Certain statements in this conference call will constitute forward-looking statements, which are subject to risks, uncertainties, and contingencies. HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements as a result of factors including lower demand for commercial air travel or airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services, product specification costs and requirements, which could cause an increase to our costs to complete contracts, governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by U.S. and/or foreign customers, or competition from existing and new competitors, which could reduce our sales, our ability to introduce new products and services at profitable pricing levels, which could reduce our sales and sales growth, and product development and manufacturing difficulties, which could increase their product development costs and delay sales.
Our ability to make acquisitions and achieving operating synergies from acquired business. Customer credit risk, interest, foreign currency exchange and income tax rates, economic conditions within and outside of the aviation, defense, space, medical, telecommunications, and electronics industries, which could negatively impact our costs and revenues, and defense spending or budget cuts, which could reduce our defense-related revenue. Parties listening to or reading a transcript of this call are encouraged to review all of HEICO's filings with the Securities and Exchange Commission, including but not limited to filings on Form 10-K, Form 10-Q, and Form 8-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except to the extent required by applicable law. Ladies and gentlemen, thank you for standing by, and welcome to the fiscal year 2019 fourth quarter and end-of-year earnings results.
At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star, then the number one on your telephone keypad. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Laurans Mendelson. Thank you. Please go ahead, sir.
Thank you very much, and good morning to everyone on the call. Again, we thank you for joining us, and we welcome you to HEICO's fourth quarter and full year of fiscal 2019 earnings announcement teleconference. I'm Larry Mendelson, Chairman and Chief Executive Officer of HEICO Corporation, and I'm joined here this morning by Eric Mendelson, HEICO's Co-President and President of HEICO's Flight Support Group, Victor Mendelson, HEICO's Co-President and President of HEICO's Electronic Technologies Group, and Carlos Macau, our Executive Vice President and Chief Financial Officer. Before reviewing record fourth quarter and annual results, I would like to take a moment and thank all of HEICO's team members. We are proud to lead some of the hardest-working and most successful professionals in our industry.
I take great pride in saying that the combination of our exceptional workforce and their entrepreneurial culture has been a winning formula for HEICO and has undoubtedly enabled us to achieve a 29-year compound annual growth rate of 16% in net sales, 19% in net income, and 24% in our stock price. Now I'd like to take a few minutes to summarize the highlights of our record fourth quarter and full fiscal year results. Consolidated fourth quarter fiscal 2019 net sales of $541.5 million, operating income of $120.6 million, and net income of $85.7 million all represent record results driven principally by strong double-digit organic growth within Flight Support and mid-single-digit organic growth within ETG and the impact of our fiscal 2019 acquisitions.
Consolidated fiscal 2019 net sales of $2.0556 billion, operating income of $457.1 million, and net income of $327.9 million also represent record results driven mainly by our robust double-digit organic growth within both of our operating segments as well as the excellent operating performance of our fiscal 2019 acquisitions. Consolidated net income and operating income in the fourth quarter of fiscal 2019 are up 27% and 16%, respectively, on a 14% increase in net sales. Consolidated operating margin improved to 22.3% in the fourth quarter of fiscal 2019, and that was up from 21.7% in the fourth quarter of fiscal 2018. Consolidated net income and operating income in fiscal year 2019 are up 26% and 21% respectively, on a 16% increase in net sales. Consolidated operating margin improved to 22.2% in fiscal 2019, and that was up one full point from 21.2% in fiscal 2018.
Consolidated net income per diluted share increased 27% to $0.62 in the fourth quarter of fiscal 2019. That was up from $0.49 in the fourth quarter of fiscal 2018. Consolidated net income per diluted share increased 26% to $2.39 in fiscal 2019. That was up from $1.90 in fiscal 2018. The ETG Group set an all-time quarterly net sales record in the fourth quarter of fiscal 2019, excuse me, increasing 15% over the fourth quarter of fiscal 2018. That resulted from the excellent operating performance of the fiscal 2019 acquisitions, as well as strong demand for our defense-related products.
Flight Support also set all-time quarterly net sales records in the fourth quarter of fiscal 2019, increasing 12% over the fourth quarter of fiscal 2018, and that principally reflects strong double-digit organic growth within our aftermarket repair and overhaul services, as well as our replacement parts product lines. Cash flow provided by operating activities increased 33% to a record $437.4 million in fiscal 2019, and that was up from $328.5 million in fiscal 2018. Cash flow provided by operating activities increased 9% to $124 million in the fourth quarter of fiscal 2019, and that was up from $113.7 million fourth quarter of fiscal 2018. As you all can see, we continue to generate significant cash flow for our shareholders by remaining focused on developing niche products and our strategic commitment to highly decentralized and efficient entrepreneurial structure.
As we reported yesterday, the board of directors declared an $0.08 per share regular semiannual cash dividend on both classes of stock. This is payable on January 23rd, 2020, to shareholders of record of January 9th, 2020. The cash dividend represents a 14% increase over the prior semiannual per share amount of $0.07. The cash dividend was our 83rd consecutive semiannual cash dividend since 1979. The increased dividend confirms our confidence in continued strong cash flow, HEICO's consistent growth strategies, and our desire to continue rewarding shareholders, while at the same time retaining sufficient capital to fund internal growth as well as acquisitions. In September, our dB Control subsidiary acquired all of the outstanding stock of TTT Cubed, a designer and manufacturer of radio frequency sources, detectors, and controllers for certain defense applications.
dB Control is part of our ETG group, and we expect the acquisition to be accretive to earnings within the first 12 months following its closing. Yesterday, we announced the acquisition of 80.1% of the stock of Quell Corporation, which designs and manufactures EMI, RFI, and transient protection solutions for a very wide variety of connectors that principally serve customers within the aerospace and defense markets. Quell is part of our ETG group, and we expect the acquisition also to be accretive to earnings within the first 12 months following closing. In October 2019, our Dukane Seacom subsidiary received FAA TSO certifications for their special underwater locator beacon and low lithium battery, and we're pleased to achieve these certifications.
