BE Aerospace (BEAV) Werner Lieberherr on Q1 2016 Results - Earnings Call Transcript

| About: B/E Aerospace (BEAV)

BE Aerospace, Inc. (NASDAQ:BEAV)

Q1 2016 Earnings Call

April 26, 2016 9:00 am ET

Executives

Greg Powell - Vice President-Investor Relations

Amin J. Khoury - Executive Chairman

Werner Lieberherr - President & Chief Executive Officer

Joseph T. Lower - Chief Financial Officer

Analysts

Seth M. Seifman - JPMorgan Securities LLC

Noah Poponak - Goldman Sachs & Co.

Gautam Khanna - Cowen and Company, LLC

Jonathan Raviv - Citigroup Global Markets, Inc. (Broker)

Robert M. Spingarn - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Peter J. Arment - Sterne Agee CRT

Ronald Jay Epstein - Merrill Lynch, Pierce, Fenner & Smith, Inc.

Myles Alexander Walton - Deutsche Bank Securities, Inc.

Operator

Good morning. My name is Candice Griffin, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the B/E Aerospace First Quarter 2016 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. As a reminder, ladies and gentlemen, the conference is being recorded this day, April 26, 2016. 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 - Vice President-Investor Relations

Thank you, Candice. Good morning and thank you for joining us this morning. Today, we are here to discuss our financial results for the first ended March 31, 2016. By now, you should have received a copy of the news release we issued earlier today. If you haven't received it, you'll find a copy on our website.

We will begin this morning with remarks from Amin Khoury, our Founder and Executive Chairman of B/E Aerospace. Also, on the call this morning are Werner Lieberherr, President and Chief Executive Officer; and Joe Lower, Chief Financial Officer.

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

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 other Safe Harbor statements in the company's filings with the Securities and Exchange Commission.

We will address 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 make sure we get to everyone.

Now, I will turn the call over to Amin.

Amin J. Khoury - Executive Chairman

Thank you, Greg, and good morning, everyone. I am pleased to report that B/E Aerospace has gotten off to a solid start in 2016 as we continue to execute on our plan to deliver sustained revenue growth and earnings per share growth that exceeds revenue growth.

First-quarter revenues increased 4%, net earnings increased 6% and earnings per share increased 10%. In addition, and consistent with our stated capital allocation plan, we repurchased $45 million of our shares during the quarter and we increased our quarterly dividend by 10%.

Lastly, earlier today we increased our 2016 financial guidance. We now expect 2016 revenue growth of approximately 4% and full-year 2016 earnings per diluted share to be in the range of $3.20 to $3.25 per share. We will discuss each of these items in more detail following a discussion of the current market environment and perspectives from the recent Aircraft Interiors Expo in Hamburg, Germany. We will then review our first-quarter 2016 performance, progress on our capital allocation plan and our 2016 outlook.

Now let's discuss the current market environment. Strong industry trends continue to support our revenue growth outlook. Year-to-date global traffic is up 7.8%, driven primarily by the growing middle classes in Asia. Capacity has grown at a rate of about 7.5%, resulting in continued healthy global load factors.

It is worth noting that Asia-Pacific traffic was up 8% last year and has grown at an approximate 7% compound annual growth rate since 2011. The Asian middle classes continue to expand and many are flying for the first time. Asia-Pacific traffic now represents approximately one-third of global traffic and generates a larger share of revenue passenger kilometers than either North America or Europe. China traffic has been resilient through the recent economic slowdown, having grown at about 15% last year.

Strong global traffic, disciplined global airline industry capacity additions, and the favorable resulting load factors have enabled the airlines to achieve and to sustain record levels of profitability. For the full-year 2016, the International Air Transport Association, IATA, is forecasting global passenger traffic growth of approximately 7% and global airline profits of approximately $36 billion, up 10% over the record profit reported in 2015.

Strong traffic growth and record airline profitability are also driving high levels of aircraft deliveries by both Airbus and Boeing. In addition, a robust level of retrofit opportunities have begun to emerge as record levels of traffic and airline profitability are motivating airlines to plan interior cabin upgrades for their aircraft.

Our Commercial Aircraft segment is strategically positioned to outperform in this environment. As the business is leveraged to airline profitability, the airline aftermarket, and commercial aircraft OEM deliveries. We are further benefiting from our extraordinary success in the marketplace as we continue to win market share, which I will address later in my remarks.

In contrast, the business jet market has been adversely impacted by reduced global demand for business jets due to lower oil prices impacting companies and countries leveraged to oil and depressed economic activity in the emerging markets. The business jet original equipment manufacturers are expected to see a net decline in their delivery rates this year. Most analysts are forecasting a decline in business jet deliveries for the full year, with several analysts forecasting a decline in deliveries of approximately 7% as compared to 2015. The civil helicopter market has also been, and is expected to continue to be, negatively impacted by lower oil prices and the cut in capital spending related to oil exploration.

Before I ask Werner to provide us with an overview of the Hamburg Aircraft Interiors Expo, and some of our highly innovative products that were on display, I would like to briefly highlight our product development strategy, which is focused on proprietary, highly engineered products with features and benefits that allow our airline customers to differentiate themselves from their competition, create additional revenue opportunities, and lower the airlines' cost of ownership.

