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B/E Aerospace (NASDAQ:BEAV)

Q4 2013 Earnings Call

January 30, 2014 9:00 am ET

Executives

Greg Powell - Vice President of Investor Relations

Amin J. Khoury - Co-Founder, Executive Chairman and Chief Executive Officer

Werner Lieberherr - Co-Chief Executive Officer

T. P. McCaffrey - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

Noah Poponak - Goldman Sachs Group Inc., Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

John D. Godyn - Morgan Stanley, Research Division

David E. Strauss - UBS Investment Bank, Research Division

Sheila Kahyaoglu - Jefferies LLC, Research Division

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Kevin Ciabattoni - KeyBanc Capital Markets Inc., Research Division

Seth M. Seifman - JP Morgan Chase & Co, Research Division

Yair Reiner - Oppenheimer & Co. Inc., Research Division

Kenneth Herbert - Canaccord Genuity, Research Division

Operator

Good morning. My name is Candace Scriven, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the B/E Aerospace Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, the conference is being recorded this day, January 30, 2014. Thank you.

I would now like to introduce B/E Aerospace's Vice President of Investor Relations, Greg Powell. Mr. Powell, you may begin your conference.

Greg Powell

Thank you, Candace. Good morning, and thank you for joining us this morning. Today, we are here to discuss our financial results for the fourth quarter and the year ended December 31, 2013. By now, you should have received a copy of the news release we issued earlier today. If you haven't received it, you'll find a copy on our website. This morning, we will begin with remarks from Amin Khoury, Founder, Chairman and Chief Executive Officer of B/E Aerospace, and then we will take your questions.

For today's call, we've prepared a few slides to help you follow our discussion. You can find our presentation on the Investor Relations page of the B/E Aerospace website at beaerospace.com. In addition, copies of the slides will be posted on our website for you to refer to after the call.

Joining us also this morning on the call are Werner Lieberherr, Co-Chief Executive Officer; and Tom McCaffrey, Senior Vice President and CFO.

As always, in our prepared remarks and our responses to your questions, we rely on the Safe Harbor exemptions under the various securities acts and our Safe Harbor statements in the company's filings with the Securities and Exchange Commission. We will address your questions following our prepared remarks. At that time, Candace will provide instructions. [Operator Instructions]

Now I will turn the call over to Amin.

Amin J. Khoury

Thank you, Greg, and good morning, everyone. We are pleased with our fourth quarter results which were announced earlier this morning. We are particularly pleased to report that our full year 2013 results were the best in the company's history and include record revenues, bookings, backlog, operating earnings, operating margins, net earnings and earnings per share. All of the foregoing were annual records.

Our full year 2013 results reflect revenue growth of 13% and operating earnings growth of 17%. Earnings per share adjusted to exclude fourth quarter 2013 acquisition cost increased 25%. Full year 2013 revenue growth of 13% and EPS growth of 25% compare favorably to our initial guidance of 10% of revenue growth and 20% of EPS growth. GAAP operating margin was 18.1%, an increase of 60 basis points as compared with 2012.

Each of our business segments had solid market successes during 2013. Our record bookings of $3.5 billion increased approximately 10% as compared with 2012. We ended the year with a total backlog, both booked and awarded but unbooked, of approximately $8.8 billion.

Before discussing the details of our fourth quarter and full year 2013 financial performance, I would like to spend a few minutes discussing the current market environment. In addition, Werner will briefly review some of the important 2013 operating and marketing highlights for each of our businesses. Then we will discuss our segment results for the quarter, and lastly, we will review our financial guidance for 2014.

Now let's briefly discuss the current commercial aerospace market environment. The aerospace upcycle continues with robust global airline traffic growth, an unprecedented period of airline profitability, near-record commercial aircraft order rates and record delivery rates and backlogs at both Airbus and Boeing. Global air travel continues to expand at a very healthy rate. November 2013 traffic grows at a 4.1% rate, while year-to-date through November, global traffic was up 5.1% with capacity up 4.7%, resulting in a global load factor of about 80%.

In mid-December, IATA increased its estimate for full year 2013 global airline profit by $1.2 billion to approximately $13 billion. That will be up almost 75% as compared to 2012. And for 2014, IATA expects global airline profits of almost $20 billion, an increase of more than 50% over 2013. This would mark an unprecedented fifth successive year of solid profitability for the global airline industry.

Strong traffic growth and record load factors and yields are helping to drive record profitability for the global airline industry. In fact, during this past November, the U.S. airfare CPI reached an all-time record for any November ever. These powerful traffic, load, yield and profitability metrics, together with historically low interest rates and high fuel costs, are driving airlines and leasing companies to order new aircraft at record rates. For 2013, Airbus set a record for most bookings ever in a single year and Boeing posted its second-best bookings year ever. This led to a combined Airbus and Boeing 2013 book-to-bill order ratio of about 2.2:1 and resulted in a combined record backlog for the 2 major OEMs in excess of 10,000 aircraft. Both Airbus and Boeing expect their 2014 book-to-bill ratios to be around 1:1, suggesting that the total industry backlog will remain at record levels throughout 2014.

