B/E Aerospace's CEO Discusses Q1 2014 Results - Earnings Call Transcript

Apr.23.14 | About: B/E Aerospace (BEAV)

B/E Aerospace Inc (NASDAQ:BEAV)

Q1 2014 Earnings Conference Call

April 23, 2014 08:30 am ET

Executives

Greg Powell - Vice President, Investor Relations

Amin Khoury - Chairman of the Board, Co-Chief Executive Officer

Werner Lieberherr - President, Co-Chief Executive Officer, Chief Operating Officer

Tom McCaffrey - Chief Financial Officer, Senior Vice President

Analysts

Noah Poponak - Goldman Sachs

David Strauss - UBS

John Godyn - Morgan Stanley

Robert Spingarn - Credit Suisse

Robert Stallard - Royal Bank of Canada

Joe Nadol - JPMorgan

Myles Walton - Deutsche Bank

Gautam Khanna - Cowen

Michael Ciarmoli - KeyBanc

Operator

Good morning. My name is [Candice], and I will be your conference facilitator today. At this time, I would like to welcome everyone to the B/E Aerospace First Quarter 2014 Earnings Conference Call. All audience lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions) As a reminder, ladies and gentlemen, the conference is being recorded this day, April 23, 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, Candice. Good morning. Thank you for joining us this morning. Today, we are here to discuss our financial results for the first quarter ended March 31, 2014. By now, you should have received a copy of the news release we issued earlier this morning. If you haven't received it, you'll find a copy on our website. We will begin this morning with remarks from Amin Khoury, our Founder, Chairman and Chief Executive Officer. Then we will take your questions.

For today's call, we have prepared a few slides to help you follow along with our discussion. You can find the slide presentation on our 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 for the call are Werner Lieberherr, Co-Chief Executive Officer; and Tom McCaffrey, Senior Vice President and Chief Financial Officer. 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, Candice will provide instructions. Please limit your questions to no more than two at a time, so that we can get to everyone.

Now, I will turn the call over to Amin Khoury.

Amin Khoury

Thank you, Greg, and good morning everyone. We are pleased with our first quarter results, which were announced earlier this morning. Our first quarter financial results were the best quarterly results in the company's history. Our results included record quarterly revenues, bookings, backlog, operating earnings, net earnings and earnings per share.

During the quarter, we announced record multiple seating awards, initially valued in excess of $600 million. Total first quarter 2014 bookings were $1.1 billion that was up 30% versus the first quarter of last year and a record for any quarter. In addition to strong financial and marketing results, we have also been active on the acquisition front. We have recently signed LOIs on two important aerospace manufacturing businesses and completed one small aerospace bolt-on transaction in our Business Jet segment. In addition, we completed two energy services transactions in the first quarter and closed Vision in the second quarter.

Before discussing the details of our first quarter financial performance, I would like to spend a few minutes discussing the current market environment. In addition, Werner will provide you with an update on the April 2014 Hamburg Germany Aircraft Interiors Exposition. The interior show was well attended and was very successful for our company. Then we will discuss our segment results for the quarter. Lastly, we will review our financial guidance for 2014.

Now let's briefly discussed the current commercial aerospace market environment, February year-to-date global traffic increase a very strong 6.9% same period capacity was up 6%, resulting in global load factors extending further and remaining near all-time highs. Strong traffic growth, record load factors and record yields are continuing to drive record profitability for the global airline industry.

In March, IATA updated its 2014 forecast for global airline profits. For 2014, aggregate global airline profits are expected to be up approximately 45% to almost $19 billion and this year will mark an unprecedented fifth successive year of solid profitability for the global airline industry. The aerospace cycle is being driven by continued growth in global passenger travel, attendant increases in capacity and an unprecedented period of profitability for the global airline industry, and Boeing and Airbus continue to increase their production rates, supported by record backlogs in excess of 10,500 aircrafts.

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. Specifically, our record backlog which is resulting in steady market share gains are leveraged wide-body aircraft deliveries, which are expected to grow at an approximate 12% compound annual growth rate over the next four years and our $5 billion of awarded, but unbooked SFE programs are the additional specific drivers of growth for B/E Aerospace in addition to the robust industry conditions.

Now let's discuss our first quarter results. The bar chart on Slide 2, reflect our consolidated first quarter 2014 financial performance compared to the first quarter of 2013. First quarter 2014 revenues reached $1 billion for the first time ever and increased 20% as compared with the same period of the prior year.

