Executives
Marshall Larsen - Executive Chairman, Chief Executive Officer, President and Chairman of Executive Committee
Paul Gifford - Vice President of Investor Relations
Scott Kuechle - Chief Financial Officer and Executive Vice President
Analysts
Cai Von Rumohr - Cowen and Company, LLC
Robert Stallard - RBC Capital Markets, LLC
Kenneth Herbert - Wedbush Securities Inc.
Jason Gursky - Citigroup
Howard Rubel - Jefferies & Company, Inc.
Eric Hugel - Stephens Inc.
George Shapiro - Citi
Joseph Nadol - JP Morgan Chase & Co
Heidi Wood - Morgan Stanley
Douglas Harned - Sanford C. Bernstein & Co., Inc.
Colin Campbell - Societe Generale Cross Asset Research
Robert Spingarn - Crédit Suisse AG
Noah Poponak - Goldman Sachs Group Inc.
Samuel Pearlstein - Wells Fargo Securities, LLC
Myles Walton - Deutsche Bank AG
Troy Lahr - Stifel, Nicolaus & Co., Inc.
Peter Arment - Gleacher & Company, Inc.
David Strauss - UBS Investment Bank
Goodrich (GR) Q1 2011 Earnings Call April 21, 2011 10:00 AM ET
Operator
Good day, everyone, and welcome to the Goodrich First Quarter 2011 Earnings Results Conference Call. Today's call is being recorded. [Operator Instructions] At this time, for opening remarks and introduction, I would like to turn the call over to Vice President of Investor Relations, Mr. Paul Gifford. Please go ahead, Sir.
Paul Gifford
Thank you, Gwen, and thank you for joining us today as we discuss our first quarter 2011 results. In the room with me today is Scott Kuechle, our CFO. Marshall Larsen is on the call, and he is at a different Goodrich facility at this point, so be patient with us, please, as our handoffs in the Q&A session may be a little slower than usual. We will start with brief prepared remarks followed by Q&A. A presentation is available at our website, www.goodrich.com, which, together with our press release, provides the basis for most of our remarks.
Before we start, let me remind you that today's remarks include forward-looking statements that involve risks and uncertainties, and the actual results could differ materially from those projected in the forward-looking statements. The risks and uncertainties are detailed from time to time in our reports filed with the Securities and Exchange Commission, including our annual report on Form 10-K and quarterly reports on Form 10-Q. They are also detailed in today's earnings press release. I urge you to read them carefully. This conference call is being webcast, and a replay will be available at our Internet site beginning this afternoon. Once again, we ask that callers limit themselves to one question so that we can have time to allow all of you to ask questions. If you have further unanswered questions, you can get back into the queue and ask another question, time permitting. Now I'll turn the call over to Marshall, who will provide you with an overview of our first quarter 2011 results and our updated outlook for 2011.
Marshall Larsen
Thanks, Paul. You've all had the opportunity to review today's earnings release and a related presentation. Today, I'll begin with our first quarter results and then turn to our updated outlook for 2011 and discuss its drivers. We started out 2011 with excellent first quarter results. Our net income per diluted share grew 75% on sales growth of 12%. All of our major market channels, including the commercial aftermarket, reported year-over-year and sequential sales growth. On a year-over-year basis, our large commercial airplane original equipment market channel grew by 6%. Our regional, business and general aviation original equipment sales increased by about 55%, which included sales associated with last year's DeCrane acquisition. Our commercial aftermarket sales growth of 12% was significantly greater than the growth in the airline capacity and slightly higher than our expectations and helped solidify our view that 2011 will be a strong growth year for this channel. The first quarter 2011 sales were 9% higher than fourth quarter 2010. Our defense and space sales grew organically at a double-digit rate. We believe that our presence in attractive, high-growth markets such as ISR, helicopters and precision munitions will enable Goodrich to grow our defense and space sales faster than the global defense budgets over the next several years.
In the first quarter 2011, we achieved segment operating income margins of 17.7% compared to 15.3% in the first quarter 2010, which helped us increase our net income per diluted share to $1.52 in the first quarter 2011 from $0.87 in the first quarter 2010. The overall margin improvement was primarily due to strong growth in aftermarket defense and regional, business and general aviation sales, excellent operational performance, relentless pursuit of continued improvement and lower pension expense. EPS also benefited from a lower tax rate. Regarding taxes, we reported an effective tax rate of 24.4% for the first quarter 2011 compared to an effective tax rate of 37.9% during the first quarter 2010. The first quarter 2011 tax rate includes a previously announced benefit of approximately $20 million or $0.16 per diluted share related to a tax settlement. There were no similar benefits during the first quarter 2010. Last year, in the first quarter, we had an additional tax expense of $10 million or $0.08 per diluted share for the U.S. health care reform legislation, which was not repeated this year. We continue to expect the full tax year to be about 30%. The benefit in the first quarter versus the average rate of 30% was about $0.11 per share. Compared to last year, we had a lower pretax pension expense of about $21 million or $0.10 per diluted share in the first quarter 2011. Total changes and estimates for the first quarter 2011 were $21 million pretax, slightly better than the $16 million we reported in the first quarter 2010.
Net cash provided by operating activities minus capital expenditures, or free cash flow, for the first quarter 2011 was $61 million, a $52 million improvement over the results for the first quarter 2011 (sic). During the quarter, we completed most of our planned pension contributions for the year.
Since last February, we have now several business highlights. We announced an agreement to acquire Microtecnica, a leading provider of flight control actuation systems for helicopters, regional business, aircraft and missile actuation. The business also provides thermal and environmental control systems for commercial and military aircraft. We expect this acquisition to close during the second quarter 2011.
We were selected by Airbus to provide the nacelle system for the Pratt & Whitney PurePower 1100G engine, one of the engine options on the Airbus A320neo new engine option airplane. We were awarded a contract to deliver two upgraded Senior Year Electro-Optical Reconnaissance Sensors, SYERS, to the United States Air Force for use on the U-2 platform. We completed the certification process for the Boeing 787 electric braking system, and we received a follow-on contract from the Defense Logistics Agency to supply over 1,600 carbon brakes and over 1,400 boltless wheels for the U.S. Air Force C-130 aircraft fleet.
Now I'll turn to our expectations for the full year 2011. We believe the strong growth trends we experienced in the first quarter 2011 will continue throughout 2011, and we expect significant sales growth in each of our major market channels. Overall, we expect sales to grow about 12%, which will provide us with sales of approximately $7.8 billion in 2011, at the top end of our prior outlook. Our new outlook does not include sales associated with the Microtecnica acquisition. We will update our sales outlook when we report our quarterly results for the quarter in which the acquisition closes. While aftermarket sales in the first quarter were a little stronger than we expected, airline capacity growth remains consistent with our forecast, so we are maintaining our 7% to 9% sales growth expectations for the commercial aftermarket sales for 2011. Our expectations for growth in the defense and space market channel increased to 8% to 10% based on our strong first quarter sales and based on business we already have in hand and expectations for future awards, especially in our intelligence, surveillance and reconnaissance business. This strong sales growth should result in even better growth in net income per diluted share. We now expect 2011 net income per diluted share to be in the range of $5.40 to $5.55, an increase of 20% to 23% compared to 2010. As usual, our outlook does not include restructuring charges for actions that have not yet been approved or announced. On March 14, 2011, our Landing Gear business began discussions with one of its local employee units regarding a new contract. The contract expires in May 2011. Our discussions included the fact that we are considering the potential closure of our Landing Gear facility in Cleveland, Ohio, and negotiations with the union are ongoing. Should we decide to close the facility, we would likely need to recognize personnel-related and facility closure costs at that time.
Our 2011 outlook includes operating margins of about 16.5% to 17%. This reflects growth in the aftermarket, the benefit of continuous improvement and lean initiatives on costs and lower pension expense, partially offset by very rapid growth in lower-margin commercial original equipment and cost-plus military contracts, lower worldwide prepension [pretax pension] expense of approximately $74 million or $0.37 per diluted share. This is unchanged from our prior outlook.
We are expecting a 2011 full year effective tax rate of approximately 30%, somewhat higher than the rate we experienced in 2011. For remaining three quarters of 2011, our quarterly effective tax rate should average around 32%. We continue to expect net cash provided by operating activities, minus capital expenditures, to exceed 85% of net income for 2011. Our outlook includes expected capital expenditures of $300 million to $350 million, and pretax worldwide pension expense -- pardon me, worldwide pension plan contributions of about $100 million.
Overall, our performance during the first quarter was excellent from an operational standpoint and is a building block towards a very strong 2011. We continue to expect long-term sustainable growth in sales and earnings fueled by strong market conditions in commercial original equipment and aftermarket, our significant market share gains on new commercial military aircraft currently in development and our position in growth areas of military budgets, helicopters, precision-guided munitions, intelligence, surveillance and reconnaissance and fixed-wing aircraft retrofit programs.
Our financial position remains excellent, with about $800 million of cash on our balance sheet, significant cash flow expectations for 2011 and no significant debt maturities until 2016. This will allow us the flexibility to continue to seek additional acquisition opportunities that further enhance our sales and earnings growth, contribute to cash generation and drive shareholder value. I'm looking forward to talking to all of you during the remainder of 2011. We have a great team, and we are all very excited about continuing growth in our company and our profits, as we enter a period of strong commercial aerospace growth. Let's now open the call to questions.
Question-and-Answer Session
Operator
[Operator Instructions] We'll take our first question from Robert Spingarn with Crédit Suisse.
Robert Spingarn - Crédit Suisse AG
Marshall, could you talk a little bit about -- with regard to the aftermarket, the sensitivity to fuel and at what point your 7%, 9% target might be at risk, understanding that you've outperformed that here in the first quarter?
Marshall Larsen
Sure, Rob. First of all, we've had no effect, really, I don't think, from that fuel increase issue at this point in time. Generally, it's a lag effect of six months or more, but where we see it mostly is here in the U.S. You've seen some of the airlines like Delta reduce their capacity increases that they were planning, but we've also seen offsets in Asia and particularly where we've seen a lot more activity on the ASM side. So I'm not very concerned that we're not going to be able to hit our aftermarket forecast for the year. I mean, you just take what we gained in the first quarter and project it through year-end, we'd be at the top end of that 7% to 9% range. So although we're watching the situation, we think we can still deliver that kind of growth.
Robert Spingarn - Crédit Suisse AG
Okay. And just briefly, it's a distant question, I suppose, but on the neo, could you talk about any content difference for you on that airplane and how we should think about margins as that ramps a few years from now, relative to what you're doing with the A320 classic? That's an OE question, Marshall.
Marshall Larsen
An OE question, okay. Well, I mean, it'll start out probably a little bit lower-margin, but we will end up getting it right back to where we were on the other. And that's just going through the learning curve. And it takes a little time there, but given that particular unit's ability to deal with that kind of product and leaning it out, I'm fairly confident we'll get there fairly quickly.
Robert Spingarn - Crédit Suisse AG
And on the revenue content?
Marshall Larsen
Revenue content should not be an issue. I mean, I think we will do equally as well, if not better.
Robert Spingarn - Crédit Suisse AG
Thank you.
Operator
We'll go next to Troy Lahr with Stifel, Nicolaus.
Troy Lahr - Stifel, Nicolaus & Co., Inc.
Thanks. I was just wondering if you guys can talk a little bit about some of the favorable contract adjustments that, I think, you were forecasting $25 million to $35 million. Is that still kind of what you're tracking to for the year? Do you see more upside to that?
Scott Kuechle
Troy, this is Scott. Yes, I think our view is that we would have a little bit upside to that initial number. We said $25 million to $35 million when we came into the year. I think based on what we saw in the first quarter, we take that up about $10 million to the $35 million to $45 million range. The performance in the first quarter was driven by the same things that we've seen over the last several years, largely on the cost side, where we continue to drive improvements in productivity. The supply chain continues to deliver favorable results, et cetera, so good operational performance that continues to be reflected in those numbers. Also, good on the overhead side, where we continue to benefit from rising rates throughout the commercial sector, and that helps us with overhead absorption. So good trends, nothing dramatically different. Some of the wheel and brakes performance improvements in the first quarter were expected for the full year, so there's a little bit of a phasing there. So not all of the delta between the average rate for the full year versus what we saw in the first quarter is all incremental upside. Some of it is just timing.
Troy Lahr - Stifel, Nicolaus & Co., Inc.
But the extra $10 million, that's mostly spread throughout the segments or is the extra upside thats just kind of one particular area?
Scott Kuechle
No, I'd say it's more concentrated in itself [ph] for the overall year-to-year improvement. I would say the actuation benefit, which was about $6 million in total dollars in the quarter, is more timing.
Troy Lahr - Stifel, Nicolaus & Co., Inc.
Great, okay. Thanks, guys.
Operator
We'll go next to Ken Herbert with Wedbush.
Kenneth Herbert - Wedbush Securities Inc.
Thank you. I just wanted to follow up with another question on the aftermarkets. I know you've talked a lot about this, how the cycle's obviously different for the reasons you've talked about, Marshall, in the past. But how would you say your confidence now in the aftermarket recovery may compare relative to the last cycle, when you were able to consistently outperform guidance fairly significantly? Do you think this cycle, there is really -- you're sensing a lot more caution now in terms of your outlook, or are you sensing similar amount of confidence relative to the last cycle in terms of the performance we should expect?
Marshall Larsen
I think as we progress on this cycle -- because you think about we're getting the benefit of the OE build rates, which helps other areas of our company. But on the aftermarket, there is no reason to believe that we will perform any differently going forward. I think we're still in an aftermarket transition. '09 was down. '10, we were transitioning. I expect '11 to be stronger, and I think we will start hitting the stride out there in the aftermarket with the airlines in '12 and '13. I just think we're still in that transition at this point in time. And as we said in the first quarter, our aftermarket versus last year was up 12%, and it was up over and above ASKs [ph] and ASMs.
Kenneth Herbert - Wedbush Securities Inc.
Yeah, I know. And sequentially, it seemed very strong as well. Just one quick follow-up, are you starting to hear from any customers any concern about or any interest in, perhaps, now, not necessarily restocking, but starting to see more confidence from the customers in, perhaps, carrying excess inventory, which certainly was pushed off significantly, obviously last year and in the early part of this year?
Marshall Larsen
Well, I wouldn't say they're at a point where they're trying to carry excess inventory. I think they're still watching cash, particularly the U.S. carriers. But what we're seeing is greater orders. An example, in our Interiors business, which you could say is more discretionary than our other businesses, our book-to-bill is up significantly from last year. That indicates to me that they're willing to spend money at this point in time, not just on flight-critical items.
Kenneth Herbert - Wedbush Securities Inc.
Very good. Thank you very much.
Operator
We'll go next to Sam Pearlstein with Wells Fargo.
Samuel Pearlstein - Wells Fargo Securities, LLC
Can you talk a little bit about on the margins and in particular, Electronic Systems? Just looking from the December quarter to the March quarter, you have profits of about $19 million, but sales only up about $12 million and year-over-year, something like a 70% incremental margin. So just why was that so strong? And in general, it seems like the guidance implies lower margins for all three segments for the remainder of the year, so I'm just trying to think about what could cause that.
Scott Kuechle
Glad to. Sam, just kind of on the general question regarding where margins are likely to go in the second or the last three quarters of the year, we're projecting 16.5% to 17% margins for the full year, and we started off the first quarter at 17.7%. What we're going to in see the next three quarters is a pretty significant ramp-up on OE sales, which, as you know, are somewhat dilutive to margins. We would expect the last three quarters to operate at about 10% higher than the run rate in the first quarter from an OE sales standpoint. So that will be a little bit dilutive to margins. And also, some of the cost-plus military programs continue to ramp throughout the year. So both of those things put a little bit of downward pressure on margins. And in addition, our wheel and brake business puts out more low-charge hardware as rates ramp up on the OE side. So those two things will put a little bit of downward pressure on margins. Relative to Electronic Systems, some of that was just a comparable point a year ago. They had some unusual onetime costs in the year-ago period first quarter 2010 that are no longer part of the process. They finished up -- and if you look sequentially as well, they had some unusual charges in the fourth quarter of last year as well, including finishing up some of the R&D work on 787 in the fuels area, which will relieve some of that costs going forward as well. So the run rate for that business, our expectations for full year '11 are in the 16% to 17% range. So the first quarter at 16.4% is very consistent with what we expect for the full year.
Samuel Pearlstein - Wells Fargo Securities, LLC
Thank you. And then if I can just follow up with a question on the aftermarket. If I just back into what the dollars were based on the first quarter, it would seem that the dollars of sales to the commercial aftermarket, if they stayed at the current level for the first quarter throughout the year, you would exceed your 7% to 9% growth rate. So is there a reason to think the dollars of sales would actually decline as we look forward into the year?
