Safran beats forecasts but accounting switch weighs on shares

By Tim Hepher and Jean-Michel Belot

PARIS (Reuters) - France's Safran predicted 7-10 percent growth in core income this year and announced a share buyback as it unveiled higher-than-expected sales and profits, with strong demand for aircraft equipment offsetting a dip in 2017 engine profits.

However, several analysts said the impact of a switch to IFRS15 accounting standards from this year was more severe than expected, causing Safran's shares to fall around 2 percent.

The maker of engines, landing gear and optronics also extended Philippe Petitcolin's mandate as chief executive by two years to the spring of 2020 as it prepares to absorb Zodiac Aerospace and hike output of its new LEAP jet engine.

Safran, which partners General Electric in producing the engines for Boeing and Airbus medium-haul jets, said the cost of a transition to the new LEAP generation of engines peaked at 342 million euros ($422 million) in 2017.

That surprised some analysts who had expected the cost of weaning the company off the profitable CFM56, the world's most-sold jet engine, and offering discounts to introduce its successor would stay relatively high or keep rising this year.

Petitcolin expressed caution about possible further increases in output by Airbus and Boeing to meet demand for medium-haul jets, saying he would wait until the beginning of next year before committing to higher engine production.

"By the end of 2018, we should have the level of reassurance we need concerning the potential for production rates equivalent to 70 aircraft a month (each)," Petitcolin said.

CFM, the GE-Safran engine partnership, is experiencing delays of several weeks in LEAP production but aims to catch up within "a few months" as it targets 1,100 deliveries of the new engine this year, up from 459 in 2017, Petitcolin added.

Safran posted a recurring operating profit of 2.47 billion euros in 2017 on adjusted revenues that rose 4.7 percent to 16.521 billion euros. It raised the dividend 5.3 percent.

Analysts were on average expecting flat operating income of 2.403 billion euros on revenues of 16.272 billion euros, according to an Inquiry Financial poll conducted for Reuters.

Safran said its widely watched civil aftermarket services revenue grew 11.2 percent in dollar terms in 2017 and predicted 2018 growth in the high single digits. GE said last month that its aviation services revenue had grown 13 percent in 2017.

Separately, French investment company FFP - one of the leading shareholders in carmaker Peugeot - said it had taken up a stake in Safran with a view to having a say on how Safran is managed.

Safran shares, which rose 26 percent in 2017, remain up by around 2 percent so far in 2018.

($1 = 0.8112 euros)

(Reporting by Tim Hepher, Jean-Michel Belot; Editing by Sudip Kar-Gupta)