Moog Inc (MOG.A) 2015 Q4 法說會逐字稿

Good day, and welcome to the Moog fourth-quarter FY15 earnings conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Investor Relations Manager, Ms. Ann Luhr. Please go ahead.

Good morning. Before we begin, we call your attention to the fact that we may make forward-looking statements during the course of this conference call. These forward-looking statements are not guarantees of our future performance, and are subject to risks, uncertainties and other factors that could cause actual performance to differ materially from such statements. A description of these risks, uncertainties and other factors is contained in our news release of November 6, 2015, and our most recent Form 8-K filed on November 6, 2015, and in certain of our other public filings with the SEC.

We've provided some financial schedules to help our listeners better follow along with the prepared comments. For those of you who do not already have the documents, a copy of today's financial presentation is available on our Investors Relations webcast page at www.moog.com.

John?

Good morning. Thanks for joining us. This morning we report on the fourth quarter of FY15, and reflect on our performance for the full year. We will also affirm our guidance for FY16.

As usual, I'll start with the headlines for the quarter. First, earnings per share in the quarter of $0.75 included $0.13 of incremental restructuring and impairment costs, and $0.04 of higher tax expense than our forecast from 90 days ago. Operating profit came in very close to flat. Second, we had a record quarter for free cash flow to close out a record year. Third, we repurchased 938,000 shares in the quarter to bring our full-year repurchases to 4.8 million shares, or 12% of the outstanding shares from the start of the fiscal year. Finally, we are leaving our guidance for FY16 unchanged from 90 days ago at $4 per share.

In FY15, we responded to a series of challenges across multiple fronts. Our defense businesses had both top-line pressure and negative mix shifts. Our industrial businesses wrestled with foreign currency movements, and the deteriorating economic conditions in both Europe and Asia. In addition, our sales into the energy markets were particularly hard hit by the drop in oil prices. Our commercial Aircraft growth slowed and our supply chain did not meet our cost targets as quickly as we had hoped.

In total, it was a year of significantly more headwinds than we had planned for 12 months ago. In response, we sold some small businesses, and identified some others for future divestiture. We exited several smaller product lines as we continue to focus our portfolio on the most promising opportunities. We reduced costs in areas where sales were down, while continuing to invest in opportunities for future growth.

In the face of these challenges, we delivered solid earnings and record cash flow. We deployed our cash to buy back shares and recapitalized our balance sheets to provide for future flexibility. The Moog employees around the world put in another year of hard work to meet our commitments to our customers. And as we close out FY15, I would like to personally thank them for their dedication and service.

Now let me provide some details on the quarter. Sales in the quarter of $623 million were down 7% from last year. Just over half the drop is due to weaker foreign currency [results] to the dollar. Setting the effect of currency movements aside, real sales were down slightly in every segment, with the biggest drop in our Components segment due to the continued slowdown in our energy markets.

Taking a look at the P&L, our gross margin was up slightly, despite the lower sales. R&D is also up on higher Aircraft activity, while SG&A expenses are down in dollar terms, but up slightly as a percentage of sales. We incurred $9 million of restructuring expense in the quarter, mostly in our Aircraft and Industrial segments. Interest expense was up due to last November's sale of high-yield debt and increased borrowings as a result of our share buyback activity. Our effective tax rate was unusually high at 33.3%, reflecting a shift in the mix of global earnings. The overall result was net earnings of $28 million and earnings per share of $0.75.

FY15: For the full year, sales were down 5%. 80% of the decline is due to the stronger dollar. Real sales were down slightly in every segment, except Medical. Operating margins, exclusive of restructuring, were down in Aircraft, Industrial and Components, but up in Space and Defense, and Medical. Net earnings were down 17% from last year, while earnings per share were down only 5% on the lower share count. Free cash flow for the year of $254 million was a record for the Company, representing a conversion ratio of close to 200%.

FY16 outlook: We're affirming our earnings forecast for FY16 at $4 per share. We are also leaving our sales forecast unchanged at $2.57 billion, up 2% over FY15. The growth is due to the ramp-up on the A350 program. We're anticipating full-year operating margins, exclusive of specials, more or less in line with 2015. We anticipate another year of healthy cash flow.