Scott Kuechle
Sam, you did the math right. The view is that if first quarter aftermarket results continue to hold in sequentially for the rest of the year, we'd be right at the top end of our guidance range of 7% to 9%. And we haven't seen anything that would indicate declines based on what's happened around the world relative to oil and other disruptions. And the top end of our earnings guidance is consistent with the top end of that aftermarket range. So if things sequentially go better than that, that would provide some upside to our forecast. We're just being a little bit cautious given the uncertainty that is out there. But we've seen nothing that would say that it wouldn't, that it couldn't be better.
Samuel Pearlstein - Wells Fargo Securities, LLC
Okay. Thank you.
Operator
We'll go next to Robert Stallard with Royal Bank of Canada.
Robert Stallard - RBC Capital Markets, LLC
Marshall, I was wondering if you could comment on a couple of things on the supply chain, your supply chain. First of all, have you seen or do you see any impact from the issues in Japan? And secondly, on a more broader issue, how comfortable are you that your supply chain is ready to deal with the OEM ramp-up that you're talking about?
Marshall Larsen
Well, starting with the tragic events that happened in Japan, all our suppliers there are safe and operating, and we're continuously monitoring their status. The biggest issue is whether power or transportation shortages continue. We've had no issues right now with it, a little concerned about air shipping capacity as more products flow in and out of Japan. But right now, our rates are holding up with this. So bottom line, we've got no detrimental impact to date. But the situation based on the power, at least, remains a little bit dynamic. But we've got enough inventory at critical parts of our business to sustain us for the next few months, so I'm not too worried about that. The second question on our supply chain broadly, that's something we spend a lot of time with. As we've gone through the continuous improvement journey at Goodrich, you end up not just trying to lean out your own facilities, but you go into your key suppliers and do the same thing. And a lot of times, that means small suppliers that don't have the staff to do that kind of thing, and so we'll send people in and help them improve their on-time deliveries and quality. We get a benefit by that, and many times, we can actually get a lower price. So I think we're sitting pretty well for the ramp-up from our supply base.
Robert Stallard - RBC Capital Markets, LLC
Okay. Thanks so much.
Operator
We'll go next to David Strauss with UBS.
David Strauss - UBS Investment Bank
Just coming at, I guess, the guidance a different way. If you exclude the tax gain in the quarter, the lower tax rate in the quarter, around $1.41, you're going to have -- based on your guidance for sales, your sales are going to be a little bit higher sequentially from here, yet if you take the $1.40 and multiply it by 40 or above the top end of the range, am I missing anything in that math?
Scott Kuechle
David, I think the only thing you're kind of missing is the contract adjustments. We're a little higher in the first quarter than what we're expecting for the full year, so that would take a little bit of that off. And then also, as you get more OE shipments in the second half, and like I said earlier, they're going to be about 10% higher in each quarter, in the next three than they were in the first quarter. That will drive some higher low-charge hardware coming out of our wheel and brake business, too. But other than those two factors, you got the right perspective.
David Strauss - UBS Investment Bank
Okay. And just to clarify, your aftermarket, your 7% to 9% aftermarket forecast, that still reflects 4% to 6% global ASM growth?
Scott Kuechle
Yes, yes.
David Strauss - UBS Investment Bank
Okay. And last one, SG&A as a percent of sales, Scott, was down a lot this quarter. Was there anything special there, or is that a kind of number from a percentage basis that we can potentially target going forward?
Scott Kuechle
Yes, the absolute dollars that we've said earlier for guidance on a quarter-to-quarter basis, kind of normal run rates would be about $34 million in corp. and another $6 million in other income and expense for a total of about $40 million per quarter, and that's very consistent with where we actually reported for the first quarter. And then in addition to that, we have $2 million to $3 million a quarter in minority interest adjustments as well. So this was a very normal quarter. Sometimes, we get some volatility either from foreign exchange or from compensation-related costs, and if you look at the fourth quarter of last year and the first quarter of last year, those were both drivers of higher-than-normal levels. So I would characterize Q1 '11 as right in line with our expectations for the full year and what I would consider to be a normal spend rate.
David Strauss - UBS Investment Bank
I guess I was referring to the $285 million in SG&A costs and 15% of sales in the quarter.
Scott Kuechle
Again, also, that's an area where, as you look longer term, we've got a lot of efforts around the company to try to make sure that that growth rate is slower than the sales growth rate. So those are things that don't turn quarter-to-quarter, but over time, our intent is to get more leverage off of that SG&A line by trying to grow the company faster than we grow SG&A and support costs.
David Strauss - UBS Investment Bank
Okay, thanks a lot.
Operator
We'll go next to Peter Arment with Gleacher & Company.
Peter Arment - Gleacher & Company, Inc.
Marshall, I got a question on defense. Just trying to get at least a better clarity on your outlook for growth. You're very well positioned given your platform mix and, really, the helicopters and the ISR content that you have. But trying to get a better understanding on how that actually looks between the OE and the aftermarket piece, could you just give us a little color? I mean, you don't need to give us maybe the specific numbers. You have never broken that out, but just how that is flowing through between OE and aftermarket on defense.
Marshall Larsen
Well, generally, there's a larger, a little bit larger OE content than aftermarket. It kind of depends on the products. But I mean, if you think about ISR, which is a great growth area, I mean, you might as well call all of it OE because it goes straight to the end-use customer and generally, not big replacement on it. Helicopters, that's different. I mean, there, we get a fair amount of aftermarket parts as the life of the airframe ages. So it's not like a wheel and brake business where it's primarily aftermarket. It's a split generally a little bit higher on the OE side. You want to comment on that, Scott?