Excluding $2.2 million in costs related to first quarter acquisitions, operating earnings were $185 million, an increase of 21%, operating margin was 18.3% and increased 10 basis points. First quarter pretax profit was up 26% and first quarter earnings per share was $1.06 per share, representing an increase of 22%.

Let's review Slide 3, which summarizes our current bookings and back status. The first quarter was our most successful bookings and program awards quarter ever achieved by our company. We won important awards from all major regions around the world, including the Middle East, the Americas, PAC Rim, Asia, Europe and China. We won approximately 90% of all super first-class seating programs awarded during the quarter. We won over 80% of all business-class seating programs awarded during the quarter and we won over 80% of the food and beverage preparation and storage equipment awards awarded during the quarter. Finally we even won 42% of first quarter coach class seating awards, so it was an amazing quarter from an awards and bookings perspective.

Our first quarter extraordinary marketplace success reflects the company's continued focus on innovation and further solidified our position as the market leader for commercial aircraft seating as well as food and beverage preparation and storage equipment.

Total bookings during the first quarter of 2014 of $1.1 billion were up 30% compared with the first quarter of last year. This was a quarterly record and reflects the book-to-bill ratio of 1.1 to 1. In addition to actual buildings of $1.1 billion, when awards which have not yet been booked were added, the total was more than $1.5 billion for the quarter. Backlog at the end of the quarter was approximately $3.9 billion while awarded but unbooked backlog stood at approximately $5 billion, resulting in total backlog of $8.9 billion.

Before we discussed the performance at each of our segments, I would like to ask Werner to briefly comment on the recent Hamburg Aircraft Interiors Exposition.

Werner Lieberherr

Thank you, Amin. During the second week of April, (Inaudible) as well as a large group of our sales engineers, product specialist, product line mangers and general managers attended the 2014 Aircraft Interiors Expo in Hamburg, Germany. Building on the past couple of year's success, this year's expo was our best ever. The quantity and quality of airlines visiting our groups, the seniority level of stabilizations and the volume of business opportunities discussed during the show were outstanding.

The expo continues to be a tremendous marketing platform and continues to be strategic innovation for B/E Aerospace, as airlines continue to focus on getting market share through cabin enhancements.

During the Expo, we had substantive and highly positive strategic discussions with senior delegations from over 70 airlines from all the regions, including for the first time senior delegations from two Chinese international airlines. Both, the size and seniority of the various delegations were outstanding. These large senior executive airline delegations used the Expo to map out their medium-term and long-term strategic aircraft interior plans.

The value of the programs we reviewed this year at the Expo was approximately $12.2 billion and grew at a 17% rate as compared to last year. The demand is broad based from all geographic regions, including the Americas, the Middle East, Europe, China and Asia Pacific.

Finally at the Expo, the most innovative product introduced into [commence] in the markets during the year are awarded the prestigious Crystal Cabin Award. The Crystal Cabin Award is the only international awards for excellence in aircraft EPO innovation. I am very pleased to announce that our cabins and Spacewall Advanced Lavatories System won the Crystal Cabin Award for industrial design and visionary concepts. We have been recognized by the aircraft induced industries of which we are very proud.

In addition to the Spacewall Advanced Lavatories System, we introduced a number of new products, including Super First Class cabin products, new wide-body and single-isle business class seating, new wide-body premium economy seats, new light weight main cabin seating and new Espresso coffee system co-developed with Nestle and an advanced LED lighting system.

[Statistic] customers had the opportunity to see our A350 galley systems and they were pleased by the quality and enhanced (Inaudible) as indicate the forward was to certify production and was fully loaded with our Essence line of food and beverage preparation and storage equipment. This was critical as the A350 has become a major driver for life of the aircraft [piece] were not only seat, but also for galley inserts. We also know the significant interest from airlines and leasing companies which expansion numbers of expected single-isle deliveries, single-isle activity is rigorous in all regions of the valves.

Finally, we had negative passengers major international airlines that are currently exploring future cabin interior concepts for the 777X. Our customer relationships are paramount and the Hamburg Aircraft Interiors Expo provides a superior environment to showcase our industry-leading innovations, which give our customers the ability to differentiate themselves from other airlines and passenger comfort, weight savings and space efficiency.

We are gratified to have heard from a number of the airlines that B/E Aerospace has the highest quality and best designed products along with the best execution in the industry, so outstanding showing by B/E Aerospace and we expect continued solid order growths arising from our successful efforts at the expo.

I will now turn the call back over to Amin.

