Curtiss-Wright Reports Second Quarter 2019 Financial Results and Reaffirms Full-Year 2019 Guidance

DAVIDSON, N.C.--(BUSINESS WIRE)-- Curtiss-Wright Corporation (NYSE: CW) reports financial results for the second quarter ended June 30, 2019.

Second quarter 2019 highlights:

• Reported diluted earnings per share (EPS) of $1.86, with Adjusted diluted EPS of $1.90 (defined below), up 11% and 6%, respectively, compared with the prior year;
• Net sales of $639 million, up 3%;
• Reported operating income of $106 million, with Adjusted operating income of $108 million;
• Reported operating margin of 16.5%, with Adjusted operating margin of 16.8%;
• Reported free cash flow of $76 million, with Adjusted free cash flow of $80 million; and
• Share repurchases of approximately $13 million.

maintaining full-year adjusted 2019 business outlook (compared with adjusted full-year 2018):

• Sales growth of 4 - 6%
• Adjusted operating income growth of 6 - 9%
• Adjusted operating margin range of 16.2% to 16.3%, up 40 - 50 basis points
• Adjusted diluted EPS range of $7.00 to $7.15, up 10 - 12%; and
• Adjusted free cash flow range of $330 to $340 million, representing a free cash flow conversion rate of approximately 110%.

“Our second quarter results were led by strong 11% sales growth in our defense markets, improved profitability in the Commercial/Industrial and Power segments, and the benefits of our ongoing margin improvement initiatives,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation. “Our results also included a $4 million planned ramp up in research and development investments to support our long-term organic growth.”

“Looking ahead to the remainder of 2019, we are reaffirming our full-year guidance for sales, operating income, operating margin, diluted EPS and free cash flow. We are projecting another solid operational performance including higher sales in all end markets, strong margin expansion and solid free cash flow generation, as we continue to deliver significant long-term value to our shareholders.”

• Sales of $639 million, up $19 million, or 3%, compared with the prior year (3% organic, 1% acquisitions, 1% unfavorable foreign currency translation);
• From an end market perspective, total sales to the defense markets increased 11%, or 10% organically, led by strong growth in ground and naval defense, while total sales to the commercial markets decreased 3%, as higher commercial aerospace sales were more than offset by reduced power generation sales, compared with the prior year. Please refer to the accompanying tables for a breakdown of sales by end market;
• Reported operating income was $106 million, up 4% compared with the prior year, while reported operating margin was flat at 16.5%;
• Adjusted operating income of $108 million, nearly flat compared with the prior year, principally reflects higher defense revenues in the Commercial/Industrial and Power segments, offset by reduced operating income on flat sales in the Defense segment and higher non-segment expenses;
• Adjusted operating margin of 16.8%, down 80 basis points compared with the prior year, primarily reflects reduced profitability and higher research and development expenses in the Defense segment, partially offset by favorable overhead absorption on higher naval defense revenues in the Power segment, as well as increased operating income and the benefits of our ongoing margin improvement initiatives in the Commercial/Industrial segment;
• Operating results included a gain on the sale of a building that was originally expected in the third quarter of 2019 and provided a $4 million benefit to current quarter results; and
• Non-segment expenses of $10 million increased by $3 million compared with the prior year, primarily due to higher corporate expenses.

• Reported net earnings of $80 million, up $5 million, or 7%, reflecting higher segment operating income and lower interest expense, partially offset by higher corporate expenses;
• Reported diluted EPS of $1.86, up $0.18, or 11%, compared with the prior year, reflecting higher segment operating income, lower interest expense and a lower share count, partially offset by higher corporate expenses;
• Adjusted net earnings of $82 million, up $2 million, or 2%, and Adjusted diluted EPS of $1.90, up $0.10, or 6%, compared with the prior year; and
• Effective tax rate (ETR) of 22.7% was essentially flat with the prior year quarter.

• Reported free cash flow of $76 million, defined as cash flow from operations less capital expenditures, decreased $11 million, or 13%, compared with the prior year, primarily driven by timing of supplier payments and higher capital expenditures;
• Capital expenditures increased by approximately $6 million to $16 million compared with the prior year, primarily due to higher capital investments within the Power segment, including a $4 million investment related to the new, state-of-the-art naval facility for the DRG business; and
• Adjusted free cash flow, which excludes the facility investment in the current period, decreased $7 million to $80 million, principally due to the timing of supplier payments.

new orders and backlog

• Year-to-date, new orders of $1.3 billion increased 3% compared with the prior year period, led by strong organic growth in naval defense orders; and
• Backlog of $2.2 billion increased 10% from December 31, 2018.

other items - share repurchase

• During the second quarter, the Company repurchased 109,436 shares of its common stock for approximately $13 million; and
• Year-to-date, the Company repurchased 216,708 shares for approximately $25 million.