These extraordinarily strong industry conditions, along with our own multiple company-specific growth drivers, are allowing B/E Aerospace to grow revenues and earnings at a superior rate as compared to most industry participants. Specifically, our record backlog, which is resulting in steady market share gains; our leverage to wide-body aircraft deliveries, which are expected to grow at about a 10% CAGR over the next 3 years; and our $5 billion of awarded but unbooked SFE programs are the specific drivers of growth for B/E Aerospace, in addition to the robust industry growth rate.

Now let's discuss our fourth quarter and full year 2013 results. Let's turn to Slide 2. The bar chart on Slide 2 reflects our consolidated fourth quarter 2013 financial performance compared to the fourth quarter of 2012. Fourth quarter 2013 revenues of $903 million increased 12%. Operating earnings, adjusted to exclude fourth quarter 2013 acquisition costs, increased 17.4%, and adjusted operating margin of 17.9% increased 70 basis points as compared to the prior year period. EPS, adjusted to exclude the 2013 acquisition cost, was $0.90 per share, an increase of 23%.

Let's turn to Slide 3. The bar chart on Slide 3 reflects our consolidated full year 2013 financial performance compared to 2012. 2013 revenues of $3.48 billion increased 13%. That's 300 basis points better than our initial growth rate guidance of 10%. Operating earnings of $629 million increased 17%, and operating margin of 18.1% expanded 60 basis points.

Earnings per share, adjusted to exclude the fourth quarter 2013 acquisition cost, was $3.55 per share, an increase of 25% as compared with the prior year. Prior year was also adjusted to exclude the 2012 debt prepayment costs. Our full year EPS of $3.55 per share represents an increase of 25% in earnings per share. That's 500 basis points better than our initial growth rate guidance of approximately 20%. Including 2013 acquisition costs, earnings per share was $3.52, an increase of 24%.

Let's review Slide 4, which summarizes our current bookings and backlog status. Bookings during the fourth quarter of 2013 were strong at approximately $920 million, that was a quarterly record, and reflect a book-to-bill ratio of 1.02:1. Full year 2013 bookings were approximately 10% higher than 2012 bookings. Backlog at the end of the quarter was approximately $3.8 billion, while awarded but unbooked backlog stood at approximately $5 billion.

Before we discuss performance at each of our segments, I'd like to ask Werner to briefly highlight some of the important 2013 operating and marketing achievements for each of our businesses.

Werner Lieberherr

Thank you, Amin. As Amin mentioned earlier, 2013 was a very successful year, both from a marketing perspective and also from an operational standpoint. As we discussed last quarter, during 2013, we accomplished a very significant milestone in the company's history with the introduction of our modular lavatory system for the Boeing 737 aircraft. I'm pleased to report that we recently received the patent for our space modular lavatory system, and we have now shipped more than 20 ship sets of 737 lavatories. There are now 14 737s currently in service which incorporate our space modular lavatories. We are fully meeting Boeing's current demand expectations, and we expect to substantially ramp up shipments in 2014 and to be able to meet Boeing's requirements as they expand.

Next, I will highlight the number of achievements for our consumer risk management segment. During the fourth quarter, we were awarded 2 very significant long-term agreements. The first was a contract expansion and enhancement with United Technologies, in which B/E Aerospace will provide aerospace fasteners, hardware, consumables and logistical services to UTC's aerospace business units, Goodrich, Hamilton Sundstrand, Pratt & Whitney and Sikorsky. The total value of the UTC program is expected to be approximately $950 million, and this is a program in which we expect continued revenue growth through 2022, commencing in 2015 as we replace existing legacy suppliers and UTC's businesses ground [ph] through competitors' inventories in 2014.

The second was an award from AgustaWestland to supply consumables and logistics for their global operations. This was primarily a market share gain. The total revenue from the AgustaWestland program is expected to be approximately $200 million and ramps through 2018.

CMS has continued to improve its best-in-class customer service and customer and supplier relationships. During the year, the team received much recognition from customers for exceptional quality and on-time delivery.

I'm pleased to report that CMS won the following prestigious awards: For the third consecutive year, Aviation Partners Boeing recognized CMS as its Supplier of the Year. We also won the Elite Supplier Award from the Korean aviation industry. All Nippon Airlines recognized CMS as its best supplier. In addition, we received the Supplier Responsiveness Award from Northern; the Platinum Supplier Award with SIA Engineering Company, a subsidiary of Singapore Airlines; and the Silver Supplier Award at Erickson.

CMS have announced that they are signing, renewing and extending contracts. During 2013, CMS renewed more than 200 contracts and expanded its scope with 45 of its current customers. And during the year, CMS had 58 customer audits with 0 major findings, our best year ever.