Scott Kuechle
I think that's right. I mean, overall, our military split is around 60% OE, 40% aftermarket, and we've got good growth in both of those categories. On the fixed-wing side of the aircraft portfolio, there's not a lot of OE growth, but we are getting volumes coming out of replacement and upgrade programs, both in wheels and brakes and in the C-5 re-engining program. So there's good activity in the aftermarket retrofit, even in that side of the equation as well. But I would characterize both as growing.
Peter Arment - Gleacher & Company, Inc.
Okay. Because the reason I asked just because there's a record number of helicopters in theater now versus an all-time level, even higher than we had in the Iraqi surge. And I was just wondering whether you're seeing an incremental pickup there in terms of your aftermarket, and that's really driving a lot of its growth. But what you're saying, it seems like it's more balanced than that.
Scott Kuechle
It's much more balanced than that.
Peter Arment - Gleacher & Company, Inc.
Okay. Thank you very much.
Operator
We'll go next to Joe Nadol with JPMorgan.
Joseph Nadol - JP Morgan Chase & Co
Thanks. I'd like to hone in a little bit more on the Landing Gear situation, and I understand that maybe you can't comment fully on it because of the circumstances. But if you could just -- maybe I missed it, but where are you planning to move that capacity to? And, Scott, what other financial implications -- well, if you could size what kind of a charge we might see, and what other financial implications might there be in terms of the cost savings down the road.
Marshall Larsen
So let me talk about the operations part of it, and Scott can talk about the potential financial impact. First of all, the volume in that Cleveland plant is not as large as we have in some of our others, so the overhead absorption isn't as good as we would like. It's more of the fact that we just don't have the kind of volume that we need. Although if our cost base was right there, then we might make a different decision. So it's too early to say that because we're still going through our negotiations, and that may change the situation on it. But we have other plants in Tennessee, in Toronto, in Poland that all are capable of taking more capacity. So we'll just have to see how this negotiation unfolds to see whether or not we do follow through with the closure. Scott?
Joseph Nadol - JP Morgan Chase & Co
Well, actually, if I could just jump in there, one more thing, Marshall, on the operations. Is this a former Coltec or Goodrich plant? And what products are made there?
Marshall Larsen
Well, there's a fair amount of Boeing product on both the military and the commercial side. And there's a little bit of business jet.
Joseph Nadol - JP Morgan Chase & Co
Okay.
Scott Kuechle
And then, Joe, just a follow-up on the other part of your question relative to the magnitude and how we're thinking about it from a return standpoint, I can't really comment specifically on the value of the charge, if you will. But if we do take the decision to close the facility in the quarter that we'd make that decision, we would both give you the amount of the charge, help you identify how much of it is cash versus noncash, and our belief would be a sizable piece of that would be noncash related to facilities, pension curtailment, things like that, and then adjust our guidance accordingly. But in terms of the ability to pay back the cash portion of that charge, that would happen relatively quickly. It would take probably a year and a half to wind things down, but once you get the volume and the cost restructured, we would expect to pay that back pretty shortly over the next couple of years after that.
Joseph Nadol - JP Morgan Chase & Co
Okay, thank you.
Operator
We will go next to Doug Harned with Sanford Bernstein.
Douglas Harned - Sanford C. Bernstein & Co., Inc.
When you talked about cash in the earnings release, you mentioned that you have ongoing investments related to the 787, related to the A350. Could you talk about what the investment profile looks for those two programs right now as you go forward the next few years?
Scott Kuechle
Yes, there's a couple areas of investment. One is recorded in CapEx. The other is in our non-product inventory, where, as we ramp up in nacelle and Thrust Reverser programs for both 787 and A350, and then later on, the CSeries and MRJ. We recorded a preproduction excess over average on those programs in inventory. The total increase in investments there, we would expect this year to be in the $300 million range in total from a cash standpoint. Again, those are across all three of those programs. And then on the CapEx side, much more modest in terms of what we would attribute to rate capital associated with those three programs. But there is capital expenditure going on not only to support higher rates but also to reposition capacity, consolidate capacity and make sure that we can deliver better margins as a result.
Douglas Harned - Sanford C. Bernstein & Co., Inc.
What I'm getting at also is when you look at the trajectories of these two programs, do you expect to see a significant ramp-down in the 787? And then the A350, when is the timing of when that one might come in, given the production, obviously, is a little bit further out?
Scott Kuechle
We would expect 787 to ramp down, and then A350 is approaching peak spend right now and will stay at that level for the next year or two. And CSeries, MRJ, the GTF program, neo as well, increasing. So I think our view would be it's sustained at about the level of investment that we're talking about for 2011 for the next couple of years. The program composition would change, but the absolute dollars probably don't change a whole lot.
Douglas Harned - Sanford C. Bernstein & Co., Inc.
And then if I can, just one quick one on aftermarket. When you look at, geographically, where you're seeing the demand right now in the aftermarket, can you contrast how it looks today versus a year ago? In other words, Asia versus developed markets, are you seeing a change there?
Marshall Larsen
Yes. Asia has bounced back very nicely, and we see that in our MRO shops. We've got much more activity going on there now than we did a year ago. So that was a significant difference, and I would say that's moved the most. And we've seen a steady progression up in Americas, I mean, in North America, and Europe has kind of been just steady.
Douglas Harned - Sanford C. Bernstein & Co., Inc.
Just presuming, as a very new fleet ages emerge in markets, you're getting into initial heavy checks, those sorts of things. I mean, is that a correct way to think about this?