This particular product, which we call DK-290, builds on Seacom's product legacy and simplifies shipping and handling processes with the lower lithium content. In December 2019, our VPT, Inc. subsidiary earned the Military & Aerospace Electronics Innovators Awards platinum recognition for their gallium nitride based DC-to-DC converters. This distinction is an important one and is the Military & Aerospace Electronics Innovators highest honor and recognizes companies in the aerospace and defense electronics industries which have made groundbreaking contributions and innovative solutions to solve design challenges. As always, we thank VPT, Inc. and their incredibly capable management for the outstanding accomplishments, and we are really humbled by their persistent excellence in innovation. Just a comment that the management and the people of VPT, Inc. are some of the most unusually talented individuals. That's not exceptional for HEICO because we have these people operating companies throughout our system.
They are the ones that make HEICO successful. At this time, I would like to introduce Eric Mendelson, Co-President of HEICO and President of HEICO's Flight Support Group, and he will discuss the results of this Flight Support Group.
Thank you. The Flight Support Group's net sales increased 12% to a record $324.7 million in the fourth quarter of fiscal 2019, up from $290.3 million in the fourth quarter of fiscal 2018. The Flight Support Group's net sales increased 13% to a record $1,240.2 million in fiscal year 2019, up from $1,097.9 million in fiscal 2018. The increases in the fourth quarter and fiscal year of 2019 are attributable to strong organic growth of 12% and 13% respectively, mainly due to increased demand and new product offerings across all of our product lines. The Flight Support Group's operating income increased 14% to $62.2 million in the fourth quarter of fiscal 2019, up from $54.6 million in the fourth quarter of fiscal 2018.
This increase principally reflects the previously mentioned net sales growth and the favorable impact from the changes in the estimated fair value of accrued contingent consideration, partially offset by a decrease in gross profit margin, mainly reflecting a slightly less favorable product mix within our specialty products product line. The Flight Support Group's operating income increased 17% to a record $242 million in fiscal year 2019, up from $206.6 million in fiscal year 2018, which resulted mainly from the previously mentioned net sales growth in improved gross profit margin, mainly attributable to higher net sales of our aftermarket replacement parts and efficiencies realized from the net sales growth.
The Flight Support Group's operating margin increased to 19.2% in the fourth quarter of fiscal 2019, up from 18.8% in the fourth quarter of fiscal 2018, principally reflecting the previously mentioned changes in the estimated fair value of accrued contingent consideration, partially offset by a slightly less favorable gross profit margin. The Flight Support Group's operating margin increased to 19.5% in fiscal year 2019, up from 18.8% in fiscal year 2018, principally reflecting the previously mentioned improved gross profit margin and efficiencies realized from the net sales growth. With respect to fiscal year 2020, we are estimating net sales growth of approximately 7% - 8% over the prior year, and the full year Flight Support Group operating margin to approximate 19.5% - 20%. We estimate mid to high single-digit organic growth in fiscal 2020. These estimates exclude additional acquired businesses, if any.
Now I would like to introduce Victor Mendelson, Co-President of HEICO and President of HEICO's Electronic Technologies Group, to discuss the results of the Electronic Technologies Group.
Thank you, Eric. The Electronic Technologies Group's net sales increased 15% to a record $219.5 million in the fourth quarter of fiscal 2019, up from $191.1 million in the fourth quarter of fiscal 2018, which is attributable to the favorable impact from our fiscal 2019 acquisitions as well as organic growth of 4%, mainly due to increased demand for our defense products. The Electronic Technologies Group's net sales increased 19% to a record $834.5 million in fiscal 2019, up from $701.8 million in fiscal 2018, as a result of 10% organic growth, mainly due to increased demand for certain defense and aerospace products and the impact from our fiscal 2019 acquisitions. The Electronic Technologies Group's operating income increased 13% to $64.6 million in the fourth quarter of fiscal 2019.
Up from $57.1 million in the fourth quarter of fiscal 2018. Principally reflecting the previously mentioned net sales growth, partially offset by higher acquisition-related expenses. The Electronic Technologies Group's operating income increased 20% to a record $245.7 million in fiscal 2019, up from $204.5 million in fiscal 2018. This increase principally reflects the previously mentioned net sales growth and an improved gross profit margin, mainly driven by increased net sales and a more favorable product mix for certain defense products, and efficiencies realized from the net sales growth, partially offset by higher performance-based compensation expense and higher acquisition-related costs. The Electronic Technologies Group's operating margin remained strong at 29.4% in the fourth quarter of fiscal 2019, compared to 29.9% as reported in the fourth quarter of fiscal 2018.
The operating margin in the fourth quarter of fiscal 2019 is inclusive of the higher acquisition-related costs associated with the recent acquisition, which negatively impacted the current period operating margin by approximately 0.4%. Had we not incurred these additional costs, the fourth quarter fiscal 2019 operating margin would have been consistent with the fourth quarter fiscal 2018 operating margin. The Electronic Technologies Group's operating margin improved to 29.4% in fiscal 2019, up from 29.1% in fiscal 2018, which resulted mainly from an improved gross profit margin, partially offset by increased SG&A expenses as a percentage of net sales, inclusive of higher acquisition-related costs and higher performance-based compensation expense. With respect to fiscal 2019, we are estimating net sales growth of approximately 5%-6% over the prior year, and anticipate the full year Electronic Technologies Group's operating margin to approximate 28%-29%.
Further, we estimate low to mid-single digit organic growth in fiscal 2020, which could be higher in fiscal 2020, depending on U.S. defense spending allocations. These estimates exclude any additional acquired businesses, if any. I turn the call back over to Laurans Mendelson.
