News Details
CURTISS-WRIGHT REPORTS 2008 THIRD QUARTER AND NINE MONTH FINANCIAL RESULTS; UPDATES GUIDANCE
October 29, 2008
ROSELAND, N.J., Oct 29, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Sales up 10%; Operating Income up 8%; Net Earnings up 9%; Backlog at $1.7 Billion
Curtiss-Wright Corporation (NYSE: CW) today reports financial results for the third quarter and nine months ended September 30, 2008. The highlights are as follows:
Third Quarter 2008 Operating Highlights
-- Net sales for the third quarter of 2008 increased 10% to $435.7 million from $396.3 million in the third quarter of 2007. -- Operating income in the third quarter of 2008 increased 8% to $48.2 million from $44.5 million in the third quarter of 2007. -- Net earnings for the third quarter of 2008 increased 9% to $27.5 million, or $0.60 per diluted share, from $25.2 million, or $0.56 per diluted share, in the third quarter of 2007. -- New orders received in the third quarter of 2008 were $442.0 million, down 35% compared to the third quarter of 2007. The third quarter of 2007 included a significant contract for the AP1000 reactor coolant pumps for China.
Nine Months 2008 Operating Highlights
-- Net sales for the first nine months of 2008 increased 21% to $1,322.5
million from $1,094.5 million in the first nine months of 2007.
-- Operating income for the first nine months of 2008 increased 17% to
$138.6 million from $118.0 million in the first nine months of 2007.
-- Net earnings for the first nine months of 2008 increased 16% to $76.4
million, or $1.68 per diluted share, from $66.1 million, or $1.47 per
diluted share, for the first nine months of 2007.
-- New orders received in the first nine months of 2008 were $1,769.2
million, up 23% compared to the first nine months of 2007. At September
30, 2008, our backlog was $1,732.4 million, up 33% from $1,303.8 million
at December 31, 2007.
"We are pleased to report increased sales and operating income growth for the third quarter of 2008," commented Martin R. Benante, Chairman and CEO of Curtiss-Wright Corporation. "This growth was particularly impressive when you consider several external factors that negatively impacted our third quarter results, including the Boeing strike, delays on the Eclipse and Boeing 787 programs, and foreign exchange losses associated with our acquisition of VMetro.
"Despite these and other challenges, we were able to deliver solid financial performance in the quarter, driven by organic growth in sales, operating income, and operating margin. From a market perspective, defense sales increased 14%, led by strong growth in ground and aerospace. Our commercial markets also grew 8%, led by strong sales growth in the power generation and general industrial markets. Our $1.7 billion of backlog is a clear indication of the continuing success of our products and programs and provides continuing momentum for the fourth quarter and heading into 2009. We continue to make significant progress with our facility expansion and contract to build reactor coolant pumps for the AP1000 reactor design. This effort solidifies our leadership in this advanced nuclear plant design and we remain optimistic about new nuclear power plant construction domestically and internationally."
SALES
Sales growth of 10% in the third quarter of 2008 was generated by solid organic growth across all segments and incremental sales of $10.6 million. The base businesses generated an organic sales growth of 7%, with our Flow Control, Motion Control, and Metal Treatment segments generating an increase of 8%, 8%, and 4%, respectively, as compared to the prior year period. In our base businesses, higher sales from our Flow Control segment to the power generation and general industrial markets, higher sales from our Motion Control segment to the ground and aerospace defense markets, and higher sales from our Metal Treatment segment to the aerospace and general industrial markets all contributed to the third quarter organic sales growth. In addition, foreign currency translation negatively impacted sales in the third quarter of 2008 by $0.3 million as compared to the prior year period.
OPERATING INCOME
Operating income in the third quarter of 2008 increased 8% over the comparable prior year period. Organic operating income growth was 11% for the third quarter of 2008 as compared to the prior year period. The organic operating income growth in the third quarter was led by our Flow Control segment, which experienced strong organic growth of 30% over the prior year period mainly due to increased volumes and improvements in profitability on long-term contracts. Organic operating income for our Motion Control and Metal Treatment segments increased 10% and 6%, respectively, mainly due to higher volumes. Our third quarter 2007 acquisitions had negative operating income of $0.9 million in the third quarter of 2008, primarily as a result of a negative inventory adjustment. Foreign currency translation favorably impacted operating income by $0.5 million in the third quarter of 2008 and operating margin by 10 basis points as compared to the prior year period, primarily in our Motion Control segment.