As you know, most of our revenues are generated through direct sales to the airlines and leasing companies rather than to the OEMs. This is referred to as buyer furnished equipment, or BFE. In 2015, BFE revenue accounted for approximately 80% of our total revenues. We are the leading provider of buyer furnished equipment to airlines and leasing companies globally due primarily to our engineering research and development efforts, which result in innovative, certified, highest-quality products delivered on time and backed by best-in-class global customer support.

Our position as the leading provider of aircraft cabin interior products is evidenced by our continued market success, having won more than 75% of super first class seating awards, approximately 50% of business-class and main cabin seating awards and more than 85% of food and beverage preparation and storage equipment awards over the last two years.

An excellent example of our research and development driving innovation is our recent innovations in main cabin seating. We recently announced the launch of our Aspire main cabin seating platform for long-haul, wide-body aircraft. The Aspire seating platform is a B/E Aerospace proprietary design incorporating patented technologies. The Aspire seating platform has been engineered to provide airline passengers with enhanced living space and increased leg and shin clearance, as well as a high level of integration with advanced in-flight entertainment systems. The Aspire seating platform will also be the industry's lightest, full feature, wide-body, main cabin seat.

The Aspire launch follows the successful recent launch of our proprietary Meridian main cabin seating platform for narrow-body aircraft. Southwest Airlines, the world's largest Boeing 737 operator, is the launch customer for the Southwest Airlines version of the Meridian seat and recently received its first ship set of the seats in their new Boeing 737-800 aircraft.

The Meridian full-feature seat is wider and lighter than other narrow-body main cabin seats available in the market and offers increased leg and shin clearance, more personal stowage and an adjustable head rest. Thus far, seven airlines have placed combined orders for 700 ship sets of Aspire and Meridian seating platforms valued at more than $400 million.

Both the Aspire and Meridian seating platforms build on the remarkable success of our proprietary Pinnacle narrow-body and wide-body seating platforms, which at the time of their introductions were the lightest full-feature main cabin seats utilizing advanced proprietary technologies that allow airlines to reduce cost of ownership, simplify maintenance, and increase overall passenger living space. The Pinnacle seating platforms have been selected by 100 airlines for approximately 3,000 aircraft with total orders approximating $1.8 billion thus far.

Our successful development of these products, along with our new premium economy, business class, and super first class seating platforms, our new Essence line of food and beverage preparation and storage equipment, our new Ecosystems wastewater products, our new lighting systems, and our new oxygen systems have resulted in continued significant market share gains producing a record $8.9 billion in total backlog, which underlies our confidence in our growth outlook.

Now, I'd like to ask Werner to provide highlights from the recent Aircraft Interiors Exposition in Hamburg, Germany.

Werner Lieberherr - President & Chief Executive Officer

Thank you, Amin. The Hamburg Aircraft Interiors Expo is an extremely important commercial event for us every year. This year was no different. We had multiple product platforms on display and we met with more than 100 airlines, leasing companies and OEMs from all regions of the world. In all, we hosted more than 300 individual meetings. Based upon the high caliber nature of these meetings, the significant new opportunities identified, and the recognition by our customers of our new product innovations, this year's Expo was a huge success for B/E Aerospace.

We were very pleased by the quality of senior level customer discussions, with more than $3.5 billion of firm opportunities identified, an increase of about 10% over last year. Importantly, several large global international airlines unveiled significant retrofit opportunities.

Throughout the event our customers provided us with very positive feedback, commenting on our continuous innovation across product lines as well as our excellent execution, on time delivery and superior product support.

Our reputation for product innovation was reinforced by our awards at the Annual Crystal Cabin Awards dinner. The Crystal Cabin Award is an annual international award for excellence in aircraft interior innovation. B/E Aerospace has won the award in prior years for products such as our innovative patented lightweight Ecosystems Agile aircraft vacuum toilet, our patented advanced Spacewall lavatory and our patented Essence line of food and beverage preparation and storage equipment.

This year, we were honored to have been part of two Crystal Cabin Awards. First, we won the Crystal Cabin Systems category award with our new patented Viu advanced LED cabin interior lighting system. This innovative all-LED system reduces overall aircraft weight and power consumption. It features adjustable lighting with full spectrum color capability, providing superior cabin ambiance and unprecedented breath of lighting color and control. Our new lighting system employs flexible LED lights and sophisticated optics to illuminate almost every space in the cabin, from general illumination to accent lighting. Viu's flexible form allows it to match curves and contours to conform to any area in the cabin.

We had a private display at our booth to display the capabilities of the Viu LED lighting system for our customers. We believe that there is a very significant commercial potential for this product line which has already developed meaningful traction with airlines and leasing companies. And both Boeing and Airbus are equally impressed with the new lighting system.

Second, one of our customers, Etihad Airways, won in the Crystal Cabin Concepts category for its Boeing 787 first class suites, which B/E Aerospace developed and manufactured. The first class suites on Etihad 787s are exclusive and private spaces with sliding doors that also allow passengers the opportunity to invite travelling companions to join them for meals prepared by the in-flight chef. The comfortable and attractive leather seating converts to a 6-foot, 8-inches long completely lie-flat back. Each first class suite also has a personal wardrobe closet and chilled refreshment refrigerators.

We presented a powerful area of solutions across our product lines, which highlighted our current product leadership and our continued industry-leading investment in innovation and development. We displayed a complete and broad line of seating products. We displayed our successful main cabin seating platforms that Amin noted earlier. Both Aspire and Meridian were in private rooms for showings with select customers only.