Our commercial aircraft and business jet segments also had outstanding years. The quality of our seating product portfolio remained strong and is reflected in this year's Skytrax World Airline Awards, the largest airline passenger satisfaction benchmark. In 2013, Garuda won the Best Economy Class Seat and Best Economy Class Service and Product. Qatar Airways was named Best Business Class Service and Product. Japan Airlines won Best Business Class Seat, and Etihad Airways had the Best First Class Seat and Best First Class Service. And importantly, all of these seating programs are developed and sold by B/E Aerospace.

Our seating business marketing efforts were again stellar and resulted in a number of significant awards and a record level of shipments. Our Super First Class business was awarded orders from numerous customers, including British Airways, Emirates, Etihad, Japan Airlines and Swiss Air Lines.

Our business jet segment also won 3 major VIP wide-body aircraft programs. We won premium class seating programs from Air China, China Airlines, Delta Air Lines, Ethiopian Airlines, Garuda, Qatar, Saudia, Thai, United and Virgin Blue. We continue to win main cabin awards for our Pinnacle seating platform, including British Airways, Cathay Pacific, Delta, Ethiopian, Garuda, JetBlue, Saudia and United. In addition, we won 2 very large narrow-body Pinnacle seating awards from Lion Air for approximately 230 new-buy A320 aircraft and from Air Asia for approximately 200 new-buy A320 aircraft.

Our business jet segment was named Supplier of the Year at Embraer for the first time in 6 years. Our food and beverage preparation and storage equipment business won the Crystal Cabin and Industrial Design Excellence Awards for our Essence products family of food and beverage preparation and storage equipment. We continue to maintain our very strong leadership position in this important market, having won approximately 80% of all awards in 2013.

Our lightings team has leveraged the Boeing 737 LED lighting program to capture retrofit business for additional lighting programs on our aircraft platforms. Key retrofit lighting wins have included Boeing 737, 757, 767 and 777 aircraft. We were also successful garnering lighting awards from 2 business jet OEMs.

Operationally, we continue to benefit from our global sourcing lean and continuous improvement and program management initiatives, which had a significant impact on our operating results. During 2013, our LCC and operational excellence efforts generated approximately $30 million of savings on a year-over-year basis, which contributed to our 60-basis-point expansion of operating margins to 18.1% for the full year.

Our Tucson Super First Class utility received the 2013 FAA Diamond Award for training excellence. Airbus awarded us with its Supply Chain and Quality Improvement Program award for our strong performance across all programs, clearly differentiating B/E Aerospace from the competition.

Now I will turn the call back to Amin to discuss our fourth quarter segment results.

Amin J. Khoury

Thank you, Werner. Now I'll briefly review the fourth quarter operating performance for each of our business segments. Let's turn to Slide 5 and review the fourth quarter results for our commercial aircraft segment.

Commercial aircraft segment leadership team turned in a strong fourth quarter performance, as well as a strong performance for the full year. Revenues in the quarter increased 19.6%, operating earnings of $84 million increased 22.4% and operating margin of 17.6% expanded 40 basis points. All is compared to the fourth quarter of the prior year.

Let's turn to Slide 6 and review fourth quarter results for our consumables management segment. The leadership team for the consumables management segment also delivered a solid quarter, a quarter during which the CMS team neared completion of its acquisition integration activities. These integration activities are substantially winding down, and a small amount of remaining activity is expected to be completed by approximately the end of this quarter.

In addition, our CMS business completed 2 acquisitions, 1 in the third quarter and 1 in the fourth quarter, and reached agreement to acquire 2 more companies, all in the oilfield rental equipment and services business. Revenues from the companies associated with the fourth quarter acquisitions and agreements were approximately $145 million for all of 2013, none of which is included in our 2013 results. The company expects to pay approximately $310 million, including acquisition costs, for these 3 businesses. As a result of these transactions, the company will have established rental equipment and services businesses in both the Northeast and Southwest regions of the U.S.

Pro forma aggregate revenues, assuming the acquisitions were completed on January 1, 2013, from all of these transactions, as well as the Blue Dot transaction which was completed in the third quarter of 2013, would have comprised about 5% of B/E's pro forma 2013 revenues. We are expecting the oilfield rental equipment logistics and services initiative to make a significant contribution to the organic growth rate and profitability of our CM segment.

So during the fourth quarter, the CM segment revenues increased 7.2%. Operating earnings, adjusted to exclude the acquisition costs incurred in the fourth quarter, were $60.3 million, an increase of 10% compared to the prior year period. Operating margin, adjusted to exclude both the 2013 acquisition cost as well as AIT cost, was 20.2%, and that expanded 70 basis points as compared to the prior year period, also adjusted to exclude AIT costs.

