard the that some the we've we brought have we on – I started the right get tell second while our costs, teams really sure will have to us transportation still so half we're grind we are will have – disruption of down, that back see specialized got hard, away. obviously to gone tapering of battling this very to and mechanics these of sort to some surge, sort

second the clearly also Robert where to focused are we to get supply our It's not customers' So, this chain drag to needs Suisse like perform. own half need Tom we But we us get margin interest, LLC Spingarn our Credit not to just to to Sanjay... - to we for Securities but delivery, happen. in costs. our only which our highlighted our guidance. (USA) for to you also to, M. get performance make It's our So, said, yes, efficiency, execute with need our

Thomas C. Gentile

volatility would the confidence efficient. Credit these just ask us well. Securities the it normalized LLC and I And - you, that, look noise? better margins, margins I say M. was that normalized So, talk margins, the Suisse Robert was normalized implied second cycling going margin what is there a if this your factories on forward? these volatility when recovery in margin one past. as is going other historically, you the about that. At in But you've much at without good year What below quarterly is I our business forward more point, Last (USA) supplier could half fact is and What much to And the prior Spingarn them. gives XX%. had year any are XX%,

Sanjay Kapoor

cum the past, again, with So, sort little XXX, under catches under sort longer process. different and more the bit blocks, so you of in Rob, that was there operating as we a were know, of was – a

have and shorter XXX, you perform also block as to I risks and know, tighter. think, opportunities about our we one we talked much have the blocks and things on execute inside that the of we

year, should higher mean, XX%, XX% least then was back usually last the the bit Wing at and to in was question, that you little your tell segment, Fuselage XX%. looking a I Propulsion XX%, than Going And that at we're margins. I

So, right this. - (USA) to mean, achieve that. are plans performing. can Propulsion to are now and That's you. Securities got mean, are Credit very I work we to going the detailed we M. which Thank in. LLC I Suisse teams, do we baked do. you that we've obviously, that Wing, Spingarn Fuselage, assure I focused clearly on have what Robert some

Operator

next ahead. Rajeev go Please with question Lalwani will come The Stanley. Morgan from

Rajeev Lalwani

Sanjay. Hi, Tom. Hi,

Sanjay Kapoor

morning. Good

Thomas C. Gentile

Hey, Rajeev.

Rajeev Lalwani

you'll are that question you are being fuselages a delays just pretty to to on you're to can you tell the seeing the where One, it sort deliver to given a Boeing be engine place much get on guys? or you of that they us with the may when XXX. And of filtering that over impacts able other other two-part delays just may any MAXs? side seeing is, they be any part seeing Hey, XXX% then

Thomas C. Gentile

complete. Well, be XX% probably to but MAXs. that, the as we get always a of things mostly next to P-X, be first There'll NGs sometime mostly like question, in said, year going in this range. transition be the we're next will we'll that expect year few terms MAXs, for And I year

deliveries is I disruption. to any avoid In focus that engine the our impact day not schedule getting fuselage, of yet. we're fuselages the things getting really that, us. at perfected really on consistently Boeing plan their our other the terms don't every And mean, Boeing to they and we're so can

communication working operational quality. work. us aligned working never higher. has interests and Boeing, to to the with well that improve continuing there we're well. are our they're fuselages sharing the We're me, believe get so, of them But to level and and with with the best-practice been say I'd very extremely And

a been I clearly which that, lot support and so, really And providing of mentioned is critical, with supply they've chain our as on before.

aligned. So interests are our completely

show at deliveries to to and do that on consistently goal so We're disruption is right any this sequence hit track for that avoid time that do up Our year. Boeing. all to and they our on and efficiently in the

Operator

question from Please Our Shapiro next will Shapiro Research. with ahead. go come George

George D. Shapiro

associated to Sanjay, there's associated going because interest wasn't expense wanted to is with Asco. keep was like basis the I $X.XX be and but the to that. I on run Yes. from in out QX? be a adjusted maybe as ASR, to had you rate mean, was looks it this follow-up out left going QX an it of with I what quarter know that And there

Sanjay Kapoor

will ahead get I follow-up, then. too, your ask both to Go George.

