Prompt:
Human: I'm Aaron Hunt, Director of Investor Relations.
A year ago, we were contending with the unprecedented disruption and uncertainty from the continued 737 MAX grounding and COVID-19 pandemic.
Since then, the FAA lifted the 737 MAX grounding order and shortly after that the aircraft resumed commercial service.
Today the 737 MAX is certified in the U.S., U.K., Europe and many other parts of the world.
Additionally, Boeing has secured several new orders from airlines, including large orders from Southwest, Alaska Air and Ryanair, who will take delivery of their first newly certified 737 MAX 8200 aircraft in the near future.
The COVID-19 pandemic has had a significant global impact.
The aviation industry saw more than 19,000 aircraft grounded and air traffic down more than 95% at the worst point last April.
We continue to see encouraging news on the return to commercial air travel with domestic routes, primarily flown by narrow-body aircraft leading the way.
In the U.S., the TSA checkpoint travel numbers have been consistently staying above the 1 million mark since early March and more recently, we have seen many days above 1.5 million travelers, including 1.6 million travelers last Sunday.
We have observed a similar domestic recovery in China.
We believe Spirit is well positioned to benefit from this trend of recovering domestic air travel in the largest aviation markets, given that 85% of our backlog is narrow-body aircraft.
In line with the improved narrow-body outlook, as we described in our 10-K, Spirit is planning to produce about 160 737 MAX aircraft in 2021.
This plan allows for us to burn down the Boeing inventory of 737 MAX shipsets stored in Wichita and Tulsa.
With the current outlook, we should be at our targeted number of a permanent buffer to cushion the production system toward the second half of 2022.
We have regular conversations with Boeing on the current environment and we'll work closely with them to make any necessary rate adjustments as the year progresses.
As for our Airbus narrow-body programs, we have plans in place to support the A220 and the A320 Airbus schedule increases, as the air traffic demand recovery continues.
International air traffic demand still remains at relatively low levels versus pre-pandemic times and is expected to take longer to recover.
Consequently, we have experienced and believe there will continue to be pressure on our wide-body programs.
The wide-body programs have created significant pressure on our overall performance, as the OEMs have adjusted production rates on those programs downward.
On the A350, schedule changes this year and next year contributed to the forward loss of $29 million that we announced this quarter.
The forward loss also included some charges for tooling and bill process improvements to improve product quality.
We decided to implement the improvements at our Kinston facility during this period of lower production rates.
Over the last few months, we have also been working with Boeing on the 787 program.
At Boeing's request, we conducted an extensive review and engineering analysis as a result of fit-and-finish issues that they had identified on other parts of the aircraft.
While there were no safety-of-flight issues, areas of rework were identified.
We have started the rework and Boeing has reinitiated deliveries of the 787.
The rework plan that we have put into place supports Boeing's 787 delivery schedule.
The engineering analysis and the projected rework will drive a forward loss of $29 million.
Mark will provide more detail on the forward losses in his comments.
The uneven recovery from the pandemic, created challenges during our first quarter.
During 2021, we expected to see performance start to normalize as we get into the second half of the year assuming air traffic recovery remains on track.
Overall, our 2021 free cash flow usage is expected to be between $200 million and $300 million after considering the $300 million cash tax benefit.
As we have previously indicated, we expect our cash flow to be positive in 2022 as production rates improve and we realize all the benefits of the cost reduction and productivity actions that we have taken.
Now I'd like to turn our focus to the integration process of our recently acquired Belfast, Casablanca and Dallas sites.
The integration of our three newest sites is progressing to plan.
To date, we have completed roughly 80% of the 450 tasks we have identified to capture synergies and integrate the operations into Spirit.
Some of the remaining tasks such as exiting the information technology transition services agreement will take longer by plan design.
A large part of our integration focus is capturing the synergies which we projected to be 6% of revenues.
Based on 2021 revenues that are expected to be $700 million, we estimate the synergies to be $42 million.
The areas we are focusing on include A220 wing costs, supply chain, infrastructure and engineering.
We are on target to achieve the $42 million and perhaps even exceed it by 2023.
In the period beyond 2023, we are identifying additional productivity opportunities.
In addition, as part of our integration, we are evaluating the Belfast pension plan and our informal consultation with the employees and the unions on this matter.
The current plan is close to new participants and we are evaluating closing the plan to future accruals and replacing it with a defined contribution benefit plan.
Another significant part of this acquisition was a strong aftermarket business.
Our Belfast and Dallas sites are now key pieces of our aftermarket revenue growth plan.
While we've seen some COVID-related headwinds to the aftermarket business in the near-term, the combined team is working to transfer repairs between sites and strengthen customer relationships as air traffic recovers.
In the first quarter, some of our activities including moving tooling and rotables to Belfast to support Boeing programs.
Our Belfast operations have recently completed their first Boeing 777 thrust reverser repair.
To grow the aftermarket business further, we recently announced that we acquired the assets of Dallas-based Applied Aerodynamics, which provides radome and flight control surface repairs.
We also announced the signing of a new JV agreement in Asia with EGAT in Taiwan, which enables us to provide our full suite of expanded repairs to that region.
All of these actions are contributing to our target of building the Spirit aftermarket business to $500 million in revenue at accretive margins by 2025.
In addition to diversifying into aftermarket, we've also been accelerating diversification into defense programs.
After growing almost 20% in 2020, we expect our defense business revenue to grow 15% in 2021.
The excess commercial capacity we have in our wide-body factories, especially those that produce composite structures provide us with immediate capacity that we can repurpose to defense programs.
We have been fortunate to win positions on several new classified defense projects.
We believe we are on track to achieve $1 billion of defense revenue by the mid-2020s with typical defense margins.
The programs of record for where we have work content will generate approximately $6 billion of future revenue.
In addition to diversifying our business, we've also been focused on delevering to reduce the additional debt we have accumulated during this pandemic period.
One step we took was to repay $300 million in floating rate notes in February.
Our next debt maturity is $300 million in 2023.
We also have other pre-payable debt that could be retired as part of our objective to repay $1 billion in the next three years as production rates recover and we start generating positive cash flow.
We believe these debt-reduction actions along with increased production rates will help us regain our investment-grade credit rating.
Our efforts to drive margins are also progressing well.
In Wichita, the new automated floor beam assembly line that we discussed in the last call, is now operational.
And in our Prestwick site, we produced the first shipsets of A320 spoilers using a resin transfer molding process and we'll ship those to Airbus in mid-May.
Both of these narrow-body manufacturing lines will help drive the margin improvement back to our target of 16.5% as production rates recover.
I hope everybody is doing well and staying healthy.
We continue to see 2021 as a bridge year for our Spirit and commercial aviation industry.
While the wide-body programs will remain a headwind for the next few years, domestic air travel in many regions of the world is trending in the right direction, which is an encouraging sign especially for narrow-body aircraft.
During 2021, we have or are planning to increase production rates on our narrow-body programs in order to support our customer delivery of new aircraft.
We expect the first half of the year to be the most challenging to our financial results and expect to see improvement in the back half of the year as the narrow-body production rates increase.
Now, let's move to our first quarter 2021 results.
The revenue decrease was primarily due to lower body rates which have been under pressure due to the reduced international air traffic resulting from the continued impacts of the COVID-19 pandemic.
In addition, our A320 production rate was lower in the first quarter of this year compared to last year.
Revenue from our recently acquired Bombardier business jet programs and the A220 wing program helped offset some of the wide-body revenue decrease.
Our defense programs continue to be a bright spot, up 41% as compared to the same quarter of last year.
Turning to deliveries, wide-body program deliveries were 48, down from 91 in the first quarter of 2020, which is a 47% reduction.
The narrow-body program deliveries in the first quarter of 2021 were also lower when compared to 2020 with 171 shipsets in the first quarter of 2021 compared to 221 in 2020.
The main driver of the decrease was the A320 program with 58 less deliveries than the first quarter of 2020.
The first quarter 737 MAX deliveries have gradually increased to 29 compared to 18 shipsets delivered in the first quarter of last year.
Overall, deliveries decreased to 269 shipsets compared to 324 shipsets in the same quarter of last year.
Let's now turn to earnings per share on slide four.
We reported earnings per share of negative $1.65 compared to negative $1.57 per share in the same period of 2020.
Adjusted earnings per share was negative $1.22 per share compared to negative earnings per share of $0.79 in the first quarter of 2020.
Adjusted earnings per share excludes the impacts of the acquisitions, restructuring costs, the non-cash voluntary retirement plan charges, and the deferred tax valuation allowance.
Operating margin for the first quarter was negative 14% compared to negative 15.5% in the first quarter of 2020.
The past actions we have taken have contributed to the improved first quarter of 2021 with lower cost and expenses including restructuring, excess capacity, abnormal COVID-19, and SG&A.
This was partially offset by additional forward losses on the 787 and A350 programs compared to the same period last year.
Additionally, the increase in other income primarily reflects the absence of voluntary retirement expenses recognized in the first quarter of 2020, partially offset by a loss on foreign exchange rates.