Thank you, Victor. Moving on. Consolidated net income per diluted share increased 27% to $0.62 in the fourth quarter of fiscal 2019. That was up from $0.49 in the fourth quarter of fiscal 2018. Diluted earnings per share increased 26% in the fiscal year to $2.39. That was up from $1.90 in fiscal year 2018. These increases reflect the very strong operating performance within both segments, Flight Support and ETG. Depreciation and amortization expense totaled $21.8 million in the fourth quarter of fiscal 2019. That was up from $19.7 million in the fourth quarter of fiscal 2018, and totaled $83.5 million in fiscal 2019, and that was up from $77 million in fiscal 2018.
The increase in the fourth quarter and fiscal year 2019 principally reflects the incremental impact of higher depreciation and amortization expense of intangible assets from our fiscal 2019 acquisitions. R&D expense increased 7% to $17.9 million in the fourth quarter of fiscal 2019. That was up from $16.8 million in the fourth quarter of fiscal 2018, and it increased 16% to $66.6 million in fiscal year 2019, and that was up from $57.5 million in fiscal 2018. Significant new ongoing product development efforts are continuing as usual at both Flight Support and ETG, and we continue to invest approximately 3% of each sales dollar into new product development.
Consolidated SG&A expense was set at $88.8 million and $82.8 million in the fourth quarter of fiscal 2019 and fiscal 2018 respectively, due principally to the impact of fiscal 2019 and 2018 acquisitions, and that was partially offset by a favorable change in the estimated fair value of accrued contingent consideration. Consolidated SG&A expenses were $356.7 million and $314.5 million in fiscal 2019 and fiscal 2018 respectively, due principally to the impact of fiscal 2019 and 2018 acquisitions, as well as higher performance-based compensation expense and changes in the estimated fair value of accrued contingent consideration.
Consolidated SG&A expense as a percentage of net sales decreased to 16.4% in the fourth quarter of fiscal 2019, down about 1% from 17.4% in the fourth quarter of fiscal 2018. This is mainly attributable to favorable changes in estimated fair value of accrued contingent consideration. Consolidated SG&A expense as a percent of net sales decreased to 17.4% in fiscal 2019, down slightly from 17.7% in fiscal 2018, which is mainly attributable to efficiencies realized from net sales growth. I think everybody on the call can understand that as we grow our business, we are, in effect, shrinking the SG&A expense. It's a very beneficial increase in our performance. Interest expense was $5.2 million in the fourth quarter of fiscal 2019. That was compared to $5.1 million in fourth quarter of fiscal 2018, and $21.7 million in fiscal 2019 compared to $19.9 million in fiscal 2018.
The increase in fiscal 2019 was principally due to higher interest rates, partially offset by a lower weighted average balance outstanding under our revolving credit facility. Other income and expense in the fourth quarter and fiscal 2018 and 2019 was not significant, so we won't comment on it. Income taxes. Our effective tax rate in the fourth quarter of fiscal 2019 decreased to 19.8%, compared to 24.9% in the fourth quarter of fiscal 2018. This decrease principally reflects the favorable impact of higher tax-exempt, unrealized gains in the cash surrender values of life insurance policies related to the HEICO Corporation Leadership Compensation Plan, as well as the reduction in the federal tax rate from a blended rate of 23.3% in fiscal 2018, down to 21% in fiscal 2019. Our effective tax rate in fiscal 2019 decreased to 17.8% from 19.8% in fiscal 2018.
The decrease is mainly attributable to the reduction in the federal tax rate from a blended rate of 23.3% in fiscal 2018 to 21% in fiscal 2019. The decrease in our effective tax rate in fiscal 2019 also reflects a $14.3 million larger tax benefit in fiscal 2019 from stock option exercises compared to fiscal 2018, partially offset by the net impact of certain discrete tax benefits recorded in fiscal 2018. The provisions of the Tax Act that became effective for HEICO in fiscal 2019 did not have a material net effect on the company's effective tax rate. Net income attributable to non-controlling interest was $6.9 million in the fourth quarter of fiscal 2019, compared to $6.7 million in fourth quarter of fiscal 2018. Net income attributable to non-controlling interest was $31.8 million in fiscal 2019, compared to $26.5 million in fiscal 2018.
The increase in the fourth quarter in fiscal year 2019 reflects improved operating results of certain of our Flight Support Group and our ETG subsidiaries in which non-controlling interests are held. For the full fiscal 2020, we estimate a combined effective tax rate and non-controlling interest rate of 19%-20% of pre-tax income. Moving on to the balance sheet and cash flow. Our financial position and forecasted cash flow remain very strong. As we discussed earlier, cash flow provided by operating activities was very strong and it increased 33% to a record $437.4 million in fiscal 2019, and that was up from $328.5 million in fiscal 2018. Cash flow provided by operating activities increased 9% to $124 million in fourth quarter of fiscal 2019, and that also was up from $113.7 million fourth quarter fiscal 2018.
Our working capital ratio was 2.8 and 2.6 times as of October 31, 2019 and 2018, respectively. DSOs, Days Sales Outstanding of receivables, was 47 days as of October 31, 2019, pretty much comparable to the same date in 2018. Of course, we closely monitor receivable collections to limit our credit exposure. We have historically had very few losses on credit. No one customer accounted for more than 10% of net sales, and our top five customers represented about 20% of consolidated net sales in both fiscal 2019 and 2018. Inventory turnover rate of 124 days for the year ended October 2019 was comparable to the same period in 2018. Total debt to shareholders' equity decreased to 33.2% as of October 31, 2019.