George D. Shapiro

cash this what's half your liabilities that just of second The Okay. in up payable, they've and like million later flow on reverse It's a year-to-date, a the that quarter. and Does $XXX number? contract or another with accounts on different going $XXX headwind become million somewhat to angle. been

Sanjay Kapoor

Sure. Sure.

listen, the announced I Like They're our never So call acquisition that we've the Asco guidance. everything inside contemplated quarter different But, in let's question. the two pure. Asco well take said questions. sure when as George, first first tried was we we keep acquisition, that make very to

transaction benefits associated all those the quarter transaction, And cost as financing costs the we costs so preparation you be with cost, that into the second interest Asco associated for like that October included in guidance. from excluded on our any we depending or November all they from we in are September, mean, Asco never – that guidance either, place, in not transaction, our also saw have whether with put in it close that. knew or I And whether

completely that that that's – So to do keep to plan we try clean. going forward. we that And how

program, In sure when that. that you IR talk or the you I'm really the terms the they'll of team, And through on ASC liability, take XXX contract all the XXX George. to that's math

So, than there's XXX effect. nothing there on going other that ASC

George D. Shapiro

out being number But terms the adjusted said Asco, it's because from associated you – it's in so of left with expense the interest how that much is split.

but Asco, half I so being it not You're would ASR, including as excluded? figure of the the roughly

Sanjay Kapoor

Yeah.

I question forward, So, George. about looks your it like think going is more what

we again, $XXX So, the because in quarter, we million theoretically, a excluded And we've second executed we we the interest obviously, cost that, – month of that. impact of the And of the ASR. absorbed borrowed absorbed. theoretically,

share over also anyway. what we an And had planned do year we that course repurchases some to do this repurchase. we'd you reinvest said the we know, share during the of accelerated as all of plan because, we we acquisition, there had with year the accelerate do the level in Now, to did again, always you conversation and what going of of an and do that ourselves a of course is forward, was the we'd did as really rest all

spend So our to we adjusted with share will delta guidance. The we'll transaction our some will dividends the acceleration, obviously we that level absorb and going our Asco were repurchases. cash exclude – flow, The in our associated in for. from towards be of

George D. Shapiro

the the that in – associated incremental interest billion But assuming it's correct I $X.X borrowed? with I am you think of maybe half

Sanjay Kapoor

that. not than it's probably little half, No, less

transaction, was So, for because cost, and general to cost we things the roughly this like million, we integration $XXX million and is we explained fees said associated our borrowing, million about transaction. are corporate the that. When execute of remember transactions Asco that with of the interests and $XXX purposes, borrowing sort $XX

to So, ASR the really, the $XXX execute that of of we the the million at did end year. acceleration

that's we're how it. So, to going treat

George D. Shapiro

the as balance expense including of and part interest So, is of excluded being here, million adjusted the $XXX number?

Sanjay Kapoor

not that, million. – exactly it Yeah. would that but tapers we used we we'll cash to month, like pay that. Each we for $XXX do It repurchase, as like generate have share as that pay down that. back It's tapers towards

George D. Shapiro

much. very Okay. Thanks

Sanjay Kapoor

Okay.

Operator

question next comes with from Please Seth Seifman JPMorgan. ahead. The go

Seth M. Seifman

much very Thanks everyone. and good morning,

Thomas C. Gentile

Good morning.