Let's turn to Slide 7 and review the fourth quarter results for our business jet segment. The business jet segment leadership team delivered a solid quarter and an outstanding year. Operating earnings of $17.8 million increased 21.1% on flat sales year-over-year. Operating margin of 17.3% expanded 300 basis points. Fourth quarter business jet segment revenues were adversely impacted by customer requests to pull forward previously scheduled fourth quarter deliveries into the third quarter to meet customers' requirements. For the full year, business jet segment revenues increased 15.3% as compared with the prior year, and business jet segment revenue is expected to show strong year-over-year revenue growth in the first quarter of 2014, so Q4 was kind of a revenue aberration on the sales line.

Let's briefly review our financial position on Slide 8. Free cash flow of $99 million in the current quarter represents a free cash flow conversion ratio of 109% of net earnings. For the year ended December 31, free cash flow of $224 million represents a free cash flow conversion ratio of 61% of net earnings. During the fourth quarter of 2013, the company used approximately $42 million of cash related to the acquisitions previously discussed. As of December 31, 2013, cash was $638 million; net debt, which represents total long-term debt of $1.96 billion less cash, was $1.32 billion; and the company's net debt-to-net capital ratio was 33.6%.

Let's now briefly look at our outlook. Our total backlog, both booked and awarded but unbooked, of approximately $8.8 billion; our expectation for robust wide-body aircraft deliveries; our expectation of strong revenue growth from our supplier-furnished equipment program deliveries; and our expectation for continued growth in global passenger travel all provided basis for our expectation of continued strong revenue growth.

Let's turn to Slide 9, and we'll review our specific 2014 guidance. The company expects continued strong bookings in 2014, driven by the company's record backlog, the robust wide-body aircraft delivery outlook, bookings from prior SFE awarded programs and a continuing recovery in aftermarket demand. 2014 revenues are expected to be approximately $4 billion. The company expects 2014 earnings per share of approximately $4.25 per diluted share, representing an increase of approximately 21% as compared to 2013 EPS.

The company expects quarterly earnings to progress strongly throughout the year. First quarter earnings per diluted share are expected to increase approximately 15% as compared with the prior year period, with significant earnings growth acceleration in the second half of the year due to SFE programs and solid growth at CMS due to an improving aftermarket environment and significant contributions from the oilfield rental equipment and services business. 2014 free cash flow conversion ratio is expected to be approximately 65% of net earnings.

With that, I'll now turn the call back over to Greg.

Greg Powell

Thank you, Amin. Candace, can you please provide instructions for the group on the Q&A? [Operator Instructions]

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from Noah Poponak with Goldman Sachs.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Amin, I guess late in the year last year, you had talked about having accelerated some R&D for a few new opportunities. I think you were referring to some things both on the BFE side and the SFE side. I'm sort of wondering, with regard to those opportunities, how much of it has already been awarded, either to you or to a competitor, versus how much of that new opportunity set is still out there to be captured?

Amin J. Khoury

Well, we are spending heavily on R&D, and we're spending obviously to try to win additional SFE programs, and we are also spending on major BFE programs for a global group of airline customers. So R&D has stepped up, and as a percentage of revenues for the full year, we expect it to be about the same as it was last year.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Okay. So I got -- I mean, I know you've had some new BFE wins since you made that statement, I guess nothing new on the SFE original equipment side. So I guess it sort of sounds like that's more of an ongoing effort and a lot of what you're referring to is sort of still out there.

Amin J. Khoury

Yes, it is an ongoing effort, and we are working hard and competing and hoping to win some significant additional business.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Okay. And then I just wanted to ask again about the oil and gas strategy here, and I don't know how you can answer this, but I'll ask it anyway. We just -- it feels to me like I hear a decent amount of investor consternation over this strategy, and I know you guys have discussed the positive attributes here a lot, and we hear investors talking about that too, but we also hear people talking about volatility in this market and potential oversupply from your potential competition in this market. And I was sort of curious if you've heard that from investors and sort of how you're responding to some of the questions that seem to be out there about exactly why you guys are going into this market.

Amin J. Khoury

It's an awful lot of focus on the 5% instead of the 95%, isn't it?

Noah Poponak - Goldman Sachs Group Inc., Research Division

That's what I thought.

Amin J. Khoury

Look, the oil and gas rental equipment and services business really is about 4x larger than the distribution opportunity that we had in aerospace. It's growing twice as fast and it has comparable margins. And so a relatively small oil and field rental equipment services business can have a very significant impact on our CM segment's growth rates and margins, and of course, it's accretive to earnings per share. So we picked a niched segment of the market where our competition is moms-and-pops and small independents. There really isn't a company that has a national or global presence that has a strong position in each of the geographical markets, namely, basically, the Marcellus and Utica and the Eagle Ford and Permian, as well as the Williston, there is no such thing. So we have identified an opportunity which enables us to grow our CM segment, where we have outstanding operational capabilities and skills, and you've heard all of the awards and so forth which Werner mentioned. And it's an opportunity for us to leverage our logistics capability, our manufacturing and certification skills, our IT assets. I mean, it's a wonderful way to leverage our internal resources and to grow CM at a faster rate than it could possibly grow if it were confined to aerospace only and with margin expansion and earnings per share accretion. I don't get the issue. I really don't.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Is there any concern that it introduces a new level of volatility into your ongoing results just because it's a more...

