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Aircraft Parts Firm Carries Investors on Wild Ride

Wesco Aircraft Holdings Inc. has seen 52-week highs and lows in the past three months as momentum from an acquisition and improving economy ran into a report of weak quarterly earnings and a downgrade of its stock. The Valencia aerospace parts supplier hit a 52-week high in late October, when the share price reached $18.12, and then dropped to $13.48 by mid-December. It closed Jan. 7 at $13.25. About a year ago, Wesco announced it would acquire Haas Group Inc., in West Chester, Pa. for $550 million. The deal made sense because Wesco supplies hardware, tools, electrical products and machined parts to commercial and military aircraft manufacturers, while Haas sells chemicals to the same buyers. But in mid-November, Wesco saw a one-day 18 percent drop in its share price following the announcement of its fiscal fourth quarter performance. Also, shares saw a 5 percent drop in December after financial services firm Deutsche Bank downgraded Wesco shares to “sell” from “hold.” Bill Baker, president of GARP Research Securities & Co., in Reisterstown, Md., said that Wesco was hit by “a double whammy” of poor quarterly earnings and an outlook for 2015 impacted by anticipated lower sales to a major aerospace company. “Investors do not want to hear that,” Baker said. In a November conference call with analysts on the fourth quarter earnings, then-Chief Executive Randy Snyder said the company would face a $50 million “headwind” in fiscal 2015 due to a contractual change with a major customer. Snyder, who retired from Wesco in December, would not name the customer but several analysts said that it is Boeing Co. in Chicago. “This is a unique situation and one that we are not seeing with any other customer,” Snyder said during the call. Wesco reported net income of $24.6 million (25 cents a share) for the fourth quarter ended Sept. 30, compared with net income of $30 million (32 cents) in the same period a year earlier. Revenue rose 74 percent to $408 million, a reflection of the Haas acquisition. Analysts surveyed by Thomson Financial estimated net income of 37 cents a share on revenue of $412 million. Wesco has about 2,700 employees in 19 countries. It became a public company in 2011 as part of the long-term exit strategy by its main investor, asset management firm Carlyle Group L.P. in Washington, D.C., which has a 24 percent stake. The silver lining for Wesco is that the company is projected to have organic growth in the new fiscal year, Baker said, adding that it has a good competitive advantage and its shares remain reasonably priced. “People can get despondent of a company trading at $14 but if you look out a few years the earnings are going to grow,” Baker said.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.
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