In addition, we proudly showed the industry's current best-selling Pinnacle main cabin seating platforms. We also had several versions of our current market-leading premium economy seating platform, MiQ, on display.

In the premium seating category, we showcased our very successful Diamond and Super Diamond business class seating products, and rounded out our seating platform offerings with a number of our super first class suites that were available for private meetings only.

Our award-winning Essence line of food and beverage preparation and storage equipment was on display with our full line of refrigerators, freezers, steam and convection ovens, beverage makers, water boilers and our co-branded Nespresso coffeemaker. In fact, we had Nespresso baristas serving our customers with the finest Nespresso onboard offerings. We also had on display our full offering of oxygen and lighting systems. In addition, we highlighted our Spacewall lavatory, and a number of space-saving cabin interior monuments (17:37).

So, once again, it was an outstanding Expo for B/E Aerospace and we expect strong future orders to materialize out of the meaningful commercial opportunities which emerged during our customer discussions which revalidated our innovative product offerings, excellent execution, on time delivery, and global product support.

I will now turn the call back over to Amin.

Amin J. Khoury - Executive Chairman

Thank you, Werner. Before we discuss our bookings and backlog, I'd like to highlight that the first quarter was a record awards quarter for our food and beverage preparation and storage equipment business. As we have previously mentioned, more airlines are focusing their marketing campaigns around their in-flight meal service. They are highlighting their chef-inspired dishes and offering food quality one might experience in a nice restaurant. This trend, and our outstanding product offerings, continues to drive airlines to our food and beverage preparation and storage equipment. As a result, first quarter was the highest awards quarter ever for our food and beverage preparation and storage equipment business, and our win rate was in excess of 90% for the quarter.

Now let's turn to slide 2 and review our bookings and backlog results for the first quarter of 2016. Bookings during the first quarter were approximately $790 million and the book-to-bill ratio was approximately 1.1:1. Backlog as of March 31 increased to approximately $3.3 billion, while awarded but unbooked backlog was approximately $5.6 billion. Total backlog, both booked and awarded but unbooked, increased to approximately $8.9 billion. Importantly, the backlog is of high quality and includes major programs from the most innovative and important airlines in the world.

Now, let's review our first quarter financial results. Please turn to slide 3 and we'll review our first quarter consolidated results. The bar chart on slide 3 reflects our consolidated first quarter 2016 financial performance compared to the first quarter of 2015. First quarter 2016 revenues of $717 million and operating earnings of $129 million increased 4% and 3% respectively as compared with the prior year period. Operating margin was 18.1%, the increase in revenues and operating earnings was driven by the excellent performance of the commercial aircraft segment. First quarter net earnings per share of $0.81 increased 10%.

Now let's turn to slide 4 and review first quarter 2016 results for our commercial aircraft segment. Our commercial aircraft segment turned in solid financial results for the quarter. First quarter results included revenues of $557 million which increased by 6%. The revenue increase was driven primarily by higher volumes of seating products, food and beverage preparation and storage equipment and initial shipments of A350 galleys and Boeing 737 lavatories. Operating earnings of $105 million increased 6% and operating margin of 18.8% increased 10 basis points compared to the same period of the prior year.

Now let's turn to slide 5 and review the results of our business jet segment for the first quarter. Unfortunately, the excellent first quarter performance of our commercial aircraft segment was partially offset by the results of our business jet segment. First quarter 2016 business jet segment revenues of $160 million did increase at a double-digit rate on a sequential quarterly basis but decreased almost 3% as compared with the same period of the prior year.

Revenues declined as a result of the broad-based downturn in the new business jet and helicopter markets as well as lower volumes of super first class products. Operating earnings were $25 million and operating margin of 15.5% decreased 120 basis points as a result of the lower revenues and an unfavorable mix of products as compared with the prior-year period.

As we previously discussed, we expect our business jet segment to report negative revenue growth in 2016 reflecting current business jet and helicopter OEM headwinds, as well as lower volumes of super first class products.

During 2016, we expect to generate a free cash flow conversion ratio of approximately 75%. We expect our cash conversion ratio to improve to approximately 100% during 2017 and thereafter as we begin recovering the investments we've made in our SFE programs.

Whether cash flow is measured as a percentage of sales or especially when measured as EBITDA minus CapEx, we are among the strongest cash generators in our industry. This provides meaningful funds beyond what is required to support the business and underlies our comfort with our current level of debt. As such, we have set a long-term leverage ratio target of approximately 2.5 times net debt to EBITDA. We expect to achieve that objective primarily as a result of EBITDA growth rather than debt prepayment.

As I mentioned earlier, during the first quarter, we repurchased $45 million of our shares bringing the total value of shares which we have repurchased to almost $200 million over the last nine months. Also during the first quarter, we increased our quarterly dividend by 10% to $0.21 per share.

For the remainder of the year, we are targeting up to an additional $100 million of share repurchases for a total of approximately $300 million of share repurchases during the two year 2015-2016 period.

Now, let's review our outlook. We are pleased with the positive start to our year and continued market success within our commercial aircraft segment. As I mentioned earlier, we have raised our revenue and EPS guidance for 2016.

Now, let's turn to slide 6 where we will review in detail our 2016 updated financial guidance. Revenues are expected to be approximately 4% higher than 2015 revenues. Operating margin is expected to be in excess of 18%. Interest expense is expected to be approximately $92 million. Net earnings per share are expected to be approximately $3.20 to $3.25 per diluted share and our free cash flow conversion ratio is expected to be 75% of net earnings.