Segment operating margin improved 50 basis points in the third quarter of 2008 as compared to the prior year period. Higher operating margins were realized in all three of our segments, led by our Flow Control segment. Intangible asset amortization increased $1.5 million in the third quarter 2008 as compared to the prior year, mainly as a result of our 2007 acquisitions, which were primarily in the Flow Control segment. In the third quarter of 2008, our base businesses generated operating margin of 11.7%.
Non-segment operating expense increased over the prior year period primarily due to higher unallocated medical costs, higher pension expense and higher foreign exchange losses due primarily to a forward exchange transaction associated with the acquisition of VMetro. During the third quarter of 2008, the Company entered into a forward currency transaction to provide downside protection of the cash purchase price for the VMetro acquisition. As a result of this transaction and the significant strengthening of the US dollar that subsequently occurred, the Company realized a net cash savings and reduction in the purchase price of approximately $4 million and $7 million, respectively, from the offer date and recorded a pretax charge of $1.8 million in the third quarter of 2008, and a pre-tax charge of $1.4 million, which will be recorded in the fourth quarter of 2008.
NET EARNINGS
Net earnings for the third quarter of 2008 increased 9% from the comparable prior year period. The improvement was achieved by solid operating income growth and lower interest expense, partially offset by a higher effective tax rate in the current quarter as compared to the prior year quarter. The lower interest expense for the third quarter of 2008 as compared to the prior year quarter was mainly due to lower average interest rates, partially offset by slightly higher average outstanding debt levels resulting from our acquisitions. Our effective tax rate for the third quarter of 2008 was 34.4% as compared to 32.0% in the comparable prior year period. The effective tax rate for the third quarter of 2007 included a larger final return to provision adjustment and enhanced manufacturing deductions as compared to the current year quarter.
CASH FLOW
Our free cash flow, defined as cash flow from operations less capital expenditures, was negative $8.3 million for the third quarter of 2008 versus a negative $18.4 million in the prior year period. Net cash provided by operating activities in the third quarter was $15.6 million, an increase of $22.5 million as compared to the prior year period, due primarily to improvements in working capital and timing of progress payments. Capital expenditures were $23.9 million in the third quarter of 2008 versus $11.5 million in the comparable prior year period. The majority of this increase is due to the facility expansion at Cheswick, PA for our AP1000 nuclear power program.
SEGMENT PERFORMANCE
Flow Control - Sales for the third quarter of 2008 were $216.2 million, up 13% over the comparable prior year period due to solid organic growth and the incremental contribution from our third quarter 2007 acquisition amounting to $9.8 million. Organic sales growth was 8% in the third quarter of 2008 over the comparable prior year period. This organic sales growth was led by higher sales to the power generation market, driven by revenues for our AP1000 reactor coolant pumps. In addition, the general industrial market growth was due to increased sales of mission critical motor-controls and protection product solutions. These increases were partially offset by a decline in our oil and gas market due to the recent hurricanes and general economic conditions. Sales of this segment were negatively affected by foreign currency translation of $0.4 million in the third quarter of 2008 as compared to the prior year period.
Operating income for this segment increased 24% in the third quarter of 2008 over the comparable prior year period, driven by strong organic growth of 30%. Organic operating margin improved 200 basis points over the comparable prior year period, while overall operating margin improved 90 basis points. The increase in both organic operating income and margin was largely due to higher sales volumes as noted above, improved profitability on several long-term contracts, and reduced research and development costs primarily related to the 2007 AP1000 design study, which did not recur in 2008. Operating income of this segment was unfavorably affected by foreign currency translation of $0.1 million in the third quarter of 2008 as compared to the prior year period.
Motion Control - Sales for the third quarter of 2008 were $153.9 million, an increase of 8% over the comparable period last year and an increase of 11% excluding the impact of the divestiture of our commercial aerospace overhaul and repair business earlier this year. The overall improvement was due primarily to solid organic sales growth of 8% and incremental sales of $0.9 million. The organic sales growth was driven by higher sales of embedded computing products for tanks and light armored vehicles across the major platforms we serve, including the Bradley Fighting Vehicle and Future Combat Systems. In addition, we had higher sales to the aerospace defense market across several platforms including the F-22, F-16, and V-22. These sales increases were partially offset by a decline in our commercial aerospace market as a result of the Boeing strike and a significant delay on the Boeing 787 and Eclipse programs. Sales of this segment were favorably affected by foreign currency translation of $0.3 million in the third quarter of 2008 as compared to the prior year period.