Before I go into the details by segment, I'd like to explain the change in our Medical Devices business. Within this business, we have a product line we call sensors and handpieces. These products are sold to medical OEMs, similar to the motors and slip rings we sell to medical OEMs within our Components group. It's a nicely profitable product line and has a lot of future potential. Therefore, we have decided to keep it, and have transferred the management of this business over to our Components group. For reference, the full-year FY15 sales of sensors and handpieces was $25 million.

Now to the segments: I'd remind our listeners that we've provided a two-page supplemental data package posted on our website, which provides all the detailed numbers for your models. We suggest you follow this in parallel with the text. Starting with Aircraft, Q4 -- sales in the quarter of $275 million were down 3% from last year. On the military side, sales were about flat with last year, with higher F-35 production rates compensating for lower V-22 OEM sales and a softer military aftermarket. The drop in the military aftermarket is due to the wind-down of our refurbishment program on the C-5.

On the commercial side, we had slightly lower sales at Boeing, and we also had slightly softer business jet sales. Last year, we had a one-time sales benefit from the closeout of an older business jet program. Airbus sales were up on the continued A350 ramp. Commercial aftermarket was down this quarter, a combination of lower 787 initial provisioning and slowing business jet activity.

Aircraft, FY15 -- FY15 was a challenging year for our Aircraft business, with full-year sales down 3% from FY14. In addition to the lower sales, there was a significant negative shift in the mix, which weighed on margins. We saw declines in our foreign military OEM programs, as well as in the military aftermarket. We also had lower commercial aftermarket sales, as 787 initial provisioning slowed. Growth in commercial OEM sales was due to the ramp-up on the A350 program.

Aircraft, FY16 -- we're keeping our sales forecast for FY16 unchanged from 90 days ago, up 4% from FY15. The A350 program will be up significantly, and we're anticipating slightly higher OEM sales to Boeing. We're forecasting the commercial aftermarket will be down, as 787 initial provisioning continues to moderate. On the military OEM side, the continued ramp-up of the F-35 production will compensate for lower V-22 and F-18 sales. The military aftermarket will be down, as the C-5 refurbishment program closes out.

Aircraft margins -- margins in the quarter were 9%. These margins include $3 million in restructuring expense. For the full year, margins, excluding restructuring, were 9.5%, down from 10.8% in FY14. The drop is all due to the negative sales mix, with lower aftermarket sales in both military and commercial, as well as lower foreign military OEM sales.

Looking to FY16, we are forecasting that the negative shift in the mix will continue. However, we anticipate continued improvement in the performance of our commercial OEM book of business. We expect R&D expense next year will be about flat with FY15, and the result will be full-year margins of 9.5%, in line with FY15.

Turning now to Space and Defense, sales in the fourth quarter of $93 million were down 4% from last year. The story is the same as the first three quarters: lower Space sales compensated partially by higher Defense sales. Our Space business is going through a cyclical slowdown, and we're seeing the effects on both our satellite and launch vehicle product lines. Of particular note, sales to NASA on the space launch system and on the soft capture program were down from last year. The defense market, on the other hand, we are seeing stronger sales on both domestic and foreign military vehicle programs.

Space and Defense, FY15 -- full-year sales came in slightly lower than last year. Space sales were down 12% for the year, reflecting the story we've been telling each quarter this year. The present slowdown in our Space business started in the second half of 2014. Defense sales, on the other hand, have continued to strengthen over the last year, with higher sales on missiles, vehicles, and naval products more than offsetting lower security sales.

Space and Defense, FY16 -- there's no change in our forecast for FY16. Sales will be marginally higher, with continued shift in the mix from Space to Defense. Space sales will be slightly lower across a broad range of programs and platforms. Defense sales will be slightly higher on increased volume in our missile product lines and continued strength in the vehicle markets.