Marshall Larsen
Well, remember that our parts are on different cycles than heavy checks. Many of them happen well before you get it heavy checked, wheels and brakes about a year out on narrow profits. And nacelles are out there. You still get piece parts, but you don't get kind of complete overhaul of nacelles until they're out there like 5 to 7 years. So you could get to a heavy check and already have been doing, replacing parts of ours that are through the warranty period and have gone through kind of a number of cycles that weren't replacement.
Douglas Harned - Sanford C. Bernstein & Co., Inc.
Okay, great. Thank you.
Operator
We'll go next to Myles Walton with Deutsche Bank.
Myles Walton - Deutsche Bank AG
Scott, with respect to Forex and the current position, the $25 million benefit you talked about for 2012, where does that look now with the $1.45?
Scott Kuechle
At the end of the first quarter, we were still sizing that as $24 million favorable in 2012 over '11 at an exchange rate of $1.60 on the sterling, $1.42 on the euro and $1.03 on the Canadian, so it'd be a little bit worse than that. But we're 75% hedged, so it's only on the 25% that's unhedged that would move a little bit. So I don't have the exact numbers, but I would guess it's around $20 million to $21 million now.
Myles Walton - Deutsche Bank AG
Okay, that's great. And then, Marshall, with respect to the aftermarket growth you're seeing, can you give us some color across your eight businesses? Are each of those fully engaged in the growth at this point, and what's growing conservatively faster and slower?
Marshall Larsen
Sure. Well, first of all, most of our businesses had double -- I mean, all the large businesses had double-digit growth. Aerostructures, our piece parts are right on plan. As I mentioned earlier, the Asian MRO backlog is the best it's been in the last 10 months. We have continued good bookings for majors. We booked more majors at this time this year than we had last year year-to-date, so that's a good trend. As I indicated earlier, in our Interiors business, every book-to-bill indicator's green. We got orders in place to support sales through the next half of the year, which is very good in that business. Wheels and brakes had a very strong first quarter, and we expect that trend to continue. The out-of-production planes, ones that are no longer in production at Boeing and Airbus, have come back, and we're getting stronger sales there. So as we look around the business, even our smaller businesses are seeing good prospects on the aftermarket.
Myles Walton - Deutsche Bank AG
Great. And then one clarification on the restructuring, given a piece of that is military, would any of the restructuring charge potentially be recoverable?
Scott Kuechle
I don't believe so, Myles. I haven't heard that mentioned. But I don't know the answer to that. If it was, I don't think it would be a material change.
Myles Walton - Deutsche Bank AG
Okay, thanks a lot.
Operator
We'll take our next question from Eric Hugel with Stephens.
Eric Hugel - Stephens Inc.
In terms of the aftermarket growth, is there any sort of DeCrane acquisition benefit in those aftermarket sort of year-over-year growth numbers?
Scott Kuechle
There's a very small amount of benefit there because there is some aftermarket associated with those products, but it's negligible. It wouldn't change the rounded numbers in terms of our growth rate.
Eric Hugel - Stephens Inc.
Okay, that makes sense. And Marshall, I guess, maybe what explains sort of the greater than ASM growth in the aftermarket that you're experiencing in your mind when you sort of look at it?
Marshall Larsen
Well, I think that we're very well positioned in businesses like our wheels and brake business that cover a broad spectrum of airplanes. And they're very strong on the A320s, as well as our Aerostructures business is very strong on A320s. And I think that that combination plus the coverage we have on this aftermarket, particularly the ones that are still in production, but as I just said earlier, the legacy, we call legacy, but they're really the airplanes there are no longer in production on the OE side, have bounced back, too. So I think we're positioned just very well.
Eric Hugel - Stephens Inc.
And just one little nick [ph] in terms of your guidance, you raised, I guess, the biz jet from about 30% growth to 30%, 35% growth in the quarter. I guess prior, you said 6% of that was organic. Has that number changed?
Scott Kuechle
Yes, it would change. It's double-digit organic now for the full year.
Eric Hugel - Stephens Inc.
Great, thanks.
Operator
We'll go next to Noah Poponak of Goldman Sachs.
Noah Poponak - Goldman Sachs Group Inc.
I just wanted to try to push again on the margin question. Very good margin performance in the quarter, you recognize the mix shift to OE that you're looking for for the rest of the year. But we've had times in the past where you've pointed to that and then done much better on the margins than you expected to. And you've talked a lot about overhead and efficiency improvements, things of that nature. To the earlier question on SG&A and your response to it, you've been talking about those things for several quarters, and SG&A was growing while you were talking about it, now it finally steps down. You talked about how it takes a lot to come through. It seems like maybe we're at the beginning of that actually hitting the P&L. So is that the right way to think about it? How much headroom is left in those processes, and how much upside is there to what you're telling us on the margins going forward?
Scott Kuechle
I mean, over time, we believe that we can continue to drive margins well above where they are today, but some of the benefit that we got in the first quarter is because of the mix. The aftermarket was growing at 12%, and the OE was half that growth. When you have that mix, we can drive margins up aggressively in that kind of a mix environment. We're expecting that to change a little bit for the balance of the year, where the OE side is going to be growing very rapidly on a sequential basis, whereas aftermarket, we don't think it's going to grow that fast. So that mix dynamic does make a difference when you're looking quarter-to-quarter. But absolutely, we think we can drive margins higher than where they are today and higher than where we expect them to be this year because of those leverage points. When you get volume growth, you get growth again in the aftermarket, which should be sustained for a very long period of time. We can grow through that and drive both the top line at double digit and improve the margins at the same time. That drives a lot of EPS.
Noah Poponak - Goldman Sachs Group Inc.
