Date: October 25, 2024
Source: Q3 2024 Revenue Presentation
Key Highlights:
Robust 9m performance: Revenue growth of 17.4% driven by a solid level of services across all business segments and a strong civil aftermarket performance.
Civil Aftermarket Up: A 26.2% increase in US dollar terms, driven by LEAP RPFH and CFM56 spare parts.
Challenges Remain: Low narrowbody OE deliveries and supply chain bottlenecks in specific areas persist.
Portfolio Management: Acquisition of Preligens, an AI leader, and contemplated acquisition of Component Repair Technologies (CRT), an engine MRO provider.
FY 2024 Outlook Update: Revenue guidance revised to reflect actual deliveries, while EBIT guidance has been raised.
Detailed Review:
Financial Performance:
Q3 2024 revenue reached €6.639 billion, representing a 14.0% increase compared to Q3 2023. Organically, revenue grew by 13.8%.
9m 2024 revenue reached €19.686 billion, a 17.4% increase compared to the same period in 2023. Organically, revenue grew by 17.0%.
The average €/$ spot rate for Q3 2024 was 1.10, slightly higher than the 1.09 in Q3 2023.
Business Highlights:
Aerospace Propulsion: Growth driven by strong civil aftermarket performance (+20.5% in USD), military engine services and OE, and helicopter engine OE. LEAP engine deliveries were down year-over-year but up sequentially.
Equipment & Defense: OE revenue increased 19.0%, supported by nacelles, electrical systems, and avionics. Services revenue grew 12.6%, driven by carbon brakes.
Aircraft Interiors: OE revenue surged 30.2%, primarily driven by business-class seat deliveries. Services revenue increased 25.4%, led by cabin spare parts and seat services, particularly in Asia and the Middle East.
Key Challenges:
Supply Chain Bottlenecks: "Safran EXPECTS TO ACHIEVE FOR FY 2024(1) (€/$ spot rate of 1.10 and hedge rate of 1.12) ... around €3.0bn subject to schedule of some advance payments ... Watch items ... Supply chain production capabilities." Safran continues to face challenges due to supply chain disruptions impacting its production capabilities.
Low Narrowbody OE Deliveries: The company experienced lower-than-expected deliveries of Original Equipment (OE) for narrowbody aircraft, affecting overall revenue projections.
Strategic Initiatives:
Acquisitions: Safran acquired Preligens, a leader in Artificial Intelligence, and is contemplating the acquisition of Component Repair Technologies (CRT), an engine MRO specialist. This demonstrates Safran's commitment to expanding its capabilities in key technological areas and strengthening its MRO services.
Share Repurchase: Safran is executing a €1 billion share repurchase plan for cancellation, aiming to enhance shareholder value. The company completed a €250 million tranche in August and is currently executing a €500 million tranche.
Financial Outlook:
Safran revised its FY 2024 revenue guidance to approximately €27.1 billion, reflecting actual delivery figures.
Despite delivery challenges, Safran raised its EBIT guidance, indicating strong profitability and operational efficiency.
Free Cash Flow is expected to be around €3.0 billion, subject to the schedule of certain advance payments.
Important Considerations:
New French Tax Measures: Safran anticipates a significant impact from new fiscal measures in France, including a higher corporate income tax rate and new registration fees on share cancellations. These measures are estimated to increase Safran’s tax expense by €320-340 million in 2024.
FX Hedging: Safran has implemented a hedging strategy to mitigate the impact of foreign exchange fluctuations. The company maintains a significant hedge book of $54.0 billion and has set a 2024 hedge rate of $1.12.
Conclusion:
Safran delivered robust financial performance in the first nine months of 2024, driven by a strong civil aftermarket, growth in services, and strategic acquisitions. Despite challenges posed by supply chain bottlenecks and lower narrowbody OE deliveries, Safran's revised guidance reflects continued confidence in its long-term growth prospects. The company's focus on innovation, strategic acquisitions, and shareholder value creation positions it well for sustained success in the future.
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