Curtiss-Wright Reports First Quarter 2013 Financial Results

fIRST QUARTER 2013 OPERATING HIGHLIGHTS FROM COUNTINING OPERATIONS

• Net sales increased 18% to $593 million from $502 million in 2012; the seven recent acquisitions contributed $90 million in first quarter sales;
   
• Operating income increased 7% to $38 million from $36 million in 2012; 
   
• Operating margin increased 40 basis points to 7.5%, compared to 7.1% in the prior year period, excluding 110 basis points of dilution from recent acquisitions; 
   
• Net earnings increased 6% to $21 million, or $0.44 per diluted share, from $20 million, or $0.42 per diluted share, in 2012; Net earnings increased 19% to $24 million, or $0.50 per diluted share, excluding $0.06 of dilution from recent acquisitions; and
   
• New orders totaled $617 million, up 20% from 2012, primarily from the recent acquisitions and higher demand for embedded computing products supporting a new radar system in our defense market. At March 31, 2013, backlog was approximately $1.7 billion and our book-to-bill was slightly above 1.0x.  

"Overall, our first quarter results exceeded our initial expectations, as we generated diluted earnings per share of $0.44, which includes a better than expected operating performance from both our organic businesses and our recent acquisitions," said Martin R. Benante , Chairman and CEO of Curtiss-Wright Corporation. 

"We produced solid sales growth of 18%, driven by double-digit gains across all three segments. This growth is primarily based on sales contributions from our recent acquisitions and expansion in our commercial markets. Furthermore, we continue to focus on improving profitability and operating margin expansion, as first quarter 2013 organic operating income grew 7% on flat organic sales growth, which led to a 40 basis point improvement in organic operating margins. Finally, our net earnings grew nearly 20% to $0.50 per diluted share, removing the $0.06 of dilution associated with our recent acquisitions."

FIRST QUARTER 2013 OPERATING RESULTS

SALES

Sales of $593 million in the first quarter of 2013 increased $91 million, or 18%, compared to the prior year period, nearly all of which was generated by our recent acquisitions. Sales expanded in all three segments, with gains of 24% in Controls, 16% in Flow Control, and 11% in Surface Technologies.  Foreign currency translation had a minimal impact on current quarter sales.

Sales to the commercial markets increased 34%, while the defense markets declined 8%.  Sales were higher in all commercial markets, led by a 68% increase in the oil and gas market primarily due to contributions from our acquisition of Cimarron as well as higher demand for our Maintenance, Repair and Overhaul (MRO) products. We also experienced a 56% increase in the general industrial market, primarily due to the recent acquisitions of PG Drives and Williams Controls that broadened our industrial exposure through expansion of our sensors and controls products and systems capabilities. Elsewhere, sales to the power generation and commercial aerospace markets rose 18% and 11%, respectively.  Sales were mainly lower across the defense markets, due to the timing of production and various contract completions on certain naval defense programs, and a decline in aerospace defense that more than offset a slight uptick in ground defense. 

OPERATING INCOME

Operating income in the first quarter of 2013 was $38 million, an increase of 7% compared to the prior year period, principally driven by solid increases in the Flow Control and Surface Technologies segments. These gains were partially offset by lower operating income in the Controls segment, primarily resulting from purchase accounting costs from recent acquisitions, and higher non-segment costs.   Excluding 110 basis points in margin dilution from acquisitions, operating margin increased 40 basis points to 7.5% compared to the prior year period. Foreign currency translation had a minimal impact on current quarter operating income.

Within our segments, first quarter 2013 operating income in the Flow Control segment increased 30%, primarily driven by a solid sales performance and improved profitability in the power generation market, as well as the contribution from the recent acquisitions. Elsewhere, the Controls segment reported a 6% decline in operating income overall, but excluding the impact from recent acquisitions, Controls' operating income increased 5% on flat sales. The improvement was primarily due to higher overall profitability in our defense business stemming from the benefits of our cost reduction initiatives and operational improvements implemented in the prior year.  The Surface Technologies segment produced a solid 23% increase in operating income that was driven by higher sales volumes and improved profitability in our coatings businesses, most notably due to the recently acquired Gartner thermal spray coatings business, as well as the benefits of prior year restructuring actions.

Reported segment operating margin, which excludes corporate expenses, was 8.2% in the first quarter, in-line with the prior year quarter.  Excluding the effects of recent acquisitions and foreign currency translation, segment operating margin increased 140 basis points to 9.6%.