That was down from 35.4% as of October 31, 2018. Net debt, which is total debt less cash and cash equivalents of $505 million to shareholders' equity decreased to 29.8% as of October 31, 2019, and that was down from 31.5% as of October 31, 2018. Net debt to EBITDA ratio improved to 0.93 times. That's less than one time EBITDA as of October 31, 2019, compared to 1.04 times as of October 31, 2018. During fiscal 2019, we successfully completed seven acquisitions. Clearly, just point out something which is obvious, that our debt to EBITDA ratio is extremely low. We have tremendous liquidity capability. We continue to look for acquisitions, good acquisitions, but we are very disciplined in what we'll look for. We certainly have the firepower and the financial strength to accomplish what our growth goals are.
We have no significant debt maturities until fiscal 2023. We will utilize our financial flexibility to aggressively pursue the high-quality acquisitions in order to accelerate growth and maximize shareholder returns. As we look ahead to fiscal 2020, we anticipate net sales growth within Flight Support and ETG, resulting from increased demand across the majority of our product lines and our commitments to developing new products and services, further market penetration, pursuing an aggressive acquisition strategy with discipline while maintaining our great financial strength and flexibility. Based upon current economic visibility, we believe fiscal 2020 will be another record year. We are estimating approximately 13%-14% growth in full-year net income, 6%-8% growth in full-year net sales over fiscal 2019.
We anticipate fiscal year 2020 consolidated operating margin to approximate 21.5%-22%, depreciation amortization expense about $89 million, CapEx to approximate $42 million, cash flow from operation to approximate $475 million, and these estimates exclude additional acquired businesses, if any. I just want to mention at this time that historically, many analysts have written, and correctly so, that coming out of the box and giving initial guidance, for the past number of years, HEICO has given that guidance on the conservative side. Without sticking my neck out too far, I do believe that we will be conservative again. That is our policy, and we would rather underpromise and overperform than promise something that we cannot deliver.
As you know, our target growth is bottom-line growth, net income of 15%-20% over the prior year, and I'm very confident that we will be able to accomplish that in fiscal 2020. In closing, HEICO's team members have delivered these outstanding results and again, deserve the credit for the hard work, the discipline it took to successfully navigate another quarter. Our team members continue to win in the markets they serve, and HEICO's management team has the utmost respect for everything they do to make this company a great success. Unfortunately, we can't reflect the quality and the competence of the people within HEICO. The team members cannot be reflected in the financial statements.
However, what they do is reflected in the performance and the driving and the growth of net income annually, and this has happened over the past 30 years, so I don't think it's a flash in the pan. With that is the extent of our prepared remarks, and I would like to open the floor for questions. Thank you.
Thank you. At this time, we would like to take any questions you may have for us today. As a reminder, you may ask a question by pressing star, then the number one on your telephone keypad. Once again, please press star one on your telephone keypad to ask a question. To withdraw your question, you may press the pound or hash key. Please stand by while we compile the Q&A roster. We have our first question, comes from the line of Louis Raffetto from UBS. Your line is open. Please ask your question.
Good morning, gentlemen.
Good morning.
Good morning.
Thanks for a little bit of clarity on the little bit of disconnect between the sales growth and the margin guidance and net income growth. Can you give us a little bit more? What's driving down the combined tax rate and NCI from sort of 25% to this 19%-20%? Is there a special tax item, or what's really driving down the NCI next year, I guess, if it's not tax?
Louis, this is Carlos. Can you hear me okay?
Yep.
As you can recall from looking back at the year, our both classes of shares had nice growth in stock appreciation. One thing we did experience in our fiscal year was an acceleration of some option exercises. What winds up happening is as those options get exercised, the company gets a tax benefit for the appreciation, if you would, of the shares that inure to the benefit of our team members in the form of compensation expense. We recognize that every quarter because we had almost double the amount of option exercises in fiscal 2019, which principally the majority of them were due to timeouts. We have 10-year options and in the 10th year, if you don't exercise them, you lose them. We had quite a few options in that situation. Those that exercised this year about double the prior year.
That is going to cause us to have a lower tax rate next year. It's true tax cash benefit to HEICO, and we'll experience that in Q1 of fiscal 2020.
Okay, similar to last year, just a larger magnitude?
Yes. We also have pretty consistent NCI rates with the prior year, so roughly around 7%.
Okay. All right. Just one quick follow-up, I guess, for Eric. Understanding that you guys don't have a single platform risk, I guess, but how do you guys think about the guidance given the 737 MAX news after the close yesterday?
Louis, I think HEICO is probably one of the companies in the industry with the least impact as a result of the 737 MAX. We do have some new content that goes on it, and that will be impacted, but I believe that's going to be mitigated by the increase in our aftermarket parts sales. I don't see this as a major item to HEICO. HEICO's always got various speed bumps along the way. We take care of it. We don't call out special excuses for special events. I'm very confident that there's not going to be much of an impact to HEICO.
Great. Thank you very much.
Louis, also, we can't factor it in and give you a hard number. Traditionally, as older airplanes fly, that's our business, supplying parts in older airplanes. You can put two to two together for yourself.
Sure. Yep. Should be, again, don't want to call it a benefit, but to Eric's point, shouldn't be least impact in the segment.
That's right.
Thank you, guys.
Thank you.
Thank you.
We have our next question from the line of Robert Spingarn from Credit Suisse. Your line is open. Please ask your question.
Hi, good morning.
Good morning, Rob.
Good morning.
I wanted to dig into the guidance a little bit for both segments. You talked about your organic growth expectations, a little bit different for the two. Eric and Victor, if you could walk through how you think about growth, and Eric in particular, based on that last question, it does look like redelivery of the MAX is going to slip here a bit. We've got replacement lift, if you will, or alternate lift in there with older aircraft consuming parts. To what extent does that inform your expectations for 2020? If you could also comment on the directionality of the margins in each segment.
