Aerospace, defense, and electronics company HEICO
Net sales for the second quarter shot up 27% and net income soared (well, it is an aerospace company) by 39% compared with the same quarter last year. Six-month results look just as healthy, with net sales up 25% and net income leaping 38%.
Comprising 69% of total sales, HEICO Flight Support Group, a supplier of FAA-approved replacement parts for jet engines and aircraft components, increased its sales 22%. That growth was entirely organic, fueled by new products and the continuing recovery in the airline industry.
Electronic Technologies (31% of total sales) manufactures a variety of commercial and military products and repairs aircraft electronic equipment. Although sales in the latest quarter were up 39% over the comparable quarter last year, only 9% was organic growth. Acquisitions like Connectronics, a producer of specialty high-voltage interconnection devices and wire, accounted for the remaining sales gain.
The combined corporation saw operating margins increase from 15.5% in the year-ago quarter to 17.1% this quarter. Fatter margins support the company's projection of $32 million in free cash flow (that's cash from operating activities minus capital expenditures) in fiscal 2005.
The company raised earnings guidance for the year by a penny, to between $0.84 and $0.86 a share. That's a sharp increase from the $0.70 (excluding one-time events) earned last fiscal year, and analysts expect the company to earn $0.98 a share in fiscal year ending October 2006, valuing the stock at a somewhat rich 21.8 times forward earnings.
While operating results are solid and the balance sheet is improving, the company's list of strategic replacement-parts partners include such downright shaky names as Delta Air Lines
That said, the company has proven that it can grow profitably through acquisitions, which could continue to prove that current earnings estimates are a bit light. For this observer, though, the good news is out, and the stock's premium price is too rich for such a volatile market segment.
The sky's the limit with these Fool Takes on aerospace: