The Aviation segment of VSE Corporation VSEC won six new distribution agreements, with an integrated value of approximately $750 million. Awarded by various manufacturers, these agreements are anticipated to begin in the first quarter of 2024 and will take between one and 15 years to complete.
Besides winning these new awards, the company also intends to open a 45,000 square-foot distribution facility in Hamburg, Germany, during the first quarter of 2024. This new facility is expected to serve as the distribution center of excellence supporting Europe, the Middle East and Africa. VSEC believes that this new opening will ensure VSE Aviation expands its global coverage and supports its commercial and business, and general aviation distribution aftermarket product lines.
Following the announcement, the shares of VSEC inched down 0.8% during the trading session but gained 2% in the after-market trading hours on Nov 13.
More on Awarded Distribution Agreements
The VSE Aviation segment was awarded a new 15-year distribution agreement from Pratt & Whitney Canada, which supports Europe, the Middle East and Africa. This represents a geographic expansion of the two previously awarded distribution agreements covering North America (announced in 2021) and Asia Pacific (announced in 2022). Furthermore, the segment won two new distribution agreements, one from a tire supplier and the second from a provider of airframe interior plastic components, which include almost every other product made of plastic throughout an aircraft.
The Aviation segment was also awarded the expansion of two existing agreements along with the new ones. Honeywell expanded its already existing agreement for this segment to be the sole aftermarket distributor for its JetWave tail-mounted antenna systems in Europe, the Middle East, Africa and India. VSE Aviation segment also witnessed the expansion of an existing five-year distribution agreement with a leading manufacturer of starting and ground power batteries.
The contributions from these agreements will be considered in the company’s revenues from 2024, wherein they are expected to contribute approximately $25 million to $30 million for the full year. For 2025, they are expected to contribute more than $50 million to annual revenues.
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Shares of the company have increased 25.7% in the year so far, outperforming the Zacks Engineering - R and D Services industry’s 14.6% growth.
Aviation & Fleet Segments to Boost Growth
VSE Corporation focuses on operating as a two-segment, Aviation and Fleet, business to accelerate its growth strategies, thus aiming at high growth and margins. It solely desires to cater to the demands of its aviation and fleet customers, along with focusing on aftermarket distribution, as well as maintenance, repair and overhaul (MRO) services. To uphold its words, the company indulged in strategic acquisitions as a start.
On Jul 3, 2023, VSE Corporation completed the acquisition of Desser Holding Company LLC, a global aftermarket solutions provider of specialty distribution and MRO services. The global locations (the U.S., the United Kingdom and Australia) of the acquiree will provide a diverse and attractive aftermarket customer base and support the company’s kit-to-tail aircraft distribution and MRO service strategy in the highly fragmented aftermarket. The full integration of the acquired company into the Aviation segment is expected by 2024 end.
Furthermore, on Feb 1, the company acquired Precision Fuel Components, LLC, an MRO service provider for engine accessories and fuel systems supporting the business and general aviation market. This $11.7 million acquisition will enhance and expand the company’s MRO capabilities and client base.
During the third quarter of 2023, the Aviation and Fleet segments’ revenues grew 48% and 22%, respectively, year over year. The uptrend was attributable to strong program execution, market share gains, the expansion of its products and repair capabilities and positive end market activity. Also, revenue contributions from the new Memphis, TN distribution facility bode well.
Zacks Rank & Key Picks
VSE Corporation currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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