As Boeing swallows larger rival KLX Aerospace, smaller aerospace fasteners, parts and supply chain services provider Wesco Aircraft is racing to restructure but may already be seeing the effects of the giant acquisition.
“There's been relatively small change in the competitive environment,” Wesco CEO Todd Renehan said. “The competitive environment is always aggressive, has always been aggressive – especially aggressive around big contract renewals. They don't come up that often, and everybody wants them.”
Renehan spoke as the California-based company issued fiscal 2018 fourth quarter and yearly results, and updated investors and analysts about the so-called Wesco 2020 restructuring plan. Net sales were $1.57 billion, almost 10% over fiscal 2017, primarily due to higher long-term contracts and ad-hoc sales, according to the company. Net income was $32.7 million, or $0.33 per diluted share, in fiscal 2018, compared with a $237.3 million loss, or $2.40, the previous year.
The company also provided guidance for fiscal 2019 that included a "high-single digit" increase in adjusted pretax earnings and “flattish” operating margins, all of which will be buffeted by a higher tax rate.
The company’s stock price has dropped roughly 12% since the Nov. 15 update. “The fourth quarter marked the fourth straight quarter of solid organic growth, but fiscal 2019 guidance will likely pare [Wall] Street estimates materially,” noted Cowen and Co. analyst Gautam Khanna.
The company had been restructuring since at least fiscal 2017, but Renehan took over in April and in May the company unveiled a larger turnaround plan that entailed management and plant cuts, new automation for inventory management and office administration, and other business-focus changes (Aerospace/Aviation Daily, May 17). In the latest update, Renehan’s team cautioned most investments under the plan were coming this fiscal year, including a warehouse management system, and 2020 would be when the results showed in fiscal reports.
The CEO also reiterated his confidence in the company’s business. “There has been ample opportunity for market share gain that we're working on with several customers around the world,” he said.
The company’s recent quarterly results also reflected aerospace and defense growth marketwide, especially as OEMs and subcontractors ratcheted up ordering. “It was really a solid quarter in both commercial, in military, specifically with the government, and we have capitalized on the increased ordering and our improved execution in the past has helped us gain share,” Renehan said. “We're certainly getting some tailwind from the market and tailwind from the customers picking up their operations. Lead time stretching a little bit, 32 to 40 weeks, and we are capitalizing on every bit of it.”