Jul. 31--Spirit AeroSystems surprised Wall Street analysts Thursday when it reported $8 million in losses in the second quarter, down from profits of $86 million a year ago.
Revenues in the quarter were flat year over year at $1.06 billion.
The losses were related to a variety of issues, including a $93 million pre-tax charge from higher-than-expected development costs on the wing for Gulfstream's new G250 business jet.
"This is obviously a disappointing quarter for Spirit financially," president and CEO Jeff Turner told analysts in a conference call Thursday.
Losses also stemmed from the residual effects of a Boeing strike, rework due to faulty nutplates, and parts shortages and disruptions from the transition to a new software system.
Spirit also took an $11 million charge during the quarter related to its work on Cessna Aircraft's Citation Columbus business jet program. Cessna officially canceled the program earlier this month.
All of those issues came to a head during the same time.
"That created an imperfect storm that created a real loss of productivity," Turner said.
The company thought it could manage its way through all the issues, Turner said, but "We overestimated our ability to swallow those."
Analysts were caught off guard by the earnings results.
"What a mess," Macquarie Securities analyst Rob Stallard wrote in a report. "Although the cancellation of the Citation Columbus and a write-off (of) the associated costs have been well flagged, the loss on the Gulfstream G250 comes as a surprise to us."
The $93 million in losses on the program is equal to a full year of profits in Spirit's wing systems division, Stallard wrote.
The loss is especially disappointing because Spirit has touted its success in winning new work in non-Boeing markets, he said.
"In our view, if these wins are at the expense of profitability, that defeats the point of diversifying," Stallard said.
Management of the program -- controlling the requirements and engineering changes -- wasn't as good as it should have been, Turner said.
Development took longer, and costs rose higher than planned. At the same time, the market for midsize jets slumped. With lower delivery expectations, the ability to recover the costs was uncertain, Turner said.
The company recently delivered its second wing to Gulfstream.
"They fit well," he said. But "we spent way too much getting there."
As a result, Spirit has put in a robust program management process and made a number of management changes in Tulsa, Turner said.
"We believe these changes will get the G250 program back on track," he said.
Residual effects from a Boeing strike also had an effect on results.
The strike caused disruption at Spirit as workers went to shortened workweeks and inventory built up, Turner said. Even though the strike ended and Spirit began shipping products in the first quarter, smooth production flow hadn't returned, he said.
Production problems were aggravated by the need to replace thousands of faulty nutplates installed on Boeing planes at Spirit. The nutplates had not been treated for corrosion, and the problem was discovered after thousands had been installed.
Spirit sent a crew to Seattle to help with the rework, taking workers away from their normal production duties, Turner said.
The company continued to meet customer deliveries and made "good progress" in returning to pre-strike operating efficiencies, the company said. During the third quarter, Spirit is "back on track," Turner said.
Despite the poor quarter, Turner said the company still has a good base of business. Spirit's backlog at the end of the second quarter totaled $28.2 billion, a slight decrease from the end of the first quarter as Boeing and Airbus deliveries exceeded orders.
Reach Molly McMillin at 316-269-6708 or firstname.lastname@example.org.
Spirit takes immediate action to reduce production volumes on Boeing products as a result of the International Association of Machinists (IAM) strike.
According to the suit, Spirit AeroSystems discovered in August that up to 30 percent of its nutplates had not been coated with cadmium to prevent corrosion.
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