Curtiss-Wright Reports First Quarter 2018 Financial Results; Raises Full-Year Organic Guidance

DAVIDSON, N.C.--(BUSINESS WIRE)-- Curtiss-Wright Corporation (NYSE: CW) reports financial results for the first quarter ended March 31, 2018.

First quarter 2018 highlights

• Diluted earnings per share (EPS) of $0.98, up 35% compared with the prior year;
• Net sales of $548 million, up 5%, including 3% organic growth;
• Operating income of $64 million, up 35%;
• Operating margin of 11.8%, up 270 basis points;
• Backlog of $2.1 billion, up 2% from December 31, 2017; and
• Share repurchases of approximately $12 million.

Full-year 2018 business outlook

• Full-year 2018 organic guidance reflects a $0.06 increase in full-year EPS driven by the benefit of solid first quarter performance and improved outlook in the Commercial/Industrial segment, which added $10 million to sales and approximately $3 million to operating income;
• Full-year 2018 organic guidance reflects higher sales (up 3-5%), operating income (up 10-13%), operating margin (up 90-110 bps) and diluted EPS (up 19-22%);
• Full-year 2018 guidance updated to include the acquisition of the Dresser-Rand government business (Dresser-Rand) within the Power segment, which added $70 million in sales and $10 million in free cash flow, but reduced operating income by approximately $14 million, operating margin by 100 basis points and diluted EPS by $0.24, due to first year purchase accounting costs associated with the acquisition. Excluding first year purchase accounting costs, the acquisition would otherwise be accretive to 2018 diluted EPS; and
• Overall, we increased full-year 2018 sales guidance by $80 million; reduced operating income guidance by approximately $12 million, reduced operating margin guidance by 100 basis points, and reduced diluted EPS guidance by $0.18 to new range of $5.47 to $5.62 (up 14-17%).

 

“First quarter diluted EPS of $0.98 was ahead of our expectations, as we delivered solid 5% top-line growth, led by increased defense and industrial sales, and improved profitability, driven by the benefits of our ongoing margin improvement initiatives,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation.

“We are off to a solid start to 2018 and anticipate steady, sequential margin and EPS improvement over the remainder of the year. We are projecting another solid organic operational performance this year and expect higher sales in all end markets, double-digit growth in operating income, strong margin expansion and free cash flow conversion in excess of 100%. The recently completed acquisition of Dresser-Rand significantly expands our naval defense business and supports our objective for long-term profitable growth and strong free cash flow generation. Excluding the purchase accounting costs associated with the acquisition, we expect Dresser-Rand to be accretive to 2018 diluted earnings per share. Overall, we are executing on our long-term strategy and continuing to drive solid operating margin expansion and free cash flow generation to deliver significant value for our shareholders.”

 

First quarter 2018 operating results

 

sales

Sales of $548 million in the first quarter increased $24 million, or 5%, compared with the prior year, reflecting a $15 million, or 3%, increase in organic sales, and a $9 million, or 2%, benefit from favorable foreign currency translation.

Higher organic revenues were principally driven by solid defense sales in all three segments. In addition, we also experienced improved industrial demand in the Commercial/Industrial segment and lower power generation revenues in the Power segment.

From an end market perspective, sales to the defense markets increased 12%, 11% of which was organic, while sales to the commercial markets were flat compared with the prior year, as increased sales to the general industrial market were mainly offset by reduced sales to the power generation market. Please refer to the accompanying tables for a breakdown of sales by end market.

operating income

Operating income in the first quarter was $64 million, an increase of $17 million, or 35%, compared with the prior year. These results primarily reflect higher defense and industrial sales, the benefits of our margin improvement initiatives, most notably in the Commercial/Industrial segment, and increased profitability in the Defense segment as we moved beyond the first year purchase accounting costs associated with the Teletronics Technology Corporation (TTC) acquisition, which negatively impacted prior year results.

Operating margin was 11.8%, an increase of 270 basis points over the prior year, primarily reflecting higher revenues and favorable overhead absorption, the benefits of our ongoing margin improvement initiatives, as well as the aforementioned increase in profitability in the Defense segment associated with the TTC acquisition.

non-segment expense

Non-segment expenses of $10 million were essentially flat compared with the prior year.

net earnings

First quarter net earnings increased 34% compared with the prior year, as higher operating income and lower interest expense more than offset a higher tax rate. The effective tax rate (ETR) for the first quarter was 28.4%, an increase from 20.9% in the prior year quarter, primarily driven by an additional provisional tax expense associated with the 2017 Tax Cuts and Jobs Act (TCJA) for foreign withholding taxes, partially offset by a discrete tax benefit related to share based compensation.

free cash flow

Free cash flow, defined as cash flow from operations less capital expenditures, was ($80 million) for the first quarter of 2018, a decrease of $45 million compared with the prior year. Adjusted free cash flow, defined as free cash flow excluding a $50 million voluntary contribution to the Company’s corporate defined benefit pension plan, increased approximately $5 million to ($30 million), primarily due to higher cash earnings. Capital expenditures decreased by $1 million to $9 million compared with the prior year period.

new orders and backlog

New orders of $605 million in the first quarter decreased 6% compared with the prior year, primarily due to the timing of naval defense orders received within the Commercial/Industrial and Power segments, compared with the prior year period. Backlog of $2.1 billion increased 2% from December 31, 2017.

other items - share repurchase

During the first quarter, the Company repurchased 93,438 shares of its common stock for approximately $12 million.

