Curtiss-Wright Reports Fourth Quarter and Full Year 2013 Financial Results

 

Company Reports Full Year Net Sales Up 20%, Operating Income Up 45% and Diluted EPS of $2.88; Fourth Quarter Net Sales Up 19% and Diluted EPS of $0.97; Expects Significant Operating Margin Expansion with Double-Digit Operating Income and Diluted EPS Growth in 2014; Raises Free Cash Flow and Diluted EPS Guidance 

CHARLOTTE, N.C., Feb. 19, 2014 (GLOBE NEWSWIRE) -- Curtiss-Wright Corporation (NYSE:CW) today reports financial results for the fourth quarter and full year ended December 31, 2013.

All figures presented below, unless stated otherwise, reflect results from continuing operations and exclude the impact of the first quarter 2012 sale of the heat treating business. For discussion purposes the term "organic" excludes the year over year impact of foreign currency translation and the results of our acquisitions and divestitures over the past twelve months where there is no comparable period.

FOURTH QUARTER 2013 OPERATING HIGHLIGHTS FROM CONTINUING OPERATIONS

• Net sales increased 19% to $700 million from $590 million in 2012;
   
• Operating income increased 21% to $75 million, compared to $62 million in 2012;
   
• Operating margin increased 20 basis points to 10.7%, compared to 10.5% in the prior year period; acquisitions were 90 basis points dilutive in the current year quarter;
   
• Net earnings increased 24% to $47 million, or $0.97 per diluted share, from $38 million, or $0.81 per diluted share, in 2012;
   
• Free cash flow increased 24% to $89 million, compared to $72 million in the prior year period, generating a free cash flow conversion of 188%; and
   
• New orders totaled $692 million, up 36% from 2012, due to the contribution from acquisitions, as well as higher demand for our embedded computing products serving the aerospace defense market and for our upstream and Maintenance, Repair and Overhaul (MRO) product lines serving the oil and gas market.

FOURTH QUARTER 2013 OPERATING HIGHLIGHTS FROM CONTINUING OPERATIONS

• Net sales increased 20% to $2.51 billion, compared to $2.10 billion in 2012;
   
• Operating income increased 45% to $234 million, compared to $161 million in 2012;
   
• Operating margin increased 160 basis points to 9.3%, compared to 7.7% in 2012; acquisitions were 100 basis points dilutive in the current year period;
   
• Net earnings increased 50% to $138 million, or $2.88 per diluted share, from $92 million, or $1.95 per diluted share, in 2012;
   
• Free cash flow increased 138% to $166 million, compared to $70 million in the prior year period, generating a free cash flow conversion of 120%; and
   
• New orders totaled $2.51 billion, up 27% from 2012, primarily due to acquisitions, as well as higher demand in the naval defense and oil and gas markets. At December 31, 2013, backlog was $1.72 billion, up 4% from December 31, 2012.

"We closed the year with a strong performance in the fourth quarter, resulting in diluted earnings per share of $0.97, which led to full-year diluted EPS of $2.88 that exceeded the high end of our guidance range. The fourth quarter results were driven by solid operating income growth – particularly in our Controls and Surface Technologies segments, as well as operating margin expansion and accretion from our acquisitions," said David C. Adams , President and CEO of Curtiss-Wright Corporation. 

"Our full-year results reflect strong operating income growth of 45% that exceeded our 20% sales growth, driven by double-digit gains across all three segments. The sales growth was largely driven by contributions from acquisitions, primarily in the commercial markets, which strategically enabled us to reach critical mass and position us as a market leader. We also generated solid margin expansion of 160 basis points to 9.3% as compared to 2012, which reflects our ability to quickly integrate the new acquisitions into Curtiss-Wright and drive synergies of the combined businesses. These operational improvements and increases also drove strong free cash flow of $166 million and free cash flow conversion of 120%.  

"Overall, the actions that we have taken under the 'One Curtiss-Wright' vision are starting to yield measureable results and we anticipate this trend of improved profitability, operating margin expansion and strong free cash flow generation to continue, which will enable us to generate solid returns for our shareholders. On February 11th, as a sign of confidence in our strategy, the Board of Directors declared a 30% increase in the quarterly dividend to $0.13 per share, and reinitiated the previously authorized share repurchase program."

FULL YEAR 2013 OPERATING HIGHLIGHTS

SALES

Sales of $700 million in the fourth quarter of 2013 increased $109 million, or 19%, compared to the prior year period, most of which was generated by our acquisitions and strength in the commercial markets. Sales improved in all three segments, with gains of 28% in Controls, 17% in Surface Technologies and 12% in Flow Control. 

