Heico Corp. (NYSE: HEI) reported Q2 EPS of $0.55, $0.11 better than the analyst estimate of $0.44. Revenue for the quarter came in at $468.1 million versus the consensus estimate of $462.86 million.

• In the second quarter of fiscal 2020, net income decreased 8% to $75.5 million, or 55 cents per diluted share, as compared to $81.8 million, or 60 cents per diluted share, in the second quarter of fiscal 2019.
• In the second quarter of fiscal 2020, operating income decreased 9% to $108.2 million, as compared to $119.2 million in the second quarter of fiscal 2019.
• The Company's consolidated operating margin was 23.1% in both the second quarter of fiscal 2020 and 2019.
• In the second quarter of fiscal 2020, net sales decreased 9% to $468.1 million, as compared to $515.6 million in the second quarter of fiscal 2019.
• In the second quarter of fiscal 2020, EBITDA decreased 9% to $130.0 million, as compared to $142.2 million in the second quarter of fiscal 2019.

Consolidated Results

Laurans A. Mendelson, HEICO’s Chairman and CEO, commented on the Company's second quarter results stating, "The COVID-19 outbreak, classified by the World Health Organization as a global pandemic (the "Outbreak") has caused significant volatility and a substantial decline in value across global economic markets. Most notably, the commercial aerospace industry has experienced an ongoing substantial decline in demand. As such, our businesses that operate within the commercial aerospace industry have been materially impacted by the significant decline in global commercial air travel that began in March 2020. Once commercial air travel resumes, cost savings will most likely be a priority for our commercial aviation customers and we anticipate recovery in demand for our commercial aviation products, which frequently provide aircraft operators with significant savings.

Our total debt to shareholders' equity ratio was 39.2% and 33.2% as of April 30, 2020 and October 31, 2019, respectively. Our net debt (total debt less cash and cash equivalents) of $393.4 million as of April 30, 2020 to shareholders’ equity ratio decreased to 20.8% as of April 30, 2020, down from 29.8% as of October 31, 2019. Our net debt to EBITDA ratio decreased to .72x as of April 30, 2020, down from .93x as of October 31, 2019. During fiscal 2020, we successfully completed two acquisitions and we completed five acquisitions over the past year. We have no significant debt maturities until fiscal 2023 and plan to utilize our financial strength and flexibility to aggressively pursue high quality acquisitions of various sizes to accelerate growth and maximize shareholder returns.

Cash flow provided by operating activities was strong, increasing 15% to $205.9 million in the first six months of fiscal 2020, up from $178.3 million in the first six months of fiscal 2019. Cash flow provided by operating activities was consistently strong at $124.7 million and $128.7 million in the second quarter of fiscal 2020 and 2019, respectively.

In our Quarterly Report on Form 10-Q for the three months ended January 31, 2020, we provided net sales and net income estimates for fiscal 2020, but noted that it excluded any impact from the coronavirus outbreak as it was at such an early stage. As noted within our Form 8-K, filed on April 15, 2020, we withdrew our fiscal 2020 financial guidance due to recent developments pertaining to the impact from the Outbreak.

We entered the Outbreak with a healthy balance sheet that included a strong cash position and nominal debt. We cannot estimate the duration and magnitude of the Outbreak and cannot confidently predict when demand for our commercial aerospace products will return to pre-Outbreak levels. However, we believe HEICO is favorably positioned for long-term success despite the short-term challenges created by the Outbreak in the global economy. Our time-tested strategy of maintaining low debt and acquiring and operating high cash generating businesses across a diverse base of industries beyond commercial aerospace, such as defense, space and other industrial markets including electronics and medical, puts us in a good financial position to weather this period of economic uncertainty. Accordingly, we continue to forecast positive cash flow from operations for the remainder of fiscal 2020."

Flight Support Group

Eric A. Mendelson, HEICO's Co-President and President of HEICO's Flight Support Group, commented on the Flight Support Group's second quarter results stating, "The Outbreak had an adverse effect on the Flight Support Group’s operating results in the first six months and second quarter of fiscal 2020. Beginning in late March 2020, a significant global decline in commercial air travel resulted in lower demand for our aftermarket replacement parts and repair and overhaul parts and services. As previously mentioned, once commercial air travel resumes, cost savings will most likely be a priority for our commercial aviation customers. We believe demand for our favorably priced commercial aviation products and services will return in advance of the overall market recovery. Furthermore, we believe our cost-saving solutions and robust product development programs will enable us to potentially increase market share and emerge with a stronger presence within this market.