Non-segment operating costs increased by nearly $5 million in the first quarter of 2013 as compared with the prior year period, mainly due to higher pension and legal costs and higher foreign currency transactional losses.

NET EARNINGS

First quarter net earnings increased 6% from the comparable prior year period, reflecting higher operating income, partially offset by higher interest expense as a result of our February 2013 private placement debt offering, which led to higher average debt levels and borrowing rates compared to the prior year period.  Our effective tax rate for the current quarter was 29.8%, a decrease from 32.0% in the prior year period, due to the retroactive application of the  research and development tax credit that was part of the American Taxpayer Relief Act of 2012 and signed into law during the first quarter of 2013.

FREE CASH FLOW      

Free cash flow was ($16 million) for the first quarter of 2013, compared to ($25 million) in the prior year period, or a $9 million improvement. Net cash provided by operating activities improved by nearly $4 million from the prior year period, primarily due to higher net income, partially offset by higher working capital requirements.  Capital expenditures decreased $5 million to $15 million, as compared to the prior year period, primarily due to lower expenditures across our business units.

FIRST QUARTER 2013 SEGMENT PERFORMANCE

Flow Control – Sales for the first quarter of 2013 were $311 million, an increase of $44 million, or 16%, over the comparable prior year period, aided by recent acquisitions as well as strength in several of the commercial markets. Within the power generation market, sales rose sharply due to strong aftermarket demand and technology upgrades supporting existing nuclear operating reactors as a result of a growing installed base, higher instrumentation and controls orders and solid sales of our NETCO SNAP-IN® product used in spent fuel management.  We also experienced higher revenues on the domestic AP1000 program.  Sales to the oil and gas market were strong in the first quarter, primarily due to the benefit from our recent acquisition of Cimarron, which fueled Curtiss-Wright's expansion into upstream oil and gas operations and further diversified our product offering in this end market. We also experienced higher MRO and petrochemical sales, which more than offset continued softness in the international large projects business.  General industrial sales were lower in the quarter, primarily due to slower orders from our global commercial heating, ventilation, and air conditioning (HVAC) customers.  Naval defense sales were down 10%, primarily due to timing of production on the Virginia class submarine program and completion of production on the Advanced Arresting Gear (AAG) program, despite higher sales on the Ford class aircraft carrier and a new contract for our shipboard helicopter handling systems. The recent acquisitions of Phönix Group, Cimarron and AP Services contributed approximately $44 million to sales in the current quarter.

Operating income in the first quarter of 2013 was $24 million, an increase of approximately $6 million, or 30% from the comparable prior year period, while operating margin was up 90 basis points to 7.8%. First quarter operating income from recent acquisitions was positive overall; however they were 100 basis points dilutive to operating margin. Excluding the effects of acquisitions, segment operating income increased 27%, while operating margin increased 190 basis points to 8.8% compared to the prior year period.  The increase in operating income and operating margin is primarily due to higher volumes and improved profitability in the power generation business serving existing U.S. operating reactors as well as savings generated from prior year restructuring initiatives. 

Controls – Sales for the first quarter of 2013 were $205 million, an increase of $39 million, or 24%, over the comparable prior year period. The majority of the sales growth was due to our recent acquisitions of Exlar, PG Drives and Williams Controls, which favorably contributed to the sales increase in the general industrial market. As a result, we experienced strong sales growth of 63% in the commercial markets, which more than offset a 5% reduction in sales in the defense markets. Growth in the commercial markets was also driven by a solid 14% increase in commercial aerospace due to increases on all major Boeing platforms and continued sales generated by our Emergent Operations facility in support of the Boeing 787 program.  The decline in defense sales was due to lower year-over-year production revenues across several aerospace defense platforms. 

Operating income for the first quarter of 2013 was $12 million, a decrease of approximately $1 million, or 6%, compared to the prior year period, while operating margin fell 190 basis points to 5.9%. Fourth quarter 2012 acquisitions reduced operating income by more than $1 million and were approximately 230 basis points dilutive to operating margin in the first quarter of 2013.  Excluding the impact from acquisitions, operating income increased 4% and generated an operating margin of 8.2%, a 40 basis point improvement over the prior year. This improvement was primarily driven by higher profitability in our defense business resulting from the cost reduction initiatives and operational improvements implemented in the prior year, which offset additional investments in long-term development contracts.

