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Despite a Downgrade, Spirit AeroSystems’ Guidance Looks Good

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Spirit AeroSystems’ cash flows in 2Q16

Despite a significant drop in profits, Spirit AeroSystems Holdings’ (SPR) FCF (free cash flows) were flat YoY (year-over-year) at $161 million. FCF is derived by deducting capital expenditures from operating cash flows. FCF highlights the amount of cash a company is able to generate after accounting for expenditures to maintain its asset base.

In SPR’s case, lower cash inflows from operations were offset by lower capital expenditure in 2Q16. The lower capital expenditure was due to a favorable comparison. The company incurred expenditures related to the Boeing 787 (BA) program in 2Q15.

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Spirit AeroSystems’ 2016 guidance

Spirit AeroSystems (SPR) maintained its 2016 revenue guidance in the $6.6 billion–$6.7 billion range. However, the company revised its EPS (earnings per share) guidance from the previous range of $4.15–$4.35 to $3.45–$3.65. The revision was in consideration of one-time costs of 86 cents related to charges on the Airbus (EADSY) agreement, debt refinancing charges, and CEO retirement costs related to Larry Lawson’s retirement on July 31, 2016. Excluding these one-time charges, SPR’s EPS for the whole year would have been in the $4.30–$4.50 range.

Spirit AeroSystems also upgraded its free cash flow guidance by $25 million to $350 million–$400 million on the assumption of a lower tax rate of 31%. Previously, the company had assumed a tax rate of 31.5%–32.5%. Investors should note that the forward losses associated with the Airbus agreement were non-cash charges.

The company had a backlog of $47 billion in 2Q16. Airframers (PPA) Boeing (BA) and Airbus currently have a backlog of more than 12,500 aircraft (XAR), which Spirit AeroSystems said is enough to sustain eight years of production.

In the next and final part, we’ll analyze SPR’s recent stock performance and price-to-earnings multiple.

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