Amin Khoury

Thank you, Werner. Now, I will briefly review the first quarter operating performance for each of our business segments. Let's turn to Slide 4, and review the first-quarter results for our commercial aircraft segment leadership team turned in a solid first-quarter performance. Revenues were up 24.6%, operating earnings of $93.1 million increased 25.5% and operating margin of 17.8%, increased 10 basis points in spite of the fact that R&D spending was heavy during the quarter as we intensively pursued potential move SFE awards.

Turn to Slide 5 and review first quarter results for our consumables management segment. The leadership team for the consumables management segment delivered a solid quarter in spite of numerous weather-related shutdowns by both, ours and our customers' facilities as well as the further steep drop in both, military and business jet revenues. Both, our revenues and our margins were impacted by numerous weather-related closures of both, ours and our customers' facilities.

We experienced weather related shutdowns in Alabama Connecticut, Kansas, Missouri and Pennsylvania, so it was a tough winter. These unscheduled interruptions, virtually inefficient operations and a high-level expedite costs that otherwise would not have been incurred, so the combination of lost revenue days, plus one-time cost negatively impacted both revenues and margins in our CEM segment during the first quarter.

However, March was a record month or any month ever in our distribution business and the strong increase in demand in our CAS spares business made us to believe that the aftermarket recovery is very much intact. In addition during the quarter, we completed two acquisitions and reached agreement to acquire a third in the energy services business. With these acquisitions, we have now established geographical base of operations in most major North American oil and gas plays from which we are providing our customers with technical support services and associated rental equipment.

We are expecting our energy services initiative to significantly improve the organic growth rate and profitability of our consumables management segment beginning as early as Q2 of 2014. In the segment revenues of $366.0 million dollars increased 12.2%, operating earnings adjusted to exclude acquisition cost were $71 million, an increase of 9.6% and operating margin adjusted to exclude first-quarter acquisition cost was 19.4%.

Let's turn to Slide 6, and review the first quarter results for our business jet segment. The business jet segment leadership team delivered an extraordinarily strong quarter. In addition, during the quarter we completed one small bolt-on acquisition of a critically important supplier, which adds significant IFE interface lighting control, power management and actuation control capability. Additionally, we signed important letters of intent to acquire two additional synergistic manufacturing businesses.

For the three months ended March 31, for a business jet segment, revenues of $121 million increased 26.9%, operating earnings of $21 million increased 44.5%, while operating margin of 17.4% expanded 210 basis points as compared to the same period last year.

Let's briefly review our financial position on Slide 7. Cash flow from operations in the first quarter of 2014 of $56.3 million reflects the 20.1% increase in revenues and a corresponding 5.6% increase in working capital as compared with the prior year period. Working capital increase is exclusive of cash and the impact of acquisitions. Capital expenditures to support our record backlog, including our long-term SFE customer programs, as well as our recent acquisitions were $56.2 million, an increase of approximately $19 million as compared with the prior year period.

During the first quarter, the company used approximately $257 million for two recently completed acquisitions. We will continue to sustain a somewhat higher level of capital expenditures during the first half of 2014 to support our backlog and our long-term SFE programs as well our recent acquisitions. However, we continue to expect 2014 free cash flow conversion ratio of approximately 65% of net earnings for the full-year. As of March 31, 2014, cash was $385 million. Net debt, which represents total long-term debt of $1.96 billion less cash was $1.57 billion and the company's net debt to net capital ratio was 36.6%.

Let's now briefly review our outlook. Our total backlogs both, booked and awarded, but unbooked of approximately $8.9 billion, our expectations for robust wide-body aircraft deliveries, our expectation of strong revenue growth from our SFE program deliveries and the expectation for continued growth in global passenger travel, all provide a basis for our expectation of continued strong revenue growth.

Please turn to Slide 8, and we will review our 2014 guidance. We continue to expect strong bookings in 2014, driven by the company's record backlog, a robust wide-body aircraft delivery outlook, bookings from prior SFE awarded programs and a recovery in after-market demand. 2014 revenues are now expected to be in excess of $4 billion.

The company expects 2014 EPS approximately of $4.30 per diluted share. That's exclusive of acquisition-related costs and that represents an increase of approximately 22% as compared to 2013 reported earnings per share. 2014 free cash flow conversion ratio is expected to be approximately 65% of net earnings.

With that, I will now turn the call back over the Greg.

Greg Powell

Thank you, Amin. Candice, we are now ready for the Q&A portion of the call. Can you give the instructions again on how to proceeding on the call.

Question-and-Answer Session

Operator

Absolutely (Operator Instructions) Your first question comes from Noah Poponak with Goldman Sachs.

Noah Poponak - Goldman Sachs

Good morning everyone.