Sure. Good morning, Rob. This is Eric. I'll go ahead and go first. With the Flight Support Group, we had organic growth in the fourth quarter of fiscal 2019 at 12%. That was against an extremely difficult comp in the fourth quarter of fiscal 2018, our organic growth was 13%. That means between the two years, we had organic growth of 25%, which is really a number that is outstanding. Frankly, I'd never seen before at HEICO or at any other company to be able to post 25% organic growth over a two-year period. I think the fourth quarter surprised us with the strength that we had in fiscal 2019 coming on top of fiscal 2018. Frankly, I would have expected some of that to fall into fiscal 2020. I think that's one of the things that's tempering down our expectations for fiscal 2020.
We just shipped so much in fiscal 2019 because that's when our customers wanted it, that it in effect made our 2019 numbers higher. I believe some of those shipments probably normally would have occurred in fiscal 2020. I think that they're very strong. I think our margins continue to increase. Last year, I think it was 18.8% operating margin. This year, it was about 19.5% for Flight Support Group, approximately. I anticipate the margins will continue to trend in that area.
Okay.
Did that answer your question?
It did. I think the other variable that we're all a bit focused on, again, is just with regard to MAX, and I know we're all kind of guessing here on timing, and you may not be able to really calibrate how much of your strength is coming from those temporarily extended airplanes. Is there a range? Is there a right way to think about your numbers if we have an early MAX return in calendar 2020 versus a late return? Is there any kind of thought process around that we can anchor to?
It's really hard to do. Even at our level. We do have some content, which I mentioned on the MAX, and of course, that does get negatively impacted, but it gets mitigated by the aftermarket. I think that the MAX delay is probably net beneficial for HEICO, or actually, I'm sure it's net beneficial for HEICO. It's very difficult for us to guess on really where that is, because it really depends on how much money the airlines decide to put into the legacy fleet to keep it flying. I suspect after the announcement yesterday that airlines will be more encouraged to spend money, because they realize this is not going to be a fast return to service. When I talk with our folks internally, frankly, I expect that there should be very good aftermarket revenues as a result of this.
Of course, you never know how long this could take to get corrected. Now that the pause has been there, it could end up taking longer, I think, than people originally thought in terms of resolving the regulatory, the technical, and the manufacturing issues. I think net for our aftermarket business, it will be good, but it's very hard to figure out the exact number. The other thing which I also did want to point out, you asked about margins, is that while we had 12% organic growth in the fourth quarter in Flight Support, we actually had operating income growth of 17%, and that was basically all organic. I think that our team really did a phenomenal job because when you look at 17% organic growth in a single quarter on top of the difficult comp, is really, frankly, even surprising me to the upside.
Rob, this is Larry. I just want to add my own thoughts. The budgets and the estimates and the guidance was done prior to Boeing announcing the push out of the Max.
Of course.
Stopping. To my knowledge, knowing our people who actually Carlos always says to me, "Those guys are sandbagging me." Knowing these people, I suspect that they didn't put a lot of extra power into the benefits that we may receive. I think they just looked at it business as usual without any effect, additional impact, from the Max delay. I don't think the guidance contains much of a push as a result of what happened with the Max.
Right. Okay, thanks for that. Yeah, Victor, on your side.
Yeah, Rob. I would say that, as I have in the past, we go through this budget process, and each subsidiary submits a bottoms-up budget, and they are generally conservative. Then I go through with each company, we review the budget, and I get a sense for where I think they're perhaps being too conservative and some being too aggressive. Then there's everybody in between. This is really based on what I received from our guys. My sense of it is that they are being more conservative than usual. I think they're concerned over where things could go in a number of areas, like the defense budget, and some other areas in space, which is doing very well for us right now, by the way, at this point in time, and has a very good outlook for us for next year.
I just kind of have to accept what they give us, and I don't really make too many adjustments unless they basically acknowledge to me that they know they're right.
Victor, just on that, on the difference between space and defense, and I guess you have some commercial as well, but I think you said both in the press release and in your comments, that defense drove the organic growth in the latest quarter.
Correct.
Does that mean that the other areas were flattish or maybe down a little? How do we think about those three pieces within your guide for this coming year?
That's a very good question. The answer is no, the others didn't do poorly. They just overall didn't do as well in the period. For the next year, I would say we've got a pretty good growth estimate across the board. We have pockets here and there, companies that are giving us lower forecasts than I think they're really believing internally themselves. Some of that is on the defense side. We're thinking 2020 will be very good for us, for example, on the space side. Should be very good for us.
Commercial aviation is kind of a mixed bag for us for fiscal 2020. We've got some good prospects there, but I think our guys have been, again, on the conservative side, and that's sort of proven out a little bit so far. I can't really make any trends out of the first month or six weeks of the fiscal year.
Right. You're saying you think that from a margin perspective, you'll be just, I guess around where you've been, a hair below?
Yeah. Exactly. As you've heard me say before, when our guys come in and got businesses that are averaging before amortization of intangibles in the low 30s, and they come into you and they say, "Well, somebody says I'm going to be 50 basis points lower," I really can't get too upset with them because in absolute terms, they're doing great. It is typical for them, again, to come in and give me a conservative look at the margins. I believe, and you've heard me say this before, and I think we believe, and you've heard us say this before, that we prefer to have people rely on our official guidance. If we do better, great, but if not, then we feel comfortable we're doing the right thing. Carl will say something to add.
Rob, I would just add to Victor and Eric's comments. You'll see this in the K, but our backlog's up. You'll see backlog's up, like 15% over last year at this time, which indicates to me that there's strength going into 2020. I think one of the challenges when we put our budgets together, and this is really across both segments, was we had breakneck growth in our defense business. We anticipated that. The question is, at what point does that moderate a bit? I think what Victor and Eric have done in the budgets, and what their subsidiaries and business unit leaders have done, is they've moderated their expectations. Trees don't grow to the sky. We can't continue to grow at what I'll call a breakneck pace in that segment of our business.
I hope I'm wrong, and I think we all, as a management team, believe that we'll continue to do very well and that that will continue. As Laurans mentioned, and Victor and Eric both mentioned, our guidance is relatively conservative coming out of the box. We hope to do better and over-deliver.