Interest expense and financing fee amortization in the first quarter of 2021 increased $28 million, driven by increased interest expense on debt and higher interest rates compared to the same period in the prior year.
In the first quarter, we recognized forward loss charges of $72 million primarily driven by engineering analysis and rework to support Boeing's resumption of 787 deliveries and lower A350 production rates, coupled with higher one-time costs for production system and quality improvements.
During the first quarter of 2021, an incremental $42 million valuation allowance on deferred income tax assets was recorded.
As a reminder, this is a non-cash item.
Now, turning to, free cash flow on slide five.
Free cash flow for the quarter was a use of $198 million, compared to a use of $362 million in the same period of 2020.
This year-over-year improvement is primarily due to favorable working capital management and cost-reduction efforts, partially offset by the absence of the $215 million received last February, as a result of the MOA with Boeing.
Excluding the $215 million of Boeing advance payments received in the first quarter of 2020, free cash flow improved by about $380 million.
For the year, we expect free cash flow to be between negative, $200 million and $300 million.
This includes a cash-tax benefit of approximately $300 million.
As mentioned previously, we believe that the first half of 2021, to be our most challenging and expect improvements as we progress into the latter half of the year, due to planned single-aisle production rate increases.
Let's now turn to cash and debt balances on slide six.
We ended the first quarter with approximately $1.4 billion of cash and $3.6 billion of debt.
In February, we prepaid $300 million floating rate notes that were due this year.
As Tom mentioned, we are planning to repay $1 billion in debt in the next three years, the timing of which will be in line with how air traffic and narrow-body production rates recover from the global pandemic.
We believe our cash on hand and cash flows generated from operations, coupled with our ability to vary our cost structure quickly will provide sufficient liquidity to address the challenges and opportunities of the current market.
However, unevenness in the global recovery from the COVID-19 pandemic could result in fluctuations in our cash flows from period to period.
Now let's turn to our segment performance on slide seven.
In the first quarter, Fuselage segment revenues were $437 million, down approximately $115 million compared to 2020, primarily due to lower production volumes on the wide-body programs, partially offset by an increase in 737 MAX defense and the recently acquired Bombardier business jet program revenues.
Operating margin for the quarter was negative 14%, compared to negative 16% in the same period last year.
Increased 737 MAX production and higher defense revenues, helped contribute to the gross profit improvement.
We also recognized lower restructuring expenses, excess capacity costs and abnormal COVID-19 charges.
The Fuselage segment recorded $2 million of favorable cumulative catch-up adjustments and $55 million of net forward losses, during the quarter primarily due to the Airbus A350 and Boeing 787 programs.
Propulsion revenue in the quarter improved to $227 million, primarily due to higher revenue from the 737 MAX program and aftermarket revenues.
Operating margin for the quarter was positive 7%, compared to negative 2% in the same quarter of 2020.
Lower restructuring expenses, excess capacity costs, and abnormal COVID-19 charges were the main driver to the improvement in segment profitability.
The segment recorded $6 million of unfavorable cumulative catch-up adjustments and $5 million of net forward losses.
Lower production volumes on the 787 A320 and A350 programs, partially offset by revenue from the recently acquired A220 wing program were the main contributors to the reduction in wing revenue of $224 million.
Operating margin for the quarter was negative 8%, compared to positive 5% in the first quarter of 2020.
The decreases in segment profitability and operating margin were primarily a result of forward losses recognized on the 787 and the A350 programs and lower margin recognized on the A320 and A220 programs, due to increased excess capacity costs.
The segment recorded $13 million of net forward losses and $2 million of unfavorable cumulative catch-up adjustments.
The first quarter of 2021 provided to be a very challenging start to the year.
While uncertainty around the precise trajectory of the pandemic recovery remains, we are beginning to see positive signs in domestic air traffic demand.
We are pleased to see the progress made over the past few months on our defense growth and aftermarket diversification efforts.
Higher narrow-body rates in the back half of the year should create positive momentum into 2022.
Cash flow is a focal point this year and is a top priority for our team in our day-to-day activities.
Our 2021 cash flow is dependent on the planned delivery of approximately 160, 737 MAX shipsets.
We are closely monitoring the remaining regulatory approvals needed for the 737 MAX return to service, as well as the recovery from the global pandemic.
First quarter of 2021 was challenging, as we managed through the wide-body rate reductions and investments that we have made to improve quality.
As a result in the first quarter, we had a higher rate of cash usage than we expected.
With domestic travel recovering faster in the US and China, we expect that narrow-body production rates will continue to improve.
Spirit will benefit from this trend, since 85% of our backlog is narrow-body aircraft.
In 2021, we are planning to deliver about 160, 737 MAX shipsets as Mark just said, which is more than double what we delivered in 2020.
We expect our free cash flow usage for the year will be between $200 million and $300 million.
We also believe that we are still on course to be cash flow positive in 2022.
Our diversification efforts continue with growth in our aftermarket and defense businesses.
The acquisition of the assets of Applied Aerodynamics and the establishment of the JV with EGAT in Taiwan will help accelerate the growth of the aftermarket business to $500 million by 2025 at accretive margins.
We believe our defense business revenue is on track to grow 15% this year, after growing nearly 20% in 2020.
We also continue to make good progress on our efforts to delever and to continue driving toward margins of 16.5%.
 Assistant:

Chosen response:
compname reports q1 loss per share of $1.65.
q1 loss per share $1.65.
q1 adjusted loss per share $1.22.
spirit aerosystems holdings - full-year 2021 free cash flow is expected to be between negative $200 million and negative $300 million.
spirit aerosystems holdings - expect to deliver about 160 737 max shipsets in 2021.
increasing 737 max production rates in line with boeing's objective of 31 aircraft per month in 2022.


Prompt:
Human: I'm Aaron Hunt, Director of Investor Relations.
We are pleased to see signs of recovery in global air traffic.
The U.S. air travel recovery has been strong and has come back faster than some expected.
TSA traveler throughput has exceeded two million passengers on multiple days during the past two months and some days in July where passenger screenings exceeded the 2019 levels.
A recent International Air Transport Association report indicates domestic passenger market show improvement, but with demand still down 22% versus June 2019 levels.
The situation remains dynamic.
We are monitoring the most recent reports of a spike of COVID-19 cases and what impact this may have on air traffic recovery.
However, the upward momentum of domestic air traffic over the past few months is an encouraging trend for our industry.
We are pleased to see the rebound of demand for the MAX and the news of large orders from United, Southwest, Alaska Air and Ryanair.
Ryanair took delivery of its first 737 MAX 8200 and had positive feedback.
With 85% of Spirit's backlog associated with narrow-body aircraft, we believe we are well positioned to benefit from this domestic air traffic demand and narrow-body recovery.
In the first half of this year, we delivered 64 737 shipsets compared to 37 in the first half of last year, a 73% increase.
We are also on track to deliver about 160 shipsets this year, a 125% increase over the 71 we delivered in 2020.
As we have discussed before, we are trailing Boeing in terms of 737 production rate to burn off the inventory of storage shipsets in Wichita and Tulsa.
This quarter, for example, we delivered 35 units but shipped 42 to Boeing.
We currently have about 125 units in storage, all of which Boeing owns.
We expect store units will decrease to about 100 shipsets by the end of the year.
Our plan is that we will reach 20 stored units by the end of next year, which will remain as a permanent buffer to cushion the production system.
Turning to the 787 program.
As a result of our ongoing engagement with Boeing, we identified an additional fit and finish issue in the forward section of the fuselage.
This issue is related to a part that Spirit receives from one of our Tier two suppliers, and we are working with Boeing and the supplier on a resolution.
We continue to coordinate with Boeing to ensure that we are performing all necessary rework.
Primarily driven by this issue, we have recognized a $46 million forward loss on the 787 program.
Despite this forward loss, we are maintaining our free cash flow target of negative $200 million to $300 million, as indicated on our last earnings call.
This amount is net of the $300 million cash tax benefit, which we expect to receive in the second half of this year.
Next, I would like to highlight the fact that we published our first sustainability report in June, outlining Spirit's environmental, social and governance strategy.
The report also includes a few of our notable 2020 achievements.
For example, by the end of this year, we intend to be 100% wind powered at our Wichita facility.
Now our Chief Operating Officer, Sam Marnick, will take you through updates on our acquisition integrations.
The integration workstreams for our recent acquisitions are progressing well.
We recently acquired the assets of Applied Aerodynamics, and we've already completed approximately 60% of the 323 identified integration tasks.
The integration of our other acquisition from Bombardier is also going well.
We have completed about 90% of the tasks required to integrate the Belfast, Morocco and Dallas site.
The remaining tasks are largely associated with the information technology transition services agreement, and we expect to complete it before the end of the year.
The estimated synergies we're expecting from the deal are tracking to plan.
We have seen good progress on A220 wing costs, supply chain improvements and infrastructure optimization.
Airbus continues to have confidence in this aircraft, and we expect production rates to continue to improve over time.
Turning to the Belfast pension plan.
We have ended our formal consultation with employees and the unions.
Subject to the completion of the process, we will close the plan to future benefit accrual and provide a defined contribution benefit plan before the end of the year.