Surface Technologies – Sales for the first quarter of 2013 were approximately $78 million, an increase of nearly $8 million, or 11%, compared to the prior year period, most notably for our highly engineered coatings and laser peening services to commercial markets. The majority of the first quarter growth in our coatings business resulted from our recent acquisition of Gartner, which contributed solid sales to both the oil and gas and general industrial markets. We also experienced solid 11% growth in the commercial aerospace market for our highly critical shot and laser peening services, as our Surface Technologies business continues to benefit from the continued ramp up in OEM production rates, as well as ongoing support for Rolls-Royce aerospace manufacturing facilities.  The 2012 acquisition of Gartner contributed approximately $7 million to sales in the current quarter.

Operating income in the first quarter of 2013 was $12 million, an increase of $2 million, or 23% from the comparable prior year period, while operating margin was up 150 basis points to 15.6%. First quarter operating income included a positive contribution from the Gartner acquisition, although it was approximately 50 basis points dilutive to operating margin. Excluding the effects of acquisitions, segment operating income increased 15%, while operating margin increased 200 basis points to 16.1% compared to the prior year period. These improvements were primarily driven by higher sales volumes resulting in favorable absorption of fixed overhead costs, particularly in our coatings business, savings generated from our 2012 restructuring initiatives and by continued improvements in operational efficiency across our operations. 

FULL YEAR 2013 GUIDANCE

The Company is maintaining its previously issued full-year 2013 financial guidance (including acquisitions) as follows:

(Free cash flow is defined as cash flow from operations less capital expenditures and includes estimated payments of approximately $35 million to the Curtiss-Wright Pension Plan and $40 million of interest in 2013.)

Note:  A more detailed breakdown of our 2013 guidance by segment and by market can be found on the attached accompanying schedules.

Mr. Benante concluded, "We are pleased that our first quarter results exceeded our guidance and that our recent acquisitions are performing ahead of our expectations, which we expect will provide positive momentum in our commercial markets in 2013. Furthermore, our results reflect the benefits of our previous actions to improve profitability, particularly our focused restructuring and cost reduction measures, which led to organic margin expansion of 40 basis points in the first quarter of 2013.  

"We are maintaining our full year 2013 guidance that reflects strong, double-digit sales, operating income and EPS growth this year.  Although our expectations are based on flat organic sales growth, we anticipate our base businesses will generate healthy organic margin expansion as we realize the benefits from previous restructuring and cost reduction initiatives, and move past the one-time items that impacted our 2012 results.

"Within our end markets, we expect strong growth of 30-34% in our commercial markets in 2013, led by acquisitions that will contribute significant growth in each of the general industrial and oil and gas markets, as well as the benefits from the continued ramp up in commercial aircraft production rates.

"Due to the continued uncertain environment overhanging defense markets, we expect 2013 defense sales to remain flat to down slightly from 2012, reflecting lower order levels in the military aerospace and ground defense markets.  At this time, we await further clarity from Congress as to the extent of Sequestration-related budget cuts, at which time we will adjust our guidance accordingly. 

"Overall, the strength of our business model positions us well heading into the future, based on our well-balanced and diversified end market portfolio across both commercial and defense markets.  In addition, I remain confident that our management teams will continue to successfully integrate the newly-acquired businesses, as we expect the positive momentum exhibited by our recent acquisitions to deliver solid sales growth and EPS accretion in 2013."

Conference Call Information

The Company will host a conference call to discuss the first quarter 2013 results and guidance at 10:00 a.m. EDT on Thursday, May 2, 2013. A live webcast of the call and the accompanying financial presentation will be made available on the internet by visiting the Investor Relations section of the Company's website at curtisswright2014.q4web.com.

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ABOUT CURTISS-WRIGHT COPRPORATION

Curtiss-Wright Corporation is an innovative engineering company that provides highly engineered, critical-function products, systems and services in the areas of flow control, motion control and surface treatment technologies to the defense, energy and commercial/industrial markets. The legacy company of Glenn Curtiss and the Wright brothers, Curtiss-Wright has a long tradition of design and manufacturing innovation and prides itself on long-standing customer relationships. The company employs approximately 10,000 people worldwide. For more information, visit curtisswright2014.q4web.com.

Certain statements made in this release, including statements about future revenue, financial performance guidance, quarterly and annual revenue, net income, operating income growth, future business opportunities, cost saving initiatives, the successful integration of our acquisitions, 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, 2012, and subsequent reports filed with the Securities and Exchange Commission.

This press release and additional information are available at curtisswright2014.q4web.com.

CONTACT: Jim Ryan
         (973) 541-3766
         [email protected]

Source: Curtiss-Wright Corporation