Thanks for the color, guys. Appreciate that. I'll step out.
Thanks, Rob.
We have our next question from the line of Greg Konrad from Jefferies. Your line is open. Please ask your question.
Good morning and great quarter.
Thank you.
Not to harp on the outlook and specifically ETG, but in the prepared comments, I think, Victor, you mentioned that ETG could be higher based on U.S. defense allocations. Are there particular areas of the budget that we should be focused on in terms of upside drivers?
I don't want to say which programs, but I think it's more specific on programs that our guys are giving me, in a few businesses, an isolated number of subsidiaries, that they're giving us a more conservative view than we think is likely. They are. It's specific programs and specific products.
That's helpful. There were some press reports about expansion of PMA parts in Asia. Any color around potential penetration and maybe regional opportunities that you're seeing within the market?
We continue to do very well in Asia. We've been selling into Asia now for over 25 years. Those customers are already great customers for us. I just anticipate continued enthusiasm and excitement for what we're doing. I met with our sales leadership over the last couple of weeks, and they've gone on a review, the customer by customer review. I can tell you we're doing extraordinarily well. There's been a lot of acceptance, and there's a lot of enthusiasm around our parts.
Oh, sorry.
No, that's all right. Without naming specific customers, in general, there's been a tremendous amount of enthusiasm for our parts. HEICO has got really an exceptional quality and technical reputation in the industry with 75 million parts shipped and no airworthiness directives or in-flight shutdowns. We really have a technical experience rating with these airlines, unlike frankly any other supplier that works with them. In particular, the Asian customers really appreciate that. I think we're going to continue to do very well.
Just to follow up on PMA. Obviously, the FAA has kind of looked at their process specific to aircraft certification. Is there any read-through or carryover into the PMA market and maybe opportunities or changes to the process?
I don't believe so. I think the FAA is very satisfied with the process. HEICO has a very good relationship with the FAA. They trust us. I would have to say our relationship has never been better. We don't see any negative impact.
Thank you.
Thank you.
Our next question comes from the line of Peter Arment from Baird. Your line is open. Please ask your question.
Thanks. Good morning, Larry, Eric, Victor, Carlos.
Good morning.
Carlos, maybe just a quick one on just CapEx. Pretty big step up from where you finished, versus 2019, the $42 million. Just is that all timing related or is there anything specific you want to call out?
No, there's some specific growth capital we have. For fiscal 2020, we have some expansion that we're planning on, which is not speculative, and we have some renovations we're doing to accommodate growth. That's in the budget. It's not too dissimilar from the prior year. I think last year we just had an extraordinarily low spend. Keep in mind, we brought on seven new companies, and they have needs, too. I think overall, even though it appears like a big step up from 2019, if you look at 2018, it's pretty similar to that spend. I think that we're going to be around that ballpark number.
Having said all that, right, at the end of the day, our guys always wind up being very frugal, and as Larry's mentioned, the guys have mentioned before, they'll go out and buy used equipment instead of new equipment if they can get it cheaper. They still retain sort of that entrepreneurial mindset on spend. At this point, I don't expect it exceeding that, but I do, based on our plans, expect it to approximate that $42 million.
Okay. That's helpful. Just quickly on M&A, you continue to obviously source deals and quite successfully, another strong year, $240, I think $41 million you spent in fiscal 2019. Maybe Larry, just comment a little bit on the environment where multiples have been high for an extended period of time, but you're still able to get deals done.
Yeah. I think that's exactly right. Multiples are high. We still are the best buyer actually for the type of company that we want to acquire, and that is an entrepreneurial company that has really his heart in the business, and we are the best buyer from a cultural point of view. There are a lot of opportunities. We're looking at them. I would say the runway is filled. We just have to find the right companies. Last year we did six or seven, and the atmosphere wasn't very much different than it is today. Quite honestly, we see some of the private equity people paying enormous prices. They don't always make the right decision. Sometimes they do. They do very well. I think we'll be able to do our normal, if you will, number of acquisitions and the kind of acquisitions we want.
I think that yes, price is a consideration, but we found in the past too, when prices drop and conditions are bad, sellers also pull out of the market because they feel they missed the peak and they're going to wait till the price comes back. Again, I think it's kind of normal for us, and we'll just continue doing what we did. Again, if we did seven last year, the market conditions aren't that much different today than they were over the last year.
Appreciate the color. Thanks.
We have our next question from the line of Ken Herbert. Your line is open. Please ask your question.
Hi. Good morning, everybody.
Good morning, Ken.
Hi. Eric, I first wanted to ask in either your distribution or your PMA businesses, has pricing, I know the vast majority of your growth is volume, but has pricing at all been any more of a tailwind either in the third or in the fourth quarter in particular, considering pricing for the aftermarket industry in the aggregate has been a much stronger tailwind in 2019 than in 2018. I'm curious if that's provided any cover for you to see any incremental benefit recently?
Good morning, Ken. HEICO, we often speak with investors who say, "Why don't we push pricing?" Our philosophy really has been to maintain outstanding customer relationships and to leave a lot on the table to make sure that the customers want to come back for more. With organic growth of 25% over a two-year period and operating income growth of roughly 17%, all organic in the fourth quarter, we believe that we're doing very well, and if you will, we want to share the benefits. To answer your question, no. We have not been pushing pricing. We know that this is an opportunity for us. It is something that we have not done, frankly, in order to just continue to develop the relationships that we have with our customers.
You've been to a number of our customer events, and I think that the energy that our customers feel towards HEICO and the spirit among our people is sort of unique in the industry, and I think moderating pricing is one of the ways that we are able to do that. Frankly, private equity folks, whether on the repair side or the PMA side, they've got to push pricing because they've got big debt payments. We don't have that. We're able to really take the long view, and I think that's how we've been able to accomplish this over 30 years.