Space and defense margins -- margins in the quarter of 14.5% were very healthy, supported by a termination gain and unusually strong sales on various vehicle platforms. The underlying margin performance in this business has been steadily improving over the course of the year, as our restructuring actions have taken effect. Full-year FY15 margins of 8.7% include both restructuring charges and the impact of the accounting correction we made in the second quarter. For FY16, we are forecasting margins of 11.5%.

Industrial Systems, Q4 -- sales in the quarter of $128 million were 13% lower than last year. Over 80% of the drop is due to the impact of the stronger dollar. Excluding the impact of foreign exchange movements, sales were down in energy, in both the renewables and non-renewables markets, while sales in industrial automation, and simulation and test, were up marginally.

Industrial Systems, FY15 -- full-year sales of $522 million were down 12% from last year. Similar to the quarter, over 80% of the drop was due to sales in foreign currencies being translated into a stronger dollar. Setting aside this foreign exchange impact, wind energy sales were about flat with 2014. But sales into the non-renewable markets, which includes sales of [power] generating turbines and sales to oilfield services companies were down almost 10%.

On a positive note, sales into the general industrial automation markets were up slightly, despite the economic slowdown in both Europe and China. Sales into simulation and test were about even with 2014. We're keeping our FY16 sales forecast for Industrial Systems unchanged at $525 million, a very slight increase over FY15. As I said last quarter, there's nothing in the macroeconomic outlook that suggests an improvement in our industrial business any time soon, and the positive impact of several organic growth initiatives will probably be beyond FY16.

Industrial Systems margins -- margins in the quarter of 4.7% included over $5 million of restructuring costs. The continued challenges in our energy markets, as well as softness in our European test business, drove the bulk of the restructuring. Margins for the full year were 8.6%. And looking to FY16, we're forecasting that margins will improve to 10.7% as the impact of the restructuring takes effect.

Now to the Components group -- sales in the fourth quarter of $102 million were down 13% from last year. The decline is almost exclusively due to the drop in our energy markets, which are down nearly 60% from the same quarter last year. The fall in the price of oil and the resulting impact of spending at the oilfield services companies has now fully filtered throughout [all of this].

For the full year FY15, Component sales of $437 million are down 3% from last year. Similar to the fourth quarter, the major drop was in our energy markets. This energy business held up through the first half of the year as we completed deliveries on projects which were already under way before the drop in the price of oil. However, by the fourth quarter, we saw the full effect of the slower spending by our customers. Apart from energy, we saw slight increases on sales from military vehicles and in our US industrial markets.

FY16 -- we're projecting Component sales next year of $425 million, down 3% from 2015. The mix of sales, however, will be different from FY15. We anticipate higher sales on military vehicle programs, particularly in Europe, as well as on some missile programs. On the other hand, we believe we continue to see weakness in our energy business, as well as lower sales of our medical products, as demand from our major customer for sleep apnea machines slows.

Margins -- margins in the quarter were unusually low at 10.6%. Excluding restructuring, margins were 11.1%. The drop in our energy business, combined with some cost overruns in some military programs drove the relatively soft margins. Full-year FY15 margins of 13.4% were down from last year, primarily the result of the lower energy sales. For FY16, we are forecasting margins of 13.2%.

Now to our Medical Devices segment -- with the transfer of the sensors and handpieces product line to our Components group, our Medical Devices segment is now focused exclusively on pumping technologies. We're also changing the reporting within the Medical segment to focus on the two main product lines we offer, namely enteral and IV. This change aligns better with the markets we serve. Within each product line, we offer both pumps and the associated administration sets. All our published numbers this quarter reflect this new reporting for both past and future periods.

Medical, Q4 -- sales in the quarter of $24 million were down 5% from last year. Q4 FY14, however, included $2 million of sales in our Life Sciences product line, which we sold in March of this year. Enteral sales in the quarter were higher, while IV sales were lower. Last year, we shipped an unusually large number of IV pumps, as we caught up on some overdue shipments from the previous quarter. This made the sales comparison with this quarter look unfair.

Medical, FY15 -- full-year sales of $99 million were up 3% from last year, with growth in both our Enteral and IV product lines. Compared to last year, FY15 has $4 million of lower sales from our Life Sciences operations, which we sold at the end of the second quarter. Excluding these Life Sciences sales, organic sales in pump technology were up an impressive 8% in FY15.