Amin J. Khoury

Yes, I think it reduces the volatility because when fuel prices go up, the aerospace industry has problems, right? Their ticket prices go up, airline traveler goes down and Boeing and Airbus ship fewer airplanes. When oil prices go up in the oil and gas business, the business is more ebullient and robust. So basically, it is just the opposite. It reduces the volatility in the company's overall business because both of the businesses are leveraged heavily to fuel prices, one on the downside and one on the upside. And I've thought about this because of the question which was raised by yourself and one other analyst as well, and I think it's well to raise the questions and we should be thinking about it. The fact of the matter, we've even looked at the share price, and we are now about 5% below our all-time closing high, and in a period when Honeywell actually sold 4.1 million shares over the last 30 days and we've had a significant correction. So we don't see anything going on which should lead us to believe that we shouldn't continue to do exactly what we're doing. I mean, our goal is to do what I said geographically. It should become somewhere -- I feel like approximately a 10% portion of the company's business over a period of time, and it should have a really positive impact on the CMS business in particular.

Operator

We'll go now to Robert Spingarn with Crédit Suisse.

Robert Spingarn - Crédit Suisse AG, Research Division

A couple of questions. Amin, on your growth plan in revenues for the 4 -- to get to $4 billion this year, and thinking about the fact the 2 segments did about 15% in '13 and then consumables did 9%, how should we think about segment growth in '14 making up that total 15% growth for the company? I'm just assuming not all the segments will grow the same. And I'm particularly interested, since you keep referring to the higher growth in the oil and gas businesses, how you think about that relative to the core business in CM?

Amin J. Khoury

Well, as you know, we don't give growth forecast by segment, but I would say this, that the CM business is not likely to be able to grow as fast as CAS or the biz jet segment. Why? Because CM is so much levered to revenue passenger mile growth. I mean, it grows partially because of the rate of growth of manufacturing, it's about half the business, and partially as a rate of growth in revenue passenger miles. So from a secular point of view, it doesn't have the potential to grow at the same rate that the commercial aircraft segment and the biz jet segment do, biz jet because of its leverage to the Super First Class business and also the VIP business, which is how we've overcome the fact that there's a 50% reduction in business jet manufacturing. So our expectation for the coming year is that all 3 businesses will contribute to the company's growth of $4 billion. But in terms of contribution by individual segment, we've never forecasted growth by segment, and I don't think we can start to do that now. But I think you should expect CAS to grow at a faster rate than CM or biz jet.

Robert Spingarn - Crédit Suisse AG, Research Division

Okay, that's very helpful. That gets me in that direction. And then just Tom, quickly on the SG&A. The run rate ticked up here a little bit in the last quarter. What's the right way to think about that going forward?

T. P. McCaffrey

Sure. Well, SG&A in the fourth quarter was about 14.3% of sales, and that -- I believe the prior year was about 13.6% of sales. The higher level in the fourth quarter is related to the $5.2 million of acquisition costs in the fourth quarter, and exclusive of those costs, SG&A was 13.7%. It's very similar to the prior year.

Robert Spingarn - Crédit Suisse AG, Research Division

So how should we -- I mean, going -- what's the number in '14? Is it $125 million a quarter or is it -- we do it on a...

T. P. McCaffrey

It should look -- you should expect -- in 2014, you should expect SG&A to be approximately 13% to 13.5% of sales.

Operator

We'll move now to John Godyn with Morgan Stanley.

John D. Godyn - Morgan Stanley, Research Division

Amin, you had mentioned that you expected earnings growth to accelerate in the back half of the year. I'm certainly not trying to pin you down on any guidance here, but just understand the cadence that you guys see over the next few years. Is the right framework here to be thinking that 2015 earnings growth should accelerate from 2014 because we'd be ending the year so strong?

Amin J. Khoury

Well, we're not prepared to give 2015 guidance yet, but we do expect to end the year very strongly. We expect the second half of the year to be a lot stronger than the first half because of the SFE programs and also the strength of the aftermarket in CM with the contributions from the acquisitions.

T. P. McCaffrey

One other factor is, is that the first quarter of 2013 had the benefit of the R&D credit, which was enacted in the first quarter related to 2012. So 2014 first quarter tax rate is about 200 basis points higher than the prior year because the comparisons are a little bit of apples and oranges. We have 2 years' worth of benefit in the prior year.

John D. Godyn - Morgan Stanley, Research Division

Got it. And I was hoping that you could update us on your thoughts regarding a buyback. Is authorizing a buyback alongside the M&A strategy -- and I fully appreciate the focus on M&A strategy. But just to take advantage of any period where the stock shows some sort of relative weakness, we're seeing some today, would having a buyback alongside the M&A strategy make sense?

Amin J. Khoury

It could make sense, but we don't have a buyback authorized, and we aren't planning to do a buyback at this point in time.

