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Heico Earnings Continue to Soar

By Travis Hoium – Dec 21, 2018 at 11:35AM

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Tax cuts fueled a big jump in the aerospace company's bottom line.

Heico (HEI -0.91%) is leveraging acquisitions to grow the top and bottom lines of its manufacturing business, and the recently reported fourth quarter of 2018 was no different. Revenue was up double digits, and expanding margins and leverage on operating costs and a lower tax rate helped net income surge higher as well. 

Here's a look at Heico's overall numbers last quarter and where its growth is coming from. 

Aircraft wing and engine.

Image source: Getty Images.

Heico: The raw numbers

Metric Q4 2018 Q4 2017 Year-Over-Year Change
Sales $476.9 million $421.2 million  13.2% 
Net income $67.4 million  $53.7 million  25.5% 
Diluted EPS $0.49  $0.39  25.6% 

Data source: Heico Corp Q4 2018 earnings release. 

What happened with Heico this quarter 

Beneath the high-level numbers, we can see the business growing in different areas. In particular, flight support is growing organically, while electronic products are seeing growth by acquisition. 

  • Overall, operating margin increased 500 basis points to 21.7% in the quarter. 
  • Flight support revenue was up 13% to $290.3 million, which was entirely organic growth for the segment. Operating income jumped 17% to $54.6 million. 
  • Revenue from the Electronic technologies group was up 13% to $191.1 million on 3% organic growth and the addition of fiscal 2017 and 2018 acquisitions. Operating income was up 12% to $57.1 million. 
  • Heico's debt-to-EBITDA ratio fell from 1.67 a year ago to 1.04 last quarter. 
  • Heico's tax rate dropped from 30.3% in 2017 to 19.8% in fiscal 2018. This was a big driver of the company's increased profitability. 
  • A dividend of $0.07 per share was declared for stockholders of record on Jan. 3, 2019. 

Improving operating results and falling leverage may allow Heico to become an aggressive bidder for new companies again. The company has had great success buying companies and folding them into its operations by reducing manufacturing and operating costs, thereby expanding net income. Flexibility on the balance sheet will allow the company to do that again. 

What management had to say

CEO Laurans Mendelson said the full year was even better than expected for both organic growth and acquisitions. In the earnings release, he said the year's results "exceeded our expectations and principally reflect consolidated mid- to high-single-digit organic growth in both of our operating segments and the impact of our profitable fiscal 2017 and 2018 acquisitions." 

Really, it was business as usual for Heico, which continues to execute well operationally and ride a wave of growing demand in the aircraft business.  

Looking forward

Management doesn't give formal guidance, but considering the economic backdrop, it's safe to assume Heico sees another strong year ahead. Commercial and defense spending is up in aviation, and electronics should grow steadily as well. If a profitable acquisition comes up during the year, it might just be icing on the cake for Heico and its shareholders. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool recommends Heico. The Motley Fool has a disclosure policy.

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