Greg Powell

Good morning.

Amin Khoury

Good morning, Noah.

Noah Poponak - Goldman Sachs

Any ability to quantify the weather impact that you cited?

Amin Khoury

…cited?

Noah Poponak - Goldman Sachs

In terms of how much revenue or EBIT you lost?

Amin Khoury

We really don't know. I think, we can say we start to get some of it back in March. We had a huge March, the biggest single month we would have ever had and orders continue solid, so our expectation is that Q2 is going to be a very good quarter for us OEM business.

Noah Poponak - Goldman Sachs

Okay. On the orders you mentioned, you have or you see but are not yet in backlog. It sounds like $400 million incremental to the 1.1 booked in the quarter. Can you just talk a little bit more about that? What is that? Is that normal or is that unusual to have that kind of hanging out there and when will that going into backlog?

Amin Khoury

No. It's really abnormal. We've never had a quarter, where we booked 90% of Super First Class business seating awards and 80% of - business I meant to say Super First Class seating awards and 80% of all the business class awards that were awarded during the quarter and more than 80% of all the food and beverage preparation and storage equipment awards, it was an amazing quarter from a bookings and awards point of view and the aggregate was over $1.5 billion, a lot of which will be booked over the coming three quarters of this year.

Noah Poponak - Goldman Sachs

Okay. Great. Then Just one other one.

Amin Khoury

It's the most success we have never had in a single quarter in 27 years of this company's history.

Noah Poponak - Goldman Sachs

Sounds pretty positive.

Amin Khoury

It is positive.

Noah Poponak - Goldman Sachs

One other thing I wanted to ask about was, when we saw you at Hamburg, you mentioned with regard to the modular lav retrofit offering that you were going to be meeting with I think about two dozen individual customers. Can you talk about how that went, how much success you had with that offering?

Amin Khoury

We now expect to book additional lav retrofit business during 2014, so there is quite a bit of activity. We are fully meeting Boeing's current expectations for deliveries, so we feel we have got the capacity to be a little more aggressive in the marketplace and there was really a lot of interest expressed by customers at the Hamburg show, sufficient for us to be able to say that we now expect to book a couple of lav programs, retrofit lav programs during this year.

Noah Poponak - Goldman Sachs

What would be the - of the 24 of those customers that are not choosing to place that order this year, you are saying a couple out of 24, what is their rationale for not doing it sooner, because it seems like such an obvious quick payback calculation.

Amin Khoury

I would prefer to look at the other side of the coin. We are going to book, I expect we only got one so far and we are going to book the next two, I think, at least during this year. As we mentioned earlier, as more and more aircraft get out there with 737 aircraft with our lavs in them and then as more airlines own them and see and begin to experience a better economics, we will certainly begin to add additional lav retrofit programs.

Noah Poponak - Goldman Sachs

Great. Okay. Thanks a lot.

Amin Khoury

Okay.

Operator

We will move now to David Strauss with UBS.

David Strauss - UBS

Good morning.

Amin Khoury

Good morning.

Greg Powell

Good morning.

David Strauss - UBS

Amin, you mentioned these two companies where you have letters of intent, can you give us an idea on the size of those companies?

Amin Khoury

You know rather than talk about transactions we haven't completed, so I mean there is no assurance that we will actually close the transaction during this quarter. We think we will, so I think that we would prefer to wait until we have completed the acquisitions, assuming we do and then either make an announcement or talk about it in the second quarter. We will likely make an announcement when we conclude those if and when we conclude those transactions.

David Strauss - UBS

Okay. On the CAS side, commercial aircraft seating side, can you talk about the incremental margins there? They have been a little bit weaker the last couple of quarters. What exactly is going on there? Does that have anything to do with more SFE work coming through or just why the incrementals start trending below 20% there?

Amin Khoury

During the quarter, our cash significantly increased R&D spending on potential new long-term SFE programs, so it's not gross margin that are the issues. It's operational spending to try to win additional potential SFE business, so notwithstanding the higher level of R&D spending in Q1, cash margins expanded 10 basis points versus the first quarter of 2013. On sequential basis, margins expanded 20 basis points in Q1 as compared to Q4 2013, so there isn't anything wrong with cash business. It is really strong. The quality of our backlog is solid and our expectation is that cash margins will continue to show solid gains over the same quarter of the prior year's as we go through the second, third and fourth quarters of the year.

David Strauss - UBS

Okay. My last question on the guidance, the 430 guidance implies very little for the sequential growth here and typically, you are more back-end loaded than first-half loaded and then you mentioned the weather impacts, the impact weather had in Q1. Why won't we see more in the way sequential EPS growth from here?

