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HC

HEICO CORP (HEI)·Q4 2024 Earnings Summary

Executive Summary

  • HEICO delivered record Q4 results: net sales $1.014B (+8% YoY), operating income $218.6M (+15% YoY), net income $139.7M (+35% YoY), diluted EPS $0.99 (+34% YoY); consolidated operating margin rose to 21.6% (+140 bps YoY) .
  • Flight Support Group (FSG) drove the quarter with record net sales $691.8M (+15% YoY) and operating income $154.5M (+35% YoY); operating margin expanded to 22.3% (from 19.0%), underpinned by 12% organic growth and strong aftermarket parts demand (+13%) .
  • Electronic Technologies Group (ETG) remained solid but softer YoY: net sales $336.2M (-1.8% YoY), operating income $81.8M (-5.3% YoY), margin 24.3% (vs. 25.2% prior year); management cited defense sales lumpiness and ongoing destocking in non‑A&D end markets, with record backlog supporting a FY25 return to growth .
  • Cash flow from operations surged 39% to $205.6M; net debt/EBITDA improved to 2.06x at year‑end (from 3.04x), and the Board declared a $0.11 semiannual dividend payable January 2025, marking the 93rd consecutive dividend .

What Went Well and What Went Wrong

What Went Well

  • FSG delivered all-time quarterly records in net sales ($691.8M) and operating income ($154.5M), with margin expansion to 22.3% driven by robust organic growth (+12%) and improved gross margin from aftermarket and repair lines .
  • Wencor integration continues to exceed expectations, with tangible cooperation across PMAs/DERs, sales, e-commerce, engineering/regulatory, vendor sharing, and back‑office synergies; “Wencor is going to be the gift that keeps on giving” (Eric Mendelson) .
  • Cash generation and leverage improved materially: CFO $205.6M (+39% YoY); net debt/EBITDA reduced to 2.06x; management reaffirmed deleveraging trajectory and acquisition pipeline robustness .

What Went Wrong

  • ETG posted modest YoY declines: net sales $336.2M (-1.8% YoY), operating income $81.8M (-5.3% YoY), margin down to 24.3% (from 25.2%) due to lower defense and other electronics sales and less favorable gross profit mix; destocking persists in non‑A&D markets .
  • Sequential FSG margin dipped ~20 bps versus Q3 due to slightly higher amortization and normal quarterly mix “noise,” though still within the expected 22–23% operating margin range (CFO commentary) .
  • Small fourth‑quarter items: ~$1.5M trade name impairment and ~$1M contingent earn‑out accretion, split between segments, creating minor margin “noise” .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Net Sales ($USD Millions)$936.4 $992.2 $1,013.7
Operating Income ($USD Millions)$189.4 $216.4 $218.6
Operating Margin (%)20.2% 21.8% 21.6%
Net Income Attributable to HEICO ($USD Millions)$103.4 $136.6 $139.7
Diluted EPS ($)$0.74 $0.97 $0.99
EBITDA ($USD Millions)$234.2 $261.4 $264.0
Cash Flow from Operations ($USD Millions)$148.4 $214.0 $205.6

Segment breakdown

Segment MetricQ4 2023Q3 2024Q4 2024
FSG Net Sales ($USD Millions)$601.7 $681.6 $691.8
FSG Operating Income ($USD Millions)$114.6 $153.6 $154.5
FSG Operating Margin (%)19.0% 22.5% 22.3%
ETG Net Sales ($USD Millions)$342.5 $322.1 $336.2
ETG Operating Income ($USD Millions)$86.4 $75.8 $81.8
ETG Operating Margin (%)25.2% 23.5% 24.3%

KPIs

KPIQ4 2023Q3 2024Q4 2024
Net Debt / EBITDA (x)3.04 2.11 2.06
Total Debt ($USD Millions)$2,478.1 $2,259.1 $2,229.4
Cash & Equivalents ($USD Millions)$171.0 $202.9 $162.1
Net Debt ($USD Millions)$2,307.0 $2,056.2 $2,067.3
Inventories, net ($USD Millions)$1,013.7 $1,124.8 $1,170.9
D&A ($USD Millions)$43.7 $44.3 $44.7
Dividend Declared ($/share)—$0.11 (July increase) $0.11 (Jan 2025 payable)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated Net SalesFY2025Positive growth outlook (Q3) Anticipate net sales growth in FSG and ETG driven primarily by organic demand and recent acquisitions Maintained positive outlook
FSG Operating MarginFY2025Long-run 22–23% framework (Q2/Q3) Consistent 23–24% operating margins with slight improvement via SG&A leverage (seasonally lighter Q1) Raised vs long-run baseline
ETG Operating Margin (GAAP)FY2025Target ~24% quarter capability (Q2) Baseline ~24% GAAP, expect lumpiness; margins exceeded 24% in Q4 Maintained
Inorganic ContributionFY2025M&A pipeline robust; delever to ~2x Recent ETG deals (SVM, Mid‑Continent Controls, Marway) and FSG Capewell; contributions “not material” near-term Clarified minimal near‑term
D&AFY2025—Expected similar to FY2024, flexing with acquisitions New commentary
Working CapitalFY2025Inventory builds elevated post COVID/Wencor Inventory growth slope moderating as long‑lead commitments roll off; receivables management strong Improving trajectory
DividendJan 2025$0.11 semiannual (July) $0.11 declared; 93rd consecutive semiannual dividend Maintained