In conclusion, our awards, bookings and win rates over the past couple of years have been extraordinarily strong, further strengthening our record backlog and underlying our confidence in accelerating revenue growth in 2017. This combined with disciplined cost control and our shareholder-friendly capital deployment plan supports our expectation for earnings per share to continue to grow faster than revenues.

With that, I will now turn the call back over to Greg for the Q&A portion of this morning's call.

Greg Powell - Vice President-Investor Relations

Thank you, Amin. I will now turn the call over to Candice for the Q&A portion of today's call. She will provide instructions on how to ask a question. Candice?

Question-and-Answer Session

Operator

Thank you. And your first question comes from Seth Seifman with JPMorgan.

Seth M. Seifman - JPMorgan Securities LLC

Thanks very much and good morning.

Werner Lieberherr - President & Chief Executive Officer

Good morning.

Amin J. Khoury - Executive Chairman

Good morning.

Seth M. Seifman - JPMorgan Securities LLC

Amin, I know you mentioned that the mix of BFE and SFE was 80% in favor of BFE last year. Can you tell us what it was in the quarter and relative to the year-ago quarter?

Amin J. Khoury - Executive Chairman

Yes. It's about the same.

Seth M. Seifman - JPMorgan Securities LLC

Okay.

Amin J. Khoury - Executive Chairman

About the same, actually, the full year 2015.

Seth M. Seifman - JPMorgan Securities LLC

Right. For both this – 1Q 2016 and 1Q 2015?

Amin J. Khoury - Executive Chairman

I don't remember what it was in 1Q 2015, but for all of 2015, it was 80%. And it was about 80% in the first quarter of 2016.

Werner Lieberherr - President & Chief Executive Officer

Yeah.

Seth M. Seifman - JPMorgan Securities LLC

Great. Thanks. And then, as a follow-up, the excess over average on the galleys and the lavatories, can you tell us a little bit about how it progressed in the quarter? We saw from the release that there were a few more deliveries of those and is it – are the unit costs progressing downward along the trajectory that you expect?

Amin J. Khoury - Executive Chairman

Yeah, I'm going to ask Werner to talk a little bit about the A350 program and our galleys and how we're doing overall.

Werner Lieberherr - President & Chief Executive Officer

Yes. And I can confirm actually that in terms of deliveries and in terms of unit cost the way we drive it, actually it's meeting our expectations.

Seth M. Seifman - JPMorgan Securities LLC

Okay. Okay. Great. Thanks. Thanks very much.

Operator

We'll move now to Noah Poponak with Goldman Sachs.

Noah Poponak - Goldman Sachs & Co.

Hi. Good morning, everyone.

Amin J. Khoury - Executive Chairman

Good morning.

Greg Powell - Vice President-Investor Relations

Good morning, Noah.

Werner Lieberherr - President & Chief Executive Officer

Good morning.

Noah Poponak - Goldman Sachs & Co.

Is it possible to quantify what the rate of growth was in BFE inside of commercial aircraft in the quarter year-over-year?

Amin J. Khoury - Executive Chairman

What was the rate of growth of BFE for the quarter? No, I don't think we want to quantify the rate of growth of each of the product categories in each quarter, Noah.

Noah Poponak - Goldman Sachs & Co.

Okay. I mean, the reason I'm asking is I'm doing a fair amount of guessing in this model, but it looks like in commercial aircraft, if I split out SFE, that the BFE piece last year had a better first half than second half. And so, the comparisons would be tougher in the first half this year including the quarter you just reported. But it looks like you actually grew it a little bit in the quarter you just reported. And so, if that's all true, if that business were able to kind of, just hold sequentially through the year, the back half of the year growth rates would be pretty good, maybe even into the double-digits. And so I'm kind of just wondering if I'm missing anything in that basic logic?

Amin J. Khoury - Executive Chairman

No. I don't know. Obviously, the growth rate of SFE products would have to be higher than the growth rate of BFE products because the SFE products are starting from a much lower base but...

Noah Poponak - Goldman Sachs & Co.

Yeah. I mean, I have that in – baked into everything; I just thought somehow I'd break that out.

Amin J. Khoury - Executive Chairman

Okay. But the fact of the matter is that BFE continued to be approximately 80% of our business for the quarter the same way it was for all of last year. And I note that the commercial aircraft segment margin expanded during the quarter, with both parts of the business growing, BFE and SFE.

With respect to revenue guidance and we have updated our revenue guidance this morning, we're comfortable with our updated number. We'll see whether it might be any better later in the year; we'll talk about that in maybe the second or the third or the fourth quarter depending upon how it turns out.

Noah Poponak - Goldman Sachs & Co.

Okay. Yeah. I realize it's a little bit of a funky question over the phone without all the numbers in front of you. So – but I wanted to try and I'll follow-up later. Just one follow-up, sort of related to that. For a long time, the fourth quarter was your seasonally strongest revenue quarter for the year. And then, in 2014 and 2015, it was the weakest. So, as I try to, sort of, triangulate the rest of the year, what is the 4Q seasonality of the business now?

Amin J. Khoury - Executive Chairman

The only seasonality we have in Q4 is there are often facility shutdowns for the reconfiguring or rejiggering of lines. We did that one year, it might have been 2014, I don't remember which year it was – it was 2014, and that might have accounted for lower revenues at that time. But, in general, I don't know that the fourth quarter has a particular seasonal difference than the other quarters on a basis where you could expect the fourth quarter to be higher or lower than the prior quarters.

