Safran Raises 2013 Profit Forecast on Spare-Parts Demand

Safran SA, Europe’s second-largest maker of aircraft engines, raised its 2013 profit forecast after increasing demand for spare parts drove a 23 percent jump in first-half operating profit.

Adjusted recurring operating income will rise by about 20 percent this year, Safran said today in a statement. That compares with a previous prediction of a “mid-teens” percentage increase in earnings. The company reiterated a forecast, raised in April, that revenue will jump by a percentage in the “mid-to-high single digits.”

The improvement in first-half figures was primarily driven by aerospace activities in propulsion and by equipment, Safran said. The Paris-based company also benefited from favorable trends in the after market, or sales of spare engines and parts for airliners already flying. Safran builds powerplants for single-aisle planes made by Boeing Co. and Airbus SAS.

“This was a strong result,” Robert Stallard, a London-based analyst at RBC Capital Markets said in a note. “The after market and guidance raise giving investors ample reason for interest.”

Sustained Improvement

The strong growth in spare parts and commercial engine sales should continue for the rest of the year and into 2014, Chief Financial Officer Ross McInnes said in a Bloomberg Television interview today. Spare-parts sales saw 24 percent growth compared to the year-earlier period, when the business was weak, he said.

The company expects its joint venture with General Electric Co. to build more than 1,400 CFM56 engines for Boeing’s 737 model and Airbus’s A320s this year. The partners also have combined to secure more than 5,000 orders for the CFM56’s replacement, the Leap-X powerplant, McInnes said.

Safran fell as much as 0.5 percent to 41.77 euros, reversing an increase earlier in the day, and was trading down 0.4 percent at 1:06 p.m. in Paris. The stock has gained 31 percent this year, valuing the manufacturer at 17.8 billion euros ($23.7 billion).

First-half recurring operating income, which excludes one-time gains or costs, rose to 847 million euros from a restated 687 million euros a year earlier, Safran said. Net income surged 59 percent to 658 million euros, while revenue increased 10 percent to 7.07 billion euros.

The company is targeting about 40 percent of free cash flow on adjusted recurring operating income. Meeting the target is challenging, and will depend on government payments in the second half, Safran said in a presentation to analysts.

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