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Aerospace component and electronics supplier HEICO (HEI) was flying higher ahead of its Q3 earnings report with shares rallying by about 8% over the past few weeks, reflecting the market's lofty expectations. Fueled by robust demand for its commercial aviation and defense products, alongside meaningful contributions from its recent acquisitions, HEI achieved record quarterly operating results in its Flight Support Group (FSG) segment, enabling the company to also surpass Q3 EPS estimates. However, the 37% increase in total revenue only met analysts' high expectations, creating some disappointment and inciting a sell-the-news reaction.

• The resurgence of travel demand within the commercial airline industry and increasing defense budgets are the two primary catalysts that are bolstering aerospace parts and components suppliers. These catalysts were on display when recent IPO Loar Holdings (LOAR) posted an impressive beat-and-raise Q2 report on August 13, which was preceded by GE Aerospace's (GE) upside Q2 results on July 23. In the wake of LOAR's and GE's strong performances, the bar was set even higher for HEI.
• Staying true to recent form, the FSG segment was the star of the show in Q3 as revenue and operating income jumped by 68% and 72%, respectively. On an organic basis, net sales were up 15%, driven by strength in the aftermarket replacement parts product line. Acquisitions played a significant role in HEI's growth, most notably including its $2.05 bln acquisition of Wencor Group (closed 8/4/23). That was the company's largest acquisition to date.
• The addition of Wencor Group further diversified HEI's aftermarket product line, providing it with a portfolio of generic parts such as bearings, seals, and gears. While HEI continues to operate Wencor as a standalone operation, the company says that it has made good progress in serving its customers in a seamless fashion. Overall, HEI says that the performance of Wencor has exceeded its expectations.
• Turning to HEI's Electronic Technologies Group (ETG), revenue dipped by 1.1% to $322.1 mln, mainly due to an expected decrease in electronics and medical products, partially offset by higher aerospace, defense, and space product net sales. Similar to the past few quarters, HEI experienced inventory destocking at some of its customers, but it believes that order trends in these markets have bottomed and it's seeing improved orders from some companies.

Looking ahead, HEI remains quite bullish about its prospects, stating it's optimistic about achieving net sales growth in both segments in FY24. Furthermore, HEI says that its acquisition pipeline is very robust with opportunities in both the FSG and ETG segments.