Medical, FY16 -- we're projecting sales next year of $102 million. This translates into 7% organic growth in our combined enteral and IV product lines. Medical margins -- for the quarter, margins were 8.2%, and full-year margins FY15 were 8.7%. These margins are up nicely from 3.1% in FY14. For FY16, we're forecasting margins of 11.4%, as sales grow and our focus on cost containment continues.

Before leaving our Medical segment, let me update you on our strategic review process. Two years ago, we started this process with a business that was struggling financially. At that time, our Medical segment included an unusual mix of business lines, the result of our acquisition campaign between 2006 and 2009. We had a pump product line, a Life Sciences product line, and a Components product line, which we called sensors and handpieces. During our sale process, we couldn't find a buyer who was interested in all three pieces. Strategics were interested in pumps, private-equity folks were interested in the cash-generating sensors and handpieces product line, and there was little interest in the small Life Sciences business.

After the sale process terminated, we set about restructuring the portfolio and improving the profitability. We've now completed this process. We have sold the Life Sciences product line, and we have moved the sensors and handpieces product line over to our Components group. We are now left with a pure pump business, which is both profitable and growing.

Our next step is to test the market interest in this pump business. In recent discussions with our investment bankers, we determined that there are still some actions we need to take to make sure we maximize the potential price we can get for the business. These include some further process improvements, as well as a review of our channel partners. We believe it will take us another quarter or two to get these sorted out, at which point we will be ready to test the market for this asset. We will keep our listeners informed as events unfold.

Summary guidance -- we closed out a challenging FY15 and are looking forward to an improving FY16. We're forecasting full-year sales next year of $2.57 billion, up 2% from FY15. We anticipate most of our markets will be more or less flat with FY15, but we see a large increase in sales on the A350 program, as airplane deliveries ramp up. We'll have the benefit of the restructuring actions we've taken this year, which will compensate for a continued negative shift in our overall sales mix.

We're forecasting earnings per share of $4, an increase of 19% over FY15 on a lower share count and the absence of special charges. Our forecast does not include any projection for future acquisitions or further share buyback activity. Our capital allocation strategy remains unchanged. We continue to look for acquisitions which meet both our strategic and financial goals. We evaluate each opportunity in light of the alternative uses of capital, invest to grow, or return capital to shareholders. During FY15, our [process] did not turn up any compelling acquisition opportunities and, therefore, we deployed our excess cash to return value to our shareholders through our buyback program. Looking to FY16, we'll continue to look for adjacent acquisition opportunities and follow our disciplined capital allocation process to ensure we're making the best possible decisions to drive long-term value for the Company.

Let me finish my comments by looking at our Business through the lens of the end markets we serve. Those markets are defense, industrial, commercial, energy, space, and medical. Defense is the bedrock for the Company. There are early signs that defense spending is starting to recover, as global conflicts continue, and the potentially catastrophic impact of sequestration becomes evident.

While some of our legacy programs are declining, the F-35 is growing and we are well positioned on the tanker program. Our ground vehicle business is recovering and our missile business remains very strong. We're actively pursuing new programs, including long-range strike, and are working closely with the [depots] to expand our scope of supply in the aftermarket. Defense is a long-term play, and we remain focused on building a portfolio of platforms which will provide returns for decades to come.

In our Industrial markets, our success is based on innovative new products which deliver enhanced value in our customers' applications. In slow economic periods, we believe it's important to continue that investment. Our areas of focus today include next-generation hydraulic solutions for use in autonomous systems and very large brushless motors for use in a variety of specialized industrial applications.

Our commercial Aircraft business does not face a growth challenge like some of our other businesses. In this market, we've invested for over a decade to win enviable positions on all the major new platforms. Our growth is assured, and our challenge is internal, as we work to complete the development programs and reduce our production costs. We still have a year or two to go to turn the corner in this business; but over the following years, we will see the benefits of reducing costs, lower R&D expenses, and a growing aftermarket.