Amin Khoury

David, we are only reporting on the first quarter here. We have got nine more months to go in the year and business is looking strong, but that's our comfort level as of April of 2014.

David Strauss - UBS

Okay. Thanks a lot.

Amin Khoury

Okay.

Operator

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

John Godyn - Morgan Stanley

Thank you for taking my question. Amin, I wanted to follow-up on the booking momentum. A tremendous quarter in terms of bookings, but when I think about sort of what we are hearing from airlines, what we are seeing in terms of global profitability, what we heard from you on the call, I mean, as good as this quarter was, it seems like these trends are in place and at this momentum it's going to continue. I guess, what I'm asking is, I mean, as long as the cycle is intact it feels like we might at some point in the future, even hear you announcing an even better booking quarter at some point. Do you agree with worldview?

Amin Khoury

Our bookings were up 30% in first quarter and we had hundreds of millions of dollars of awards in excess of the book. I mean, it's pretty good. Our growth rate, I think, is a superior growth rate both, orders and shipments and the backlog, so I mean, I think the outlook for our company is continued very strong growth. Could it get better? I guess it could get better, but I mean it's pretty darn good right now.

John Godyn - Morgan Stanley

Fair enough, and with all of these awards with the strong bookings, can you talk a little bit about manufacturing capacity. I've heard some anecdotes out there that lead times are growing. I am not sure if you agree with that, if that's true, and if it is true what are the ramifications for the business? Does it drive any incremental pricing power or is there a cost headwind associated with trying to expand manufacturing capacity a bit?

Amin Khoury

We are not late to the majors on any of our seating programs or insert products or pretty much anything. That is unusual, and usually what happens is that when folks are late the OEs try to push business to those that are on time and allowing the majors to move airplanes out the door at inefficient rate and I wouldn't say that it ends up resulting in higher prices, but it does end up resulting in some larger amount of business.

That is more business is encouraged by the OEs towards those suppliers that are doing a better job of delivering products on time. In terms of pricing, we normally don't get price increases on older products, but we spent a lot of money on research and development and we are noted for our innovations and a lot of the programs that we booked during the quarter and the awards that we gained were for Super First Class and business class programs with all sorts of amenities and their price in the amenities and functionality are priced at a high level with excellent margins, so it's not so much raising prices, it's more the airlines are competing with one and other through offering amenities to passengers to gain market share.

Werner mentioned it briefly, he mentioned that the first time we had two international Chinese airlines at the Hamburg Expo. That's very interesting, so what does that mean? What it means is that international Chinese airlines had determined that they cannot be satisfactorily profitable by competing only in the Chinese market. They are going to have to go outside the Chinese market and compete on international routes with the majors. That means that we should expect and we should all expect significant spending on business-class products Super First Class products from the Chinese international carriers for the first time ever, so it is really more a function of the quality of the products and the amenities and the functionality that drive pricing margin.

John Godyn - Morgan Stanley

Thanks. Just last one, putting it all together I think some investors were bit surprised when you announced the big booking quarter, but not a big guidance increase for the year. It seems like if you hit that 430 number, if that's the right way to think about 2014, then there should be this [wave] of growth as we look at 2015. Is that the right framework?

Amin Khoury

Well, I think that we have already said that in answer to David's question that it's early in the year and we are comfortable at this point with having raised our guidance a week ago. I think it was, so let's see how the year progresses and I think in prior years our company has had more than one guidance raised over the course of the year, so we will see how 2014 rolls out over the next couple of quarters and I did mention earlier that we expect a strong Q2 in our CM business, so let's just see how the next couple of quarters go.

With respect to thousand 2015, we are not ready to talk about that yet in any quantitative way, but I think in October of this year, we will give very specific guidance about 2015. Qualitatively, I would say, we expect it to be strong a strong year.

John Godyn - Morgan Stanley

Thanks a lot. Very helpful.

Amin Khoury

Okay.

Operator

We'll move now to Robert Spingarn with Credit Suisse.

Robert Spingarn - Credit Suisse

Amin, in CMS business, understanding that there were disruptions in the first quarter, I wanted to ask you what the relative organic growth between the two sides of that business being aerospace side and the oil and gas. Could you about that and if the weather disruption makes that too difficult to clarify, maybe expectations for organic growth in the two businesses would be independently?

Amin Khoury

Well, in the business, the OE aerospace business, was solidly up. The commercial aerospace after-market business was up 5% and the energy services business was up. the military business, demand by the military customers and business jet customers were steeply down, so the quarter was negatively impacted by weather and no doubt about that with the closures in so many of our facilities and closures in our customers' facilities.