The Bombardier asset acquisition significantly increased our business jet work statement.
We also secured the award of the engine nacelle on the new Falcon 10 times.
This new growth has established Spirit as a leading business jet aerostructure supplier, a market segment that is recovering rapidly following the pandemic.
These business aircraft inventories are down around 40% year-over-year, highlighting a strong demand.
Additionally, U.S. business jet flight activity is about 6% higher than prepandemic levels, another good indicator of a rebound in this market segment.
We believe our capabilities and business ship programs position us well to generate $500 million of revenue at accretive margins by 2023.
Another market segment, we are watching closely is urban air mobility, also referred to as electric vertical and take off aircraft or eVTOL.
We believe our expertise in composite aerostructure design and manufacturing bring unique capabilities in this future mode of transport.
We've been exploring opportunities with a number of companies in this exciting new area and have signed agreements that are already generating revenue.
These two acquisitions have helped us grow our aftermarket and business jet businesses.
We are also accelerating our revenue diversification efforts in defense, which we expect will grow by roughly 20% in 2021.
I hope everybody is doing well.
We continue to see 2021 as a bridge year for our Spirit and the commercial aviation industry.
Domestic air travel in the United States as well as many other regions of the world are starting to recover, which is encouraging, especially for narrow-body aircraft production rates.
We are cautiously monitoring the COVID variant and its impact on this recovery, particularly with international travel.
We expect international air travel will continue to recover at a slower pace, and therefore, wide-body programs will remain a headwind for the next few years.
As we work through the second half of the year, we are starting to see the benefits of increasing narrow-body production rates.
Now let's move to our second quarter 2021 results.
Revenue for the quarter was $1 billion, up 55% from the same quarter of last year and approximately 11% above the first quarter of 2021.
The revenue increase was primarily due to production on the 737 and A320 programs as well as increased revenue from the recently acquired A220 wing and Bombardier business jet programs.
These increases were partially offset by the lower wide-body production rates resulting from the continued impacts of the COVID-19 pandemic on international air traffic.
Overall deliveries increased to 243 shipsets compared to 159 shipsets in the same quarter of 2020.
The second quarter 737 deliveries have increased to 35 compared to 19 shipsets delivered in the second quarter of last year.
We still expect to deliver around 160 shipsets during the year.
Additionally, second quarter A320 deliveries increased to 96 compared to 69 shipsets delivered in the same period of last year.
Let's now turn to earnings per share on slide four.
We reported earnings per share of negative $1.30 compared to negative $2.46 per share in the same period of 2020.
Adjusted earnings per share was negative $0.31 compared to earnings per share of $2.28 in the second quarter of 2020.
Adjusted earnings per share excludes acquisition costs, restructuring costs, noncash voluntary retirement plan charges and deferred tax asset valuation allowance.
Looking at the operating margin, we saw improvement in the second quarter to negative 10% and compared to negative 57% in the second quarter of 2020.
The cost-reduction actions we have taken over the last year, along with increasing production rates, have contributed to the improved results with lower cost and expenses, including excess capacity, restructuring and abnormal COVID-19 costs.
We also recognized lower forward loss charges compared to the same period last year.
In the second quarter, we recognized forward loss charges of $52 million, primarily driven by engineering analysis and rework on the 787 program compared to forward loss charges of $194 million in the same period of 2020.
Additionally, the increase in other income is primarily related to Belfast pension plan and the absence of voluntary retirement expenses recognized in the second quarter of 2020.
I do want to mention that there was a revaluation of deferred tax assets during the second quarter of 2021 due to a future increase of the United Kingdom's corporate tax rate.
This resulted in an income tax benefit of approximately $55 million.
This benefit is included in both GAAP and adjusted EPS.
The revaluation of deferred tax assets, along with the adjustments related to tax law changes and other state tax impacts, resulted in incremental adjustments to the valuation allowance.
As a reminder, the valuation allowance is a noncash item.
Earlier this week, Spirit received the latest 787 program demand from Boeing.
Based on our preliminary assessment, we expect to incur an incremental forward loss of approximately $40 million to $60 million in the third quarter of 2021 due to the impact of reduced production volumes and the corresponding amount of fixed overhead absorption applied to lower deliveries.
Due to the timing, this is considered a subsequent event and is not reflected in our second quarter financial statements.
Now turning to free cash flow on slide five.
Free cash flow for the quarter was negative $53 million compared to negative -- $249 million negative in the same period of 2020.
This year-over-year improvement is primarily due to cost-reduction actions, increased production volume and favorable working capital management.
The second quarter cash from operations also reflect an improvement of $142 million as compared to the first quarter of '21.
Excluding the cash interest payments of approximately $80 million made during the second quarter, cash from operations was positive $51 million.
We expect the second half of this year to improve as single-aisle production rates continue to increase.
Despite the additional challenge of the 787 program, we continue to expect free cash flow for the year to be between negative $200 million and $300 million.
Let's now turn to our cash and debt balances on slide six.
We ended the second quarter with $1.3 billion of cash and $3.6 billion of debt.
In February, we paid $300 million floating rate notes early, and we remain on track to repay $1 billion in debt during the next three years.
The timing will be in line with air traffic and narrow-body production rate recoveries.
The cadence of the global recovery from the COVID-19 pandemic could result in fluctuations in our cash flows from period-to-period.
Now let's turn to our segment performance on slide seven.
In the second quarter, fuselage segment revenues were $492 million, up 51% compared to the same period of 2020, primarily due to higher production volumes on the 737 and Bombardier business jet program, partially offset by lower production volumes on the 787 program.
Operating margin for the quarter was negative 7% compared to negative 77% in the same period of the prior year, primarily due to increased 737 production volumes and the resulting decrease in excess capacity costs as well as less net forward losses in the absence of a loss on disposal charges.
The fuselage segment recorded $4 million of favorable cumulative catch-up adjustments and $36 million of net forward losses during the quarter, primarily due to the 787 program.
Propulsion revenue in the quarter improved to $242 million, up 43% compared to the same period of 2020, primarily due to higher revenue on the 737 program and aftermarket sales, partially offset by decreased volume on the 777 program.
Despite the challenging environment, operating margin for the quarter was positive 12%.
This is compared to negative 10% in the same quarter of 2020.
Increased 737 production and the resulting decrease in excess capacity costs as well as less forward loss charges were the main drivers to the improvement in the segment profitability.
The segment recorded $6 million of favorable cumulative catch-up adjustments and $9 million of forward losses.
High production volumes on the 737, A220 and A320 programs were the main contributors to the increase in wing revenue to $259 million.
Operating margin for the quarter was negative 6% compared to negative 35% in the second quarter of 2020.
The increases in segment profitability and operating margin were primarily a result of increased A320 production volume as well as less forward losses compared to the same period of 2020.
The segment recorded $8 million of net forward losses.
In closing, we are encouraged by the recovery in domestic air traffic demand.
We anticipate improved performance through the second half of the year as narrow-body production rates continue to increase.
Increasing narrow-body rates should also create positive momentum going into 2022.
Additionally, we are pleased to see the progress made so far on our aftermarket business jet and defense diversification efforts.
Integrating our acquisitions and expanding our diversification continue to drive long-term growth potential.
Cash flows remain a top priority for our team, and we are actively working on the execution of our cost and working capital initiatives.
We are also monitoring the remaining regulatory approvals needed for the 737 MAX return to service.
And in addition, we are encouraged by the domestic aerospace recovery from the COVID-19 pandemic.
We continue to see improvement in domestic air traffic, which has translated to improved production rates for our narrow-body aircraft versus 2020.
For the year, we expect to deliver 160 737 shipsets, up from just 71 in 2020.
This quarter, we also continued work with Boeing to address fit and finish issues on the 787 program, and we'll continue to coordinate with them to complete all necessary rework.
The recovery in narrow-body production is supporting better overall performance.
We're also encouraged by the continued growth in our aftermarket, business jet and defense programs.
We are maintaining our 2021 free cash flow guidance of negative $200 million to $300 million.
 Assistant:

Chosen response:
q2 loss per share $1.30.
q2 adjusted loss per share $0.31.
spirit aerosystems - as a result of ongoing engagement with boeing on 787 program, identified additional issue in forward section of fuselage.
recognized a $46 million forward loss on 787 program in this quarter.
spirit aerosystems - expects to incur incremental forward loss of about $40 to $60 million in q3 of 2021.


Prompt:
Human: Some of these factors and cautionary statements are discussed in the company's public filings and reports, which are available on the SEC or the company's corporate website.
Now I would like to turn the conference over to Karen Colonias, Simpson's President and Chief Executive Officer.
I'm pleased to discuss our results with you today.
I'd like to first begin with a high level summary of our first quarter financial performance and we'll then turn to a more detailed discussion on the coronavirus pandemic, the impact it has had on our business and the actions we are taking to address this unprecedented situation.
We delivered a solid first quarter, operationally and financially.
Sales of $283.7 million increased 9.4% over the first quarter of 2019 and were driven by higher sales volume in North America.
Sales volumes increased primarily due to milder weather conditions in our key markets compared to a year ago which was an unusually cold and wet winter.