Sanjay Kapoor

morning. Good

Seth M. Seifman

the now? AXXX, right still unit that basis step-down a the on price the on about happened think we when Sanjay, is program positive

Sanjay Kapoor

that XXXX, it one positive-margin it's have Yes, Yes, is, program, tailwinds and of Seth. into the a that's absolutely. we

Seth M. Seifman

Great.

cash called cash a cash number forward-loss bigger there's an this out where flow we How – of in use do because of expected reversals Okay. And even presumably in then you've as of then the future statement and a couple think recoveries. segment, about on what been now are cost initial that future the of million through expected where that offset block, to you with have to you loss reductions, you to through and regard able opportunities the the XXX versus stand $XXX you've planned as front? a rest

Sanjay Kapoor

you from when also told that you particular we efficiencies a increase loss us absolutely was aircraft I month, rates we you've concentrate million. improving of per XX forward benefit told of the relates we on say to And I to should the we sad that see if think $XX last XX – a when This supply if work year, that that that's saw about and we've times. these – we that took remember, reversal as And days took some benefit then we explained chain. many our that forward about heard back So, question, good the Seth. you losses, our you will

efficiencies, chain get with to more there. working supply are our better drive We leverage

is million and XXX. quarter obviously $XX with on it's that roughly the this in associated the So,

Thomas C. Gentile

with joint would the some reduction add, also the the of doing that of Boeing. cost reduction though, – I component that it we're other is programs

the down been and you work would recall, the announced agreed a that teams when XXX, we deal that year, we drive we to have costs doing we last together and As progress. making lot of on said

so, did the projects we some contributed, so And Boeing. of that value supply chain did yes, in engineering with collaboration contracts but the

Seth M. Seifman

very much. you Thank Great.

Operator

go Please ahead. with Strauss will Barclays. question be from next David The

David Strauss

Thanks. Good morning.

Sanjay Kapoor

David. morning, Good

Thomas C. Gentile

Good morning.

David Strauss

wanted lot operating forecast, And in what impacts a around transaction to close to Asco, moving do how accounting? about be there, you actually do you flow do additional much things ask here, additional of change any are cash on much around then, how I Asco, the the purchase financing moved Sanjay? debt how or reporting plan it and on that excluding is you of going to when plan since

Sanjay Kapoor

right. All

This the we're working consent. obviously So, we get make right you, David. And all an again, we great the like now to get approvals, – is waiting to question, are acquisition. sure

on. So, that through happens, once And you. that process. accounting entire the lay very we for goodwill so that and the always and we out conclude the we that, as of going aspects there's transparently intangibles We're will –

$X intent to existing in question terms the Your $X We're But of billion finance billion year. $X.X bonds. to debt billion now. one how end debt we of this our to of last about million basically we borrowed of quarter. from are we billion of by right $X $XXX We it, used sitting on went extinguish

on use our purchase and produce we of is year, guidance, the end line use now also well. that flow, with again, the our of between to cash will plan as as that along Our to credit facilitate the because, we Asco of based

on So to XXXX. because we're reported That's the contemplating this for are Overall, again, – will closure that, out impact at Asco it this the most the stage about financed fully of now. we'll stage, where of thinking we into our announce and of execute lay on the Asco when go that's at that activity the segment then And, acquisition. get we're is, how Wing resides. that's what most we work right

David Strauss

in on the change the forecast flow, the sorry, operating cash there. And,

Sanjay Kapoor

quarter is, No, on QX our cash of our make we question. $XX well changed inside we commitments our trying incurred think last in have operations XXX we of cash we also efficiencies free you costs keep it add on and again, as efficiencies year. for advantage supply looking second also – just I We're the United not significant CapEx. flow both States And no that that We've a expenditure secret good we're to as have our recovered gave may is trying it's and in to free quarter by of lowered Listen, government incentives for we seen announcements this our of What taking the chain or that first this flow. we've some the kind haven't we Yeah. in here press capital We're will we're example. Scotland, but initiatives our have. that and the I you in areas. sure start the and at QX in line. million. And It's midpoint said overseas, the fair. look some the for around about in and in that's

want don't not to away impression with So, anybody I we're in that walk ourselves. an investing

leasing We're ourselves. appropriate be are in some the we're of investing or as whether areas doing, where advantage activity technology terms in are we We others, taking getting in appropriate, well. it also some benefits government of information cases, subsidies. And

improvement So are that guidance that. And efficiencies, we our cash things, we by we that flow reflect in yes, can for wanted and CapEx we we doing feel maintain to an But, and investing. year. other the see overall, through

Operator

go Please will Lynch. next Bank The from of ahead. Ronald Epstein America with question Merrill come

Kristine Tan Liwag

Liwag. Sanjay. and It's Tom morning, Good Kristine

Sanjay Kapoor

Hi, Kristine.