The following is a breakdown of our fourth quarter 2013 sales by market:

 

OPERATING INCOME

Operating income in the fourth quarter of 2013 was $75 million, an increase of 21% compared to the prior year period, driven by solid increases in the Controls and Surface Technologies segments.  This growth reflects the benefits of prior year restructuring and ongoing cost reduction initiatives, and $6 million in favorable contributions from our acquisitions.  The prior year period also included a $6 million restructuring charge in the Surface Technologies segment.  Favorable foreign currency translation also improved current quarter results by nearly $2 million, primarily benefiting our Controls segment.  

Reported operating margin of 10.7% increased by 20 basis points over the prior year period, and included 90 basis points in margin dilution from the acquisitions. 

Non-segment costs of $14 million increased by approximately $5 million as compared with the prior year period, mainly due to higher foreign exchange transaction losses and pension costs.

The following is a breakdown of our fourth quarter 2013 profitability by segment:

NET EARNINGS

Fourth quarter net earnings increased 24% from the comparable prior year period, reflecting solid growth in operating income, partially offset by $3 million in higher interest expense as a result of our February 2013 private placement debt offering, which led to higher average debt levels compared to the prior year period. Our effective tax rate for the current quarter was 28.2%, a decrease from 31.2% in the prior year period, mainly due to favorable adjustments to certain tax valuation allowances and state tax return filing true-ups.

free CASH FLOW   

Free cash flow was approximately $89 million for the fourth quarter of 2013, a $17 million or 24% increase compared to the prior year period.  This improvement was primarily due to $13 million lower capital expenditures driven by decreased investments in our downstream oil and gas businesses, and higher cash provided by operating activities driven by higher earnings before income taxes, depreciation, and amortization. 

FOURTH QUARTER 2013 SEGMENT PERFROMANCE

Flow Control – Sales for the fourth quarter of 2013 were approximately $357 million, an increase of $39 million, or 12%, over the comparable prior year period, with $47 million of this sales growth coming from the acquisitions of Cimarron, Phönix and AP Services serving the oil and gas and power generation markets. Sales to the oil and gas market, excluding the acquisitions of Cimarron and Phönix, rose 14% in the fourth quarter, based on improved international coker equipment sales and solid global MRO sales. Within the power generation market, we experienced lower revenues from the China and U.S. AP1000 programs, as well as decreased global aftermarket demand supporting existing nuclear reactors, based primarily on fewer plant outages domestically. Declines in the general industrial market were primarily driven by lower orders in our global commercial heating, ventilation, and air conditioning (HVAC) business due to the previously announced customer cancellation. Naval defense sales surged 22%, primarily due to higher year-over-year production of pumps and generators on the Virginia-class submarine and Ford-class aircraft carrier programs.

Operating income in the fourth quarter of 2013 was $40 million, down slightly from the comparable prior year period, while operating margin decreased 160 basis points to 11.2%. However, the prior year period included a one-time benefit resulting from lower cost estimates on our AP1000 technology transfer contract in China in the power generation market.  Excluding this item, fourth quarter 2012 adjusted operating margin was 9.9%, resulting in an improvement of 130 basis points in the current year quarter, driven by improved profitability in our oil and gas businesses, ongoing cost containment efforts and lower purchase accounting costs in the current year period.  Acquisitions contributed approximately $4 million to operating income in the current year quarter, but were 40 basis points dilutive to operating margins.

Controls – Sales for the fourth quarter of 2013 were $264 million, an increase of $58 million, or 28%, over the comparable prior year period, primarily driven by the acquisitions of Arens Controls, Exlar and Williams Controls serving the general industrial market. These acquisitions contributed to strong sales growth of 69% in the commercial markets, which more than offset a 1% reduction in sales in the defense markets. Growth in the commercial markets was also driven by strong 23% growth in commercial aerospace due to the ramp up on the Boeing 787 program and related sales generated by our Emergent Operations facility, along with the benefit of product licensing agreements. Within the defense markets, we experienced growth in aerospace platforms led by the Air Force's Radar Airborne Signal Processor (RASP) system, as well as modest growth on the P-8 Poseidon and Global Hawk programs, which were more than offset by lower year-over-year revenues across several ground defense platforms, principally the Bradley Fighting Vehicle.

Operating income in the fourth quarter of 2013 was $36 million, an increase of $9 million, or 34%, compared to the prior year period, while operating margin grew 60 basis points to 13.8%. Acquisitions contributed $2 million of operating income to the current year quarter, but were 240 basis points dilutive to operating margin in the current quarter. The largest driver of the acquisition margin dilution was the initial purchase accounting and transaction costs associated with the acquisitions of Arens Controls and Parvus Corporation. Current quarter operating income also benefited from favorable foreign currency translation which contributed approximately $1 million to current quarter results. Excluding acquisitions and foreign currency translation, operating income increased 23% while operating margin increased 250 basis points to 15.7%, primarily driven by the benefits of our prior restructuring initiatives, ongoing cost reduction and operational improvement initiatives, higher margins realized on licensing certain non-strategic products, and lower purchase accounting costs in the current year period related to our fourth quarter 2012 acquisitions.