Our strategy in the energy market is two-fold. In the oil and gas business, we are reducing costs, but still looking for growth opportunities during this period of depressed returns. Oil is a limited commodity, and a recovery in the price seems inevitable. In the wind business, we're investing in new product technology to rebuild our market position. We believe this wind market has the potential to be a $200 million-plus business for Moog towards the end of this decade.

In our Space business, we're going through a consolidation of our facilities and product lines, which will continue for the next year. We're also looking to the longer term, as we invest in new technologies such as green propellant, and capture early contracts on the ground-based strategic deterrent program. This program to refurbish the Minuteman missiles has the potential to be a $100 million-plus annual business for Moog, although full production is probably 10 years in the future.

Finally, sales into Medical markets remain healthy. We continue to find new opportunities to sell our components into medical OEMs. And in our pump business, we're investing in next-generation IV and enteral pumps, which we believe will grow our share and create value for the long term, whoever the eventual owner of this business might be.

In summary, our underlying portfolio of businesses remains strong. Like many companies for the last two years, we face a slow growth environment and significant mix shifts. We have responded to these challenges with restructuring activities and ongoing portfolio adjustments. Through this period, our strategy has not changed. We solve our customers' toughest problems in applications where performance really matters. We focus on niche markets, where we seek to be the dominant supplier.

Our growth comes from expanding our range of high-performance components, while also increasing our scope to become a systems supplier to our major customers. Growth will continue to be a combination of organic and acquired, our internal initiatives to deliver on our goals, our talent development, lean, and innovation. Finally, we are focused on deploying our capital to maximize shareholders' returns over the long term.

Looking to FY16, we'll continue to wrestle with many of the same headwinds we saw in FY15. Our forecast is unchanged from 90 days ago. And similar to previous years, we anticipate a slow start to the year, with earnings per share in the first quarter of between $0.70 and $0.80.

Now let me pass you to Don, who will provide some color on our cash flow and balance sheet.

Thank you, John, and good morning.

An impressive $105 million of free cash flow in our fourth quarter culminated in free cash flow for all of 2015 of $254 million, or a conversion ratio of 192%. This followed strong results of more than 130% conversion in each of the prior two years. The $254 million of free cash flow compares with an increase in our net debt of $123 million. And that difference relates primarily to $344 million of cash used to repurchase Company stock throughout the year.

We're seeing some measurable progress managing down our net working capital to about 28% of sales at the end of 2015 compared with over 33% of sales just two years ago, and we believe there is room for further working capital improvements. The fortunate timing of certain cash receipts and disbursements during our fourth quarter did contribute, in part, to the strong 2015 free cash flow performance. As a result, we do expect to get off to a rather slow start with free cash flow as we begin our new fiscal year. For the full-year 2016, we're affirming our previous free cash flow forecast of $150 million, reflecting a free cash flow conversion ratio of just over 100%.

Under our share repurchase program, we bought back 4.8 million shares at an average per share price of about $70 during 2015. Since January 2014, when we initiated our buyback strategy, we have repurchased 8.8 million shares under our outstanding 13 million share repurchase authorization from the Board. Our projections for 2016 do not include the impact of any further share buyback activity, which will be influenced by any M&A opportunities that we might pursue.

With respect to M&A, we have had nothing to report in the last 10 quarters. However, as John noted, we continue to look for strategic opportunities. We consider M&A an important complement to our organic growth objectives, and we remain active. In the meantime, our shareholders have benefited from us buying back our shares, financed in part by our strong free cash flow.

Capital expenditures in the quarter were $23 million, and depreciation and amortization totaled $25 million. For all of 2015, CapEx was $81 million, while D&A was $104 million. For 2016, we are leaving our CapEx forecast at $90 million, and D&A in 2016 will be about $107 million.

Cash contributions to our global retirement plans totaled only $7 million in the quarter, resulting in $76 million of contributions for the full year. This compares with $99 million for all of FY14. For 2016, we are planning to make contributions into our global retirement plans totaling $95 million. Global retirement plan expense in 2015 was $61 million compared to $56 million in 2014; and in 2016, our expense for retirement plans is projected to be $65 million, up largely because of the effects of updated mortality assumptions.