John D. Godyn - Morgan Stanley, Research Division

Okay. And if I could just slip in one more on CAS margins this quarter. Given that it was the biggest revenue quarter in terms of the growth in absolute value we've seen in a while, 40 basis points of margin expansion just seemed a little light. I was hoping the team could elaborate, perhaps, on what's going on there?

Amin J. Khoury

Tom, you want to talk about CAS margin?

T. P. McCaffrey

Sure. The -- well, the margins -- well, first of all, revenues were up 19.5% and operating earnings were up 22.4% and the margin got to 17.6%, which, as you pointed out, it's up 40 basis points due to the operating leverage at the higher revenue level and the ongoing operational efficiency initiatives that we have in place in the business. So I think, if you look back historically, that this business has performed exceptionally well in terms of expanding its margins year-over-year, and we expect to see the continuation of that growth going forward.

Operator

David Strauss of UBS has our next question.

David E. Strauss - UBS Investment Bank, Research Division

In the press release, Amin, there was a statement around solid aftermarket growth in the quarter. Can you maybe just give us a little bit more detail on what exactly the aftermarket looked like, both for CAS and CMS? I think last quarter, you talked about double-digit growth in both orders and sales.

Amin J. Khoury

Yes, we had high single-digit revenue increases in both areas, that is commercial aircraft segment spares, as well as CM aftermarket was high single-digit growth rate in the quarter.

David E. Strauss - UBS Investment Bank, Research Division

And what did the bookings look like?

Amin J. Khoury

I don't have the bookings handy, but they were comparable.

David E. Strauss - UBS Investment Bank, Research Division

Okay. And then on SFE, could you talk about where you are with A350 and maybe just update us overall on kind of the SFE ramp. I think the last time you talked about it was we were looking around $400 million in revenues in 2015 x anything from the lav retrofit side. Could you maybe talk about that numbers change at all?

Amin J. Khoury

Sure. The first part of your question was sort of qualitative, so we have shipped and are flying. And there are 2 A350s now flying which incorporate our galley systems. We have 4 more ship sets to deliver through ship set #6 here over the next several months. The ramp doesn't really begin until the second half of the year, and that's true for both lavs, that it's steady in the first half of the year but it ramps in the second, and it's also true of the galley systems for the A350. With respect to our prior comments about the expected growth in SFE shipments, during 2013, our revenues were approximately $200 million, and we continue to expect our SFE programs to contribute -- to grow to about $400 million in annual revenues by 2015 and then further growth thereafter. So we've given sort of qualitative guidance or semiquantitative through 2015, and we're confirming that today, and we expect a pretty significant ramp in the second half of this year.

Operator

We'll go now to Sheila Kahyaoglu with Jefferies.

Sheila Kahyaoglu - Jefferies LLC, Research Division

Could you maybe elaborate on CAS margins a little bit? And in the second half, with the ramp in SFE programs, are there any additional costs involved in that, or is there any mix impact?

Amin J. Khoury

CAS margins again.

T. P. McCaffrey

Well, the -- I think might have been one of the questions we had earlier was with respect to the sequential change year over -- or quarter-over-quarter in the margins, and that is a historical trend. Sequentially, the margin decreased 40 basis points, and that's really a function that aftermarket sales are negatively impacted by fewer shipping days, and that's a result of the facility closures at all of our customers. So people shut down at the end of the year, both for the holidays as well as for the plant maintenance, scheduled plant maintenance. In terms of SFE expenditures, the ramp, part of it is revenues and part of it will be the timing of the expenditures.

Amin J. Khoury

But CAS margins are up quarter-over-quarter from the fourth quarter of last year...

T. P. McCaffrey

They're up 40 basis points.

Amin J. Khoury

Right, so we had a solid quarter, an excellent quarter.

Sheila Kahyaoglu - Jefferies LLC, Research Division

No, Q4 results were good. I was just -- in terms of 2014 and the second half, if there's -- with the lavs and the galleys ramping up, I was just thinking, are there any additional costs we should factor in there? But it doesn't seem like there's anything.

Amin J. Khoury

No, we are expecting profitability in the second half of the year to be higher than profitability in the first half of the year, driven primarily by the SFE programs and an improvement at CM.

Sheila Kahyaoglu - Jefferies LLC, Research Division

Understood. Got it. And then in terms of business jets, the operating margins have ramped pretty nicely there, some because of the Super First Class mix. Can you maybe talk about pressure points there or where you think margins could go over the medium term?

Amin J. Khoury

We don't actually give guidance for margin -- for segment margins. But our business jet segment had a terrific year -- had a terrific 2 successive years now with substantial margin improvement in each year, and we're expecting further margin improvement next year. So without being quantitative about it, I would say that we expect further margin improvement in each of our businesses next year. So that's 2014, I mean, by next year. Okay.

Operator

We'll go now to Peter Arment with Sterne Agee.

