Safran Earnings: Solid Set of Results In Line With Our Expectations

Wide-moat Safran SAF reported a strong set of results for the third quarter, driven by narrow-body air traffic available seat kilometers ahead of 2019 levels, with second-quarter ASK at 107% of the third-quarter 2019 level. Management raised its revenue outlook for the full year. Narrow-body demand ahead of 2019 levels, coupled with pent-up demand in original equipment and aftermarket, supports our 2023 view, and we maintain our fair value estimate.

In the third quarter, Safran achieved revenues of EUR 5.8 billion, with all business segments contributing to the group’s impressive organic revenue growth of 25.9%. Strong travel demand drove up spare parts sales and aftermarket services, particularly in the civil aerospace segment. This surge in demand more than compensated for the lower deliveries of original equipment, primarily caused by persistent supply chain constraints and rising inflation. Safran has adjusted its full-year growth forecast for LEAP engine deliveries to a range of 40%-45%, down from the previous estimate of approximately 50%. Meanwhile, the growth projection for civil aftermarket sales has been raised to the low 30s from the mid to high 20s.

Despite the improved product outlook, Safran’s management has retained its previous EBIT (earnings before interest and taxes) guidance. This decision is due to the positive impact of a stronger aftermarket being partly offset by inflation-related challenges and an increase in revenue per flying hours contract on LEAP engines, with Safran recognizing 0% margin on these contracts until 2025.

While Safran acknowledges the ongoing supply chain difficulties, the company remains committed to executing its production ramp-up and achieving its financial objectives for 2023.