March was an outstanding month. It was the biggest month we have ever had in that business. As I say, after-market continues to do well, OE continues to do well, commercial OE, military and business jet were terrible during the quarter and that's interesting as some of our business jet customers produced bunch of white tails last year and that has negatively impacted results in the first quarter of this year.

I hope that's a satisfactory answer to your question.

Robert Spingarn - Credit Suisse

Well, it is, but it then suggest I would ask you for a refresh. If we look at the total top line in CMS, how does that breakdown between the various, just roughly, the various segments you talked about. Obviously, military and I would imagine business jet are smaller pieces.

Amin Khoury

Military and business jet are smaller pieces, but they are pretty good as our other businesses. Our business jet business was $100 million at one point. It has substantially short, and it declined very substantially during the quarter, so look basically in the quarter our energy services business, our OE business and our after-market business were strongly sufficient to more than offset the declines from military and business jet and I don't know how well to say it.

Robert Spingarn - Credit Suisse

All right. Well, that's good enough. Another question, referring back to the acquisition that you did make and the ones that you alluded to and I think you said there was IFE content there. What kind of upside do these add-on acquisitions offer B/E Aerospace from a content per aircraft perspective?

What I am getting at, Amin, is you have got a very strong content expansion story here. My math says you are probably somewhere between on the average commercial airplane $1 million and $1.5 at least per aircraft. Is it fair to say that these acquisitions can boost or help you boost content per aircraft over time, these and future acquisitions by like a 10% number per year?

Amin Khoury

On some of the wide-body aircraft 777, depending upon the configuration our content in the airplane can be as much as $9 million, I mean, the number of…

Robert Spingarn - Credit Suisse

Understood. I am including narrow-body in my number.

Amin Khoury

Yes. Okay. Narrow-body of course is much smaller, but it's become a significant number as well. Specifically to your question about the acquisitions, the one that we completed was a small bolt-on transaction, which adds not IFE, but IFE interface, lighting control, power management and actuation control capability.

Now this was a unique and critically important supplier to our business and the technology that we wanted to have internally and it doesn't add much in the way of revenues to the company, it will add something in terms of other earnings, because it will reduce the cost to do some of the things that we do, but it's not something, it's not an acquisition which you would think about generating accretion in earnings per share.

The other transactions that we are looking at are larger transactions. They're not suppliers. They are businesses which expand our overall business and expand our content and we are really not willing to talk about those just yet. We want to wait to see if we complete the transactions, which we hope we will do and we are working hard to try to do so. Then if and when we complete those transactions, we will maybe do a call or certainly do a news release and we can talk about them at that time. Okay?

Robert Spingarn - Credit Suisse

Yes. Now that's understandable, but in terms of overall content strategy, is it fair to say that you have some kind an objective over time?

Amin Khoury

Yes. It's not one that we can quantitate, but I mentioned earlier that R&D spending in our commercial aircraft segment was very high during the quarter and that's because we are competing to try to win some additional SFE business and that is part of the content story, right? I mean, the 737 lavs is part of the content story and ecosystems, toilet and the lav oxygen system and lav lighting and PSUs and A350 galley, these are all part of the content story, and when I mentioned the $9 million number a moment ago, it has to do with all of the different products that we developed and which are the popularized in these aircraft.

Robert Spingarn - Credit Suisse

Right. I appreciate all that, I was just looking for some kind of quantification. Thank you.

Amin Khoury

Okay.

As a reminder, please limit yourself to two questions each. We'll move now next to Robert Stallard.

Robert Stallard - Royal Bank of Canada

Good morning.

Amin Khoury

Good morning.

Robert Stallard - Royal Bank of Canada

Amin, I know - talking detail about these LOIs for potential acquisition, but I was wondering more strategically, does this sort of indicate that the pricing in the aerospace industry for acquisition has come a little bit more powerful?

Amin Khoury

Pricing for acquisitions?

Robert Stallard - Royal Bank of Canada

Yes.

Amin Khoury

We have been pretty darn disciplined over the past few years and we have not been able to buy businesses that would add to our growth rate or add to our margins or be accretive to earnings per share. We haven't been able to find transactions which are sufficiently synergistic to accomplish those objectives, and fortunately we have kept our powder dry and I think our discipline looks like it may pay off here and there may be an opportunity for us to conclude a couple of transactions that do have the synergistic criteria, which enable us to create some shareholder value in doing transactions.

