01—Abstract
Summary
Summary of the 10-K filed December 20, 2018. Cited figures are marked; the original filing is the authoritative source.
HEICO Corporation (HEI) reported record fiscal 2018 results for the year ended October 31, 2018.
Net sales rose 17% to a record $1,777.7 milliona from $1,524.8 million in fiscal 2017, with growth in both the Electronic Technologies Group (ETG, up to $701.8 million) and the Flight Support Group (FSG, up to $1,097.9 million). Operating income increased 23% to a record $376.2 million, and net income attributable to HEICO increased 39% to a record $259.2 million, or $1.90 per diluted share. Results benefited from the Tax Cuts and Jobs Act, which lowered the effective tax rate to 19.8% from 30.3% and produced a net $12.1 million increase in net income attributable to HEICO.
The company's backlog grew to $783 millionb at October 31, 2018, from $654 million a year earlier. Net cash provided by operating activities was $328.5 million, and the company completed acquisitions for $59.8 million in cash during the year. Total debt fell to $532.5 million from $674.0 million, and net debt to shareholders' equity fell to 31% from 50%.
In November 2018 the company entered a new $1.3 billionc revolving credit facility maturing in 2022, and it acquired Specialty Silicone Products and Apex Microtechnology after year end, with total consideration described as not material. Management's outlook targets growth in fiscal 2019 full-year net sales and net income over fiscal 2018 levels, excluding additional acquisitions.
The company also declared a semi-annual dividend of $.07 per share, a 17%d increase over the prior $.06 payment. Key risks disclosed include dependence on the aviation industry, government regulation, defense spending reductions, foreign sales exposure (about 37% of fiscal 2018 net sales), and goodwill and intangible assets representing about 61% of total assets.
02—Key points
Key Highlights
- Record net sales of $1,777.7 million in fiscal 2018, up 17% from $1,524.8 million in fiscal 2017.
- Record operating income of $376.2 million, up 23%, with operating margin of 21.2% versus 20.1% in fiscal 2017.
- Net income attributable to HEICO rose 39% to a record $259.2 million, or $1.90 per diluted share, aided by a net $12.1 million tax benefit from the Tax Act.
- Backlog of unshipped orders reached $783 million at October 31, 2018, compared with $654 million a year earlier.
- Total debt declined to $532.5 million from $674.0 million, and net debt to shareholders' equity fell to 31% from 50%.
- Operating cash flow was $328.5 million in fiscal 2018, and the company spent $59.8 million on acquisitions in the year.
- Management targets growth in fiscal 2019 net sales and net income over fiscal 2018 levels, excluding any new acquisitions; the Board declared a $.07 semi-annual dividend, a 17% increase.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Heico kept $0.15.
- Revenue$1.78B100.0%
- Cost of revenue−$1.09B61.1%
- Gross profit$690.7M38.9%
- Operating costs−$314.5M17.7%
- Operating income$376.2M21.2%
- Interest, other & tax−$117.0M6.6%
- Net income$259.2M14.6%
04—Financials
Financial Highlights
Figures from 10-KFY2018filed December 20, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $1.78B$1.52B | +16.6% |
| Cost of Revenue | $1.09B$950.09M | +14.4% |
| Gross Profit | $690.72M$574.73M | +20.2% |
| R&D Expenses | $57.45M$46.47M | +23.6% |
| SG&A Expenses | $314.47M$268.07M | +17.3% |
| Operating Expenses | $1.40B$1.22B | +15.0% |
| Operating Income | $376.25M$306.66M | +22.7% |
| Interest Expense | $19.90M$9.79M | +103.3% |
| Net Income | $259.23M$185.99M | +39.4% |
| EPS (Basic) | $1.96$1.41 | +39.0% |
| EPS (Diluted) | $1.90$1.37 | +38.7% |
| Shares Outstanding (Basic) | 132.54M131.70M | +0.6% |
| Shares Outstanding (Diluted) | 136.70M135.59M | +0.8% |
05—Questions
Frequently Asked Questions
What drove the growth in HEICO's fiscal 2018 results?
Net sales increased 17%, with the Electronic Technologies Group up 22% to $701.8 million and the Flight Support Group up 13% to $1,097.9 million. The ETG's organic growth reflected increased demand for certain defense products, while the FSG's organic growth of 8% came from aftermarket replacement parts and repair and overhaul services. Acquisitions from fiscal 2017 and 2018 contributed $88.3 million to ETG sales and $53.1 million to FSG sales.
How did the Tax Cuts and Jobs Act affect HEICO's earnings?
The company remeasured its U.S. federal net deferred tax liabilities and recorded a discrete tax benefit of $16.5 million, offset by a provisional $4.4 million transition tax expense on unremitted foreign earnings. The effective tax rate fell to 19.8% from 30.3% in fiscal 2017, and the company expects the tax law's provisions taking effect in fiscal 2019 not to materially affect results.
What are the main risks investors should consider?
The filing highlights dependence on the aviation industry and its cyclical downturns, government regulation and export licensing, possible reductions in defense, space or homeland security spending, and risks from foreign sales, which were about 37% of fiscal 2018 net sales. It also notes that goodwill and intangible assets represented approximately 61% of total assets as of October 31, 2018, creating impairment risk, and that insiders beneficially owned about 20% of common stock and about 5% of Class A common stock.
How is HEICO's balance sheet and liquidity position?
Cash and cash equivalents were $59.6 million at October 31, 2018. Total debt was $532.5 million, and total debt to total capitalization was 26%, down from 35%. As of December 18, 2018, about $680 million of unused committed availability remained under the revolving credit facility, and management believes operating cash flow and borrowings will fund requirements for at least the next twelve months.
What acquisitions did HEICO complete and what does it plan next?
In fiscal 2018 the company acquired SST Components (53.1% controlling interest), Optical Display Engineering, the ELT Product Line of Instrumar Limited, Sensor Technology Engineering (85%), and Interface Displays & Controls, with total cash paid for acquisitions of $59.8 million. After year end, it acquired Specialty Silicone Products and 93% of Apex Microtechnology, with total consideration described as not material. The company describes acquisitions as an important part of its growth strategy.
06—Continue