Thomas C. Gentile

morning. Good

Kristine Tan Liwag

When for to than anything capability about seats. role on Embraer's to in commercial way middle to and in aviation XXX in to change to there deal pave how a do partnership you be supplier Boeing aero Boeing the you aircraft? complex advance of even think the this competitive? structures, on expect remain in-house do you to seems your need aircrafts significant Is market Embraer larger a Embraer's possible

Thomas C. Gentile

processes, they customers materials, their different our gathering now architectures, as NMA, Fuselage, across different our but next-generation and proposals engineers aircraft our do thinking, Propulsion can together Well, advanced for we segments. terms putting of right doing in of all think manufacturing for is, any our about concepts, what and best Wing what of just improved and is we're tooling of the top all not

We've we're we're none engineers. the to going that world-class think supplier we that got We've got We supplier think tier are what competitive. capabilities that's industry. very second So, to X industry, design be doing. in the

We've a done And it. those so, putting on ideas. work of we're together lot

of we of increased the our we that make quite generation want R&D As for put at of aircraft beginning savings, ideas we customer. next you did Taking some advantage the budget tax that our to regardless the forward amount. sure but the best year, we know, by because

we're world even we're leverage lot other getting said, more to and on leverage capabilities. a the lot around research collaborating our institutions associations, a and Sanjay industry of R&D get with As also universities, from governments

Kristine Tan Liwag

on from in it built-in upside R&D the meaning next working Is you that competitive? would incremental provide the to airplanes benefits to need significant spend say now the you're that right fair generation you with with programs from don't order be to here

Thomas C. Gentile

we're industrializing Well, and on programs. that best unprecedented most we're at some programs and on rates are the of of across working those the really complex some pieces,

So, doing have what we that learning gives us of we're we a great think in lot embedded capability.

those facilities. in next-generation We have the all got our engineering lot tremendous for leverage We've a of things scale capital. aircraft. And We've we got talent. can of

for think the So, start in about the competition any anywhere head we over we structures potential huge world a you next think aircraft. generation have as

Kristine Tan Liwag

you. Thank

Operator

with next go will Jon from The Please ahead. Citi. come Raviv question

Jon Raviv

Hey, (XX:XX). good morning.

Thomas C. Gentile

morning. Good

Jon Raviv

range basis, cash it free the X%, margin, couple there's in over or of bounce to within there related this here eventually, see flow is some there on CapEx, million years? down XXXX result and efficiencies, $XXX we to XXXX the sort of push you've Sanjay, to so still as the is some about from you get a that change? there a linear improvement we could And made million $XXX next around range can something, normalized of On or and talk X% just should improvement should

Sanjay Kapoor

goal. first. year. is second I have goal Again, in we been stated that X% question mean, last our X% to clearly the And

We inside forward see to revenues we well. expect goal, performance. staying goal that goal to that grow be cash year as as And flow inside going our and expect sustained this by good

we that all. So, at changed haven't

we some from chain better read into question I or about be we're this we're fundamentally deals, careful and buying where how your about, CapEx with The think year are we whether next are are very not. efficiencies when we a execute little supply hint it being our year? in negotiating those if capital programs. of or I we shifting are We're again,