Sales were partially offset by weaker conditions in Europe, which was impacted by the COVID-19 beginning in mid-March.
Our gross profit margin was strong at 45.7%, an improvement of 320 basis points year-over-year.
This was largely due to sales mix and decreased material costs.
Our gross margin coupled with the relatively flat operating expenses, help generate operating income of $49.4 million, up 64.4% year-over-year and strong earnings of $0.83 per diluted share, up 66% year-over-year.
Brian will provide additional details on our Q1 performance shortly, but now let me turn to discussion of the COVID-19.
Our hearts go out to all of those who have been impacted by the coronavirus pandemic.
The health and safety and well-being of our employees, their families, our customers and our communities is our top priority, and is at the forefront of every decision we make.
We took immediate action at the onset of this crisis to enact rigorous safety protocols in all of our facilities, by improving sanitation measures, implementing mandatory social distancing, reducing on-site staff to staggered shifts and scheduled and remote working where possible and restricting visitor access to our location.
As of today, all of our US manufacturing facilities remain operational in accordance with the applicable shelter-in-place orders as suppliers of businesses deemed essential, including hardware stores and other building material companies.
However, two of our larger European operation in the United Kingdom and France were ordered to cease nearly all operations in late March, forcing us to temporarily furlough many of those affected employees.
We have every intention of being able to bring those employees back to work, when the timing is right.
Over the years, we've built a strong brand reputation with a loyal customer base and talented group of employees, and we have every intention of protecting that to ensure we can continue to service our customers, while operating in accordance with the local government regulations.
Importantly, we have not experienced any supply chain disruptions related to the COVID-19 and have been able to meet our customer needs.
In the month of April, sales declined compared to March levels due to lower demand from the anticipated slowdown in housing starts and general construction activities.
While this situation is highly unique and unlike any other downturn we've experienced in the past, we believe we are well positioned to emerge on the other side from a position of strength.
If you look back to 2008 and 2009 during the financial crisis, which was accompanied by a drastic decline in US housing starts and a simultaneous 28% drop in sales.
You'll see that our strong balance sheet played a major role in supporting our business through this recovery period.
Today, our balance sheet provides us with ample liquidity to support our day-to-day operation.
We ended the quarter with $305.8 million in cash on hand, after drawing down $150 million on our revolving credit facility as a precautionary measure to preserve financial flexibility and ensure our working capital needs will be met in light of the current uncertainty, stemming from the COVID-19 pandemic.
Importantly, following the 2009 crisis, we made significant strategic changes to our business, to ensure our foundation will be even stronger in the event of a future recession.
These actions included diversifying our business to be less reliant on US housing starts, by making key investments in adjacent products and markets.
More recently, we've taken significant steps to rationalize our cost structure over the past three years in connection with our 2020 plan goals.
We've been able to operate more efficiently, as evidenced by our 250 basis point improvement in our total operating expenses as a percent of sales for the first quarter of 2020 compared to the first quarter of 2019.
Given the level of uncertainty regarding the long-term impact of COVID-19, including market conditions and demand trends, we have proactively taken additional measures to ensure we maintain our strong financial position.
Beginning in the second quarter, we've implemented a hiring freeze and will focus on employees retention and adjust and employee hours based on lower production levels in the near term.
In addition, our discretionary expenses including employee travel and spend on certain consultant-related projects have been significantly reduced, as we abide by the shelter-in-place orders throughout our operations.
Turning to capital allocation.
Our strategy has shifted in the recent months, focus more on cash preservation until this crisis passes.
As a result, we are reducing our planned capital expenditures to be used only for projects that are required for repair or maintenance or to address potential safety issues in our factories.
In addition, we are being highly selective in regard to inventory purchases in the current environment in line with our goal to improve our inventory balance through careful management and purchasing practices.
That said, you will notice inventory dollars on our balance sheet at March 31 increased compared to the level at December 31.
This is primarily to support the rollout of significant new customer in the second quarter of 2020.
Absent the impact of this new customer, our total inventory dollars and pounds on-hand, including finished goods, would have been down compared to the levels as of December 31.
We look forward to providing more details on this rolled out on our upcoming second quarter conference call.
In regard to stockholder return activities, year-to-date as of April 25, we paid over $20 million in dividends to our shareholders and repurchased more than 900,000 shares of our common stock at an average price of $69.46 per share for a total of $62.7 million.
However, given cash conservation is our priority in this current environment, we are suspending our share repurchase program until further notice.
Finally, before I conclude, I'd like to highlight that we completed the final phase of the SAP implementation in our major US sales organization during the first quarter of 2020 with the successful on boarding of our Stockton manufacturing facility.
We now have all of our US based sales organizations transitioned over to SAP.
As of today, we still anticipate a companywide completion goal at the end of 2021, however, we will continue to monitor and update our timeline should stay at home orders remain in place for a prolonged period of time.
In summary, we are pleased that we have delivered strong first quarter results.
Since the COVID-19 pandemic began toward the end of the first quarter, we've begun to operate in a highly difficult and unpredictable environment that has shaken our global economy.
In terms of our 2020 plan, while the operating environment has made it difficult to predict, with these financial targets remain achievable by the end of the fiscal 2020, we continue to execute based on the same underlying principle of focusing on operating efficiencies and cost savings to guide us through this pandemic as we move forward.
In a world filled with so much uncertainty, I can say that we believe our business is very well positioned to weather the current storm as a result of our focus on elements that we can control, including upholding a best-in-class customer experience and manufacturing high-quality trusted products, maintaining overall financial flexibility by ensuring we have ample liquidity and remaining conservative in our capital allocation approach with focus on cash preservation in the near-term.
I'm pleased to discuss our first quarter financial results with you today.
Now turning to our results.
As Karen highlighted, our consolidated sales were strong, increasing 9.4% to $283.7 million.
Within the North American segment, sales increased 12.5% to $249.1 million due to higher sales volume supported by stronger housing starts compared to the wet winter, weather conditions we experienced a year ago.
US housing starts grew 22% in the first quarter versus the comparable period last year, notably in the west and south where we provide a meaningful amount of content in the home starts grew 27% and 19%, respectively year-over-year.
In Europe, sales decreased 8.5% to $32.7 million, mainly due to lower sales volume in our concrete business.
In addition, first quarter sales were slightly impacted by our facilities in France and the United Kingdom which experienced government mandated restriction orders on operations in March for safety precautions in response to COVID-19.
As a result, these locations were operating with minimal activity to comply with the orders.
Europe sales were further negatively impacted by $1.0 million from foreign currency translations, resulting from Europe currencies weakening against the United States dollar.
In local currency, Europe sales were down approximately 5.5% for the quarter.
Wood Construction products represented 86% of total sales compared to 84% and Concrete Construction products represented 14% of total sales compared to 16%.
Gross profit increased by 18% to $129.7 million, resulting in a gross margin of 45.7%.
Gross margin increased by 320 basis points, primarily due to lower material and factory and overhead costs as a percent of sales on increased production, offset partially by higher labor, warehouse and shipping costs.
On a segment basis, our gross margin in North America improved to 47.7% compared to 44.4%, while in Europe, our gross margin improved slightly to 32.7% compared to 32.3%.
From a product perspective, our first quarter gross margin on wood products was 45.4%, compared to 42.3% in the prior year quarter, and was 42.5% for concrete products compared to 39% in the prior year quarter.
Now let's turn to our first quarter costs and operating expenses.
Research and development and engineering expenses increased 9% to $13.4 million, primarily due to increased personnel costs and cash profit sharing expense.
Selling expenses increased nearly 2% to $28.5 million, primarily due to increased personnel costs and commissions in cash profit sharing, partially offset by lower stock-based compensation and advertising and promotion expenses.
On a segment basis, selling expenses in North America were up 2% and in Europe they increased nearly 2%.
General and administrative expenses decreased 3% to $38.5 million, primarily due to decreases in professional and legal fees and stock-based compensation.
Partially offsetting these decreases were increases in personnel costs, cash profit sharing, bad debt reserve adjustment and intangible amortization expense.
On a segment level, general and administrative expenses in North America decreased 5%.
In Europe, G&A increased by nearly 6%.
Total operating expenses were $80.4 million, a slight increase of $0.5 million or approximately 1%.
As a percentage of sales, total operating expenses were 28.3%, an improvement of 250 basis points compared to 30.8%.
Included in our first quarter operating expenses were SAP implementation and support costs of $3.4 million compared to $2.4 million in the prior year quarter.
Since the project inception, we've capitalized $19.7 million and expense $29.3 million in total, as of March 31, 2020.
Our strong gross margins helped drive a 64% increase in consolidated income from operations to $49.4 million compared to $30 million.
In North America, income from operations increased 63% to $53.6 million due to higher sales and lower operating expenses.
In Europe, loss from operations was $1.7 million compared to a loss of $0.4 million due to lower sales and higher severance and amortization expense.
On a consolidated basis, our operating income margin of 17.4% increased by approximately 580 basis points.
The effective tax rate decreased to 21.3% from 22.5%.
Accordingly, net income totaled $36.8 million or $0.83 per fully diluted share compared to $22.7 million or $0.50 per fully diluted share.
