Curtiss-Wright Reports Fourth Quarter and Full-Year 2019 Financial Results; Issues Initial Full-Year 2020 Guidance

DAVIDSON, N.C.--(BUSINESS WIRE)-- Curtiss-Wright Corporation (NYSE: CW) reports financial results for the fourth quarter and full-year ended December 31, 2019.

Fourth quarter 2019 highlights:

• Reported diluted earnings per share (EPS) of $2.08, with Adjusted diluted EPS of $2.12 (defined below), up 10% and 12%, respectively, compared to the prior year;
• Reported free cash flow of $243 million, with Adjusted free cash flow of $248 million and an Adjusted free cash flow conversion of 277%;
• Net sales of $656 million, up 1%;
• Reported operating income of $121 million, up 10%, with Reported operating margin of 18.4%, up 140 basis points;
• Adjusted operating income of $123 million, up 12%, with Adjusted operating margin of 18.8%, up 180 basis points; and
• Share repurchases of approximately $12 million.

Full-year 2019 highlights

• Reported diluted EPS of $7.15, with Adjusted diluted EPS of $7.27, up 15% and 14%, respectively, compared to the prior year;
• Reported free cash flow of $352 million, with Adjusted free cash flow of $371 million and an Adjusted free cash flow conversion of 121%;
• Net sales of $2.5 billion, up 3%, including 2% organic growth;
• Reported operating income of $404 million, up 8%, with Reported operating margin of 16.2%, up 70 basis points;
• Adjusted operating income of $411 million, up 7%, with Adjusted operating margin of 16.5%, up 70 basis points;
• New orders of $2.6 billion increased 6%, while Backlog of $2.2 billion increased 7% from December 31, 2018; and
• Share repurchases of $50 million.

“We delivered record Adjusted diluted EPS in the fourth quarter, driven by continued strong sales growth in our defense markets and the benefits of our ongoing margin improvement initiatives,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation. “In addition, we generated nearly $250 million in Adjusted free cash flow, along with robust free cash flow conversion of 277% in the quarter.”

“Our full-year 2019 results were highlighted by a strong operational performance, as we delivered higher sales and operating income in all three segments, improved profitability that produced a 16.5% Adjusted operating margin, and double-digit growth in Adjusted diluted EPS. Adjusted free cash flow of $371 million was also strong, driven by solid growth in earnings as well as our continued efforts to reduce working capital.”

full-year 2020 guidance

The Company is issuing full-year 2020 financial guidance as follows:

Full-year 2020 Adjusted guidance notes (compared to Adjusted full-year 2019):

• Expect solid sales growth of 4% - 6%, driven by increases in all defense markets;
• Expect Adjusted operating income growth of 4% - 6%, Adjusted operating margin of 16.5% to 16.6% (flat to up 10 basis points) and Adjusted diluted EPS of $7.50 to $7.70 (up 3% - 6%);
• Commercial/Industrial segment reflects improved profitability due to higher sales and the benefits of our ongoing margin improvement initiatives; Adjusted guidance excludes $13 million in restructuring costs;
• Defense segment reflects reduced profitability, despite higher sales, mainly due to a $5 million increase in R&D investments; Adjusted guidance excludes $4 million in restructuring costs and $7 million in first year purchase accounting costs associated with acquisitions;
• Power segment reflects reduced profitability, despite higher sales, mainly due to a $5 million increase in R&D investments; Adjusted guidance excludes $11 million in restructuring costs and $3 million in one-time transition and IT security costs; and
• Expect Adjusted free cash flow to range from $370 to $390 million, representing an Adjusted free cash flow conversion rate in excess of 115%.

In addition, the Company has reorganized two business units to better align to its management structure and to shift most of the naval defense revenue into the Defense and Power segments. Historical financials will be available on the Company’s website.

A more detailed breakdown of the Company’s 2020 financial guidance by segment and by market, as well as all reconciliations of Reported GAAP amounts to Adjusted non-GAAP amounts can be found in the accompanying schedules.

Mr. Adams continued, “For 2020, we anticipate increased sales driven by growth in all defense markets, improved profitability despite significantly increasing our year-over-year R&D investments, and strong free cash flow generation. We will continue to execute on our ongoing margin improvement initiatives, including various restructuring actions. These initiatives are expected to generate approximately $20 million in annualized savings beginning in 2021, and support Curtiss-Wright’s long-term profitable growth. Overall, we expect to maintain top-quartile performance for all of our key financial metrics and deliver significant long-term value for our shareholders.”

fourth quarter 2019 operating results

• Sales of $656 million, up $7 million, or 1%, compared to the prior year (1% organic, 1% acquisitions, partially offset by 1% unfavorable foreign currency translation);
• From an end market perspective, total sales to the defense markets increased 9% (8% organic), led by strong growth in aerospace and naval defense, while total sales to the commercial markets decreased 5%, as higher commercial aerospace sales were more than offset by reduced power generation and general industrial sales. Please refer to the accompanying tables for an overall breakdown of sales by end market;
• Reported operating income was $121 million, up 10%, while reported operating margin increased 140 basis points to 18.4%;
• Adjusted operating income of $123 million, up 12%, principally reflects higher profitability on strong defense revenues in the Commercial/Industrial and Defense segments, partially offset by lower power generation revenues in the Power segment;
• Adjusted operating margin of 18.8%, up 180 basis points, primarily reflects higher revenues and favorable absorption in the Commercial/Industrial and Defense segments, and increased profitability in the Power segment, despite lower revenues, due to the benefits of our ongoing margin improvement initiatives; and
• Non-segment expenses of $8 million decreased by $1 million, or 10% compared to the prior year, primarily due to lower environmental expenses.