Werner Lieberherr - President & Chief Executive Officer

Exactly. We don't see that. I mean, we have obviously large programs which we execute and it really depends actually how the revenue recognition takes place, but that's pretty much what drives it to a large degree.

Amin J. Khoury - Executive Chairman

It's about the customers and what do they want and when do they want it.

Joseph T. Lower - Chief Financial Officer

It's very programmatic, so you're correct. The last two years, 2014 and 2015 were slightly lower. At this point in time, we're not giving quarterly guidance, but that trend is generally – will probably continue but it's very programmatic. And so, it's very hard to predict quarter-to-quarter based upon program mix.

Noah Poponak - Goldman Sachs & Co.

Was there anything notable from a programmatic perspective in the first quarter you just reported helping you?

Amin J. Khoury - Executive Chairman

No. No.

Joseph T. Lower - Chief Financial Officer

I'd say general strength across the business. I mean, we had strong – as we mentioned, strong performance across the BFE business in addition to SFE revenue growth.

Werner Lieberherr - President & Chief Executive Officer

Plus, I would also say what we obviously see is a strong aftermarket. I mean, we expect to reach aftermarket growth this year. And especially talking about North America, Asia, extremely strong, and then Europe, still holding up, and I would say Middle East, obviously, to a lesser degree, but I mean, that's a very strong piece.

Amin J. Khoury - Executive Chairman

I think what Werner was talking about was spares, and our spares business did grow both sales and bookings at a double-digit rate in the quarter.

Noah Poponak - Goldman Sachs & Co.

Great. Thanks very much. I'll jump back in the queue. Thank you.

Operator

Now we'll hear from Gautam Khanna with Cowen & Company.

Gautam Khanna - Cowen and Company, LLC

Hi. Good morning, guys.

Werner Lieberherr - President & Chief Executive Officer

Good morning.

Amin J. Khoury - Executive Chairman

Good morning.

Gautam Khanna - Cowen and Company, LLC

Just wanted to follow up on your comments about the Hamburg show and I just wondered do you anticipate that we're entering a new retrofit cycle and how does that play out with respect to bookings? Do you expect that as we move later through the year we're going to start to see the book-to-bill trend up as some of these retrofit discussions turn into actual orders?

Amin J. Khoury - Executive Chairman

I think retrofit orders will certainly – are expected to certainly strengthen in the latter part of 2016 and 2017, and we expect a nice lift in retrofit business beginning in 2018.

Werner Lieberherr - President & Chief Executive Officer

Yeah, exactly. I mean the exciting part was really in Hamburg and you remember, we said that in one of our conferences early in the year that we definitely see a retrofit trend is coming. And yes, I mean, these discussions took place. And to Amin's point, exactly right, our revenue recognition somewhere end of 2018, 2019, significant retrofit opportunities obviously in Asia, but then also in North America and so on. So, that's an exciting theme for us.

Gautam Khanna - Cowen and Company, LLC

Okay. And one other question, done some checks, it seems like the A380 assembly rate is going to drop from 26 this year to 18 next year and, obviously, you've talked about the 777 and how you do a bottoms-up forecast. But I did want to know just preliminarily, do you have a view of the over-under on your 7.5% organic sales guidance for 2017? Do you still feel like that's a good number or do you think with all the recent changes, you're going to do better or worse?

Amin J. Khoury - Executive Chairman

We're still comfortable with the guidance that we've given and I don't know that the change in the delivery forecast for the A380 would have any impact on that. In fact, it might be that existing A380s might go through a retrofit and they're about due. But no, there's no change to our thinking about 2017 at the current time.

Gautam Khanna - Cowen and Company, LLC

And last one, Amin, Q4 had the super first class timing slip, did any of that catch up back in Q1?

Amin J. Khoury - Executive Chairman

No. Timing is still on the...

Joseph T. Lower - Chief Financial Officer

So, we did – we...

Amin J. Khoury - Executive Chairman

Yeah, we did. We did. That's right. We shipped the product that we needed to ship. We don't have a very strong backlog for 2016. We have booked some very strong orders for super first class but not for delivery during this year.

Greg Powell - Vice President-Investor Relations

Yeah.

Gautam Khanna - Cowen and Company, LLC

Okay. But it was caught up in the quarter?

Amin J. Khoury - Executive Chairman

Yes.

Greg Powell - Vice President-Investor Relations

Yes.

Amin J. Khoury - Executive Chairman

Yes.

Gautam Khanna - Cowen and Company, LLC

Okay. Thank you very much. I'll turn it over.

Greg Powell - Vice President-Investor Relations

Yeah.

Amin J. Khoury - Executive Chairman

Okay.

Operator

Now we'll move to Citi's Jason Gursky.

Jonathan Raviv - Citigroup Global Markets, Inc. (Broker)

Hey. Good morning. It's actually Jon Raviv on for Jason here. Can you guys just clarify...

Werner Lieberherr - President & Chief Executive Officer

Good morning.

Jonathan Raviv - Citigroup Global Markets, Inc. (Broker)

Hey. Can you just clarify and confirm that your 2017 outlook being essentially unchanged from the last quarter?

Greg Powell - Vice President-Investor Relations

Yeah. We just did.

