BUSINESS

Heroux-Devtek says F-35 fighter jet sales will be stable in coming years

05/25/2012 04:09 EDT | Updated 07/25/2012 05:12 EDT
MONTREAL - Heroux-Devtek expects of its production of landing gear for the F-35 jet fighter will remain stable for the next few years before taking off due to international orders.

"For the next two to three years there's somewhat limited growth but after that period we see some strong growth on the F-35 program as international sales start to show up and the U.S. also buys more airplanes," CEO Gilles Labbe said Friday.

Some industry experts had anticipated that deliveries might decrease this year as countries reassess their participation in the much-discussed and expensive planes.

But Labbe said he expects deliveries of landing gear will be unchanged at about 42 units this fiscal year.

"It's not if, but when, on the F-35 the ramp-up will happen."

Canada's Conservative government froze spending on the F-35 program after the auditor general produced a withering report accusing the Department of National Defence of keeping Parliament in the dark about the program's spiralling costs.

Michael Ferguson pegged the projected 20-year cost of the program, including maintenance, at $25 billion.

The government has said it expects to pay US$75 million for each of the 65 aircraft. But others, including Canada's parliamentary budget officer, have said the actual cost could be close to double that figure.

Some military programs will decrease in the coming year as governments look to trim their budget deficits. But Labbe also expects growth on the Boeing CH-47 Chinook helicopter.

Heroux-Devtek (TSX:HRX) expects overall revenue will increase by five per cent in fiscal 2013, largely as a result of the ramp-up of production on large commercial aircraft and recovery in the business jet market.

Boeing and Airbus have announced production rate increases for their 777 and A320 aircraft and the manufacturers have backlogs representing about seven years of production.

As well, Embraer's new Legacy business jet should contribute later in the year and Bombardier's (TSX:BBD.B) Learjet 85 will follow in fiscal 2014.

Heroux says Bombardier's plans to upgrade its smallest Learjets will also help boost sales of the planes.

Heroux-Devtek beat expectations as its fourth-quarter profit increased 12 per cent to $8.9 million and it generated record full-year sales and profits.

The quarterly profit amounted to 29 cents per share, which was two cents above a consensus estimate compiled by Thomson Reuters.

The company, headquartered in Longueuil, Que., supplies the commercial and military aerospace sectors with landing gear systems and airframe structural components from 12 manufacturing facilities. Its industrial segment provides large components for power generation equipment.

Heroux-Devtek's revenue was $109 million in the fourth quarter, also ahead of analyst estimates. The company says its aerospace sales were stable but sales increased in the industrial division.

For the full 2012 financial year ended March 31, Heroux-Devtek had $380.3 million in revenue — up 6.4 per cent from last year. Net income for the year was $26.5 million or 86 cents per share on a diluted basis.

That's up from $357.6 million in revenue and $19.1 million of net income, or 63 cents per share, in fiscal 2011.

"Despite a hesitant economy, the majority of our strategic aerospace and industrial markets gained momentum," Labbe told analysts.

Meanwhile, its manufacturing facility in Mexico is ramping up to full production in the second half the year.

Further expansion is planned to provide customers, including Bombardier, with low-cost components.

"We will have to continue to invest in Mexico in 2014 to grow it because $5 million to $6 million (in) sales over there is not good enough," Labbe said.

Cameron Doerksen of National Bank Financial called Heroux's guidance of five per cent revenue growth "conservative," saying it could accelerate with new programs ramping up.

"Our favourable view of Heroux-Devtek is driven by the fact that its key commercial aerospace end markets remain very strong," he wrote in a report.

On the Toronto Stock Exchange, Heroux-Devtek shares were down 10 cents at $8.18 in late afternoon trading Friday.