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Spirit AeroSystems Holdings Inc (SPR) Faces Significant Q1 Challenges, Misses Analyst Forecasts

GuruFocus Research
·4 min read

  • Revenue: Reached $1.7 billion, up 19% year-over-year, surpassing the estimated $1.619 billion.

  • Net Loss: Reported at $617 million, significantly widening from $281 million in the previous year, and far exceeding the estimated loss of $417.75 million.

  • Earnings Per Share (EPS): Recorded at -$5.31, deteriorating from -$2.68 year-over-year, and well below the estimated -$0.48.

  • Free Cash Flow: Usage increased to $444 million from a prior usage of $69 million, indicating a larger cash burn than the previous year.

  • Operating Loss: Deepened to $528 million from $95 million, reflecting increased losses as a percentage of revenues to 31.0% from 6.6%.

  • Cash and Total Debt: Cash balance decreased to $352 million from $824 million at the end of the previous quarter, while total debt slightly decreased to $4,072 million from $4,084 million.

  • Future Outlook: Guidance not provided due to uncertainties including ongoing discussions with Boeing and commercial negotiations with Airbus.

On May 7, 2024, Spirit AeroSystems Holdings Inc (NYSE:SPR) disclosed its first quarter results through an 8-K filing, revealing a substantial deviation from analyst expectations with a reported loss per share of $(5.31) and revenues of $1.7 billion. These figures stand in stark contrast to the anticipated earnings per share (EPS) of -$0.48 and estimated revenue of $1619.66 million, underscoring a turbulent period for the company.

Company Overview

Spirit AeroSystems, a leader in manufacturing aerostructures such as fuselages and wing sections, primarily serves giants like Boeing and Airbus. Since its spin-off from Boeing in 2005, Spirit has become the largest independent supplier of commercial aircraft aerostructures. The company's significant reliance on Boeings 737 program, which represents nearly half of its revenue, exposes it to specific sectoral risks.

Financial Performance Analysis

The first quarter of 2024 was particularly challenging for Spirit AeroSystems, marked by a 19% increase in revenues year-over-year but overshadowed by a deeper operating loss of $528 million compared to $95 million in the previous year. This deterioration was significantly influenced by disruptions in Boeing 737 production and delivery delays, compounded by an ongoing investigation and quality audits following an incident involving Alaska Airlines.

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Net losses widened to $617 million from $281 million year-over-year, with loss per share deepening to $(5.31) from $(2.68). Adjusted EPS, which excludes certain non-recurring items, was also disappointing at $(3.93), reflecting ongoing operational challenges and cost pressures.

Operational and Strategic Challenges

The quarter witnessed several operational setbacks, including delayed Boeing 737 deliveries due to enhanced product verification processes with Boeing, which although aimed at improving production quality and safety, resulted in built-up inventory and strained cash flows. Spirit AeroSystems also faced significant forward losses on the Airbus A350 and A220 programs due to unresolved pricing negotiations and production cost increases.

Management's commentary highlighted efforts to align costs with factory output and address the abrupt changes in production rates. CEO Pat Shanahan emphasized the strategic measures being implemented to enhance production systems in collaboration with Boeing, aiming to improve overall efficiency and quality.

Cash Flow and Liquidity Concerns

Cash flow positions reflected the operational difficulties, with cash used in operations soaring to $416 million from $46 million in the prior years quarter. The company ended the quarter with $352 million in cash, a steep decline from $824 million at the end of 2023. These figures signal tightening liquidity, prompting management to explore various options to bolster financial flexibility.

Outlook and Forward Guidance

Given the current uncertainties, including ongoing discussions with Boeing regarding potential acquisitions and production schedules, Spirit AeroSystems has withheld financial guidance for the remainder of 2024. The company anticipates further challenges in the second quarter, expecting additional losses driven by lower production volumes and fixed cost absorption issues.

In conclusion, Spirit AeroSystems faces a critical period of navigating significant operational and financial hurdles. The company's performance this quarter starkly underscores the impacts of production disruptions and elevated costs, necessitating robust strategic responses to stabilize and steer back towards profitability.

For detailed financial figures and managements discussion on Spirit AeroSystems' performance, visit the full 8-K filing.

Explore the complete 8-K earnings release (here) from Spirit AeroSystems Holdings Inc for further details.

This article first appeared on GuruFocus.