 

full-year 2018 guidance

The Company is updating its full-year 2018 financial guidance to include the recently completed acquisition of the Dresser-Rand government business as well as increased sales and operating income in the Commercial/Industrial segment:

Notes:

• Full-year 2018 guidance includes the impact from the adoption of Accounting Standards Update (ASU) 2017-07 that requires the reclassification of the non-service components of Pension expense from Operating Income to Other Income/Expense effective for fiscal years beginning after December 15, 2017. Because our non-service components are a benefit, this accounting change lowered full-year 2018 operating income by $14.0 million and operating margin by 60 basis points. This change is neutral to earnings per share.
• Adjusted free cash flow for full-year 2018 excludes a $50 million voluntary contribution to the Company’s corporate defined benefit pension plan that it elected to make in February 2018.
• A more detailed breakdown of the Company’s 2018 guidance by segment and by market can be found in the accompanying schedules.

 

First quarter 2018 segment performance

Commercial/Industrial

Sales for the first quarter were $297 million, an increase of $18 million, or 6%, over the prior year. Organic sales increased $11 million, or 4%, while favorable foreign currency translation added $7 million, or 2%. Our results reflect strong sales growth in the aerospace and naval defense markets, led by higher sales of actuation systems on fighter jets and increased valve revenues on the CVN-80 Ford class aircraft carrier program. We also experienced higher sales in the general industrial market, due to solid demand for industrial vehicle products and increased sales of surface treatment services. Sales to the commercial aerospace market were flat, as higher sales of sensors, actuation systems and surface treatment services on narrowbody airplanes were offset by lower revenues resulting from FAA directives.

Operating income in the first quarter was $39 million, an increase of $9 million, or 28%, compared with the prior year, while operating margin increased 220 basis points to 13.2%. The increase in operating income and margin primarily reflects higher sales and favorable overhead absorption for industrial vehicle products, naval valve products, sensors and controls products, and surface treatment services, and includes the benefits of our ongoing margin improvement initiatives.

Defense

Sales for the first quarter were $119 million, an increase of $4 million, or 4%, from the prior year. These results reflect a $2 million, or 2%, increase in organic sales, and a $2 million, or 2%, benefit from favorable foreign currency translation. In the aerospace defense market, our results reflect higher sales of data acquisition and flight test equipment, most notably on the F-18 program. We also experienced higher domestic vehicle product sales, most notably on the G/ATOR program, in the ground defense market.

Operating income in the first quarter was $20 million, an increase of $9 million, or 78%, compared with the prior year, while operating margin increased 690 basis points to 16.6%. This performance reflects increased profitability as we moved beyond the first year purchase accounting costs associated with the TTC acquisition which impacted prior year results, as well as the benefits of our ongoing margin improvement initiatives. Meanwhile, unfavorable foreign currency translation reduced current quarter operating income by approximately $1 million, or 7%.

Power

Sales for the first quarter were $132 million, an increase of $2 million, or 1%, from the prior year. In the naval defense market, our results reflect higher aircraft carrier revenues, partially offset by lower revenues on the Columbia class submarine, as this program transitions from the development to the production phase. In the power generation market, our results reflect lower revenues on the domestic AP1000 program and lower domestic aftermarket sales supporting currently operating nuclear reactors, which were partially offset by higher revenues on the AP1000 China Direct program and increased international aftermarket sales.

Operating income in the first quarter was $15 million, essentially flat compared with the prior year, while operating margin decreased 30 basis points to 11.6%. This performance reflects reduced sales and profitability in the nuclear aftermarket business and lower revenues on the domestic AP1000 program, partially offset by higher production and profitability on the AP1000 China Direct program.

conference call & webcast information

The Company will host a conference call to discuss first quarter 2018 financial results at 9:00 a.m. EDT on Thursday, May 3, 2018. A live webcast of the call and the accompanying financial presentation, as well as a replay of the call, will be made available on the internet by visiting the Investor Relations section of the Company’s website at www.curtisswright.com.

(Tables to Follow)

 

 

 

 

Use of Non-GAAP Financial Information (Unaudited)

The Corporation supplements its financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial information. Curtiss-Wright believes that these non-GAAP measures provide investors with additional insight into the Company’s ongoing business performance. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. Curtiss-Wright encourages investors to review its financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. The following definitions are provided:

Organic Revenue and Organic Operating Income

The Corporation discloses organic revenue and organic operating income because the Corporation believes it provides investors with insight as to the Company’s ongoing business performance. Organic revenue and organic operating income are defined as revenue and operating income excluding the impact of foreign currency fluctuations and contributions from acquisitions made during the last twelve months.

 

Free Cash Flow and Free Cash Flow Conversion

The Corporation discloses free cash flow because it measures cash flow available for investing and financing activities. Free cash flow represents cash available to repay outstanding debt, invest in the business, acquire businesses, return capital to shareholders and make other strategic investments. Free cash flow is defined as cash flow provided by operating activities less capital expenditures. Adjusted free cash flow excludes contributions made to the Company’s corporate defined benefit pension plan. The Corporation discloses free cash flow conversion because it measures the proportion of net earnings converted into free cash flow and is defined as free cash flow divided by net earnings from continuing operations.

 

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 8,600 people worldwide. For more information, visit www.curtisswright.com.

Certain statements made in this press 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 the Company’s 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 the 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, 2017, and subsequent reports filed with the Securities and Exchange Commission.

This press release and additional information are available at www.curtisswright.com.

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Source: Curtiss-Wright Corporation