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Amin, could I just circle back quickly with you on your comments about high single-digit growth in aftermarket? You've got such a big global franchise. And last quarter, you gave us some color on Europe and the U.S. and Asia. Maybe you could just give us a little more color on what you're still seeing regionally or if you're seeing any differences. That would be helpful.

Amin J. Khoury

That's a really good question, and we haven't done the work. I don't actually have the answer in front of me. Peter, can you be kind enough to call Greg later today? We'll get the information for you. I just don't have it handy or in front of me right this second.

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Okay, no, that's fine. We'll circle back. And just, Tom, one clarification. The tax rate assumption for '14 is still, I assume, around 29%. Is that still valid? And is the cadence...

T. P. McCaffrey

Yes, I think if you think in the 28.5% to 29% rate, that you'll be fine.

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Okay. Any difference in terms of quarterly spread? It'd start the year higher and then -- and lower [indiscernible]?

T. P. McCaffrey

Well, the one difference I noted earlier on an earlier question is that the comparisons in the first quarter of this year versus the first quarter of 2013 are about 200 basis points as a result of the R&D credit for 2012 being reflected in the first quarter of 2013, when it was enacted. It's a nuance that they have in GAAP, that even though you know it's there, you can't do it until it's actually signed into law. So you should expect 28.5% to 29% on a quarterly basis unless we have some improvement with some of our tax planning during the year. We're always working on it.

Amin J. Khoury

But first quarter '14 tax rate is going to probably be a couple of hundred basis points higher than the first quarter of 2012 tax rate, and on a comparable tax rate basis, the 15% earnings per share guidance improvement in Q1 would be roughly 18%. And of course, then later in the year, EPS ramps, but it ramps for the operational issues that I mentioned. Tax rates are fairly comparable in the balance of the quarters.

Operator

We'll go now to Michael Ciarmolli with KeyBanc Capital Markets.

Kevin Ciabattoni - KeyBanc Capital Markets Inc., Research Division

It's actually Kevin on for Mike. I'm wondering if you could give us maybe any update on the recent Delta announcements in terms of your content? And then just maybe an update on what you're seeing in terms of activity at the other large U.S. carriers, maybe the impact from the recent American merger?

Amin J. Khoury

You're talking about the Delta announcements of their upgrade, the narrow body upgrade. That's going to be a pretty significant piece of business for us. We were awarded all of the coach class seating on all of the aircraft, including Delta's 737s, their 757s, their A319s and their A320s. We're also providing first-class seating, lighting and integration services, and we also expect to be awarded the food and beverage preparation storage equipment programs. On the 757, we have the retrofit programs for both first-class seating and lighting, and in addition, we'll provide the engineering integration services because a very significant part of the award is related to in-flight entertainment -- in-flight entertainment equipment, but including the integration services. So it's going to be a pretty big piece of business for us.

Kevin Ciabattoni - KeyBanc Capital Markets Inc., Research Division

That's helpful. And then you mentioned a kind of goal of bringing that, the oil and gas piece of the business, up to 10%. Just wondering how much of that would be kind of additional M&A and what you're looking at maybe in the short term, if that's still on the radar, versus growing that existing piece of the business that you've already acquired?

Amin J. Khoury

It's not a goal. I mean, it's sort of an estimate of what we think -- where we think we'll be if we do in fact execute our plan, which is to have a broad line of rental equipment and logistics and services in each of the important geographies, the Northeast, West Virginia, Ohio, Pennsylvania, where the Marcellus and Utica Basins are, and then in the Southwest in both the Eagle Ford and Permian and up in the Williston. And we estimate that it would be roughly 10% of our business at the time. Okay? So it's about 5% on a pro forma basis now. But as we do smaller, bolt-on transactions to broaden out our geographical coverage and to broaden out the products and services, our expectation is that the business could grow to be somewhere in the neighborhood of 10% of total revenues. Is that helpful?

Kevin Ciabattoni - KeyBanc Capital Markets Inc., Research Division

Yes, great.

Operator

We'll go now to Joe Nadol with JP Morgan.

Seth M. Seifman - JP Morgan Chase & Co, Research Division

It's Seth Seifman on for Joe this morning. Just a question about the bookings. I noticed the commentary about expectations for strong bookings this year. I'm wondering if you still expect a book-to-bill above 1?

Amin J. Khoury

Yes, we do.

Seth M. Seifman - JP Morgan Chase & Co, Research Division

Okay. Very good, very good. And then just a follow-up on that. Understanding the progression in the backlog, obviously, the fundamental environment is very good and the sales growth is there. The backlog was fairly steady in terms of the firm backlog this year. Why don't we see the backlog growing more to kind of match the sales profile?

