Q3/24 FIRST LOOK; MORE PREDICTABLE RESULTS HEADING INTO KEY Q4
THE TD COWEN INSIGHT
BBD reported Q3/24 adj. EBITDA of $307 million (TD/cons: $308 million/$294 million). We believe results support a bias higher to the share price due to adj. EBITDA consensus beat, aftermarket revenue strength, unchanged guidance, and 1.0x b:b ratio. Lower-than-forecast adj. EBITDA margin (despite services/large cabin delivery strength) should correct in Q4 given guidance is unchanged.
Impact: SLIGHTLY POSITIVE
We continue to believe low valuation doesn't reflect the approaching investment grade balance sheet, growth outlook and increasing revenue diversification. Q3 results and guidance (unch) support all these trends and were ahead of consensus on the key Adj. EBITDA metric.
Revenue of $2.07 billion increased 12% y/y (TD/cons: $1.92 billion/$1.82 billion). Deliveries declined 3% y/y to 30 (management indicated deliveries pulled into Q2 from Q3 in preparation for the strike) (TD: 31), with 4 less medium cabin aircraft and 3 more large.
GD Aerospace (Gulfstream) and TXT Aviation (Cessna) reported 4% and 5% y/y increases, respectively, in Q3 business jet deliveries. Services revenue increased 28% y/y to $528 million (TD: $453 million; GD+16%; TXT +5%) and are tracking above $2 billion 2025 target.
Adj. EBITDA margin decreased 60 bps y/y to 14.8% (TD/cons: 16.0%/16.1%). Difference vs. forecast due to R&D and SG&A. Will look for more clarity on the cc as revenue mix suggests slightly higher margin % than forecast.
Orders: Book-to-bill (units) of 1.0x compares to GD's ($) 1.0x in Aerospace (biased higher due to push out of 12 G700s) and Cessna's ($) 1.1x (biased higher by impact of strike). We view ~1.0x b:b as encouraging given current industry backlogs and economic conditions.
Free cash flow usage was $127 million (TD/cons: usage of $144 million/usage of $53 million). Difference due to cash earnings ($227 million vs. TD: $186 million) and capex, partially offset by w/c (A/P, contract liabilities and other liabilities).
Balance Sheet: T4Q adj. net debt-to-adj. EBITDA increased sequentially to 3.6x (TD: 3.6x) from 3.5x.
2024 Guidance: No change to full year guidance of 150-155 deliveries (TD: 151), revenue of $8.40-8.60 billion (TD/cons: $8.87 billion/$8.60 billion), adj. EBITDA of $1.30-1.35 billion (TD/cons: $1.39 billion/$1.36 billion), FCF of $100-400 million (TD/cons: $265 million/$263 million), and adj. EBITDA margin of 15.6% at mid-point (TD/cons: 15.6%/15.8%).