Amin J. Khoury - Executive Chairman

Yes. Yes.

Jonathan Raviv - Citigroup Global Markets, Inc. (Broker)

And on EPS also, just making sure that this year's outperformance doesn't impact the outlook into 2017? But it sounds like you are reconfirming. So, that's cool. And then on – yes?

Amin J. Khoury - Executive Chairman

Sorry. Go ahead.

Jonathan Raviv - Citigroup Global Markets, Inc. (Broker)

And then on biz jet, when – can you talk a little about the sales and the margin there. I mean, when do we lap the tough comps in biz jet, pure biz jet, helo, and super first class? And then, you're talking about mix impacting biz jet margin. When do those margins recover? How do they recover and what would you define as a good mix in that segment?

Amin J. Khoury - Executive Chairman

Executive seating is an excellent product line and executive seating shipments are down. And they're down because biz jet deliveries are down. Seating for helicopters, civil helicopters is also an excellent product line with very good margins. And those shipments are down and they're down because civil helicopter manufacturing and sale is down very substantially because of the collapse in oil prices and the reduction in offshore oil exploration. So, an improvement in the volume of those products would have a very positive impact on the margins for the business jet segment.

Jonathan Raviv - Citigroup Global Markets, Inc. (Broker)

Okay. Thanks.

Operator

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

Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker)

Hi. Good morning.

Werner Lieberherr - President & Chief Executive Officer

Good morning.

Amin J. Khoury - Executive Chairman

Good morning, Rob.

Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker)

So, this more robust rollout of new retrofit opportunities that you talked about earlier, I think both, Amin, you and Werner talked about this. Just it sounds like the market is heating up a little bit on the retrofit opportunity side. Does this reflect the normal course of business and just normal cyclicality? Are we actually seeing some real extension of existing fleets due to low fuel prices?

Amin J. Khoury - Executive Chairman

I think maybe it's a little bit of both, but I think it's much more the former than the latter, that is so many international airlines have ordered and have begun to take delivery of new wide-body aircraft, whether they be 777s or A350s or 787s. And they are beginning to turn their attentions to the balance of their fleets – their existing wide-body fleets, whether they be A330s or 777s or A380s or whatever they are. And in the normal course, that should be happening about now and apparently it is beginning to happen as there was a lot of discussion about say 40:08), in Hamburg and since.

So, I think it's mostly the former that is the normal cycle. But certainly, there are some airlines that are thinking about maybe extending the lives of some of the older airplanes which they have because of the lower price of oil. As I think about that, I think that's mostly narrow-body airplanes rather than wide-body airplanes. And narrow-body airplanes don't have that much of a retrofit component. There are some major 737 operators which are ordering new equipment who are – which are likely to do some retrofits. But I think it's much more the former which you mentioned rather than the latter.

Werner Lieberherr - President & Chief Executive Officer

And this is exactly the type of discussions we had in Hamburg. And we talk about these retrofit opportunities. We are talking here about large global carriers and, obviously, that's the exciting part. And as you can imagine, to Amin's point, if you have new aircraft coming into the fleet, you need equalize actually to keep your customers happy because there's a pretty strong competition out there. So, that's the theme.

Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker)

So, just to follow on with that. It's very interesting when you both said, but, Amin, particularly you said that it's more on the narrow-body side. We've learned that on the wide-body side, reconfiguring aircraft if they change fleets may be quite expensive. Have you seen any change in desire to do that with the recent macro change in oil prices and so on, that airlines might be more willing to take on a wide-body fleet and spend $10 million per aircraft on a changeover more so than they used to be?

Amin J. Khoury - Executive Chairman

There are almost no wide-body retrofit programs, which don't also carry with them a lot of engineering services and support. And one of the important ways that we market our products is using our engineering capabilities to develop alternative LOPAs for the airline, to help them to improve their revenues or profitability or to create additional space for passengers to move around or for a wide range of different reasons but there are almost no retrofit programs that don't carry with them substantial engineering capabilities and resources and revenues. And we have a large engineering operation, which is a freestanding business, which is primarily focused on reconfigurations.

Werner Lieberherr - President & Chief Executive Officer

Exactly. And when I talk about these global carriers, I mean really twin aisle aircraft. And I think when you take a little bit broader perspective, think about this, I mean you just heard from Amin, IATA actually 6.9% growth, I mean it's phenomenal. And then you look at the GDP of average 3.1%, it's almost – you can almost see like a little bit decoupling between GDP and growth of the airlines when you look in particular, Asia, U.S. and so on. And definitely, partly is driven by lower fuel price, but that's how the airlines look at that.

And they think, you know what, this makes a lot of sense to me actually to upgrade my fleet, to equalize my fleet. And that's what they are doing, and they really think large scales. And yes, this is significant money to be invested, but it's worth to do it.

Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker)

Okay. And then just a last question on – still on seating, there's been a lot of talk lately about Boeing reaching into the SFE market for a new vendor, I think it's 737 economy class, but you could do that work too. What is B/Es opportunity to participate in that kind of work? And I think you may already be doing it in some cases.

Amin J. Khoury - Executive Chairman

It's not really of interest to us. I mean, what Boeing is doing is in reaction to a really serious problem which they've got. One of the major seating suppliers in the world has not been delivering on time and actually holding up the delivery of airplanes. There are airplanes sitting on the ground right now, which the airlines would like to have and which Boeing and/or Airbus would like to ship but are unable to do so.