And competitiveness to or that our need and so so, truly buildings investments the it's so refresh inside or to it really projects efficiencies be you technology in our capital and improve naturally are our need try investing expenditure. invest of information forth. our sort all in whether the for rates and in, we Again, on some that and of on we to

next indications to year. about, it That question going Again, likely remain kinds growth other CapEx sort fabrication well at as our to is given invest remain of Your year; in that rates we've in it expected our about of go defense of the our this and as in some levels is you and a kind these we as rates, up range? this remember, are business fact is. going again, Yes, up areas. of

the having Tom like discussions today. we're we with increases are that right have of in that, see Depending outcome are of an current next So, of that's But the and the the said, the be expenditure OEMs OEMs forward Those what rate couple in now, contemplating. rates on going impact. Future with obviously these that. levels years. will associated those that negotiations, see baked what's we will

Jon Raviv

you. Thank

Operator

from be ahead. Please Vertical will question next The Sinha Partners. Krishna with go Research

Krishna Sinha

Hi. Thank you.

got and Strike the Embraer the mentioned CapEx Asco, but have a they new like business, just they've production business programs. facilities, four you that things the again, Joint on call also amount significant of on Fighter on So, last quickly on growth

incremental going spend spend to have you interplay the maybe CapEx, talk synergies is that and can CapEx between just So, growth the to the going cost on the get about what going business? you're to and that in CapEx forward you're

Thomas C. Gentile

Right. capital into the account programs. to growth pro forma our their required with Asco the economics support for take financials Well,

on we're at capital that any how based we So, see based that can built things can into and also, look the we is true achieve already that's at in we It we all the look we sort optimize though synergies it of on have forward-looking that can going projections. to place. way that and

but, has some into in built can all as further scale deeper and we we get of on Spirit the optimize it we we think, the that that deployed. that's already it based have already capital So,

Krishna Sinha

Great. Thank you.

Operator

go The next from Please Ken comes with ahead. Canaccord. question Herbert

Kenneth George Herbert

Sanjay. Good morning, Hi. and Tom

Sanjay Kapoor

Good morning, Ken.

Thomas C. Gentile

Hey, Ken.

Kenneth George Herbert

your structure I appreciate Tom, the you're improving back wanted you can comment strides market the this, made on you've just your in ask potential and you business the you the how as on this the how customer you sort I mean And what Can to program just the or to the to for you this opportunity and NMA case forward? I do of opportunity. level to of a think and portfolio framing about or competitiveness importance what cost is to moving need-to-have or middle talk that across for of extent significant it? viewing board.

Thomas C. Gentile

I the to decision mentioned, value of collect that are, these us aircraft. really for our Boeing the ideas they've early right Right. and add lot any of before are this on thoughts next-generation engagement really is now has focus best before done the a what to The Well, stages suppliers. in is could all is best as focus with a and what – made innovations

years to we most lot stuff ideas engineering. that. are to there's got the now assigned these We going to industry. a we've are so, because advantages. is design that of a of with engineers But a to come. one pull We've for all together a our customers got our a And And bring time lot many Spirit beneficial assigned leader, happening And leaders, of senior in great be of bring to lot that to it. all

a capital. We of lot have

have We infrastructure.

mortar. bricks and have We

trained workforce. a have We

course, come about, criteria. course, And So There of case we on that will business That, term. business case into think we of course, those consider economics long a of play. in then, be meet has we the financial has have our program all the return of to to ideas. it. what are And any

must-have so there's that program is if there's no absolute return. And financial no an

new in have financial on it look has something of in on Wichita, based the do. to competitiveness think we lot that's Malaysia, and can here Prestwick, for program customer. bring So, our great But our in advantages. cost scale, again, a sense to we based any that obviously make get the we in on for us operations, cost that we would we But Oklahoma

So, must and no programs, make it Obviously, that's be looking always is to financial loss. on a program but want at has we we're if to how sense it's it. at new a have

Kenneth George Herbert

Great. Thank you.

Operator

thank joining concludes much so presentation. call. for you session and Ladies concludes today's and thus our We this today's question-and-answer gentlemen,

time. lines this You may now at you. your disconnect Thank

Spirit AeroSystems (SPR) 1 Aug 182018 Q2 Earnings call transcript