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Why Is Heico Corporation (HEI) Up 9.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Heico Corporation (HEI - Free Report) . Shares have added about 9.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Heico Corporation due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Heico Q1 Earnings Beat Estimates, Sales Increase Y/Y

HEICO’s first-quarter fiscal 2022 earnings per share (EPS) of 63 cents surpassed the Zacks Consensus Estimate of 56 cents by 12.5%. The bottom line improved 23.5% from the prior-year period’s figure of 51 cents per share.

The year-over-year improvement can be attributed to higher net sales and operating income.

Total Sales

The company’s net sales increased 17% year over year to $490.3 million in the reported quarter, primarily driven by the consistent rebound observed in demand for the company’s commercial aerospace products and services.

Moreover, total sales beat the Zacks Consensus Estimate of $479 million by 2.4%.

Operational Update

HEICO’s total costs and expenses increased 15.9% year over year to $391.5 million in the quarter under review. The increase was due to the higher cost of sales as well as SG&A expenses. 

Segmental Performance

Flight Support Group: Net sales surged 36.8% year over year to $272.7 million, driven by enhanced demand for the majority of its commercial aerospace products and services along with the impact of its profitable fiscal 2021 acquisitions.

Operating income soared 102.8% year over year to $52.4 million on the improved gross profit margin and efficiencies realized from the higher net sales volume. Further, its operating margin expanded massive 620 basis points (bps) to 19.2% compared with 13% in the prior-year period.

Electronic Technologies Group: The segment’s net sales slipped 0.6% to $222.3 million in the quarter under review, primarily due to lower demand for its defense and space products, partially offset by increased demand for medical and other electronics products. The benefits from fiscal 2021 acquisitions contributed to this segment’s sales growth.

The segment’s operating income decreased 7.6% year over year to $55.6 million, primarily on the net sales decline and lower gross profit margin. The company’s operating margin contracted 190 bps to 25%.

Financial Details

As of Jan 31, 2022, HEI’s cash and cash equivalents totaled $124.8 million compared with $108.3 million as of Oct 31, 2021.

Cash flow provided by operating activities was $78 million during the fiscal first quarter, reflecting a 27.3% decline from the prior-year period.

HEICO reported long-term debt (net of current maturities) of $235.7 million as of Jan 31, 2022, slightly up from $235 million as of Oct 31, 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Heico Corporation has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Heico Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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