• Sales of $318 million, up $6 million, or 2%, compared with the prior year (3% organic, 1% unfavorable foreign currency translation);
• Strong sales growth in the aerospace and naval defense markets was led by higher sales of actuation systems on the F-35 program and higher sales of valves on the Virginia class submarine program, respectively;
• Commercial aerospace market sales growth was led by higher OEM sales of sensors;
• Lower power generation market sales reflect reduced international sales of surface technology services and valves;
• General industrial market sales were essentially flat, as solid demand for industrial valves and industrial controls were offset by reduced sales of surface treatment services; and
• Reported operating income was $56 million, up 9%compared with the prior year, while reported operating margin increased 110 basis points to 17.7%, principally driven by the benefits of our ongoing margin improvement initiatives and the aforementioned gain on the sale of a building, partially offset by increased research and development expenses and the impact from tariffs.

• Sales of $145 million, down $1 million, or 1%, compared with the prior year ((3%) organic, 3% acquisition, 1% unfavorable foreign currency translation);
• Aerospace defense market sales were essentially flat, as higher sales of tactical data link equipment (TCG acquisition) were offset by lower sales of embedded computing equipment on various programs;
• Ground defense market revenues increased principally due to higher sales on the Abrams tank platform;
• Lower naval defense market revenues were the result of reduced sales of embedded computing equipment on various programs;
• Lower general industrial market revenues reflect reduced industrial controls sales due to the timing of an automotive contract completed last year;
• Reported operating income was $30 million, with Reported operating margin of 20.5%; and
• Adjusted operating income of $31 million, down $8 million, or 21%, compared with the prior year, while Adjusted operating margin decreased 540 basis points to 21.0%, reflecting unfavorable mix and higher research and development expenses in the current year, as well as favorable contract adjustments within our naval defense business in the prior year which did not recur.

• Sales of $176 million, up $14 million, or 9%, compared with the prior year;
• Strong naval defense market sales were driven by higher Virginia class submarine and CVN-80 aircraft carrier revenues, as well as solid spares and service center revenues;
• Reduced power generation market sales reflect timing of production on the China Direct AP1000 program and lower domestic aftermarket revenues;
• Reported operating income was $30 million, with Reported operating margin of 17.1%; and
• Adjusted operating income was $31 million, up $5 million, or 19% compared with the prior year, while Adjusted operating margin increased 160 basis points to 17.8%, principally reflecting favorable overhead absorption on higher naval defense revenues.

full-year 2019 guidance

The Company is reaffirming its full-year 2019 financial guidance as follows:

(1) 2019 Adjusted guidance excludes one-time backlog amortization and transaction costs associated with the acquisition of TCG in the Defense segment, and one-time transition and IT security costs associated with the relocation of our DRG business in the Power segment.

(2) 2019 Adjusted free cash flow guidance excludes a $20 million capital Investment in the Power segment related to the new, state-of-the-art naval facility principal for DRG.

A more detailed breakdown of the Company’s 2019 guidance by segment and by market can be found in the accompanying schedules.

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conference call & webcast information

The Company will host a conference call to discuss its second quarter financial results and business outlook at 9:00 a.m. EDT on Thursday, August 1, 2019. 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 Company has elected to change the presentation of its financials and guidance to include an Adjusted (non-GAAP) view that excludes first year purchase accounting costs associated with its acquisitions, as well as one-time transition and IT security costs specifically associated with the relocation of the DRG business in the Power segment. Transition costs include relocation of employees and equipment as well as overlapping facility and labor costs associated with the relocation. We believe this Adjusted view will provide improved transparency to the investment community in order to better measure Curtiss-Wright’s ongoing operating and financial performance and better comparisons of our key financial metrics to our peers. Reconciliations of “Reported” GAAP amounts to “Adjusted” non-GAAP amounts are furnished within this release.

The following definitions are provided:

Adjusted Operating Income, Operating Margin, Net Income and Diluted EPS

These Adjusted financials are defined as Reported Operating Income, Operating Margin, Net Income and Diluted EPS under GAAP excluding the impact of first year purchase accounting costs associated with acquisitions for current and prior year periods, specifically one-time inventory step-up, backlog amortization and transaction costs, as well as one-time transition and IT security costs associated with the relocation of a business in the current year period.

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 a capital investment in the Power segment related to the new, state-of-the-art naval facility principally for DRG, and a voluntary contribution to the Company’s corporate defined benefit pension plan made in the first quarter of 2018. 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 9,000 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, 2018, 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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Jim Ryan
(704) 869-4621
[email protected]

Source: Curtiss-Wright Corporation