Surface Technologies – Sales for the fourth quarter of 2013 were approximately $79 million, an increase of approximately $12 million, or 17%, compared to the prior year period. The 2012 acquisition of Gartner added approximately $6 million to sales in our coatings business during the fourth quarter, resulting in higher sales to both the oil and gas and general industrial markets. Excluding Gartner, sales grew 7% driven by solid demand across most major service offerings and markets, including highly engineered coatings, shot and laser peening, and analytical services. We experienced solid growth for our shot and laser peening services, both to the commercial aerospace market – where our business continues to benefit from the ramp up in OEM production rates, particularly at Airbus - and also to the automotive industry, as improving economic conditions are driving increased auto assembly rates.

Operating income in the fourth quarter of 2013 was $12 million, an increase of $9 million, or 255% from the comparable prior year period, while operating margin grew 1,050 basis points to 15.7%. The prior year period included a $6 million restructuring charge related to the closure of a non-core, low profitability facility, while the current year period was negatively impacted by 150 basis points in margin dilution from the Gartner acquisition. Excluding the impact of these items, operating margin increased from 14.2% to 17.2%, a 300 basis point improvement. This solid improvement in margin was driven by higher sales volumes resulting in favorable absorption of fixed overhead costs, the benefit of prior restructuring activities and continued improvements in operational efficiency across our operations.

Full Year 2014 Guidance

The Company is updating its previously issued full-year 2014 financial guidance as follows:

All other full-year 2014 expectations remain unchanged from our previously released guidance. Free cash flow is defined as cash flow from operations less capital expenditures.

Note: A more detailed breakdown of our 2014 guidance by segment and by market can be found on the attached accompanying schedules.

Mr. Adams concluded, "We are pleased with our solid performance in 2013, which reflected double-digit gains in sales, operating income and earnings per share, reflecting Curtiss-Wright's ongoing profitability and working capital improvements. 

"We are maintaining our full-year 2014 guidance for sales and operating income issued in December 2013. Within our end markets, our guidance remains unchanged. We expect solid sales growth of 7% to 11% in our commercial markets, most of which is organic, and sales growth of 1% to 5% in our defense markets in 2014.

"We have raised free cash flow guidance to a range of $160 to $180 million, and our free cash flow conversion to a range of 100% to 110%, to reflect our expectations for strong cash flow from operations, the benefits of our operational initiatives and improved working capital as outlined at our recent Investor Day. In addition, we have tightened our diluted EPS range and increased our guidance to $3.30 - $3.40 due primarily to a lower expected effective tax rate. Across our segments, we expect to generate healthy organic margin expansion as we realize the benefits from our cost reduction initiatives, which should drive total Curtiss-Wright margin expansion of approximately 100 basis points from 2013. Together, we expect these factors to generate solid, upper-teens EPS growth in 2014.

"Overall, we remain focused on improving profitability, expanding operating margins, driving improvements in working capital and increasing our return on invested capital.  These initiatives will enable us to execute our capital deployment strategy and convey Curtiss-Wright's commitment to increase shareholder value through the distribution of dividends and share repurchases, while strategically investing in bolt-on acquisitions."

CONFERENCE CALL INFORMATION

The Company will host a conference call to discuss the fourth quarter and full year 2013 results and guidance at 10:00 a.m. EST on Thursday, February 20, 2014. 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.

(Tables to Follow)

(1) The Corporation discloses free cash flow and cash conversion because the Corporation believes they are measurements of cash flow 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 other entities and, consequently, could be misleading unless all entities calculate and define free cash flow in the same manner.

(1) The term incremental is used to highlight the impact acquisitions had on the current year results, for which there was no comparable prior year data. Therefore, the results of operations for acquisitions are incremental for the first twelve months  from the date of acquisition and are removed from our organic results.  Additionally, the results of operations for divested  businesses are removed from the comparable prior year period for purposes of calculating organic results.  The remaining businesses are referred to as organic. 

(2) Organic results exclude the effects of current period foreign currency translation.

Note: Amounts may not add due to rounding

Notes:

Full year amounts may not add due to rounding.  All data presented on a continuing operations basis.

Due to the new segment structure, reported 2013 segment results will be provided in the first quarter 2014 10-Q filing.

Notes:

Full year amounts may not add due to rounding

Due to the new segment structure, reported 2013 segment results will be provided in the first quarter 2014 10-Q filing.

ABOUT CURTISS-WRIGHT CORPORATION

Curtiss-Wright Corporation (NYSE:CW) is a global innovative company that delivers highly engineered, critical function products and services to the commercial, industrial, defense and energy markets. Building on the heritage of Glenn Curtiss and the Wright brothers, Curtiss-Wright has a long tradition of providing reliable solutions through trusted 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