The Flight Support Group's net sales decreased 7% to $553.0 million in the first six months of fiscal 2020, as compared to $595.5 million in the first six months of fiscal 2019. The Flight Support Group's net sales decreased 18% to $252.0 million in the second quarter of fiscal 2020, as compared to $308.3 million in the second quarter of fiscal 2019. The net sales decrease in the first six months and second quarter of fiscal 2020 is principally organic and reflects lower demand across all of our product lines resulting from the significant decline in global commercial air travel beginning in March 2020 due to the Outbreak.

The Flight Support Group's operating income decreased 5% to $109.6 million in the first six months of fiscal 2020, as compared to $115.0 million in the first six months of fiscal 2019. The Flight Support Group's operating income decreased 24% to $47.5 million in the second quarter of fiscal 2020, as compared to $62.2 million in the second quarter of fiscal 2019. The operating income decrease in the first six months and second quarter of fiscal 2020 principally reflects the previously mentioned decrease in net sales and a lower gross profit margin mainly within our aftermarket replacement parts and repair and overhaul parts and services product lines, partially offset by a decrease in performance-based compensation expense.

The Flight Support Group's operating margin increased to 19.8% in the first six months of fiscal 2020, up from 19.3% in the first six months of fiscal 2019. The increase principally reflects a decrease in SG&A expenses as a percentage of net sales mainly from lower performance-based compensation expense, partially offset by the previously mentioned lower gross profit margin.

The Flight Support Group's operating margin decreased to 18.9% in the second quarter of fiscal 2020, as compared to 20.2% in the second quarter of fiscal 2019. The decrease principally reflects the previously mentioned lower gross profit margin partially offset by a decrease in SG&A expenses as a percentage of net sales mainly from the previously mentioned lower performance-based compensation expense."

Electronic Technologies Group

Victor H. Mendelson, HEICO's Co-President and President of HEICO’s Electronic Technologies Group, commented on the Electronic Technologies Group's second quarter results stating, "Demand for our Electronic Technologies Group's products has not been fundamentally impacted by the Outbreak. However, we have experienced, and expect to continue experiencing, periodic operational disruptions resulting from supply chain disturbances, staffing challenges, temporary facility closures, transportation interruptions and other conditions which slow production or increase costs. While these issues have not yet been material, it is impossible to predict their future impact and our current experience indicates the likely effect will be to delay some orders and shipments measured in weeks and months, and to temporarily increase some costs, as opposed to profoundly changing our business overall.

The Electronic Technologies Group's net sales increased 7% to a record $427.4 million in the first six months of fiscal 2020, up from $398.9 million in the first six months of fiscal 2019. The increase is attributable to the favorable impact from our fiscal 2019 and 2020 acquisitions as well as 2% organic growth mainly due to increased demand for our defense products partially offset by lower demand for our space products.

The Electronic Technologies Group's net sales increased 2% to $219.0 million in the second quarter of fiscal 2020, up from $214.5 million in the second quarter of fiscal 2019. The increase is attributable to the favorable impact from our fiscal 2019 and 2020 acquisitions partially offset by an organic net sales decrease of 2%. The organic net sales decrease is mainly attributable to lower shipments of our space products partially offset by increased demand for our defense products.

The Electronic Technologies Group's operating income increased 3% to a record $123.0 million in the first six months of fiscal 2020, up from $119.0 million in the first six months of fiscal 2019. The increase principally reflects the previously mentioned net sales growth and lower performance-based compensation expense, partially offset by a lower gross profit margin mainly due to a decrease in net sales of our space and commercial aerospace products, partially offset by increased net sales of our defense products.

The Electronic Technologies Group's operating income decreased 3% to $65.5 million in the second quarter of fiscal 2020, as compared to $67.4 million in the second quarter of fiscal 2019. The decrease principally reflects a lower gross profit margin mainly due to a decrease in net sales of our space and commercial aerospace products partially offset by increased net sales of our defense products, as well as the previously mentioned net sales growth and lower performance-based compensation expense.

The Electronic Technologies Group's operating margin was 28.8% in the first six months of fiscal 2020, as compared to 29.8% in the first six months of fiscal 2019. The Electronic Technologies Group's operating margin was 29.9% in the second quarter of fiscal 2020, as compared to 31.4% in the second quarter of fiscal 2019. The decrease in the first six months and second quarter of fiscal 2020 principally reflects the previously mentioned lower gross profit margin partially offset by a decrease in SG&A expenses as a percentage of net sales mainly from lower performance-based compensation expense."

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