Great. And then just one follow-up on the aftermarket as well. Marshall, last quarter, I have in my notes you're discussing the sort of monthly progression where you said January was a lot better than the fourth quarter trend. And it's a little short term, but I think it can maybe help. The market has clearly expressed some concern on fuel, and the airline customers may be pulling back a little. So if you could maybe talk about the Feb versus Jan, March versus Feb, and even quarter-to-date if that trend had held to get us more comfortable.
Marshall Larsen
The trend has held. I mean, we've had selected businesses where one month was down and then back up the next month. But generally, the trend overall has held very well, and I think you can tell that by the sequential growth that we've had. So I have no reason to think we're not going to continue this.
Noah Poponak - Goldman Sachs Group Inc.
Okay, thanks a lot.
Operator
We'll go next to George Shapiro with Access 342.
George Shapiro - Citi
Marshall or Scott, if I look at the aftermarket growth this quarter, and maybe my numbers are a little bit off, but it looks like the actuation only grew around 5%, nacelles grew like 14% and electronics grew 15% or 16%. Any reason why the slower growth overall in the actuation aftermarket?
Scott Kuechle
The only business where we saw some declines in aftermarket were on the Landing Gear area, where we had some higher growth in 2010 than what we're expecting in 2011, and that showed true in the first quarter. But all of the other businesses across the company, and we have eight businesses that have significant aftermarket components, all of the other ones were flat or up.
Marshall Larsen
One of the things you got to understand, George, about the Landing Gear business, that aftermarket goes through Boeing because they own the proprietary property on the Landing Gear. And Landing Gear aftermarket is lumpy because it really depends on years ago when the deliveries were. And so it kind of goes in cycles, and you can't, just really can't look at it on just a quarterly basis.
George Shapiro - Citi
But my point then, Marshall, if this quarter's aftermarket revenues pull through the year, you said you'd be at the high end. In reality, this actuation, this Landing Gears probably lower than what it's going to be for the rest of the year, so you can make an easy argument that the subsequent quarters should be higher than the first quarter, no?
Scott Kuechle
No, we don't really think the Landing Gear issue was the one quarter aberration. We expect that volume to be lower this year than last year.
George Shapiro - Citi
Okay. And then just one other quick one, Scott. The increases in the cum [cumulative] adjustments this quarter, they were just related to performance, or was there any relation to the increased production rates that we've been seeing occur?
Scott Kuechle
We get a little bit from some of the A320 volumes, just the way the contracts work where we add volume each quarter. So that's a fairly predictable piece of what we expect in terms of cum adjustments each quarter. But other than that, there were no other production rate increases that flowed through the quarter. Those were picked up in 2010.
George Shapiro - Citi
Okay, thanks a lot.
Operator
We'll go next to Cai Von Rumohr with Cowen and Company.
Cai Von Rumohr - Cowen and Company, LLC
Thanks a lot. Sort of to follow on the cum catches, what was the split of the $21 million? I guess you had $6 million in actuation and $2 million in electronics. Was there $13 million in nacelle? And if you do the $45 million for the year, approximately how would that lay out by your three groups?
Scott Kuechle
I would say only a little bit more for the full year in wheels and brakes, a little bit more in electronics and the bulk of that delta is in nacelles and interiors. I don't have specific numbers on that, Cai.
Cai Von Rumohr - Cowen and Company, LLC
And is it correct that nacelles was about $13 million in the quarter?
Scott Kuechle
Yes, my number is $12 million.
Cai Von Rumohr - Cowen and Company, LLC
Okay, $12 million. About $12 million, that's approximate. So then the other question is I guess you said to George that because -- and that how many quarters is it now, like five or something, where you kind of are consistently low in your estimates of your benefit year. We've been in a period of rising production rates, and you just told George that kind of the A320 rate hikes come in slowly. But those rates are going to continue to move up, so what have you assumed for the balance of the year? You only have another $20 million or so. What have you assumed regarding Airbus production rates and when they phase in?
Scott Kuechle
All of the production rate increases that have been announced to date are already reflected fully in the contracts. So it would have to be a new rate increase from either Boeing or Airbus to have an impact on the contracts from a volume standpoint.
Cai Von Rumohr - Cowen and Company, LLC
Okay. But they said that they might go up so that if they do go up, they would presumably -- in the quarter that they kind of make that official, you would have an incremental benefit?
Scott Kuechle
That is correct.
Cai Von Rumohr - Cowen and Company, LLC
Okay, terrific. Thank you very much.
Operator
We'll go next to Jason Gursky with Citi.
Jason Gursky - Citigroup
Thanks for taking my question. Just going back to business jets for a minute, you did bring it up a little bit and you're seeing a little bit more organic growth. Could you comment on exactly where within the business jet market you're seeing that, and is it related to -- and what specific sort of model is it related to?
Scott Kuechle
Yes, Jason, relative to the growth in our -- the increase in our guidance for this year, it's actually more in the regional market for 2011. So we mix regional business and general aviation all into that OE category. So that was the benefit year-over-year, and the reason for our increase is more of the activity we've seen on the EMBRAER 170, 190 aircraft and some of the large turboprops that go into the regional fleet. If you look out beyond '11, we think there is a good growth story coming on business aircraft. The large cabins are doing well now. The mid-cabins, we expect those to start increasing rates sometime in 2012. I don't think we're going to get much benefit in terms of shipments in '11, but I think once you get to next year, we should be on a good, stable, growing platform for several years after that, and we're very well positioned to take advantage of that. And we've seen -- the macro things that we look at like hours, business jet landings, things like that, they're all trending in the right direction. The level of inventory of the fleet, the pricing in the used aircraft market and the business jet, all those things pointing towards production rate increases in 2012, which would give us, again, growth in that market channel next year.