net earnings and diluted eps

• Reported net earnings of $89 million, up $7 million, or 8% from the prior year, principally reflecting higher segment operating income and lower corporate expenses;
• Reported diluted EPS of $2.08, up 10% from the prior year, principally reflecting higher net earnings, as well as a lower share count;
• Adjusted net earnings of $91 million, up 10%;
• Adjusted diluted EPS of $2.12, up 12%; and
• Effective tax rate (ETR) of 24.6% increased slightly compared to the prior year quarter.

Free cash flow

• Reported free cash flow of $243 million, increased $28 million, or 13%, compared to the prior year, driven by improved working capital, primarily due to the timing of advanced payments received in the fourth quarter of 2019 which were expected in 2020;
• Capital expenditures decreased by $3 million to $20 million compared to the prior year, primarily due to lower capital investments within the Commercial/Industrial segment, despite 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 DRG facility investment in the current period, increased $34 million to $248 million.

new orders and backlog

• For full-year 2019, new orders of $2.6 billion increased 6% compared to the prior year, led by strong organic growth in naval defense and commercial aerospace orders.
• Backlog of $2.2 billion increased 7% from December 31, 2018.

other items - share repurchase

• During the fourth quarter, the Company repurchased 92,006 shares of its common stock for approximately $12 million.
• Year-to-date, the Company repurchased 410,530 shares for $50 million.

Fourth quarter 2019 segment performance

Commercial/Industrial

• Sales of $323 million, up $18 million, or 6%, compared to the prior year;
• Strong sales growth in the aerospace and naval defense markets principally reflects higher sales of actuation systems on the F-35 program and higher sales of valves on the Virginia class submarine program;
• Commercial aerospace market sales increased primarily due to higher sales of actuation equipment and sensors;
• Lower general industrial market sales reflect reduced demand for industrial vehicles, industrial valves and surface treatment services; and
• Reported operating income was $53 million, up 12%, while reported operating margin increased 90 basis points to 16.3%, principally reflecting favorable overhead absorption on higher defense revenues and a one-time gain on sale of a product line, partially offset by a shift in mix to lower margin actuation products.

Defense

• Sales of $163 million, up $13 million, or 8%, compared to the prior year (6% organic, 2% acquisition);
• Higher aerospace defense market revenues principally reflect increased sales of embedded computing and avionics equipment on various unmanned aerial vehicles (UAVs) and helicopter platforms, as well as the contribution from the TCG acquisition, partially offset by lower revenues on various fighter jet programs;
• Naval defense market revenue growth was primarily due to higher sales of embedded computing and aircraft handling equipment on various platforms;
• Lower ground defense market revenues reflect reduced sales of embedded computing equipment on the Abrams tank platform and lower sales of our turret drive stabilization systems for armored tanks to international customers;
• Reported operating income was $44 million, with Reported operating margin of 27.0%; and
• Adjusted operating income was $45 million, up 22% from the prior year, while Adjusted operating margin increased 300 basis points to 27.2%, primarily reflecting favorable mix on higher defense revenues.

Power

• Sales of $169 million, down $24 million, or 12%, compared to the prior year;
• Lower naval defense market sales primarily reflect the timing of naval spares and service center revenues;
• Reduced power generation market sales primarily reflect lower domestic aftermarket revenues, as well as the timing of production on the China Direct AP1000 program;
• Reported operating income was $32 million, with Reported operating margin of 19.1%; and
• Adjusted operating income was $34 million, down 6%, while Adjusted operating margin increased 140 basis points to 20.3%, primarily reflecting higher profitability in the aftermarket power generation business, despite lower sales volumes, due to savings generated by our margin improvement initiatives.

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conference call & webcast information

The Company will host a conference call to discuss fourth quarter and full-year 2019 financial results and expectations for 2020 guidance at 9:00 a.m. ET on Thursday, February 27, 2020. 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’s presentation of its financials and guidance includes 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, and capital investments, 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. The Company is also excluding significant restructuring costs in 2020 associated with its operations. 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; one-time transition and IT security costs associated with the relocation of a business in the current year period; and significant restructuring costs in 2020 associated with its operations.

Organic Sales and Organic Operating Income

The Corporation discloses organic sales and organic operating income because the Corporation believes it provides investors with insight as to the Company’s ongoing business performance. Organic sales and organic operating income are defined as sales 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, voluntary contributions to the Company’s corporate defined benefit pension plan made in the first quarters of 2018 and 2020, and the cash impact from restructuring in 2020. 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 9,100 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