Operating income for this segment increased 9% for the third quarter of 2008 over the comparable prior year period. Our organic operating income growth was 10% as a result of the higher sales volume noted above as well as favorable foreign currency translation which increased operating income by $0.7 million and operating margin by 50 basis points in the quarter. These results were achieved despite experiencing a negative impact on operating income and operating margin from the Boeing strike and extended delays on the Boeing 787 and Eclipse programs.
Metal Treatment - Sales for the third quarter of 2008 amounting to $65.6 million were 4% higher than the comparable period last year, nearly all of which was organic. This segment experienced growth in most of its markets and in all of its primary service offerings. The largest increase was in the commercial aerospace market driven by our European shot peening and coatings businesses. In addition, our aerospace defense and general industrial markets had higher North American shot peening and coatings sales, respectively. These increases were partially offset by a decline in the automotive market due to lower sales in our North American shot peening business. Sales of this segment were unfavorably affected by foreign currency translation of $0.2 million in the third quarter of 2008 as compared to the prior year period.
Operating income increased 6% for the third quarter of 2008 as compared to the prior year period, primarily as a result of the higher sales volume. Operating margin for the third quarter of 2008 was higher by 40 basis points mainly due to a favorable sales mix. Operating income of this segment was unfavorably affected by foreign currency translation of $0.1 million in the third quarter of 2008 as compared to the prior year period.
FISCAL YEAR 2008 OUTLOOK
The Company is updating its full year 2008 financial guidance as follows:
-- Total Sales $1.83 - $1.85 billion
-- Operating Income $203 - $207 million
-- Diluted Earnings Per Share $2.45 - $2.50
-- Effective Tax Rate 35.7%
-- Diluted Shares Outstanding 45.5 million
-- Free Cash Flow $70 - $80 million
Mr. Benante commented, "As we indicated in our second quarter call, we divested our overhaul and repair business in May and we were beginning to feel the effects of the delay in both the Boeing 787 and Eclipse programs, which have become more significant and are continuing. In addition, during the third quarter we were negatively impacted by the hurricanes in the gulf region, the Boeing strike, and the foreign currency loss. Despite these challenges we were able to report a solid third quarter as a result of improved operational performance across our diversified markets and timing on certain programs. In the fourth quarter, we acquired VMetro, which will be dilutive to earnings in 2008; we will record the remaining related foreign currency loss; and we will have further negative impacts from the Boeing strike and the continuing program delays."
The major business events and estimated impact on our full year diluted earnings per share are outlined below:
VMetro Foreign Currency Losses $(0.05)
VMetro Operations $(0.03)
Boeing Strike $(0.06)
Boeing 787/Eclipse Delays $(0.07)
Divestiture $(0.03)
Free Cash Flow, defined as cash flow from operations less capital expenditures, is expected to be lower than originally anticipated in the fourth quarter due primarily to a build-up of inventory due to program delays and the Boeing strike, a build-up of inventory in our oil and gas market for anticipated orders that have shifted into 2009, and for a large contract for Essar Oil in India which is expected to ship in 2009. We have updated our full year free cash flow guidance accordingly.
Mr. Benante concluded, "We are updating our guidance for the full year 2008 to reflect the impact of the above issues. Despite these events and other challenges, our business operations are continuing to perform well in a difficult economic environment due to our product and market diversification as well as operational improvements. In 2008, we should once again demonstrate our ability to generate long-term shareholder value by growing our sales and earnings. Our historic performance demonstrates our ability to execute our strategy and achieve our financial targets. Our solid performance in the first nine months of the year and strong backlog supports this trend. We expect the fourth quarter to be our strongest quarter despite the economic challenges that remain in front of us. Our defense programs continue to show growth and our commercial markets remain strong, specifically the commercial nuclear power market, which is in the early stages of a renaissance and is expected to continue growing at a rapid rate. Our diversification, the continued integration of acquisitions, and ongoing emphasis on advanced technologies should continue to generate growth opportunities in each of our business segments in 2008 and beyond."
