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    Loar Holdings Inc (LOAR)

    Q2 2024 Earnings Summary

    Reported on Feb 20, 2025 (Before Market Open)
    Pre-Earnings Price$62.31Last close (Aug 12, 2024)
    Post-Earnings Price$65.00Open (Aug 13, 2024)
    Price Change
    $2.69(+4.32%)

    What went well

    • LOAR's acquisition of Applied Avionics is expected to significantly enhance their portfolio with high-quality, proprietary products and increase aftermarket exposure. The company anticipates doubling EBITDA in 3 to 5 years from this acquisition, indicating substantial growth potential. ,
    • The company is experiencing strong demand and record backlog in the commercial aftermarket segment, with bookings above 1.1 to 1.2 times book-to-bill ratio. This robust order activity suggests sustained growth in the aftermarket business. , ,
    • LOAR's strategic changes in pricing and lead times have increased visibility and improved margins in the aftermarket. With backlogs now extending to 3-5 months compared to just 2 weeks a year ago, the company is better positioned to plan production and meet demand, supporting continued growth.

    What went wrong

    • LOAR is paying high acquisition multiples, such as the recent acquisition of Applied Avionics for $385 million at an implied EBITDA multiple of 18.3x, which could pose risks if expected growth or synergies do not materialize.
    • Delays in realizing cost synergies from the relocation of a manufacturing facility from California to Ohio are taking longer than expected. The anticipated benefits will now impact 2025 and beyond, potentially affecting near-term profitability.
    • LOAR is experiencing order pushouts related to Boeing OEM products and is skeptical about Boeing's production forecasts. This skepticism could negatively impact their Large Commercial OEM revenue growth, especially since they are not planning for a significant turnaround in the near term.

    Q&A Summary

    1. Applied Avionics Acquisition Return Expectations
      Q: What are the return thresholds for the Applied Avionics deal?
      A: Management explained that despite the high implied multiple of 16x EBITDA after tax benefits , they expect to double the EBITDA of Applied Avionics within 3 to 5 years. They see significant opportunities to improve margins and grow the business, viewing it as a high-quality asset that fits their acquisition criteria.

    2. Strong Aftermarket Outlook
      Q: Are you seeing any slowdown in the commercial aftermarket?
      A: Management stated they have not seen any signs of a slowdown in the commercial aftermarket , with bookings remaining strong and quoting activity higher than a year ago. They are confident in the continued strength, describing the outlook as "blue skies".

    3. Boeing MAX and Airbus OE Assumptions
      Q: How are you viewing OE assumptions for Boeing MAX and Airbus?
      A: They are skeptical of OEM production rate forecasts for the MAX, planning for significantly less and noting customers are pushing out Boeing-related orders. For Airbus, orders have been strong, contributing to sales uplift, and they see this continuing. Strong orders from Embraer and other manufacturers are driving double-digit growth rates.

    4. Pricing Opportunities on Long-Term Agreements (LTAs)
      Q: Are there opportunities to increase prices on LTAs due to inflation?
      A: While LTAs represent about 10% of revenues and are mostly on the military side , they expect to secure price increases in the near term, impacting 2025 more than 2024. They are in discussions on a few LTAs and intend to get price adjustments on those contracts.

    5. Pending PMA Approvals and Future Growth
      Q: Will pending PMA approvals boost aftermarket growth above industry trends?
      A: Yes, they have several PMA applications pending with the FAA , focusing on products like composite and steel brakes for legacy platforms. Approval delays due to FAA workload mean these will impact 2025, but are expected to drive growth above industry averages.

    6. Strategy Change Impact on Aftermarket Growth
      Q: How did the new pricing strategy contribute to 19% organic aftermarket growth?
      A: Changing to a minimum 90-day lead time for best pricing has improved visibility to 3–5 months and allowed better production planning. This strategy helped drive the 19% organic growth in the aftermarket.

    7. Productivity Initiatives and Future Benefits
      Q: What productivity initiatives are you working on this year?
      A: They identify high-return projects annually, such as moving a business from California to Ohio to achieve synergies. While benefits are delayed due to learning curves, they expect to realize them in 2025 and beyond.

    8. New Product Introductions Driving Growth
      Q: Are you tracking to the 1–3% organic growth from new products?
      A: Yes, they are tracking to the 1–3% organic growth target this year , with investments across all product lines, including valves, restraints, and brakes. Products like the cockpit door barrier will drive sales in 2025 and contribute to growth.

    9. M&A Strategy and End Market Focus
      Q: Are you open to acquisitions outside aerospace and defense?
      A: No, acquisitions must be aerospace-focused. They are agnostic within aerospace end markets—commercial, general aviation, business jet, military—but aim for a balanced portfolio to mitigate risks and opportunities.

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