Heico Corp. Continues to Ride Acquisitions to Growth

By Travis Hoium Markets Fool.com

Heico Corp. (NYSE: HEI) is riding a wave of growth in both aircraft sales and acquisitions, pushing financial results higher. On Tuesday after the market closed, management released fiscal fourth-quarter results and guidance for 2017. Here are the key takeaways for investors.

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Image source: Getty Images.

Heico Corp. results: The raw numbers

Metric

Q4 2016

Q4 2015

Year-Over-Year Change

Sales

$363.3 million

$328.7 million

10.5%

Net income

$44.3 million

$38.3 million

15.7%

Diluted EPS

$0.65

$0.56

16.1%

Data source: HEICO Corp. Q4 2016 earnings report.

What happened with Heico Corp. this quarter?

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Growth in both the top and bottom lines at Heico was helped by organic growth and acquisitions. The company's acquisition spree over the last year or two has helped it gain market share and, based on guidance, should be driving further growth. Here are some of the components beneath the headlines that investors should understand.

  • Acquisitions played a big role in the growth you see above, but organic growth in the third quarter was still 4%.
  • Flight support group net sales were up 5% to $228.5 million and operating income was up 6% to $44.7 million.
  • Management expects mid-single-digit growth for the flight support business in 2017, with operating margin falling slightly from 19.6% in the quarter to between 19% and 19.5%.
  • Electronic technologies group sales jumped 22% to $138.3 million, driven by acquisitions over the last two years. Operating income was up 12% to $36.8 million, which was lower than sales growth because of product mix and increased intangible asset amortization expenses.
  • Guidance for the electronic technologies group is for mid- to high-single-digit growth with an operating margin of around 24%, down slightly from 24.7% in the third quarter.
  • Guidance for 2017 is for 5% to 7% in sales growth and 7% to 10% in net income growth.
  • Management increased its semiannual dividend to $0.09 per share payable on Jan. 18, 2017.

What management had to say

There aren't any major weaknesses in the business, with defense and commercial aviation sales expected to grow. Management also said it would maintain "an aggressive acquisition strategy," so we could see some more deals coming down the pipeline. But it's notable that guidance figures above don't account for any acquisitions.

With a balance sheet that has no debt maturities until 2019, management is hoping to use the industry's tailwinds as a way to expand. And with cash flow from operations of $249.2 million last fiscal year, the opportunity to expand is now.

Looking forward

Given Heico's recent success and industry growth, expectations are high for growth and that's what will be key to watch. Management needs to hit organic growth targets to keep the stock moving higher.

It will also be interesting to see if commercial and military sales continue to pick up. The industry has been growing consistently since the recession because of new products and growing demand, which could eventually slow down. That's not on management's horizon yet, but it's worth looking for going forward.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Heico. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.