The Company will host a conference call to discuss the third quarter 2008 results at 10:00 A.M. EDT Thursday, October 30, 2008. A live webcast of the call can be heard on the Internet by visiting the company's website at curtisswright2014.q4web.com and clicking on the investor information page or by visiting other websites that provide links to corporate webcasts.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2008 2007 % 2008 2007 %
---- ---- ---- ----
Net sales $435,699 $396,268 10.0% $1,322,542 $1,094,453 20.8%
Cost of sales 287,908 266,448 8.1% 879,048 735,223 19.6%
------- ------- ------- -------
Gross profit 147,791 129,820 13.8% 443,494 359,230 23.5%
Research &
development
expenses 10,955 12,655 (13.4%) 36,808 35,481 3.7%
Selling expenses 25,839 23,789 8.6% 80,021 66,392 20.5%
General and
administrative
expenses 62,807 48,888 28.5% 188,076 139,318 35.0%
------ ------ ------- -------
Operating
income 48,190 44,488 8.3% 138,589 118,039 17.4%
Other
income, net 371 231 60.6% 1,069 1,581 (32.4%)
Interest
expense (6,611) (7,712) (14.3%) (21,370) (18,916) 13.0%
------ ------ ------- -------
Earnings before
income taxes 41,950 37,007 13.4% 118,288 100,704 17.5%
Provision for
income taxes 14,427 11,832 21.9% 41,909 34,635 21.0%
------ ------ ------ ------
Net earnings $27,523 $25,175 9.3% $76,379 $66,069 15.6%
======= ======= ======= =======
Basic earnings
per share $0.61 $0.57 $1.71 $1.49
===== ===== ===== =====
Diluted earnings
per share $0.60 $0.56 $1.68 $1.47
===== ===== ===== =====
Dividends
per share $0.08 $0.08 $0.24 $0.20
===== ===== ===== =====
Weighted average
shares
outstanding:
Basic 44,779 44,413 44,672 44,285
Diluted 45,505 45,102 45,369 44,925
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
September 30, December 31, Change
2008 2007 $ %
---- ---- --- ---
Assets
Current Assets:
Cash and cash equivalents $77,274 $66,520 $10,754 16.2%
Receivables, net 387,101 392,918 (5,817) (1.5%)
Inventories, net 283,034 241,728 41,306 17.1%
Deferred income taxes 28,309 30,208 (1,899) (6.3%)
Other current assets 33,096 26,807 6,289 23.5%
------ ------ -----
Total current assets 808,814 758,181 50,633 6.7%
------- ------- ------
Property, plant, &
equipment, net 353,240 329,657 23,583 7.2%
Prepaid pension costs 63,771 73,947 (10,176) (13.8%)
Goodwill, net 567,031 570,419 (3,388) (0.6%)
Other intangible assets,
net 222,928 240,842 (17,914) (7.4%)
Other assets 11,500 12,514 (1,014) (8.1%)
------ ------ ------
Total Assets $2,027,284 $1,985,560 $41,724 2.1%
========== ========== =======
Liabilities
Current Liabilities:
Short-term debt $987 $923 $64 6.9%
Accounts payable 113,370 137,401 (24,031) (17.5%)
Accrued expenses 91,449 103,207 (11,758) (11.4%)
Income taxes payable 6,903 13,260 (6,357) (47.9%)
Deferred revenue 129,879 105,421 24,458 23.2%
Other current liabilities 42,990 38,403 4,587 11.9%
------ ------ -----
Total current liabilities 385,578 398,615 (13,037) (3.3%)
------- ------- -------
Long-term debt 518,467 510,981 7,486 1.5%
Deferred income taxes 57,118 62,416 (5,298) (8.5%)
Accrued pension & other
postretirement benefit costs 41,395 39,501 1,894 4.8%
Long-term portion of
environmental reserves 20,288 20,856 (568) (2.7%)
Other liabilities 35,786 38,406 (2,620) (6.8%)
------ ------ ------
Total Liabilities 1,058,632 1,070,775 (12,143) (1.1%)
--------- --------- -------
Stockholders' Equity
Common stock, $1 par value 47,903 47,715 188 0.4%
Additional paid in capital 92,269 79,550 12,719 16.0%
Retained earnings 870,515 807,413 63,102 7.8%
Accumulated other
comprehensive income 64,235 93,327 (29,092) (31.2%)
------ ------ -------
1,074,922 1,028,005 46,917 4.6%
Less: cost of treasury
stock 106,270 113,220 (6,950) (6.1%)
------- ------- ------
Total Stockholders'
Equity 968,652 914,785 53,867 5.9%
------- ------- ------
Total Liabilities and
Stockholders' Equity $2,027,284 $1,985,560 $41,724 2.1%
========== ========== =======
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
SEGMENT INFORMATION (UNAUDITED)
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
Change Change
2008 2007 % 2008 2007 %
---- ---- ------ ---- ---- ------
Sales:
------
Flow
Control $216,231 $190,811 13.3% $653,855 $491,702 33.0%