Okay. That's very helpful. If I could, just on the fourth quarter growth, maybe in a slightly different way, I wanted to follow up on the question asked earlier around international opportunities. Can you provide any more maybe detail on the growth you're seeing with airlines or customers in emerging markets that are coming off a relatively lower base for you relative to maybe the more established Western Europe or North American legacy airlines? Is there any color you can provide on how the growth might break out and to what extent you are seeing penetration into what historically have been more challenging customers out in the emerging markets?
Yeah, we're doing very well with new customers. The opportunity for us is to bring on new customers, as well as to take existing customers and broaden the product line. Overall, we're doing, I think, very well in both of those areas. Frankly, that story's consistent with the last 20 years. I wouldn't say that it's really any different than it is now, but it continues to, I would say, grow at a similar rate to how it has in the past.
Okay. That's great. Just finally, if I could, Victor, were there any impact or any delayed shipments in October for you as a result of the lack of a fiscal 2020 defense budget? I mean, was timing at all a factor of some of what maybe, I think you alluded to this earlier, maybe what held back some of the organic growth for you in the fourth quarter that could have maybe slipped into 2020, or was that not a factor?
It's a good question. For the defense budget, no, I don't think, the continuing resolution issues and so on, I don't think that really impacted us. We do have every quarter shipments that slip from one to the other for any number of ordinary reasons, like the truck doesn't show up or the customer doesn't perform their final test and evaluation, things of that nature. We had what I would call the typical noise level of that in the fourth quarter, so nothing notable at this point.
All right. Well, thank you very much.
Thank you.
Thanks, Scott.
We have our next question from the line of Michael Ciarmoli. Your line is open from SunTrust, and your line is open. Please ask your question.
Hey, good morning, guys. Nice quarter. Thanks for taking the questions.
Thank you.
Maybe, I don't know if this is Eric or Victor, but maybe just to go back to PMA penetration adoption. Certainly within the commercial space, it seems like you're very well penetrated. Can you maybe talk about what you're seeing within the DoD marketplace, especially as they look to cut costs, maybe wean themselves off of some of the sole source suppliers out there? Are you, as you're looking at that market, is there a lot of runway for growth? Maybe you could just give some color on penetration rates and what you're expecting at the DoD level there.
Good morning, Mike. That's a great question. We think that there is a good opportunity. We're harvesting that opportunity. It is a very difficult market to access because the DoD may complain about high prices in particular areas, but they have to really dedicate the resources to go after it. We are succeeding in that area, and I think due to HEICO's reputation that we're able to do well. If that gives you the color you're looking for.
Can I assume it's fixed wing rotorcraft, kind of the normal product lines that you might penetrate in the commercial world?
Yes. I think that that's probably more fixed wing.
Got it. Then just maybe back to the 737 MAX situation, and thinking about the return to service, obviously a lot of the carriers are looking for extra capacity, have used older planes. Do you get a sense that there could be some headwinds when we finally get that return to service? Pick a date, maybe it is mid-year for a global return to service. If we do see a wave of legacy retirements and we see a lot of surplus parts used in serviceable material in the marketplace, do you think that actually flips around and creates some headwinds for you guys that we should be aware of?
I don't think so. My guess is, look, I frankly don't know much more than what everybody reads in The Wall Street Journal and reads in the various analyst reports and the publications. This is a very complex situation, I feel very badly for Boeing for what they're going through with this. It's very difficult. This is a monumental task that these folks have ahead of themselves. You've got to assume that it's going to take a good chunk of time until a return to service. Guess six months or something. Once that happens, they then have to get the 400 plus aircraft that are built into the system. I think that's going to take a period of time.
I do think that airlines who have been deferring maintenance and anticipating a return to service are going to have to finally, if you will, bite the bullet. Do some of this maintenance. All of this news is relatively new, so it's hard to guesstimate on what the impact to HEICO is going to be. No, I don't anticipate some massive retirements based upon the return to service of these aircraft. I think it's going to take a really while to get them delivered.
Got it.
Yeah.
Okay. Last one from me. Just, can you give a little bit more color, Eric, on the product development? Are you seeing more opportunities on specific parts of the plane, whether it's engine, airframe? Whether it's some of the newer planes coming off warranty and you're seeing new greenfield opportunities? Just anything you could provide around how you're spending and where those new products are being targeted for?
Sure. I would say it's really consistent with every place in the past. We're doing very well over on the engine side, the component side, across the fleet, narrow body, wide body. I think it's a broad-based support for our business. As I mentioned to Ken, who asked this question, I think by being very customer-friendly with regard to pricing, that also helps us and has helped to develop the culture that HEICO has and the customer appreciation that we've got. It's really very broad-based across our entire product family.
Got it. Helpful. Thanks a lot, guys. I'll jump back in the queue.
Thank you.
We have our next question from the line of George Godfrey from C.L. King. Your line is open. Please ask your question.
Thank you. Good morning, gentlemen. Nice quarter, as always.
Thanks. Good morning.
Welcome. Just wanted to come I know we're beating a dead horse here on the 737, but can you provide any average content over any time period that you've looked at within the fleet? I realize many planes, many customers, but is there any way to gauge over a three- or five-year period on a per platform how much an average customer might take in content from HEICO for that plane? That's really all I had. Thanks.
Yeah. It's a good question. Due to the decentralized nature of our business, it would be very difficult for us to determine exactly what that number is. It depends based on the burn rate of the parts and which customers approve which parts. I think we have it layered into our expectations. By itself, it really would be difficult to do.
Understood. Just thought I'd try. Thanks.
Thank you.
Okay.
Thank you very much.
We have our next question from the line of Gautam Khanna from TD Cowen. Your line is open. Please ask your question.
Thanks. Good morning, guys.
Morning.
Good morning.