Robert Stallard - Royal Bank of Canada

Okay. Then secondly, you noted the very strong bookings seating in the quarter, $600 million there, I was wondering if you could give us an idea of how much of this was for new build aircraft versus the retrofits or upgrade?

Amin Khoury

Well, the vast majority of course was for new build aircraft, but there was a significant amount of retrofit bookings. In fact, we had very strong retrofit delivery quarter, this quarter as well, so retrofit business is picking. We did have a lot of discussions with customers in Hamburg. In fact that might be a way to think about it. I think in Hamburg, our discussions about retrofit was somewhere between $0.75 billion and $1 billion in discussions with customers about potential retrofit programs, so it's beginning to pick up.

Robert Stallard - Royal Bank of Canada

Great. Thanks so much.

Operator

We'll move now to Joe Nadol of JPMorgan.

Joe Nadol - JPMorgan

Thanks. Good morning.

Amin Khoury

Good morning.

Joe Nadol - JPMorgan

Amin, I wanted to dig a little more into the margins and CAS. You mentioned R&D, it wasn't gross margins that are coming down and it's really just an picked up R&D spend. I think you said on the last call that you expected R&D to be flattish this year as a percentage of sales. Is that still the case?

Amin Khoury

I think R&D is going to be up a little bit. It was 7% of sales in Q1 and that was in CAS. I think, it will come down a little bit in future quarters when we don't have to chase so much, so maybe for the full-year it's going to be somewhere in the neighborhood of 6.5%, Joe.

Joe Nadol - JPMorgan

Okay. Got it. That's helpful. Then secondly just on the wins. You mentioned that the high percentage of the 80% and 90%-type numbers in terms of market share in those product areas. Can you highlight or discuss any switches from your competitors that you took business from competitors that had previously been theirs? Is there any specific instances or was this to some degree a case that a bunch of your customers who have been your key customers in the past placed a lot of orders in the quarter?

Amin Khoury

I have to think about all the awards. We definitely did have market share gains during the quarter. I don't think that we are going to talk about those specifically, Joe, but yes we did have market share gains during the quarter and think of too right now, but I think first of all we are not prepared to answer that question. Second, I am not sure that we would, Joe. Not specifically, by customer names.

Joe Nadol - JPMorgan

Okay. I understand. I'll ask one more then if you don't mind. On the CMS side of things, just looking at the that the margins there. I mean, we have talked about the margin in CAS. Incremental margins in CMS, putting aside the disruptions you had and all that. Is there a mixed shift that's adverse with business jet and military not doing as well or whether other issues that led margins to be a little bit lighter?

Amin Khoury

It was inefficient operations and high expedited costs. I think that you will see solid improvement in margins in Q2 and improving further thereafter in our CM business.

Joe Nadol - JPMorgan

Okay. Thank you.

Amin Khoury

Okay.

Operator

We'll go now to Myles Walton with Deutsche Bank.

Myles Walton - Deutsche Bank

Thanks. Good morning, guys.

Amin Khoury

Good morning.

Myles Walton - Deutsche Bank

First, just a clarification, Amin, on the acquisitions, I know you are not going to size or more details, but just want to make sure those would be incremental to the current guidance or that includes in the current guidance?

Amin Khoury

We would never include in current guidance acquisitions that we haven't done. We just signed letters of intent.

Myles Walton - Deutsche Bank

Okay. I was just circling on I think the two oil and gas ones late last year I think may have been contemplated, because you are further down the road, but…

Greg Powell

Amin Khoury

Timing is relatively Myles.

Myles Walton - Deutsche Bank

Okay. Tom, could you talk a bit about the cash flow profile for the year and in terms of I know you said that first half weaker and the working capital and CapEx. Then your color on your second half I think it was greater than 65%. Is there one particular account in particular I am looking at the other assets in the quarter, it looks like a bit of a drag and I just don't know what was driving the other assets.

Tom McCaffrey

Actually, Myles, it is sort of hard to look at. I mean, you just look at the balance sheet because of the acquisitions. If you step back and you look at it, revenues were up 20% and working capital increased little over 5.5% exclusive of the impact of acquisitions and the change in cash, so we did a pretty good job in managing the working capital during the period, so the change you see in the other assets really is a result of the acquisitions which were brought on board.

Myles Walton - Deutsche Bank

I am sorry. I was look at the cash flow statement for other asset change of $34 million.

Tom McCaffrey

Part of that is just the timing on the amortization of certain assets which rolled off the reclassifications within the balance sheet.

Myles Walton - Deutsche Bank

Okay. All right. Those were easy. Thanks.