Our effective tax rate in the fourth quarter was 33.3% compared with last year's 25.2%. The comparatively high rate resulted from an unfavorable mix of taxable earnings relative to our previously forecasted results. For all of 2015, the effective tax rate was 28.3% versus 27.7% for all of the prior year; and for 2016, we are forecasting an effective tax rate of 28.5%, unchanged from our forecast 90 days ago.

Our financial ratios reflect the effects of our stock repurchase program. After using $344 million of cash in 2015 to buy back 4.8 million shares, our leverage ratio increased to 2.4 times compared with 1.85 times a year ago. Net debt as a percentage of total cap was 43.5%, up from 32.3% last year. At quarter end, we had $359 million of available unused borrowing capacity on our $1.1 billion revolver that terms out in 2019.

In summary, we're looking forward to the days ahead, when the headwinds that we've been describing for many quarters shift to tailwinds, and our diversity that has served us so well for decades once again emerges as a real positive. To recap, we've affirmed that 2016 will produce sales of $2.6 billion, a modest increase of 2% over 2015. EPS will be $4 a share, up nicely from our just-reported 2015 results. Lastly, free cash flow is again forecasted to be in excess of 100% conversion.

With that, I'd like to turn it back to John for any questions you may have. Alisha, can you help us out?

(Operator Instructions)

We will go first to Cai von Rumohr.

Thank you very much and good quarter when you pull all the stuff out. John, could you give us a little more detail on the restructuring, how much it was by each of the sectors -- I know you went through it quickly -- in the fourth quarter and the year? And how much of that $0.13 increment in the fourth quarter was impairment versus restructuring? Thank you.

The total in the fourth quarter -- most of that was in Aircraft and Industrial in the fourth quarter, Cai. I mentioned in the text, about $3 million of it was in Aircraft, and just over $5 million of it was in Industrial. Then we had an impairment charge in our Industrial business which is for a product line.

You probably don't remember this. We bought a business I'm going to say back in about 2007, which did sensing technologies for wind turbines. It was a complement to pitch control business, thought it was real possibility that future wind turbines would actually have these sensor on the blades. We have working that business for the last seven or eight years. This quarter, we determined, there just really isn't as suited to that and we took an impairment charge associated with that at just over a couple million dollars, so that was [ultimately] in the Industrial business. So those were the big pieces, about $3 million Aircraft, about $5 million Industrial, and then an impairment of just over $2 million, which was also connected with the Industrial piece of it.

Thank you very much. It looked like your R&D was a little bit higher than anticipated. Could you give us a breakdown? Was it really a bit higher? If so, why? And the breakdown between aircraft and by program?

I'm not going to go into all of that detail, Cai, but the R&D was a little higher bit than a year ago. Versus what we said in the quarter, operations came in, after you put back in for the restructuring and the higher tax rate operations came in close the plan. So I wouldn't say it was significantly different than plan. The area, of course, where the vast majority of our R&D is still being spent, two-thirds of it, is in the Aircraft business. It remains high, I would say, there, as we continue to work our way through the back end of the A350 programs and we are getting into the, what I call, the crucial area of the E-jet, as we start to move there towards first flight. So not unusual, not expected.

That R&D number [bleeds] quarter to quarter depending on -- what really drives the changes in R&D, it's not just staffing. It's not that we're hiring and firing staff on a quarterly basis. It has to do with the build of early systems or test systems or test aircraft, and as you start to build early units, that [same D of] the R&D number fluctuates quarter to quarter. So it's not a staffing-related issue. It's more associated with the materials associated with R&D programs.

That's very helpful. And the one last one, you mentioned commercial program performance seems to be [getting] a little bit better. Can you give us more color in terms of how you are doing better (technical difficulty)?

Cai. The line is not great, and you definitely faded out toward the end of that. Let me see if I -- I think what you asked is how are you doing on your commercial OEM programs, in terms of [coming down] the cost [curve]? Is that correct?

Yes. That's it.

