Airbus Group SE. (PA:AIR) Q117 margin was lower than expected, at 1.8% compared to market consensus of 2.5%, mainly due to weaker pricing of old aircraft and higher costs of production for new ones. The helicopter division also made an unexpected loss. However, management confirmed its FY17 guidance and is confident that the challenging production ramp-up is on track.
Negative price mix effect on EBIT is not a trend
Revenues were up 7% year-on-year to €13.0bn (3% ahead of consensus) driven by higher commercial aircraft and helicopter deliveries. Airbus Defence and Space (ADS) was stable; the lower headline revenue number (-17% y-o-y) was due to the sale of the defence electronics business and the formation of the launchers JV. Group EBIT adjusted was down 52% y-o-y. This was due to an adverse price and mix effect in civil aircraft, lower helicopter flying hours as a result of weak oil and gas markets, the financial impacts from the partial H225 fleet grounding following last year’s crash and the perimeter change at ADS. New order activity was low in the first quarter, but this is to be expected and the order book of over 6,700 commercial aircraft represents just under 10 years of production at 2017 rates. Free cash flow (before M&A and customer financing) was better than expected at -€1,269m reflecting the strong focus on working capital amid the production ramp-up and back-loaded deliveries.
Management confirms FY17, which may be cautious
Quarterly numbers at Airbus are often very lumpy and can unhelpfully cloud the long-term growth story. Management is confident of meeting its FY17 guidance and may well exceed it, as it is guiding for 700 aircraft deliveries but targeting 720. Harald Wilhelm made clear on this morning’s call that the Q117 margin is not indicative of the full year number and that he continues to expect mid-single digit growth in EBIT adjusted compared to 2016.
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