Operator

We'll go now to Gautam Khanna with Cowen.

Gautam Khanna - Cowen

Thank you and great quarter, guys.

Amin Khoury

Thank you very much.

Gautam Khanna - Cowen

Just wanted to explore the CMS business dynamics you described with March being stronger and maybe that continuing in the second quarter, is it just kind of continuation of the trend in Q1, where aftermarket is up mid-single and the OE stuff is even better or is there any different dynamics you have notice as March got better?

Amin Khoury

I think it might have some catch up. I don't know if in Jan-Feb, and we had a really tough time in January and February. Then the weather of course was a little - and the I suppose some of March was catch up, but orders were strong in March too, so March is just a great month and it looks to us now like that Q2 is going to be a solid Q2.

I don't think there was anything specific about the individual pieces of March that made it stronger. I mean, the aftermarket was solid and OE business, commercial OE business was solid and business jet, military continued too.

Gautam Khanna - Cowen

Okay. Is there anything regionally you can describe about the aftermarket trends? Were they stronger in North American than elsewhere or any characterization there?

Amin Khoury

In our commercial aircraft segment, spares business aftermarket demand in the Mid East, Pac Rim and Asia was really strong and it was less so in North American and somewhat less so in Europe, so really strong demand for aftermarket products in the Mid East and Asia.

Gautam Khanna - Cowen

Okay. No one has asked which is probably a good thing, we are moving on to oil and gas discussion, but with respect to that do those properties contribute at or above the CMS segment average in the quarter in terms of margins or…

Amin Khoury

I think I have already said that our expectation is that the energy services business will add to both, our organic growth rate and our margins beginning as early as second quarter of this year.

Gautam Khanna - Cowen

Got it. Last question, Amin. Acquisition costs, the rest of the year, what you expect them to be and how do they tail off as we move forward.

Amin Khoury

You know there are going to be some more, because we are in negotiations on a couple of potential transactions. Hopefully, we will get through those transactions by the end of the second quarter. That's our hopeful although it could slight into early in the third quarter, but our expectation is there will be some more acquisition costs. My guess is, there won't be any more after the second quarter and hopefully we will get all these transactions concluded by then. Then in the third and fourth quarters, hopefully we will have no noise whatsoever. That is no more acquisition cost, just the operations of the business.

Gautam Khanna - Cowen

Yes. Thanks guys.

Amin Khoury

You should expect to see some more acquisition cost in this quarter, because we are involved in a lot of activities right here.

Gautam Khanna - Cowen

Thank you very much.

Amin Khoury

Sure.

Operator

We will take our final question from Michael Ciarmoli with KeyBanc.

Michael Ciarmoli - KeyBanc

Good morning, guys. Nice quarter thanks for taking my question.

Amin Khoury

Good morning. Thank you.

Michael Ciarmoli - KeyBanc

Amin, just the business jet margins, I think two quarters in a row now north of 17%. You guys have talked about the R&D spending. Should we think of the margins as being sustainable at these levels? I mean, you are clearly operating at record levels now. Just how we think about that in the model going forward?

Amin Khoury

We had communicated to our investors, I think two or three years ago that it was going to take some time, but that we felt is that we could get the business jet segment margins up high enough to be comparable to the commercial aircraft segment margins and basically that is what's happened. I mean, we are driving and striving to drive the margins in both of those businesses to well in excess of 18%. I mean, it looks to us like we are going to achieve that in the not so distant future, so yes we believe the margins are sustainable and we think that margins are going to continue to expand in both, our commercial aircraft segment and our business jet segment and our CS segment as well. We expect margins to expand in all three segments over the next nine months.

Michael Ciarmoli - KeyBanc

That's helpful. Then just the last one on the revenues and the expectations for the year, what sort of are you contemplating for acquired revenues or do you have an organic growth number in that revenue expectation in excess of $4 billion?

Amin Khoury

It really depends upon what happens here. The expectation which is now in excess of $4 billion has to do with the business being strong and orders being strong. We will try to give you specific and quantitative guidance on revenues certainly by the end or hopefully by the end of the second quarter when we sort out that the acquisitions are likely to contribute and then we will give you a real number for revenues, so for the time being we can't quantitate and aren't willing to do so. It's going to be more than $4 billion and acquisitions will have an impact on those numbers depending upon what we get closed and when we close it.

Greg Powell

That concludes our call this morning. We really appreciate everybody joining us and we look forward to speaking to you again in July.

Amin Khoury

Thank you everybody. Have a good day.

Operator

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

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