Shares for space and defense components provider Heico retreated Tuesday after reporting fiscal second-quarter results after the bell Monday, one week after making a record acquisition. Shares broke out on Friday leading up to the report but quickly reversed following the release.
The Hollywood, Fla.-based outfit produces components, electronics and control and test systems for customers in the defense and aerospace industries.
Heico is broken into two main segments. The Flight Support Group (FSG) consists of Heico Aerospace and its subsidiaries. FSG touts itself as the world's largest independent provider of FAA-approved aircraft replacement parts with a significant overhaul and repair service business. It manufactures more than 100,000 parts for commercial and military customers, ranging from landing gear to F-16 jet engines.
The Electronics Technologies Group (ETG), including Heico Electronics and its subsidiaries, services defense and space companies. It specializes in mission-critical subcomponents like power supplies, shielding equipment and laser and X-ray technology. Most ETG products are utilized for aircraft, satellites, missiles and drones. But it also supplies products to medical and nonflight defense systems.
Record Acquisition
On May 15, Heico announced it entered an agreement to acquire Wencor Group for $1.9 billion in cash and $150 million in Heico class A stock. The $2.05 billion aggregate price marks the largest transaction in company history, Heico said in the announcement.
Peachtree City, Ga.-based Wencor is a large commercial and military aircraft aftermarket company that specializes in FAA-approved aircraft replacement parts, repair, overhaul and value-added distribution services. Wencor's 1,000 employees and 19 facilities across the U.S. add to Heico's 9,000-strong workforce and 100 facilities worldwide.
Heico expects Wencor will generate $724 million in adjusted pro forma revenue and $153 million in earnings before interest, taxes, depreciation and amortization (EBITDA), respectively, in the 2023 fiscal year.
Wencor will become part of the Flight Support Group, and Heico expects to "achieve meaningful synergies from the acquisition." But the company declined to provide details in the release.
Heico expects the deal to close by the end of 2023, noting it's subject to customary closing conditions and antitrust clearance.
Earnings
Heico earnings accelerated the past two quarters, spiking 26% to 63 cents per share for its Q1 results in February.
For its Q2 results late Monday, Heico reported earnings leapt 24% to 76 cents per share while revenue vaulted 28% to a record $687.8 million. The results mark four straight quarters of 20% sales growth or greater.
Analyst forecasts predicted a 17.7% earnings jump to 73 cents per share. Revenue was projected to rocket 25% to $674 million.
Heico reported net debt of $625.7 million for the quarter, up from $148.6 million last year but lower than the $640.2 million in Q1. The company's net debt to net income ratio was 2.0x for the quarter compared to 0.83 in Q4 largely due to financing its $5.1 million acquisition of Exxelia International in January 2023.
The company did not provide a specific outlook for the remainder of the fiscal year but expects net sales growth across both its operating segments. However, continued inflationary pressures and lingering supply chain disruptions may lead to higher material and labor costs, Heico noted in its release.
Heico Stock
Heico has two classes of common stock that trade on the New York Stock Exchange. Its class A Common Stock trades under the ticker HEIA and the Common Stock trades under HEI.
The two share classes are virtually identical in all economic respects except for their voting rights. Class A shares carry 1/10 vote per share while HEI stock carries one vote per share.
Both HEI and HEIA are trading just below buy zones after surging to briefly surpass their respective buy points after the acquisition news.
HEI is trading well below the buy zone for its flat base after jumping 7.8% on May 15 to overtake the 177.65 buy point. Shares eased the following days but the stock is holding above its key technical moving averages. The buy zone, which extends 5% beyond the buy point, stretches to 186.53.
HEI stock tumbled 7.9% Tuesday and is close to triggering the 8% sell rule. Heico stock edged up slightly prior to the report. Shares advanced 11.5% year to date.
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