Now turning to our balance sheet and cash flow.
At March 31, 2020, cash and cash equivalents were $305.8 million, an increase of $192.4 million compared to our levels at March 31, 2019 largely due to the aforementioned decision to draw down $150 million on our revolving credit facility.
This action was taken as a prudent measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty, resulting from the COVID-19 outbreak.
The proceeds from the borrowings will be available to be used for working capital, general corporate or other purposes as permitted by the Credit Facility.
We have approximately $150 million of remaining borrowing capacity under our revolving credit facility.
We generated cash flow from operations of $16.8 million for the first quarter of 2020, an increase of $7.1 million or 74%.
We used approximately $6.8 million for capital expenditures, which included a minimal amount for our ongoing SAP implementation project.
We also spent $10.2 million in dividend payments to our stockholders.
And on March -- excuse me, on April 23, our Board of Directors declared a quarterly cash dividend of $0.23 per share which will be payable on July 23 to stockholders of record as of July 2.
To date, there remains a significant amount of macroeconomic uncertainty regarding the coronavirus pandemic, including an overall lack of visibility into future market conditions, including the US housing starts, a leading indicator for a significant for a significant amount of our business.
Based on these factors, we have chosen to withdraw our previously provided full year 2020 outlook as well as the financial targets associated with our 2020 plan.
In closing, we're very pleased with our first quarter results.
We believe our significant market share, geographic reach and diverse product offering combined with our ongoing cost saving initiatives from our 2020 plan strong balance sheet and near-term focus on cash preservation will play Simpson in a position of strength when shelter in place orders begin to be lifted.
We are confident in our ability to maintain our operations during this difficult time as long as we are able to continue operating as a supplier of central businesses and believe we are well positioned to support future demand trends once the COVID-19 pandemic passes.
 Assistant:

Chosen response:
q1 earnings per share $0.83.
q1 sales $283.7 million versus refinitiv ibes estimate of $274.8 million.
withdrawing 2020 plan targets and financial outlook due to covid-19.
ended quarter with nearly $306 million in cash on hand after drawing down $150 million on $300 million revolving credit facility.
simpson manufacturing co - in late march, 2 of co's european manufacturing facilities in united kingdom, france were ordered to cease nearly all operations.


Prompt:
Human: Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties.
We encourage you to read the risks described in the company's public filings and reports which are available on the SEC or the company's corporate website.
Now I would like to turn the conference over to Karen Colonias, Simpson's President and Chief Executive Officer.
I'll begin with the summary of our key second quarter performance, drivers and initiatives.
Brian will then walk you through our financials and updated full year 2021 business outlook in greater detail.
We experienced strong business momentum in the second quarter, generating net sales of $410.3 million which grew 18% over the prior quarter and 25.8% over the prior year period.
Sales growth was primarily driven by the implementation of two product price increases during the quarter along with marginal increases in sales volume.
Throughout the quarter, we were very pleased to be able to continue meeting the needs of our customers by providing them with our trusted product solutions typically within 48 hours or less.
This is despite the current environment marked by the increasing prevalence of global supply chain constraints, limited steel availability and a tight labor market.
The recent price increases we implemented drove significantly higher gross margins for the second quarter, which increased to 47.9% from 46.7% in the prior quarter and 45.9% in the year ago period.
As a result, our income from operations improved to $101.7 million and led to strong earnings per diluted share of a $1.66.
Looking at our sales results in more detail, the majority of the increase we experienced both sequentially and over the prior year period was a result of two price increases that became effective during the second quarter.
These price increases were in direct response to rising material costs.
Effective April 5, we implemented price increases ranging from 5% to 12% depending on the product mix for certain of our wood connectors, fasteners, and concrete products in the U.S. On June 16, a second price increase ranging from 6% to 12% primarily on our wood connector products in the U.S. also went into effect.
As the price of steel continued to rise throughout the second quarter, we announced a third price increase in June in the range of 7% to 15% across a variety of our product lines in the U.S. which will become effective for most customers in mid-August.
Consistent with our historical business practice, our customers received at least a 60-day advance notification for price increases along with a clause that reduces significant pre-buying.
This enables us to manage our inventory levels in this challenging market.
Importantly, while we expect these price increases will support our gross margin levels throughout the remainder of fiscal 2021, our gross margins in the first half of 2021 reflect an average cost of steel sourced prior to or earlier into this surge in steel market together with steel purchased more recently at significantly higher prices.
These higher prices are in the range of more than double those earlier costs.
We are continuing to acquire higher priced raw materials which we currently anticipate will result in gross margin compression beginning in late fiscal 2021 and into fiscal 2022.
Brian will discuss this impact in more detail during his remarks.
Turning back to our sales performance, we experienced mixed trends in the various forms of distribution channel we serve including our home center channel and other distribution channels to contractors and lumber yards.
While our momentum with home centers continued, our sales reflected a high-teens percentage decline in this channel year-over-year given the challenging comparison with lapping the return of Lowe's as a home center customer in the second quarter of 2020.
As a reminder, the home center channel includes both our home centers, as well as co-op customers and is where we see much of our repair and remodel and DIY business.
Last year, we experienced elevated volume levels as we began our load-in and shipped our connector products into Lowe's stores.
We expect to experience a similar trend next quarter as we lap the elevated volumes from our mechanical anchor and fastener load-ins at Lowe's in the third quarter of 2020.
Offsetting the decline in the home center channel was double-digit growth in our other distribution channels during the quarter.
This was due to the aforementioned sales price increases and ongoing strength in demand for our products which benefited from upward trends in U.S. housing starts.
As we generally experience a multi-month lag in demand from the time of housing starts the second quarter reflected strength in the housing starts during the first quarter of 2021, which grew by nearly 9% year-over-year.
Finally in Europe, our second quarter sales improved over the prior year on a local currency basis given strengthening demand compared to the prior year where we experienced government mandated COVID-19 related closures, which resulted in lower sales volumes.
Sales in Europe were also supported by our ability to continue meeting out customer needs due to our solid inventory management practices amid broader supply chain shortages.
I'll now turn to a high level discussion on our three growth initiatives, which we first introduced earlier this year during our Virtual Analysts Investor Day event on March 23.
Our growth initiatives focus on the following five markets, which I'll name in no particular order of priority; OEM, which is Original Equipment Manufacturers, repair, remodel and do it yourself; mass timber, concrete and structural steel.
Importantly, we currently have existing products, test results, distribution and manufacturing capabilities in place for all five of our growth initiatives.
In these markets, we are focused on organic growth opportunities through expansion into new markets within our core competencies of wood and concrete products, as well as inorganic growth opportunities through licensing, purchased IP and traditional M&A.
In order to appropriately grow in the first three markets, that would be the OEM, DIY, R&R and Mass Timber, we aspired to be a leader in the engineered low-graded construction fastening solutions given each of these markets have a broader product opportunity within Fastenings Solutions.
In addition, we're striving to be a stronger leader in building technology by continuing to provide innovative tools and solutions that both help our customers with design and options management, while simultaneously enabling them to select and specify the right Simpson solution for the job.
We expect technology advancements would drive enhanced growth in all of our key growth initiatives as well as across all of Simpson in general.
Today, each of our growth initiatives are in a different stage of development.
We are confident in our ability to execute them based on our strong business model which emphasizes engineering expertise, deep-rooted relationships with our top builders, engineers, contractors, code officials and our distributors, along with our ongoing commitment to testing, research and innovation.
We believe these initiatives will continue to position Simpson for above-market growth and we'll keep you apprised of any significant updates as they arise.
Finally, I'd like to take a brief moment to touch on our capital allocation strategy.
As our business continues to generate strong cash flow, we remain focused on appropriately balancing our growth and stockholder return priorities.
We will prioritize investing in our growth initiatives in areas such as engineering, talented market and sales personnel and testing capabilities.
M&A also remains a high key area of focus in order to expand our product lines and develop complete solutions for the markets in which we operate as well as potential M&A opportunities in areas of direct alignment or support on our key growth initiatives.
To assist with these efforts, we're looking to other avenues such as venture capital expertise to help identify potential strategic acquisitions or investments including innovative technologies of interest in the building space.
In regard to stockholder returns, during the quarter, our board of directors approved the change to our capital return threshold to 50% of Simpson's free cash flow as compared to our previous threshold of 50% of our cash flow from operations.
This change was made to better align our capital return thresholds with our growth initiative strategies and investments.
We remain committed to returning value to our stockholders in the form of opportunistic share repurchases and dividends moving forward.
In summary, we are very pleased with our strong second quarter financial and operational performance.
Looking ahead to the second half of the year, we expect to build on the continuing momentum we are experiencing including strong housing starts.
We look forward to continuing to provide our customers with Simpson's industry-leading solutions supported by our long-standing relationships, technical and field support, strong inventory position, and consistent product availability.
I'm pleased to discuss our second quarter financial results with you today.
Now turning to our results, as Karen highlighted, our consolidated net sales increased 25.8% to $410.3 million.