Marshall Larsen
I think the facts in the aftermarket, we are getting significant double-digit increases in the wheel and brake for business only. I'm not talking about anything else, just the business. And GA side indicates that we're marching down a path. If that continues, where it should have some effect on the OE rates down the road.
Howard Rubel - Jefferies & Company, Inc.
Okay, thanks for the clarification on the drivers of this year.
Operator
We'll go next to Colin Campbell with Societe Generale.
Colin Campbell - Societe Generale Cross Asset Research
I just want to ask a couple of questions on Microtecnica. And you are paying relatively a full price for it, but you highlighted significant growth to come. What sort of growth rate do you see in that business? And to maybe just clarify, I mean, you're paying 11.5x EBITDA for it. What sort of EBIT or what sort of DA does it have, or what sort of EBIT margin is it, please? Thank you.
Scott Kuechle
I'll answer the financial question. I mean, relative to EBITDA margins, that business operates at about the same level that Goodrich does overall, so in that 18% to 19% EBITDA margin. So we would expect fair amount of D&A to come through with the purchase accounting. So while it will be accretive initially, we'll get better accretion as we move on and drive some of the cost synergies through that acquisition. Marshall, do you want me to comment on the business?
Marshall Larsen
Well, I'll start it out. Microtecnica is primarily an actuation business. It fits very, very well with our European actuation business. It gains us entry into Augusta on the helicopter side, which we had no business there before. And they have been growing at a very nice rate and have a significant amount of European helicopter business besides Augusta. And when you add that to some of the military trainer and the Europe fighter, the growth rates look very, very healthy in the next several years. I do think on top of that, it will allow us to get some of our products into some of those customers we haven't been in before. So it fits very nicely. It also allows us to -- it has some capacity. It allows us to move where we're capacity constrained in our European business, to move capacity in there. So in addition to the growth, there's also a fair amount of cost synergy for us.
Colin Campbell - Societe Generale Cross Asset Research
And for our models, we should assume it's completed by the end of Q2?
Scott Kuechle
Yes.
Marshall Larsen
It should be. We're just waiting on the authorities, and that shouldn't be an issue.
Colin Campbell - Societe Generale Cross Asset Research
Thank you.
Operator
We'll go next to Heidi Wood with Morgan Stanley.
Heidi Wood - Morgan Stanley
Actually, a question related to that, Marshall. The focus on ISR and helos and precision munitions and we look at your balance sheet, do you think that -- where do you think that you'll see more opportunities going forward, particularly if the defense budget plateaus? Do you think there's going to be greater opportunity for you to get more active on the defense front?
Marshall Larsen
Well, there might be greater opportunity on that, but we'll be very cautious on the defense side because what we don't want to do is buy into a declining market. And so if there's something that fits nicely with our ISR business or helicopters, for instance, we'll take a look at it. But we don't want to buy into an area that is likely to get cut. We're looking harder on the commercial side. But if we found the right ISR bolt-on, we'd probably consider it.
Heidi Wood - Morgan Stanley
How would you typify--I guess what I'm trying to ask is how do you see the pipeline, Marshall? I mean, as you think about this year versus last year and the year ago, I mean, is it getting a little bit more attractive or valuations still too high?
Marshall Larsen
Well, the valuations have come up, no doubt about that. But a lot of it depends on whether or not you get into a bidding situation, and Microtecnica is a good property, and there were several strategics in there, trying to acquire it. Fortunately, we've had a lot of synergies. But if you compare that to what we did on the DeCrane cabin systems, where you're talking about a depressed market in the business jet, we got that down in the 6 area. Atlantic Inertial Systems was in between that. But I think we're seeing a heated-up M&A market, and it'll become harder and harder to buy at lower multiples. But if we can get the right synergy in a particular acquisition, we'll go forward. But we're not just going to trade dollars for dollars.
Heidi Wood - Morgan Stanley
No, you've been pretty disciplined, actually, in the last couple of years. And then on the Microtecnica, I know you haven't provided guidance yet on 2012, but just sort of sanity check, by our math, we're coming up with a $0.15, $0.20 for next year. Is that reasonable?
Scott Kuechle
Probably a little lower than that, Heidi, for 2012. We think we can get to those kind of numbers out a couple of years later as we get the benefit of synergy.
Heidi Wood - Morgan Stanley
Okay, great. Thanks very much.
Operator
And we'll take a follow-up question from Noah Poponak of Goldman Sachs.
Noah Poponak - Goldman Sachs Group Inc.
Just a quick clarification. On the segment margins, unless I missed it, you said 16.5% to 17% for the total segment. Reiterated yes, it's 16% to 17%, but have not stated your new expectation for actuation and landing in nacelle? Can you just give us the new ranges you're seeing there?
Scott Kuechle
I don't think they've changed much. We're still in the 11% to 12% on ALS and 22%, 23% on nacelles and interiors.
Noah Poponak - Goldman Sachs Group Inc.
So a little better on nacelles and interiors, given the strength in the first quarter?
Scott Kuechle
Yes.
Noah Poponak - Goldman Sachs Group Inc.
Thank you.
Operator
And that concludes our question-and-answer session. I'd like to turn the conference back to our speakers for any closing remarks.
Paul Gifford
Hi, this is Paul Gifford. Thank you all for joining us. Sorry, we ran a couple of minutes late, and I look forward to talking to you over the next few days.
Scott Kuechle
Out on Monday.
Paul Gifford
Yes, by the way, our offices are closed tomorrow for Good Friday and for Easter Monday on Monday. So I will be answering calls today and then be available on Tuesday and after that.
Operator
Thank you, everyone. That does conclude today's conference. We thank you for your participation.
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