Earnings Call Themes & Trends

TopicQ2 2024 (Prior-2)Q3 2024 (Prior-1)Q4 2024 (Current)Trend
Wencor integration & synergiesPMA/DER utilization, sales cooperation, e-commerce listing, manufacturing leverage Expanded cooperation; cash margins robust; ongoing integration with Honeywell display IP Continued synergies; “gift that keeps on giving”; double-digit organic FSG growth Strengthening
Supply chain constraintsETG supply chain largely normalized with pockets of delays Aviation supply chain still challenged; past-due backlog limits repair shipments OEM supplier recovery uncertain; aftermarket demand likely to remain strong Persistent constraints favor aftermarket
Aftermarket parts growth+21% organic in parts line +17% organic in parts; volume-driven +13% organic; broad-based demand High but moderating on tougher comps
Defense/government opportunityETG double-digit defense growth; lumpy Defense robust; ETG defense ~40% of segment Medium-term DoD cost-savings opportunity under new administration; government adoption of PMA/DER discussed Building medium‑term tailwinds
ETG non‑A&D destockingEarly signs of order turn expected H2 FY24 “Bottoming” order rates; record backlog Destocking improving; expect return to growth in H1 FY25 Improving
R&D / TechnologyETG R&D ~5% of sales; Connect Tech/NVIDIA data center demand Continued backlog/quotes into FY26 Continued innovation focus, engineering/regulatory cooperation across HEICO/Wencor Sustained investment
Leverage/M&ANet debt/EBITDA 2.45x; acquisitive stance 2.11x; appetite for larger deals intact 2.06x; robust pipeline; recent tuck‑ins; pro‑business regulatory outlook Capacity to resume M&A

Management Commentary

  • “Consolidated net income increased 35% to a record $139.7 million or $0.99 per diluted share... Consolidated EBITDA increased 13% to $264 million” (Larry Mendelson) .
  • “We continue to operate Wencor as a stand‑alone business... strategy as cooperation, cash, capabilities and consistency without consolidation” (Eric Mendelson) .
  • “Before acquisition-related intangible amortization expense our [ETG] operating margin was above 28%... on what we think of as a true operating basis, these are excellent margins” (Victor Mendelson) .
  • “Our priorities include continued strong new products and services development, further expanding market penetration, and maintaining our financial strength and flexibility” (Larry Mendelson) .
  • “FSG operating margins [are] between 23% and 24% pretty consistently... slight improvement as we grow the base [and] get SG&A leverage” (Carlos Macau) .

Q&A Highlights

  • Wencor synergy and growth: Teams are cross-utilizing PMAs/DERs, manufacturing and sales channels; management expects continued synergies and views Wencor as a durable multi‑year growth lever .
  • Defense/government cost-savings: Management sees “low‑hanging fruit” for DoD adoption of PMA/DER alternatives and improved procurement processes; opportunity likely medium‑term, not immediate FY25 .
  • Margin outlook: FSG margins expected to incrementally improve via SG&A leverage; Q4 sequential dip (~20 bps) seen as normal noise and slightly higher amortization; ETG baseline ~24% GAAP with lumpiness .
  • ETG destocking: Non‑A&D order rates “bottoming” with better backlog; management anticipates sequential sales recovery starting H1 FY25 .
  • Supply chain: Aviation supply chain challenges persist; component repair shipments constrained when any single BOM part is missing, sustaining aftermarket parts momentum .
  • In‑sourcing: HEICO manufacturing capabilities increasingly support Wencor’s new product development, enabling cost, quality, and delivery benefits .

Estimates Context

  • Wall Street consensus from S&P Global for Q4 2024 EPS and revenue could not be retrieved due to API rate limits at the time of this analysis; therefore, an estimates comparison (beat/miss) is not available. Values would normally be retrieved from S&P Global.

Key Takeaways for Investors

  • FSG is the growth engine: double‑digit organic growth, margin expansion, and robust cash margins (~25% pre‑amortization) suggest durable aftermarket strength; supply chain constraints and OEM delivery uncertainty should keep legacy aircraft spend elevated near term .
  • ETG softness looks transitory: non‑A&D destocking and quarterly defense lumpiness pressured Q4, but record backlog and order trends point to a return to growth in H1 FY25; margins remain strong at ~24% GAAP (28%+ pre‑amortization) .
  • Balance sheet and dry powder: net debt/EBITDA at 2.06x and rising CFO ($205.6M in Q4) position HEICO to pursue opportunistic M&A while maintaining flexibility; management’s appetite includes larger deals as regulatory tone improves .
  • Wencor synergy is a multi‑year catalyst: cross‑selling, manufacturing leverage, and combined PMA/DER breadth are driving organic growth and margins across parts, repair, and specialty products; expect continued revenue and efficiency gains without full consolidation .
  • Near‑term trading setup: Sequential margins may exhibit normal “noise,” but the narrative remains favorable—record FSG performance, improving ETG backdrop, and strong cash generation are supportive against macro and OEM execution risks .
  • Medium‑term thesis: Defense and government cost‑savings initiatives, specialty products acceleration in FY25, and a robust acquisition pipeline underpin multi‑year growth, with HEICO’s decentralized model sustaining entrepreneurial execution and margin discipline .

Sources

  • Q4 2024 press release (Form 8‑K, Exhibit 99.1), financial statements and non‑GAAP reconciliations .
  • Q4 2024 earnings call transcript: prepared remarks and Q&A .
  • Q3 2024 press release (Form 8‑K) and financial statements .
  • Q3 2024 and Q2 2024 earnings call transcripts for trend analysis .

Note on non‑GAAP: EBITDA and net debt/EBITDA are supplemental measures; see non‑GAAP reconciliation in HEICO’s press releases .