Within the North America segment, net sales increased 22.2% to $350.6 million primarily due to product price increases that took effect in April and June of 2021 in an effort to offset rising material costs along with marginally higher sales volumes.
We also continue to benefit from solid trends in our distributor channel, which reflected increased demand from ongoing strength in U.S. housing starts.
In Europe, net sales increased to 51% to $56.4 million primarily due to higher sales volumes compared to last year's COVID-19-related slowdown.
Europe sales also benefited by approximately $5.3 million of positive foreign currency translations resulting from some Europe currencies strengthening against the United States dollar.
Wood construction products represented 87% of total sales compared to 86% and concrete construction products represented 13% of total sales compared to 14%.
Consolidated gross profit increased by 31.1% to $196.4 million which resulted in a stronger Q2 gross profit margin of 47.9% compared to last year.
Gross margin increased by 200 basis points primarily due to the price increases Karen discussed earlier, which were partially offset by higher material costs.
On a segment basis, our gross margin in North America increased to 49.9% compared to 47.4%.
While in Europe, our gross margin increased to 36% compared to 35.1%.
From a product perspective, our second quarter gross margin on wood products was 47.4% compared to 46.2% in the prior-year quarter and was 47.5% for concrete products compared to 40.7% in the prior-year quarter.
Now, turning to our second quarter costs and operating expenses.
As a reminder, last year, we curtailed expenses in light of the COVID-19 pandemic.
As a result, total operating expenses were $94.7 million, an increase of $17.1 million or approximately 22%.
As a percentage of net sales, total operating expenses were 23.1% compared to 23.8%.
Research and development and engineering expenses increased 16.2% to $14.2 million primarily due to increased personnel costs, cash profit sharing and professional fees.
Selling expenses increased 23.6% to $33.2 million due to increased personnel costs, sales commissions travel and entertainment expenses and professional fees.
On a segment basis, selling expenses in North America were up 20.3%; and in Europe, they were up 36%.
General and administrative expenses increased 22.7% to $47.4 million primarily due to personnel costs, cash profit sharing and professional and legal fees offset by a lower stock-based compensation.
Our solid top line performance combined with our stronger Q2 gross margin helped drive a 40.9% increase in consolidated income from operations to $101.7 million compared to $72.2 million.
In North America, income from operations increased 31.8% to $95.1 million, primarily due to increased gross profit, partly offset by higher operating expenses.
In Europe, income from operations increased 117.8% to $5.9 million primarily due to increased sales volumes and gross profit.
On a consolidated basis, our operating income margin of 24.8% increased by approximately 270 basis points from 22.1%.
Our effective tax rate increased to 26.9% from 25.8%.
Accordingly, net income totaled $72.5 million or $1.66 per fully diluted share, compared to $53.5 million or $1.22 per fully diluted share.
Now turning to our balance sheet and cash flow; our balance sheet remained healthy with ample liquidity to operate our day-to-day operations.
At June 30, cash-and-cash equivalents totaled $305.8 million, a decrease of $9.7 million compared to June 30, 2020.
As of June 30, 2021, the full $300 million on our primary credit line was available for borrowing and we remain debt free mostly unchanged from year end.
Subsequent to the end of the quarter, we entered into a fourth amendment to our credit facility, which extended the terms of the agreement from July 23, 2022 to July 12, 2026 and modified certain covenants to provide us with additional flexibility.
Our inventory position of $310.3 million at June 30 increased by $13.6 million from our balance at March 31, primarily due to the increases we saw in steel prices over the first half of the year, partially offset by a reduction in pounds on-hand.
We continue to carefully manage raw material inventory purchases in the environment of rising costs and limited supplies, all while striving to maintain our high levels of customer service and on-time delivery standards.
As a result of our improved profitability and effective working capital management, we generated strong cash flow from operations of $63.8 million for the second quarter of 2021, an increase of $38.9 million or 156%.
We used approximately $8.8 million for capital expenditures during the quarter and paid $10 million in dividends to our stockholders.
Additionally, I'm pleased to announce that on July 14, 2021, our board of directors declared a quarterly cash dividend of $0.25 per share.
The dividend will be payable on October 28, 2021 to stockholders of record as of October 7, 2021.
As a reminder, in early May, our board of directors approved $0.02 or 8.7% increase in our dividend per share.
We are pleased to have increased our quarterly dividend, reflecting our strong financial performance and continued commitment to returning capital to stockholders.
Prior to this, we had last raised our quarterly dividend by $0.01 or 4.5% per share in April 2019.
We did not increase our dividend in 2020 as a result of our focus on cash preservation at the onset of the COVID-19 pandemic.
As of June 30, 2021 we had the full amount of our $100 million share repurchase authorization available, which remains in effect through the end of 2021.
Given our confidence in our business and our expectation that our strategic initiative will continue to drive improved operational performance and a higher return on invested capital, we expect we'll remain both active and opportunistic as it relates to share repurchase activity.
Based on business trends and conditions as of today, July 26, we are updating certain elements of our guidance for the full year ending December 31, 2021 as follows.
We are tightening our operating margin outlook to now be in the range of 19.5% to 21% compared to our previous estimate of 19.5% to 22%.
The current outlook reflects two quarters of actual results, the impact of our recent price increase announcement, rising raw material input costs, and the stronger than anticipated demand trends that we've been experiencing in 2021.
In addition, we continue to expect our effective tax rate to be in the range of 25% to 26% including both federal and state income tax rates.
And finally, we are updating our capital expenditure outlook.
For 2021 we have authorized capex in the range of $55 million to $60 million including approximately $15 million to $20 million that will be used for safety and maintenance capex.
At this time, only a small amount of our capex spend is related to pursuing our growth initiatives Karen outlined earlier in the call.
I'd also like to provide some additional commentary regarding our margin expectations for the remainder of fiscal 2021 and fiscal 2022.
Based on our current expectations, we are anticipating continued raw material cost pressure in late 2021 and into 2022.
As Karen noted, our gross margins in the first half of 2021 reflect an average cost of steel sourced prior to or early into the rising steel market together with steel purchased more recently at much higher prices.
As we work through our on-hand inventory and continue to continue to buy raw material at these much higher prices, our anticipated costs of goods sold are expected to increase significantly in the back half of fiscal 2021 and into 2022 even if prices for raw material begin to decline, which will adversely affect our margins as the impacts from averaging raw material costs typically lags our price increases.
As a result, we currently expect a roughly 300-basis-point to 400-basis-point decline in operating margins for the full-year 2022 when compared to 2021.
Despite near-term pressures, we continue to focus on the long-range view, a key company value put in place by our Founder, Barclay Simpson.
As discussed during our Analyst and Investor Day, we continue to believe we can maintain an industry-leading operating margin in the high teens range annually in the long term, a key goal in our five-year company ambitions.
In summary, we're very pleased with our solid second quarter financial results and operating performance.
We remain confident in our ability to execute against our strategic, operational and financial initiatives along with being able to support current and future demand trends.
We look forward to updating you on progress in the coming quarters.
As Brian mentioned in summary, we are very pleased with our second quarter results.
We continue to manage the key areas of our business that we can control while navigating the current macroeconomic environment, which is characterized by our ongoing rise in steel prices.
While these factors will result in a notable compression to our margins in fiscal 2022, we remain confident in our ability to achieve our five-year company ambitions that we unveiled at our Analyst Investor Day in March.
Our first ambition is we want to strengthen our values-based culture.
Our Simpson's strong tie employees are our most important asset and we will continue to engage with them to ensure relentless customer focus that they're involved in leadership programs and instill a safety-first culture.
Second, we want to be a partner of choice in all aspects of our business.
Third, we strive to be an innovative leader in our products categories.
Fourth, we aim to continue our above market growth relative to U.S. housing starts.
This, we will continue to target an operating income margin that remains within the top quartile of our proxy peers.
While we expect increases in our operating expenses in the near-term to support our growth initiatives, our goal over the long-term is to expand our operating income margin from historical averages supported by enhanced revenue from our growth initiatives.
And finally, we'll continue targeting a return on invested capital that remains in the top quartile of our proxy peers.
We commend you for your dedication to safety and for working hard every day to achieve our mission of providing solutions to help people build and design safer, stronger structures.
 Assistant:

Chosen response:
compname reports q2 earnings per share of $1.66.
q2 earnings per share $1.66.
q2 sales $410.3 million versus refinitiv ibes estimate of $395.9 million.
updating full year 2021 financial guidance.
2021 capital expenditures are estimated to be $55 million to $60 million.


Prompt:
Human: I do have a few words of caution before we open for comments.
STERIS' SEC filings are available through the company and on our website.
Additional information regarding these measures, including definitions, is available in today's release as well as reconciliations between GAAP and non-GAAP financial measures.
With those cautions, I will hand the call over to Mike.
For the quarter, constant currency organic revenue increased 12%, with growth across all segments.
Growth was driven by organic volume as well as 130 basis points of price.
To assist you with your modeling, I will share some color on the acquisition revenue contribution within the Healthcare segment.
Of the approximately $220 million in acquired revenue, about 65% is consumable revenue from both Key and Cantel Medical, about 20% of the balance is capital equipment revenue, with the last 15% being service revenue.
