Wesco Aircraft Holdings, Inc. (WAIR), the world’s leading provider of comprehensive supply chain management services to the global aerospace industry, today announced results for its fiscal 2017 first quarter ended December 31, 2016.
Fiscal 2017 First Quarter Highlights
Net sales of $339.4 million, down 5.7 percent
Constant-currency sales(1) of $353.0 million, down 1.9 percent
Net income of $13.1 million, or $0.13 per diluted share
Adjusted net income(1) of $18.5 million, or $0.19 per diluted share
Adjusted earnings before interest, taxes, depreciation and amortization(1) (EBITDA) of $34.3 million, or 10.1 percent of net sales
Dave Castagnola, president and chief executive officer, said, “We continue to book significant wins and renewals in fiscal 2017, building on the value proposition Wesco provides to major aerospace and defense customers. Sales wins with strategic customers in fiscal 2016 and the first quarter of fiscal 2017 totaled approximately $130 million on an annualized basis, approximately half of which is expected to be realized in fiscal 2017. We also have renewed long-term agreements with existing customers totaling $400 million on an annualized basis over the same period of time. New business strength continues to give us confidence in our outlook for constant-currency sales growth of three to five percent for the year.
“Our fiscal 2017 first-quarter results were negatively impacted by foreign currency translation, temporary disruptions to certain customers’ consumption patterns due to operational changes and extended site closures, and late production schedule revisions made by a major commercial OE customer. The challenges created by these events were partially offset by sales realized from recent new business wins.
“The slippage of some sales out of the quarter, along with higher planned selling, general and administrative expenses to support the significant ramp in new business, reduced net income and adjusted EBITDA margins(1) in the fiscal 2017 first quarter. As sales increase in the remainder of fiscal 2017, we expect to improve operating leverage and margins, supporting our earnings per share outlook for the year. We also increased our investment in inventory in the first quarter to support the substantial level of new business wins and to assure the excellent service levels our customers expect. We plan to continue this investment to support our growth, particularly in the first half of the year. We expect this investment to reduce cash provided by operating activities and free cash flow(1) in fiscal 2017 from our previous outlook.”
Fiscal 2017 First Quarter Results
Net sales in the fiscal 2017 first quarter were $339.4 million, compared with $359.8 million in the prior-year first quarter. Constant-currency sales(1) decreased 1.9 percent year-over-year in the first quarter of fiscal 2017.
Gross profit was $89.5 million in the first quarter of fiscal 2017, compared with $96.6 million in the fiscal 2016 first quarter. Gross margin was 26.4 percent in the fiscal 2017 first quarter, compared with 26.9 percent in the same period last year. The decrease in margin primarily reflects changes in mix.
Selling, general and administrative (SG&A) expenses in the fiscal 2017 first quarter increased 6.1 percent compared with the same period last year, primarily due to higher planned people-related and systems costs, which included approximately $2.0 million to support new business. SG&A expense as a percentage of net sales was 18.6 percent in the fiscal 2017 first quarter, compared with 16.5 percent in the same period last year.
Income from operations totaled $26.3 million, or 7.7 percent of net sales, in the fiscal 2017 first quarter. This compares with $37.1 million, or 10.3 percent of net sales, in the same period last year. The decline in operating margin was primarily due to the factors described above.
The company’s effective tax rate was 15.3 percent in the first quarter of fiscal 2017, compared with 28.9 percent in the year-ago quarter, primarily due to discrete tax items.
Net income was $13.1 million, or $0.13 per diluted share, in the fiscal 2017 first quarter, compared with $20.6 million, or $0.21 per diluted share, in the same period last year. Adjusted net income(1) was $18.5 million, or $0.19 per diluted share, compared with $24.2 million, or $0.25 per diluted share, in the same period last year.
Fiscal 2017 Outlook
Castagnola concluded, “We continue to expect constant-currency(2) sales to increase in the range of three percent to five percent in fiscal 2017, based primarily on new business wins which we have already signed. We expect sales to increase sequentially in each quarter of the fiscal year, subject to the timing of new business implementation. Higher sales, along with strategic sourcing initiatives and SG&A leverage, are expected to deliver adjusted net income in the range of $1.15 to $1.20 per diluted share.
“We now expect free cash flow conversion to be approximately 50 percent of net income, based on the increased level of inventory investments we are making to support these substantial new business wins and changes to the timing of receivable collections to reflect the re-phasing of new business implementations to later in fiscal 2017.”
About Wesco Aircraft
Wesco Aircraft is the world’s leading distributor and provider of comprehensive supply chain management services to the global aerospace industry, based on annual sales. The company’s services range from traditional distribution to the management of supplier relationships, quality assurance, kitting, just-in-time delivery and point-of-use inventory management. The company believes it offers one of the world’s broadest portfolios of aerospace products, including chemical, electrical and C-class hardware and comprised of more than 565,000 active SKUs.
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