Motion
Control 153,868 142,524 8.0% 465,361 412,730 12.8%
Metal
Treatment 65,600 62,933 4.2% 203,326 190,021 7.0%
------ ------ ------- -------
Total
Sales $435,699 $396,268 10.0% $1,322,542 $1,094,453 20.8%
Operating
Income:
---------
Flow
Control $23,149 $18,733 23.6% $58,407 $38,758 50.7%
Motion
Control 16,113 14,756 9.2% 46,063 43,626 5.6%
Metal
Treatment 13,407 12,597 6.4% 41,436 38,554 7.5%
------ ------ ------ ------
Total
Segments 52,669 46,086 14.3% $145,906 $120,938 20.6%
Corporate
& Other (4,479) (1,598) 180.3% (7,317) (2,899) 152.4%
------ ------ ------ ------
Total
Operating
Income $48,190 $44,488 8.3% $138,589 $118,039 17.4%
======= ======= === ======== ======== ====
Operating
Margins:
---------
Flow Control 10.7% 9.8% 8.9% 7.9%
Motion
Control 10.5% 10.4% 9.9% 10.6%
Metal
Treatment 20.4% 20.0% 20.4% 20.3%
Total
Curtiss-
Wright 11.1% 11.2% 10.5% 10.8%
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NON-GAAP FINANCIAL DATA (UNAUDITED)
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
---- ---- ---- ----
Net Cash Provided by
Operating Activities $15,586 $(6,911) $74,775 $46,193
Capital Expenditures (23,915) (11,518) (70,511) (35,496)
------- -------- ------ -------
Free Cash Flow (1) $(8,329) $(18,429) $4,264 $10,697
======= ======== ====== =======
--- --- - --
Cash Conversion (1) (30%) (73%) 6% 16%
--- --- - --
(1) The Corporation discloses free cash flow and cash conversion because the Corporation believes that they are measurements of cash flow that are available for investing and financing activities. Free cash flow is defined as net cash flow provided by operating activities less capital expenditures. Free cash flow represents cash generated after paying for interest on borrowings, income taxes, capital expenditures, and working capital requirements, but before repaying outstanding debt and investing cash or utilizing debt credit lines to acquire businesses and make other strategic investments. Cash conversion is defined as free cash flow divided by net earnings. Free cash flow, as we define it, may differ from similarly named measures used by entities and, consequently, could be misleading unless all entities calculate and define free cash flow in the same manner.
ABOUT CURTISS-WRIGHT
Curtiss-Wright Corporation is a diversified company headquartered in Roseland, New Jersey. The Company designs, manufactures and overhauls products for motion control and flow control applications and provides a variety of metal treatment services. The firm employs approximately 7,700 people. More information on Curtiss-Wright can be found at curtisswright2014.q4web.com.
Certain statements made in this release, including statements about future revenue, organic revenue growth, quarterly and annual revenue, net income, organic operating income growth, future business opportunities, cost saving initiatives, and future cash flow from operations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements present management's expectations, beliefs, plans and objectives regarding future financial performance, and assumptions or judgments concerning such performance. Any discussions contained in this press release, except to the extent that they contain historical facts, are forward-looking and accordingly involve estimates, assumptions, judgments and uncertainties. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Such risks and uncertainties include, but are not limited to: a reduction in anticipated orders; an economic downturn; changes in competitive marketplace and/or customer requirements; a change in government spending; an inability to perform customer contracts at anticipated cost levels; and other factors that generally affect the business of aerospace, defense contracting, electronics, marine, and industrial companies. Such factors are detailed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and subsequent reports filed with the Securities and Exchange Commission.
This press release and additional information is available at curtisswright2014.q4web.com.
SOURCE Curtiss-Wright Corporation
http://curtisswright2014.q4web.com
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