Please ensure Javascript is enabled for purposes of website accessibility

Heico Has Another Blowout Quarter

By Travis Hoium – Updated May 29, 2019 at 4:02AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Organic revenue growth is crushing expectations, prompting management to raise guidance.

Heico (HEI 0.59%) reported fiscal second-quarter 2019 results after the market closed on Tuesday and continued its strong operational performance from past periods. Revenue was up by double digits and margins kept expanding, driving a 37% increase in net income. 

Here's a look at the report and what investors should be expecting from Heico in the rest of 2019.

Underside of an airplane.

Image source: Getty Images.

Heico results: The raw numbers

Metric Q2 2019 Q2 2018 Year-Over-Year Change
Sales $515.6 million $430.6 million  19.8% 
Net income $81.8 million  $59.6 million  37.2% 
Diluted EPS $0.60  $0.44  36.4% 

Data source: Heico Q2 2019 earnings release. 

What happened with Heico this quarter? 

The headline results are great, but it's within the company's two operating segments -- flight support and electronic technology -- that the company saw its most encouraging performance. And organic growth is what investors should be most impressed by. 

  • Net sales for the flight support segment increased 15% to $308.3 million and all of the growth came organically. Management said demand for aftermarket replacement parts and specialty products drove improved results. Operating income in the segment grew 21% to $62.2 million. 
  • Management expects full-year sales growth of 10%, up from prior guidance of 7% to 9%. 
  • Electronic technology segment revenue soared 27% to $214.5 million in the quarter on 20% organic growth. Higher demand for defense, aerospace, and space products helped operations, according to executives. Operating income jumped 40% to $67.4 million as operating margin improved 290 basis points to 31.4%. 
  • For the full year, management expects electronic technology segment growth of 15% to 17%, a big jump from the previous forecast of 11% to 13%. 
  • Net debt at the end of the quarter was $492.3 million and the trailing net debt-to-EBITDA ratio was just 0.98. That low ratio gives management lots of room to pursue acquisitions that will grow the company in the long term. 

What management had to say

CEO Laurans Mendelson didn't hold back on aggressive growth plans for Heico. In the earnings release he said: "As we look ahead to the remainder of fiscal 2019, we anticipate net sales growth within the Flight Support Group and Electronic Technologies Group resulting from increased demand across the majority of our product lines. Also, we plan to continue our commitments to developing new products and services, further market penetration, and an aggressive acquisition strategy while maintaining our financial strength and flexibility. "

The acquisition strategy may be most notable, continuing a long history of growing the company through large acquisitions. And with a balance sheet that could handle a big deal right now, it may be time to add more new businesses to the mix. 

Looking forward

Management increased full-year growth guidance to 12% to 13% from 9% to 11% previously. And now net income is expected to rise 17% to 18%, up from a prior forecast of 11% to 13%. 

Give the cash coming into the business and management's ability to fold in accretive acquisitions in the past, the future looks very bright for Heico.

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

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.