Amin J. Khoury

Our total backlog grew from, I think, $8.2 billion to $8.8 billion from last year to this year. And what happened is that the SFE backlog, which is about $5 billion, as the programs at Boeing and Airbus and these other OEMs begin to ramp, then our order rate also ramps. In other words, the orders flow out of the unbooked backlog into booked backlog as new sales. And so it's hard to see the exact rate, but the overall growth in backlog is, as I say, is about -- orders was about 10% and backlog went from $8.2 billion to $8.8 billion. And as these programs ramp, orders and sales will grow at an accelerated rate, which is why we expect the ramp in the second half of the year.

Operator

We'll go now to Yair Reiner with Oppenheimer.

Yair Reiner - Oppenheimer & Co. Inc., Research Division

I have another question about the oil and gas business. It looks like the first acquisition you did cost you about 1.3x sales. The last 3 in aggregate were about 2x, a little bit more than 2x sales. Was there something different about the more recent assets, or do they have a different margin profile? And then how should we think about the valuation of these targets going forward?

Amin J. Khoury

The more recently acquired businesses had higher margins, better growth trajectories and were more profitable. And so as we stated during our Q3 call in October, we think about EBITDA multiples in the 6 to 7x range for the oilfield rental equipment, logistics and services businesses. So we expect that business to be accretive to revenue growth, to margins, for both the consumables management segment and the company as a whole, and also to be accretive to earnings per share.

Yair Reiner - Oppenheimer & Co. Inc., Research Division

Great, that's helpful. And then I was wondering if you could give us some qualitative discussion of what you see as biz jet demand. I guess, over the last couple of weeks, there's been a little bit of conflicting data points. You see really good orders for Gulfstream, better orders for Textron, but then some other suppliers have seen what looks a little more like squishy demand. So kind of what's your thinking about biz jet demand over the course of 2014?

Amin J. Khoury

The full year metrics, and even the Q4 metrics for business jet, were very weak, and -- but there was one sort of a bright light, and that is that inventories of used biz jets fell to 12% in December for the first time in 5 or 6 years. Usually, when inventories fall to that rate, and one month does not make a trend but it happens to be what happened in December, order rates usually start to go up. And there did seem to be an inflection point in orders with a couple of the biz jet OEMs. Whether this will be a trend or not is really hard to say at this point, and I hesitate to make a projection of a turn based on 1 month's data.

Operator

And we'll take our final question from Ken Herbert with Canaccord.

Kenneth Herbert - Canaccord Genuity, Research Division

Amin, I just wanted to end and get your thoughts. I mean, with the announcements from Delta and with the speculation at American, it seems to me that airlines, at least here in the United States, are doing more on economy class upgrades. I wanted to get your thoughts on the modification market or retrofit market. As you look out into '14, as part of the acceleration, you're looking at some of a pickup in this activity. It seems like airlines, with their financial situation, are stepping up discretionary spending, and I'd be interested in your thoughts as to how you see this impacting '14, but more broadly, what you're seeing in the marketplace from your airline customers?

Amin J. Khoury

Sure. Well, we had really strong retrofit sales in the quarter, which, of course, no one asked about earlier, but retrofit sales were very strong. And here we are. We're in what probably is going to be the fifth year -- successive year of strong profitability by the airlines. I mean, last year's earnings were $13 billion, up, what, 75% or something from the prior year. And this year, they're expecting $20 billion -- I'm talking about IATA now, expecting around $20 billion in earnings. So the airlines have -- really have it pretty good right now. I mean, loads are the highest in history on a sustained basis. Yields are the highest. The airfare CPI in November was the highest for any November in history, and it's up -- I don't have the percentage for the last few years, but I guess it's up 25% plus. That is the airfare CPI. So the airlines are really making a lot of money. At the same time, fuel costs are pretty high. And so basically, what they're doing is they're retiring old aircraft at a pretty quick rate. And about half of deliveries, we would estimate, are going to take care of retirements, while the other half is going to take care of the growth in demand from revenue passenger mile growth. Given how flush the airlines are, the balance sheets are solid, they get plenty of cash, they're earning a lot of money, they are obviously buying a lot of airplanes, and there hasn't been any period in my experience where -- when airlines are buying a lot of airplanes, particularly wide-body airplanes, which are -- have an outlook of 1,100-plus over the next 3 years, a 10% CAGR over the next 3 years, they will be doing retrofit, and we are having significant ongoing discussions with our customers about retrofit programs in the future. So the airlines are spending, they're buying new airplanes and they're going to spend money on the interiors of their existing airplanes. And that's basically what Delta was doing, which was, I guess, how this trend of questions started here.

Kenneth Herbert - Canaccord Genuity, Research Division

Yes. So I guess, Amin, just to summarize, then, it sounds like you've seen a step-up in activity in these conversations in the last few months and heading into '14.

Amin J. Khoury

Yes, I would say there is a step-up in activity.

Greg Powell

Great. Thank you all for joining us today on the call, and we look forward to talking to you again soon.

Amin J. Khoury

Thanks, everyone.

T. P. McCaffrey

Thank you. Bye-bye.

Operator

Ladies and gentlemen, this concludes today's B/E Aerospace Conference Call. Thank you for your -- participating in the call.

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