I just had a couple questions. One, I was wondering if you could tell us where you are on the CFM part development and qualification. Any news there? When do you anticipate launching more products, given the developments earlier in the year?
I would say we're doing very well over in that area. We continue to develop products. I think there's a lot of customer interest. I'm reluctant, due to competitive reasons, to specifically call it out. I think that the IATA resolution has been uniquely good for HEICO. Frankly, I think CFM is going to continue to do extremely well. They've got a lot of parts in that engine. We're going to take our little piece. I think it will continue to be important to HEICO, as well as CFM.
Okay. Can you also, maybe in the Q it usually comes out, but the growth in aftermarket parts versus R&O in the quarter, what are you seeing in R&O?
In the quarter? Actually, in Q4, we saw a very strong organic growth in our component repair business. Out of all of the three groups, it was probably the quickest organic grower. However, both other groups grew very strong also. That was, I think, the first time in fiscal 2019 that we'd actually see the repair business outpace the parts and accessory product groups. That tells me that the repairs have been starting to pick up. As Eric mentioned earlier, maybe some of the maintenance people were holding off on because they were planning for the next benefit.
Okay. Thank you. Just one last one. Should we assume a normal year for product, new PMA part introduction, 500, 600 parts? How does 2020 shape up?
I would say consistent with past years.
Thank you very much, guys.
Yes, we're doing very well in that area as well. Thank you very much.
Thanks.
Once again, I would like to remind everyone, if you would like to ask a question, please press star then the number one on your telephone keypad. We have our next question from the line of Colleen Burnham from Sterling Capital. Your line is open. Please ask your question.
Hi. Good morning, folks. Thanks for the question. Most of my questions have been answered, but I just wanted to drill down a little bit with Eric on your, I guess it was in the release, your comment on the year-on-year comparison benefit from contingent consideration. Could you just shed a little bit more color? Is that just a compare, or is that actually a decline based on some recent deal performance? Also for Carlos, you talked a little bit about the CapEx expectations for the year forward. If you could provide a little bit more color on which sides of the business and perhaps which end market verticals are kind of driving that growth, that'd be great. I had a follow-up. Thanks.
This is Carlos. Let me take the contingent earn-out question. The favorability of that is really a change on a change. We had in Q4 2018, a charge that we took to increase contingent earn-out based on anticipated better performance, which actually panned out in 2019, so we were right to do that. We did not have similar charges in Q4 2018, so that actually helped us. Do you understand that?
Yeah, got it. I appreciate that color. Just following up on that CapEx, which side of the business or end market verticals are driving that increased forecast?
Across both segments, we have CapEx spend growth. However, within the ETG, we do have some expansion that we're doing, that we plan to do, which has teetered it up a little bit on their side. We're actually doing some corporate renovations. It's not a ton, but that's something that's really not-- it's shared by all segments in the corporate office. It's an expansion that we're doing there. Some of that goes towards Flight Support and some of it goes towards corporate. Other than some expansion for those reasons, it's the normal CapEx trends that you normally see here at HEICO. Nothing unusual.
Okay, thanks. Just a quick follow-up for Eric. Just speculating, perhaps probing a little bit here. As we get extensions with the MAX deliveries, is there a sales opportunity perhaps with content per platform? I'm thinking specifically of airlines that, in your words, eventually have to bite the bullet. They've forestalled certain maintenance. They've used HEICO on certain parts of the aircraft, perhaps not on others. Is this an opportunity for you uniquely to grow your wallet share and expand relationships to seize the moment? Thanks.
I think yes, it is an opportunity for us to pick up additional sales. I mean, the primary route for that will be parts that customers had already been buying from us in the past, and maybe they slowed down buying because they thought they were going to retire the aircraft. That will permit them to go ahead and make the expenditures. As far as customers who haven't purchased the parts, yes, I think that it's all part of our continuing value proposition. They see the benefit that they've got as a result of buying our parts, the cost impact that they've got on the MAX being out of service. Clearly, they can save money as a result of buying additional parts. Yes, I think you've hit the nail on the head.
Okay, thanks. One final one for Victor. I love looking at the companies you roll up over time. Quell looks very interesting indeed to my untrained eye. Rubber seals, it looks replicable from the outside looking in. Can you just perhaps use the lens of your M&A framework, and talk a little bit about whether it be patent protection or perhaps increased growth opportunities once you bring this product set on board? What do you see with this asset over time? Thanks.
Yeah. Thank you. That's a good question. It's a great company. It would be very difficult, if not impossible, to replicate those parts. They're not rubber seals. They are EMI filters. They're electrical filters with electronic components embedded in them, and they operate in a certain way, and they're built in a certain way that would be very difficult to replicate. Aside from the fact that some of their products have patent protection, I don't rely on the patent protection, in fact, usually for any of our products. You've got to really rely on competitive protection. That's at least in our opinion. It's a growing business. It's a rapidly growing business, successful business.
It's been around for a while, but their growth has really stepped up in the last few years because of some of the changes they've made, marketing changes in particular, and getting much more aggressive about going out and visiting the customer base. I personally interviewed their top customers in the due diligence in the last week or so. Major companies, engineers, purchasing people alike, and they were raving about Quell. Now, having said that, it's our typical kind of acquisition, so it is not going to change HEICO's profile. As you know, we don't swing for the fences. They're singles and doubles, so it's not the sort of thing that you're going to pick up our next earnings report and find that we've doubled because we're getting a giant increase because of this business. It will add to HEICO as our typical acquisitions do.
Thank you very much.
You're welcome.
There are no questions at this time. Please continue.
Well, we want to thank everybody who has been listening on this call. We will be back again in the middle of February, I guess, or towards the end of February with our first quarter 2020 report. We wish everybody a very good, healthy, and happy holiday season. We are available for questions if you have any. That is all that we have for today. Have a good holiday. We are now signing off.
Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect. Have a great day.