We will not be breaking that down any further as it is already difficult to differentiate some product lines as we are integrating the businesses quickly, and that challenge will only increase with each passing quarter.
Gross margin for the quarter increased 120 basis points compared to the prior year to 46.2%, as favorable productivity, pricing and acquisitions were somewhat offset by higher material and labor costs.
Combined, material and labor costs were about $10 million in the quarter, significantly higher than we were expecting.
As we look at the second half of the fiscal year, we anticipate that higher material labor costs will continue to impact gross margin by approximately $20 million or more.
EBIT margin for the quarter was 23.3% of revenue, an increase of 80 basis points from the second quarter of last year.
As anticipated, we are starting to see some operating expenses, such as travel and sales and marketing costs, return somewhat limiting EBIT margin growth.
The adjusted effective tax rate in the quarter was 22%, higher than last year, but in line with our expectations for the full fiscal year.
Net income in the quarter increased to $200.3 million and earnings per share were $1.99.
Our balance sheet continues to be a source of strength for the company.
Our leverage ratio at the end of the second quarter is now below 2.8 times.
As a reminder, we cash settled all of Cantel's convertible notes during the second quarter.
The total cash settlement value was approximately $371.4 million.
At the end of the quarter, cash totaled $383.5 million.
During the first half, capital expenditures totaled $133.4 million, while depreciation and amortization was $201.7 million, reflecting recent acquisitions.
Free cash flow for the first half was $135.8 million.
As anticipated, this is a decline from last year due to costs associated with the acquisition and integration of Cantel Medical and slightly higher capital spending year-over-year.
Our fiscal 2022 is shaping up to be another record year for STERIS.
Our first half turned out to be stronger than we anticipated, with constant currency organic growth across the business.
In particular, growth in our AST segment remained strong, with 23% constant currency organic growth year-to-date despite some tough comparisons in the second quarter of last year.
Healthcare has also rebounded nicely, with 17% constant currency organic growth in the first half and record backlog of $311 million at the end of the quarter for the legacy STERIS products.
Life Sciences consumables have stabilized, contributing 3% constant currency organic growth in the first half.
And our capital equipment business backlog has grown to a record $98 million.
Lastly, our newest segment, Dental, reported 10% growth for the quarter, in line with our expectations.
Underlying our performance, procedure volumes in the U.S. have held steady as hospitals have learned how to manage through the pandemic.
While we continue to see pockets of the world that are more limited in procedure volume due to COVID outbreaks, overall, we believe procedure volume is moving closer to pre-pandemic levels.
We are cautiously optimistic about the coming months as COVID cases appear to have peaked and are now once again receding.
Despite the more difficult comparisons, we expect revenue to stay strong in our second half as we continue to benefit from these trends.
We also continued to make progress on the integration of Cantel in the quarter.
The majority of our staffing changes have been made, aligning STERIS to better serve customers, positioning us for growth going forward and contributing to cost synergies.
We are also making swift progress implementing Lean, and we are very pleased with how receptive our new colleagues are to our passion for continuous improvement.
All said, we would expect to exceed our synergy cost targets for the year and also in total.
Looking at the full year, while we are increasingly confident in our ability to achieve our improved outlook provided last quarter, we are not increasing guidance further at this time.
While we overachieved earnings in the second quarter, we have a few offsets that will likely impact the back half of the year.
On the revenue side, our comparisons do get a bit more challenging.
And we do expect some headwinds from FX, in particular, from the euro and the pound.
In addition, while our teams have done outstanding work to mitigate the supply chain challenges so far this year, it is difficult to predict the unknown implications the current environment may have on the second half of the fiscal year.
All said, we are pleased with where we stand today and the underlying strength of our diversified business, and remain optimistic that if it were not for supply chain and inflation uncertainties, we would be at the high end or above our adjusted earnings per share guidance range for the full year.
We look forward to continuing to update all of you on our progress.
Grant, would you please give the instructions and we can get started on Q&A?
 Assistant:

Chosen response:
q2 adjusted non-gaap earnings per share $1.99.
reiterates fiscal 2022 outlook.


Prompt:
Human: We are pleased with the continued outstanding performance of all our business segments.
In the second quarter, we delivered 61% growth in core FFO per share to $1.80 as compared to the second quarter of 2020 exceeding the high end of our guidance of $1.63 as our ongoing momentum accelerated beyond our forecasted expectations.
Comparing to a non-COVID impact quarter our second quarter FFO per share was 53% greater than the second quarter of 2019.
This outperformance, along with a positive outlook for the third and fourth quarters once again led us to raise our core 2021 FFO guidance range by $0.31 at the midpoint to $6.25 to $6.37 per share.
The change is being driven by continued outperformance of transient RV, marinas, the sustained strength in our manufactured housing portfolio and our robust acquisition activity, particularly as we begin to realize the meaningful marina industry consolidation opportunity.
Complementing our operational performance was Sun's well received inaugural unsecured bond issuance, following our investment grade rating from S&P and Moody's.
We issued $600 million of senior notes in an oversubscribed offering in mid June.
Sun' access to the bond market provides us with enhanced financial flexibility to most efficiently match fund our investment activities.
With a healthy pipeline of internal and external growth opportunities we believe this was the right time for the step and we'll look to continue enhancing our credit metrics over time for improved ratings.
For the quarter, same community NOI grew 21.6% over last year, reflecting the continued demand in each of our segments and our favorable strategic positioning to capture that demand.
We entered the quarter with same community occupancy of 98.8%, a 160 basis point improvement over the second quarter of 2020 with manufactured housing same community NOI growing by 5.4% and RV same community NOI growing by 85.1%.
Year-to-date we have filled more than 1,000 revenue producing manufactured housing and annual RV sites and have delivered more than 580 ground-up and expansion sites that will continue providing the runway for growth over subsequent quarters.
New site deliveries, one of Sun's key levers that we anticipate continuing to contribute to a sustained growth profile and value creation.
As of quarter end we had approximately 9,400 sites available for development that we anticipate delivering over time.
We have also remained active in growing our portfolio, adding 18 properties in the second quarter and through this earnings call deploying over $719 million of capital and adding more than 5,000 sites, wet slips and dry storage spaces.
This brings year-to-date acquisition volume to over $853 million across 28 properties.
Our acquisition teams remain extremely active sourcing deals and channeling them through our underwriting process.
We are very enthusiastic about the opportunities we are seeing across each of Sun's businesses.
Our excellent reputation as a transaction partner and our structuring flexibility gives us access to off-market transactions across manufactured housing communities, RV resorts and marinas.
Subsequent to quarter end we completed the disposition of two manufactured housing assets that no longer fit our core strategy.
We sold these assets at a 4.3 cap rate, which we believe is a very positive indicator of the value and quality of our core portfolio.
Our RV Resort business is benefiting from the demand for outdoor experiences.
As we have been discussing throughout the pandemic, once travel restrictions began to lift, RV travel quickly emerged as a vacation option of choice.
And importantly, even as broader travel has picked up it is clear that people who have experienced the benefits of RV travel and the quality and amenities that Sun Resorts offer are becoming repeat customers.
There has been no waning of demand for RV vacationing even as other forms of leisure travel have become available and bounced back.
As John will discuss, we are confident this segment will remain strong for several reasons, including a solid forward bookings for transient and our annual site conversions.
In our Marina business results continue to track ahead of underwriting and we are in the midst of an active boating season.
In summary, we are pleased with our results and optimistic about our outlook.
We continue to achieve strong operational results and realize internal and external growth opportunities.
Furthermore, with our equity raise in the first quarter and our recent bond issuance we are well-positioned to execute on each of these prospects.
Our team members are the reason we continue to deliver the type of outperformance we have been discussing.
We believe that one element of that success is our commitment to ESG matters, which are becoming increasingly woven into all aspects of our business.
As part of that enhanced focus there is one element I wanted to highlight today.
We are proactively adjusting our pay structure at the property level to ensure that pay is properly aligned with a number of factors including job responsibilities, tenure of service and appropriate living wages.
While this is resulting in a payroll and expense increase, we are committed to making Sun the best employer, which will facilitate us, continuing to foster a dedicated, skilled and healthy team.
Sun delivered a strong second quarter across the board, outperforming our prior expectations in RV, marinas and manufactured housing.
Our results reflect the combination of the stability of our best-in-class portfolio as well as the incremental benefits of our growth initiatives across our three business lines.
For the second quarter, combined same community manufactured housing and RV NOI increased 21.6% from the second quarter of 2020.
The growth in NOI was driven by a 22.5% revenue gain supported by a 160 basis point increase in occupancy to 98.8% and a 3.3% weighted average rent increase.
This was offset by a 24.7% expense increase compared to the second quarter of last year when we had implemented expense saving measures including furloughs of properties impacted by COVID-related closures.
Same community manufactured housing NOI increased by 5.4% from 2020 and same community RV NOI increased by 85.1%.
The RV growth reflects both the impact from the COVID-related delayed opening of 44 of our resorts on last year's results, as well as the incredibly strong transient demand this year.