And so, the reaction to that is for the OEMs to try to have an SFE offering to be able to at least move those aircraft out the door. Whether that will work or not remains to be seen because the airlines have such strong preferences for differentiating their aircraft cabin interiors, including especially the seating products. So with respect to our situation in particular, I think I mentioned earlier that our win rates on new programs for main cabin seating have been much higher than our market share gains. Our win rates are above 50%.

We've talked about the launch of our new Aspire and Meridian products and the success that we've already had and the – so, our expectation is that we will continue to gain share based on the backlog that we already have and the win rates that we already have and that our share of the business will be growing whether or not Boeing is able to sell some of these products to some of their airline customers. We don't know how that's going to work out, but our share continues to grow and grow substantially.

Werner Lieberherr - President & Chief Executive Officer

Exactly. And when you look into – I mean, Airbus had a similar initiative with an SFE seat. Look, we compete every day. And just looking at Hamburg, we had 31 seating suppliers actually there. So, we take it serious.

We are fully focused but I would say we have the best product development team in the industry. There's no question in my mind. It's from a development perspective, it's from a certification perspective, and that drives weight, that drives costs. And we feel that we are in the right position to gain share, as Amin said.

Amin J. Khoury - Executive Chairman

I think, also, the best global customer support which is a really big deal...

Werner Lieberherr - President & Chief Executive Officer

Very good point, Amin. Very good point. Yeah.

Amin J. Khoury - Executive Chairman

Okay. Any more...

Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker)

Yeah. Thank you, all.

Greg Powell - Vice President-Investor Relations

Thanks, Rob.

Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker)

Yeah. Thank you.

Operator

Next we have Peter Arment with Sterne Agee CRT.

Peter J. Arment - Sterne Agee CRT

Yeah. Thanks. Good morning, gentlemen.

Werner Lieberherr - President & Chief Executive Officer

Good morning.

Peter J. Arment - Sterne Agee CRT

Hey, just quick question, Amin. Can you clarify on R&D, it was down year-over-year. Is this just more or less timing? What are you expecting R&D to look like for the year in terms of spending? I think you've been averaging the last few years about 10% of sales.

Amin J. Khoury - Executive Chairman

Yeah. Joe is going to...

Joseph T. Lower - Chief Financial Officer

So, the answer is it is programmatic. We do anticipate to continue invest at about 10% of sales.

Peter J. Arment - Sterne Agee CRT

Okay.

Joseph T. Lower - Chief Financial Officer

But it will fluctuate as we've mentioned before. It fluctuates by quarter really by program. So, the trend is going to continue at about 10%.

Peter J. Arment - Sterne Agee CRT

Okay. And then one just quick one. Amin, you mentioned helicopter headwinds. And I just – I don't remember overall what your overall percentage of sales mix is for helicopters. Can you give us a little bit of color there?

Amin J. Khoury - Executive Chairman

We have about 50% share of the civil helicopter seating market. So, very big market share. I don't believe we've ever disclosed the revenues for that specific product line. In fact, we don't disclose revenues by product line. So – but it's an important product category for us, high margin with very large market share.

Peter J. Arment - Sterne Agee CRT

Okay. Is there any – have you, I guess, in general, regarding that particular product line, has it been – I mean, is this kind of tracking with what you've expected in terms of where the production rates are, or is this kind of a new level down that you saw in the quarter?

Amin J. Khoury - Executive Chairman

The level was depressed during the quarter. And it's depressed because of the collapse in oil prices, which has continued now for quite some time. And so, capital spending in the oil and gas industry has declined dramatically over the course of the year and has declined precipitously quarter-by-quarter. So, the civil helicopter seating business has taken a beating as has the business jet market because of so many countries and companies that are leveraged to oil and gas. So, that business is down and we don't expect it to really begin to turn around until such time as the oil and gas prices begin to recover.

Peter J. Arment - Sterne Agee CRT

Okay. Thanks for that. And thanks. Nice quarter.

Amin J. Khoury - Executive Chairman

Sure.

Operator

Bank of America Merrill Lynch's Ron Epstein has our next question.

Ronald Jay Epstein - Merrill Lynch, Pierce, Fenner & Smith, Inc.

Yeah. Hey. Good morning, guys.

Werner Lieberherr - President & Chief Executive Officer

Good morning.

Amin J. Khoury - Executive Chairman

Good morning.

Ronald Jay Epstein - Merrill Lynch, Pierce, Fenner & Smith, Inc.

Yeah, Amin and Werner, just maybe a question for both of you. We've heard from several suppliers that they're seeing some stress in the supply chain. I'm just curious what you guys are seeing and how you've been managing through it because it seems like you guys have been doing a great job doing that.

Amin J. Khoury - Executive Chairman

Well, I think maybe Werner and I will both take a crack at it. I mean the stress in the supply chain is mostly targeted at one specific company and the stress becomes almost intolerable when airplanes cannot be delivered on time. You have airlines that are often – they often have scheduled major parties and rollouts for their new aircraft on a new route and everything has to be changed or they've got – they actually have traffic and they've sold tickets and expect to be able to utilize the airplanes on a route and it is an enormous problem when the airlines can't get their airplanes on time and the airframe manufacturers end up having multiple airplanes sitting out on the tarp and not being able to deliver the airplanes. And so that is about as much stress as you can possibly have in the system, but it's mostly oriented to a single supplier.