This quarter, I would say, we are on plan. We had no surprise adjustments this quarter in terms of cost of those programs being out of line with what we were anticipating. We continue to come down the cost curve quarter-after-quarter. And as we've said in the past, what tends to cause us challenges in terms of margins in the Aircraft business is when that cost -- we don't meet the cost curves as we've laid them out.

This quarter, we came in with what we were expecting in the quarter. There's still a long way to go over the coming several years, quarter-by-quarter to continue to get those costs down on the 787 and the A350, and of course, the E-jet. But this quarter, we were pretty much on what we thought would be for the quarter.

Thank you very much.

You are welcome.

We will go next to Michael Ciarmoli.

Good morning, guys. Nice quarter. Thanks for taking my questions. Obviously, big growth expected next year from the A350. How are you guys thinking about that program in terms of the product you're shipping versus -- Airbus looks -- they might not even get to [15] this year. Even next year, maybe the ramp goes a little bit slower. Is there any potential risk to that forecast plan? Do you see any potential for Airbus to potentially slow down your shipment rate into them?

I am always very cautious -- thanks for the question, Michael -- I'm always cautious of trying to second-guess Airbus, or Boeing, or Lockheed, in terms of what they're saying their numbers are going to be. I would always refer you to the source of that so Airbus could give a better answer on that. What I can say is our stuff typically leads the Airbus [tech] deliveries by six to 12 months in terms of the costs that we incur and our shipments. So you have got to keep that in mind.

And the other thing is, even if it slowed down a little bit, that would be okay, because it's very early stage and if we have a little bit more time as it ramps up, if the ramp-up goes a little bit more slowly, it give us a little bit more time to learn, to get the supply chain fully matured and stuff. So from a sales perspective, obviously, it would be a bit of a downer; from a margin perspective, not something that I would worry considerably about.

Got it. And then on the business jet market, can you give us any color there? Obviously, expected to be down next year. Has it gotten materially worse for you guys? Obviously, Bombardier is having its own set of challenges, but has it gotten any worse? Has it stabilized around bottom? Any additional color you guys might be able to provide on the state of the business jet market?

We haven't changed our forecast, Mike. This year, we did -- I'm just rounding it -- we did $50 million and next year we're forecasting to do $48 million. We're in the noise when we get to that level. The Challenger business looks to be doing a little bit -- [up] a little bit next year, but then we've got a lot of new Gulfstream work. We've got of a variety of new Gulfstream programs, so they will be adding a little bit. I would say it's moving sideways. A few years ago, we had the Hawker program, that's obviously gone. Summary, Challenger, down a little bit, Gulfstream up a little bit, and in total, [up] 3% or 4% this year to next year. Moving sideways is the best way I would describe it, but the portfolio is changing out a little bit.

Okay. And then just the last one and I will jump back into the queue here. You guys talked about -- I'm just trying to get a sense of what is embedded in the $4 of earnings from a buyback. It would assume that your share count goes down by about another 400,000 shares this year, so are you guys going to -- basically, is there a buyback embedded in that $4 or no?

No. What's embedded in it is the share count as of the end of our fiscal year. The assumption in those numbers, and this is what we have done all along, is we don't include in our forecast numbers an assumption on the buyback or an assumption that we would acquire any businesses. We just assume it's -- essentially continue at the -- whatever you finished out the fourth quarter at. So there's no assumption of additional buyback activity in 2016.

Michael, this is Don. Just to be more specific, our assumed average shares outstanding that we're forecasting for next year in our model is about 37 million.

And then that's down from about (multiple speakers)--

That's down from 37.4 million, the most recent -- the quarter just closed.

Correct. That's right.

The number, Michael, those are average numbers through the quarter.

Yes. Got you.

We just bought back close to another 1 million in the fourth quarter, so you've got to factor all that.

Yes. Got it. Perfect. Thanks, guys.

(Operator Instructions)

It looks like we have no further questions in the queue.

Thank you very much, indeed, everybody. We look forward to catching up again in 90 days. Thank you. Thanks, Alisha.

Thank you, sir. That does conclude our conference for today. We thank you for your participation.