Given the stay at home orders that were in place during the second quarter of 2020 we think it is helpful to look at these results relative to the second quarter of 2019.
For all of our comparisons to 2019 we're utilizing last year's same community pool of 367 communities.
Compared to 2019, the portfolio's NOI CAGR was 9.7% and the CAGR for revenues and expenses were 8.5% and 5.9% respectively.
The RV NOI CAGR was up by 18.6%, including a 19.6% increase in transient RV revenues.
Looking at the most recent holiday weekends further illustrates how demand has escalated.
For Memorial Day weekend RV revenue was up 39% compared to 2019.
Similarly, for July 4 weekend revenue improved 35% compared to 2019 and 36.5% compared to 2020 driven by a 10.5% increase in occupancy and a 19% increase in average daily rate.
We are pleased that so many new consumers have recently taken initial RV vacation.
Moreover, we are confident that many of these vacationers have discovered the joy of RV travel and the quality outdoor experience at a Sun RV resort.
Therefore even as other forms of travel have reopened or are deemed to be safe again, we are seeing demand persist through the second half of 2021.
I would like to highlight a few metrics which illustrate the increasing interest in Sun Vacations and the engagement and loyalty of our guests.
Traffic to our Sun RV resorts website was incredibly strong in the first half of 2021, up almost 80% from the first half of 2020 and 158% compared to 2019.
Within this growth, we are seeing a shift to a younger audience with significant increase in guests aged 18 to 34.
Our social media efforts are attracting the largest following and engagement in the industry with over 1.3 million followers on three of the largest social media platforms Instagram, TikTok and Facebook.
A big element of a Sun Vacation is the community and the activities we provide and these channels are in an ideal way to continue to showcase what we offer and to nurture community element to drive repeat guests.
From the same community perspective, first time guests to our resorts increased 80% during the first half of the year compared to 2019.
We are also piloting a new RV resorts loyalty program where guests can earn points for stays and redeem them for benefits, discounts or free nights on future vacations.
With the size of the Sun portfolio and the geographic variety we offer we believe this program will further encourage guests to choose the Sun RV Resort as their vacation destination.
As we look to the back half of the year, our transient forecast is trending 15.2% ahead of our original 2021 budget.
There are a number of dynamics supporting the continuation of these positive demand trends.
One is the strong sale of new RVs.
According to the RV Industry Association, 2021 RV unit sales are projected to be 34% higher than in 2020 and reach a new industry record.
Additionally, there are a few promising venture-backed platforms including RVShare and Outdoorsy, which allow owners to rent their personal RVs providing a new option for consumers seeking outdoor vacation without the capital outlay of buying an RV.
These platforms help activate otherwise idle RVs, which we believe will fuel additional demand for RV Resorts.
With respect to the total MH and RV portfolio, in the second quarter we gained 583 revenue producing sites.
Of our revenue producing site gains over 350 transient RV sites were converted to annual leases with the balance being added to our manufactured housing expansion communities.
With the increase in RV guests we are able to realize the opportunity to convert transient sites to annual leases and achieve an average 50% increase in site revenues during the first year of conversions.
Moving on to new construction, in the second quarter we delivered approximately 220 new sites, 100 of which were ground-up developments and 120 were expansion sites.
The ground-up development deliveries include RV sites at our newly opened camp tempo outside of Austin and Texas Hill country.
This marks the first delivery in a planned series of new ground-up family focused RV resorts within one of our JV partnerships.
Those of you wondering, FIMFO stands for fun is more fun outdoors.
These completed expansion and ground-up development sites will contribute to revenue growth in 2021 and beyond as they fill up and stabilize.
Manufactured housing home sales in the second quarter is another area where we saw tremendous increase compared to the same period last year.
Total sales volume was up approximately 90% year-over-year as we sold more than 1,100 homes in the quarter.
Compared to 2019, this sales volume represents an increase of 25%.
We believe the growth is due to a number of factors, including pent-up demand from limited home moves during the pandemic, the attainable nature of the homes in our communities in an increasingly tight real estate market, and lower relative increases for the construction and material costs of our product versus site-built housing.
Average home prices during the quarter for new and pre-owned homes rose 11.6% and 23.3%, respectively, underscoring the overall geographic mix as well as sustained demand for our product and the strong desire to live in a high-quality Sun community.
This favorable demand environment helped support attractive gross margin results for both new and pre-owned home sales, which expanded 50 basis points and 14.6 percentage points, respectively, compared to the prior year period.
Additionally, brokered home sales volume was up 113% compared to the second quarter of 2020 with the average home value increasing by 26%.
In terms of our operations, in our manufactured housing business, we are benefiting from sustained strength and fundamentals and demand for affordable housing.
Applications to live in a Sun Community were up more than 20% compared to 2020 in the second quarter and year-to-date.
Turning to the Marina business, we ended the quarter with 114 properties comprising nearly 41,300 wet slips and dry storage spaces, which includes the acquisition of four properties for approximately $423 million completed in the second quarter.
Better-than-expected performance for the Marina portfolio continues to come from demand for wet slips and dry storage spaces.
Same marina rental revenue growth for the portfolio of 75 properties owned and operated by Safe Harbor since the start of 2019 was almost 17% for the first half of 2021 over 2019.
This is a CAGR increase in rental revenue of 9.7% for the quarter and 8% for the first half of 2021.
Overall, the marinas are performing ahead of expectations and the Safe Harbor team continues to source attractive acquisitions as Gary discussed.
According to the National Marine Manufacturers industry, both dealers are seeing record levels of demand.
New boat sales reached a 13-year high in 2020, and they remain at elevated levels with most recent reported sales data through March 2021, up 30% compared to the 2020 average.
In summary, we are very encouraged by our performance across all of our businesses year-to-date and our outlook for the remainder of the year.
Secular demand trends are acting as a tailwind, and Sun has the platform and expertise to capture that demand and realize attractive growth.
The combination of the favorable macro environment, along with the strategy Sun has been implementing for years, has positioned us very well to continue to execute on our initiatives, drive industry-leading growth and create long-term value for all stakeholders.
Karen will now discuss our financial results in more detail.
For the second quarter, Sun reported core FFO per share of $1.80, 60.7% above the prior year and $0.17 ahead of the top end of our second quarter guidance range.
Outperformance was achieved across all business lines.
Our manufactured housing business experienced higher-than-forecasted revenue, including rental home revenue and other community-related fees and charges as well as lower-than-expected operating expenses.
Annual RV revenue as well as transient and vacation rental revenues drove strong results in the RV segment, partially offset by higher operating expenses including wages and benefits, utilities and supply and repair costs.
And the marina business was bolstered by higher boat slip, storage and service revenues, offset by higher payroll costs as well as utility and repair costs.
During the quarter and subsequent to quarter end, we acquired over $719 million of operating properties, bringing our year-to-date total to over $853 million, adding 28 properties totaling over 7,600 manufactured housing and RV sites, marina wet slips and dry storage spaces.
To support our operations and growth activities, we have been active in enhancing our balance sheet and in capital markets activity, which provide the capacity and flexibility to pursue our ongoing growth pipeline.
As Gary mentioned, we are pleased to have received investment-grade ratings with stable outlooks from both S&P and Moody's.
We followed this news with a successful $600 million inaugural bond offering in mid-June.
Additionally, during the second quarter, we drew on the remainder of the forward equity sales agreement we had entered into in March.
We settled 4 million shares with net proceeds of $540 million, the majority of which was used to fund our acquisitions and pay down our line of credit.
Finally, we recast our revolving line of credit agreement.
We replaced the prior $750 million line and Safe Harbor's prior $1.8 billion line with a combined $2 billion revolver with a $1 billion expansion option.
We ended the second quarter with $4.3 billion of debt outstanding at a 3.5% weighted average rate and a weighted average maturity of 10.4 years.
As of June 30, we had $104 million of unrestricted cash on hand and a net debt to trailing 12-month recurring EBITDA ratio of 5.1 times.
We are raising our full year 2021 core FFO guidance to a range of $6.25 to $6.37 per share, a $0.31 increase at the midpoint from our prior range, which represents year-over-year growth of 24% at the midpoint.
Approximately $0.17 of the increase is due to our outperformance in the second quarter with the remainder due to contributions from our recent acquisitions and increased expectations across each of our businesses, particularly transient RV.
This is offset by approximately $8 million of property level proactive wage increases for the remainder of the year, which Gary previously discussed, of which approximately half had been included in prior issued guidance.
Additionally, we estimate an impact of $0.11 per share for the remainder of the year from the settlement of the forward equity offering completed in the second quarter.
We expect core FFO for the third quarter to be in the range of $2 to $2.06 per share representing 27% year-over-year growth at the midpoint on top of the 10% growth we delivered in 2020 over 2019.
We are also revising full year same community NOI growth guidance to a range of 9.9% to 10.7%, up 230 basis points from the previous midpoint of guidance of 8%.
This revised NOI growth range is inclusive of the aforementioned increased property level payroll expenses.
 Assistant:

Chosen response:
compname reports q2 core ffo per share of $1.80.
q2 core ffo per share $1.80.
sees fy core ffo per share $6.25 - $6.37.