There is always some stress in the system. I'm pleased to say that we are not contributing to that stress at the present time. We've got a terrific record for on time delivery of quality products. But I think that the extra conversation about the stress in the system has to do with the late deliveries of airplanes being caused by one of the major suppliers in the industry.

Werner, did you want to comment?

Werner Lieberherr - President & Chief Executive Officer

Yeah. Yeah. I appreciate that. Yeah. So, supply chain obviously is a mission-critical piece of the execution, and that really starts actually with engineering, that you have the right drawings and specifications in place on time, and then drive that with the supplier side. I do think we do a very good job, and as you can see, we are pretty hands-on people when it comes to execution. So, we watch that very carefully. We have key performance indicators in place. And especially while you execute these larger programs, also drive costs in terms of low-cost suppliers. I think that really needs special oversights. But I think we have terrific supply chain teams in place who actually make that happen every day.

Ronald Jay Epstein - Merrill Lynch, Pierce, Fenner & Smith, Inc.

Okay. And then maybe just one follow-up with just one kind of forecasting detail. When you guys think about the larger cabin business jet market as we go through the rest of this year into next year, can you share with us how do you think about what the growth or shrinkage in that market might be? I mean, how are you guys modeling it?

Amin J. Khoury - Executive Chairman

I think that question is better addressed to the manufacturers of the business jets that you're talking about. I mean, our schedule has to do with their waterfall charts and their – those numbers we pretty much understand and they understand. But I don't think that we want to talk about their specific delivery plans for the balance of this year. You should address that question to them, okay?

Ronald Jay Epstein - Merrill Lynch, Pierce, Fenner & Smith, Inc.

Yeah, yeah. Fair enough. But, I mean – I guess the root of the question is I mean, do you see the risk as an under or an over to what you have?

Amin J. Khoury - Executive Chairman

I think that we mentioned that our expectation for the full year is that delivery of business jets is likely to be down in the neighborhood of around 7% for the full year as compared to last year.

Ronald Jay Epstein - Merrill Lynch, Pierce, Fenner & Smith, Inc.

Okay. Great.

Amin J. Khoury - Executive Chairman

Okay.

Ronald Jay Epstein - Merrill Lynch, Pierce, Fenner & Smith, Inc.

Thank you very much.

Operator

Thank you. And our last question comes from Myles Walton with Deutsche Bank.

Myles Alexander Walton - Deutsche Bank Securities, Inc.

Thanks for taking the question. It did look like the European backlog actually pops back up pretty nicely. And I'm curious, is that something that's a broader trend that's improving, because that's been on the decline for a while, but it does seem like it may have turned here from the backlog perspective in the quarter?

Amin J. Khoury - Executive Chairman

That's customer specific. I wouldn't attribute any major trend in Europe to the increase in the backlog in Europe. It's really customer specific.

Werner Lieberherr - President & Chief Executive Officer

Yeah.

Myles Alexander Walton - Deutsche Bank Securities, Inc.

But – well, you mentioned Asia-Pac, but I mean, Europe seems like it had been the one region that has been lagging the last 18 months to 24 months. As a region. Is that stabilizing...?

Amin J. Khoury - Executive Chairman

Yeah, it has lagged and we've spoken about that in the past and I mean, Europe has some pretty significant economic woes and has growth issues. And most of the growth in the world is coming from Asia, Pac Rim, Middle East, not so much Europe. Even North and South America are doing better than Europe. So, it has been a laggard in terms of the major area of the world with respect to growth in revenue passenger miles which, of course, is what drives profitability and what drives load factors and drives revenue and earnings. So, it has been a laggard.

Nevertheless, the airlines do need to spend money on their aircraft. They do need to replace older aircraft. They do need to do retrofits and so forth. So, it is, I would say, at the current time, it has been the global laggard, but the outlook is for some improvement in the future.

Werner Lieberherr - President & Chief Executive Officer

Exactly. When you look, for example look in Europe for this year, according to the IMF, about 3.1% GDP and – but when you look from revenue per kilometer at just in February alone, about 7.5. So, that's what we see.

To Amin's point, the way to think is these airlines compete in a very international environment, whether it's a BA, whether it's a Lufthansa, Air France and so on. And they need to have a very competitive fleet and very competitive interior aircraft equipment.

Myles Alexander Walton - Deutsche Bank Securities, Inc.

Okay. Good. And then, Amin, the only other one, I guess, it's a follow-up to Rob's question, OEM trends. So, maybe you want to get a little bit more involved in interiors. But STELIA, which is owned by Airbus, is that increasing as a competitive threat or is that a stable competitive threat?

Amin J. Khoury - Executive Chairman

STELIA will probably do a little better with the major competitor in the industry having so much difficulty. So, I think everyone in the industry will benefit to some extent by the difficulties of one of the largest suppliers in the world which is steadily losing share to – certainly to us and pretty much to the rest of the supply base as a group. And so STELIA, I think, booked one or two orders, something like that. So, they are one of the ones that will benefit, as will everyone.

Werner Lieberherr - President & Chief Executive Officer

But we don't see an increased level of competition as Amin said, from STELIA in particular. We don't see that.

Myles Alexander Walton - Deutsche Bank Securities, Inc.

Okay. Very good. Thank you.

Amin J. Khoury - Executive Chairman

Thank you, everyone, and we wish you all a good day.

Werner Lieberherr - President & Chief Executive Officer

Yeah. Thank you.

Operator

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

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