Curtiss-Wright Reports Third Quarter 2019 Financial Results and Raises Full-Year 2019 Operating Margin, EPS and Free Cash Flow Guidance

 

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

third quarter 2019 highlights:

• Reported diluted earnings per share (EPS) of $1.92, with Adjusted diluted EPS of $1.95 (defined below), each up 14% compared to the prior year;
• Net sales of $615 million, up 3%;
• Reported operating income of $106 million, up 9%, with Reported operating margin of 17.2%, up 90 basis points;
• Adjusted operating income of $107 million, up 9%, with Adjusted operating margin of 17.4%, up 90 basis points;
• Reported free cash flow of $102 million, with Adjusted free cash flow of $107 million;
• New orders of $647 million, up 26%; and
• Share repurchases of approximately $13 million.

full-year 2019 adjusted guidance (compared to adjusted full-year 2018):

• Narrowed sales growth to new range of 4% - 5%;
• Reaffirmed Adjusted operating income growth of 6% - 9%;
• Increased Adjusted operating margin by 10 basis points to new range of 16.3% to 16.4%, up 50 - 60 basis points;
• Increased Adjusted diluted EPS guidance by $0.10 to $0.15 to new range of $7.15 to $7.25, up 12% - 14%; and
• Increased Adjusted free cash flow by $10 million to new range of $340 to $350 million, representing an Adjusted free cash flow conversion rate of approximately 111%.

“We generated solid third quarter results which exceeded our expectations, led by strong 17% sales growth in our defense markets and improved profitability in the Commercial/Industrial and Defense segments,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation.

“We are pleased to announce the conclusion of the root cause analysis of the reactor coolant pump (RCP) matter at the Sanmen 2 nuclear power plant in China, which was determined to be isolated to a single RCP. As a result, the net impact to Curtiss-Wright’s full-year 2019 operating performance was immaterial. Further, the remaining three Sanmen 2 RCPs were inspected and it was determined that they do not have this problem, and the remaining 12 RCPs supporting additional plants in China have continued to operate successfully.”

“Based on our solid year-to-date results and outlook for the remainder of 2019, we increased our full-year Adjusted guidance for operating margin, diluted EPS and free cash flow. Overall, we anticipate delivering another solid operational performance this year led by strong margin expansion and solid free cash flow generation. We are in a strong position to continue to deliver significant long-term value to our shareholders and remain on track to achieve our 2021 financial targets.”

third quarter 2019 operating results

• Sales of $615 million, up $19 million, or 3%, compared to the prior year (3% organic, 1% acquisitions, 1% unfavorable foreign currency translation);
• From an end market perspective, total sales to the defense markets increased 17% (16% organic), led by strong growth in aerospace and naval defense, while total sales to the commercial markets decreased 6%, as higher commercial aerospace sales were more than offset by reduced power generation and general industrial sales, compared to the prior year. Please refer to the accompanying tables for an overall breakdown of sales by end market;
• Reported operating income was $106 million, up 9% compared to the prior year, while reported operating margin increased 90 basis points to 17.2%;
• Adjusted operating income of $107 million, up 9% compared to the prior year, principally reflects higher profitability on strong defense revenues in all three segments and lower non-segment expenses, partially offset by lower China Direct AP1000 revenues in the Power segment;
• Adjusted operating margin of 17.4%, up 90 basis points compared to the prior year, primarily reflects higher operating income and favorable absorption in the Commercial/Industrial and Defense segments, partially offset by reduced profitability on lower power generation revenues in the Power segment; and
• Non-segment expenses of $7 million decreased by $3 million compared to the prior year, primarily due to lower environmental expenses.

net earnings and diluted eps

• Reported net earnings of $83 million, up $8 million, or 11% from the prior year, principally reflecting higher segment operating income and lower corporate expenses;
• Reported diluted EPS of $1.92, up $0.24, or 14% from the prior year, principally reflecting higher net earnings, as well as a lower share count;
• Adjusted net earnings of $84 million, up $8 million, or 11%, and Adjusted diluted EPS of $1.95, up $0.25, or 14%, compared to the prior year; and
• Effective tax rate (ETR) of 20.6% increased slightly compared to the prior year quarter.

Free cash flow

• Reported free cash flow of $102 million, defined as cash flow from operations less capital expenditures, increased $40 million, or 65%, compared to the prior year, primarily driven by an increase in advance payments and lower inventories, partially offset by higher capital expenditures;
• Capital expenditures increased by approximately $6 million to $16 million compared to the prior year, primarily due to higher capital investments within the Power segment, including a $5 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, increased $45 million to $107 million.

new orders and backlog

• Year-to-date, new orders of approximately $2.0 billion increased 10% compared to the prior year, led by strong organic growth in naval defense and commercial aerospace orders; and
• Backlog of $2.2 billion is up 8% from December 31, 2018.

other items - share repurchase

• During the third quarter, the Company repurchased 101,816 shares of its common stock for approximately $13 million; and
• Year-to-date, the Company repurchased 318,524 shares for approximately $38 million.

third quarter 2019 segment performance

Commercial/Industrial

• Sales of $305 million, up $10 million, or 3%, compared to the prior year (4% 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;
• Higher commercial aerospace market sales were led by higher sales of surface treatment services and sensors;
• General industrial market revenue declined principally due to reduced demand for industrial vehicles and surface treatment services; and
• Reported operating income was $48 million, up 7%compared to the prior year, while reported operating margin increased 60 basis points to 15.8%, principally reflecting favorable overhead absorption on higher naval defense revenues, partially offset by increased research and development expenses and tariffs.

Defense

• Sales of $150 million, up $11 million, or 8%, compared to the prior year (6% organic, 3% acquisition, 1% unfavorable foreign currency translation);
• Higher aerospace defense market revenues principally reflect higher sales of embedded computing equipment on various programs, most notably the F-35 Joint Strike Fighter and the Apache and Seahawk helicopter programs;
• Naval defense market revenue growth was primarily due to higher sales of embedded computing equipment on submarine programs;
• Ground defense market revenue declined principally due to reduced sales of embedded computing equipment on various international programs, partially offset by higher revenues on domestic 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 $38 million, with Reported operating margin of 25.5%; and
• Adjusted operating income of $39 million, was up $5 million, or 16% from the prior year, while Adjusted operating margin increased 150 basis points to 25.8%, reflecting favorable mix on strong sales of our defense electronics products, partially offset by higher research and development expenses.

Power

• Sales of $160 million, down $2 million, or 1%, compared to 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 service center revenues;
• Reduced power generation market sales primarily reflect timing of production on the China Direct AP1000 program, as well as lower domestic aftermarket revenues;
• Reported operating income was $26 million, with Reported operating margin of 16.5%; and
• Adjusted operating income was $27 million, down $2 million, or 7% compared to the prior year, while Adjusted operating margin decreased 110 basis points to 17.1%, principally reflecting lower China Direct AP1000 program revenues, partially offset by favorable overhead absorption on higher naval defense revenues and the benefits of our ongoing margin improvement initiatives.

Full-year 2019 guidance

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

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 third quarter financial results and business outlook at 9:00 a.m. ET on Thursday, October 31, 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