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Expectations Continue Rising at Heico Corp

By Travis Hoium - Feb 26, 2016 at 2:05PM

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After another great quarter, 2016 growth is expected to be even better than previously announced.

Heico Corp (HEI 1.62%) reported fiscal first-quarter results after the market closed on Thursday and showed a lot of progress on its strategy for growth. Top- and bottom-line results improved significantly from a year ago, and management even increased its expectations for the full year. Here are the highlights from the quarter.

Heico Corp results: The raw numbers 

Metric 

Q1 2016 Actuals

Q1 2015 Actuals

Growth (YOY)

Sales

$306.2 million

$268.2 million

14.2%

Net income

$33.2 million

$27.6 million

20.3%

EPS

$0.49

$0.41

19.5%

Data source: Company earnings report.

Image source: Heico.

What happened with Heico Corp this quarter?
The past year has been a busy one on the acquisition front for Heico Corp. It bought 80% of Aerospace & Commercial Technologies, 80% of Midwest Microwave Solutions, all of Astroseal Manufacturing Corp, and last month completed the acquisition of Robertson Fuel Systems. The acquisitions are aimed at increasing the offerings Heico can make to customers and boost growth. On the growth front, there's been a lot of progress in the past year.

  • Flight Support net sales were up 12% to $204.6 million, driven by acquisitions. Organic growth in the quarter was 1%. Operating income jumped 16% in the quarter to $35.5 million.
  • Electronic Technologies Group net sales rose 17% to $104.2 million. Organically, sales grew 4%.
  • Fiscal first-quarter cash flow from operations jumped 53% to $45.2 million. This was 144% of net income and will provide much-needed cash for acquisitions.
  • Net debt stood at $565 million at the end of the quarter, a debt-to-equity ratio of 61.3%. That's elevated due to acquisitions, but strong cash generation gives management flexibility to reduce leverage going forward or add more companies to the portfolio.

What management had to say
Acquisitions from the past two years are helping drive growth on both the top and bottom lines. And they caused management to be bullish on fiscal year 2016 as well, partly because of the recent Robertson acquisition.

Flight Support Group revenue is expected to rise 8%-10% in fiscal year 2016 with operating margins flat with a year ago. On the Electronic Technologies Group side, revenue is expected to grow 27%-30% with operating margins of about 24%.

Overall, net sales growth is now expected to be 14%-16% for fiscal year 2016 and net income will grow 10%-13%, up from previous estimates of 8%-10% for both top- and bottom-line growth.

Looking forward
The acquisition strategy is currently paying off, and with spending in the aviation industry expected to grow, the future looks bright for Heico Corp. While organic growth isn't expected to be strong this year, if management can leverage its larger footprint to increase sales, it would be a huge win for shareholders. Look for that to be the catalyst to take Heico Corp's financials to the next level.

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