News Details

Curtiss-Wright Reports First Quarter 2017 Financial Results; Raises Full-Year EPS Guidance

May 03, 2017

CHARLOTTE, N.C.--(BUSINESS WIRE)-- Curtiss-Wright Corporation (NYSE: CW) reported financial results for the first quarter ended March 31, 2017.

First Quarter 2017 Highlights

  • Diluted earnings per share (EPS) of $0.73, ahead of expectations; EPS included a discrete tax benefit of $0.09, as defined herein;
  • Net sales of $524 million, up 4%, including 3% organic growth;
  • Operating income of $51 million;
  • Operating margin of 9.8%, including 110 basis point dilution from acquisitions;
  • New orders of $644 million, up 2%, driving book-to-bill to 1.23;
  • Backlog of $2.1 billion increased 7% from December 31, 2016; and
  • Share repurchases of approximately $12 million.

Full-Year 2017 Business Outlook

  • Maintaining operating margin guidance range of 14.6% to 14.7%;
  • Increasing EPS guidance by $0.10 to new range of $4.40 to $4.50, primarily due to the adoption of ASU No. 2016-09 for share-based compensation; and
  • Maintaining free cash flow guidance range of $260 million to $280 million.

“Our first quarter results were ahead of our expectations as solid 4% top-line growth drove a stronger EPS performance than anticipated,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation. “While our overall profitability was negatively impacted by the first-year purchase accounting costs associated with our recent acquisition of Teletronics Technology Corporation (TTC), we achieved higher organic sales and operating income growth in each of our segments in the first quarter.”

“We are off to a solid start to 2017 and anticipate steady, sequential margin improvement over the remainder of the year. Our ongoing commitment to margin expansion is driving increased profitability and enabling us to continue mitigating several challenging end market conditions. Overall, we believe that our continued focus on delivering solid profitability and free cash flow, maintaining a balanced capital allocation and driving for top-quartile financial performance will continue to enhance shareholder value.”

First Quarter 2017 Operating Results from Continuing Operations

       
(In thousands) 1Q-2017 1Q-2016 Change
Sales $ 523,591 $ 503,507

4% 

Operating income 51,227 57,263 (11%)
Operating margin 9.8% 11.4% (160 bps)
 

Sales

Sales of $524 million in the first quarter increased $20 million, or 4%, compared with the prior year, reflecting a $15 million, or 3%, increase in organic sales, and a $10 million, or 2%, contribution from acquisitions, partially offset by $5 million, or (1%), in unfavorable foreign currency translation. Higher organic sales primarily reflect improved industrial demand in the Commercial/Industrial segment and higher AP1000 revenue in the Power segment. Higher Defense segment sales principally reflect the contribution from our recent acquisition of TTC, completed in early 2017.

From an end market perspective, sales to the defense markets increased 5%, while sales to the commercial markets increased 3%, compared with the prior year. Please refer to the accompanying tables for a breakdown of sales by end market.

Operating Income

Operating income in the first quarter was $51 million, a decrease of $6 million, or 11%, compared with the prior year, primarily due to purchase accounting costs from the recent TTC acquisition in the Defense segment and higher non-segment expenses. These costs were partially offset by increased operating income in the Commercial/Industrial segment resulting from higher sales, as well as higher operating income on the AP1000 program in the Power segment.

Operating margin was 9.8%, a decrease of 160 basis points over the prior year, reflecting the dilution from recent acquisitions partially offset by the benefits of our ongoing margin improvement initiatives. Excluding 110 basis points in margin dilution from acquisitions, operating margin would only have been down 50 basis points to 10.9%, primarily due to higher non-segment expenses and changes in sales mix compared with the prior year.

Non-segment Expense

Non-segment expenses increased by $3 million compared with the prior year, principally due to higher foreign currency transactional losses.

Net Earnings

First quarter net earnings were nearly flat compared with the prior year, as lower operating income and higher interest expense were mainly offset by lower taxes. Our effective tax rate for the current quarter was 20.9%, a decrease from 31.0% in the prior year, principally driven by our adoption of Accounting Standards Update (ASU) 2016-09 Improvements to Employee Share-Based Payment Accounting, which resulted in a discrete tax benefit of $4.0 million. The adoption was on a prospective basis and therefore had no impact on prior years’ results. Excluding this discrete item, our effective tax rate for the current quarter would have been 30.5%.

Free Cash Flow

     
(In thousands) 1Q-2017 1Q-2016
Net cash provided by (used for) operating activities $ (24,941 ) $ 70,260
Capital expenditures   (10,374 )   (8,825 )
Free cash flow $ (35,315 ) $ 61,435
 

Free cash flow, defined as cash flow from operations less capital expenditures, was ($35 million) for the first quarter of 2017, a decrease of $97 million compared with the prior year. Net cash provided by (used for) operating activities decreased $95 million to ($25 million), primarily due to lower advanced payments on the AP1000 program and the unwinding of our interest rate swaps, which benefited prior year results. Capital expenditures increased by approximately $2 million to $10 million, related to the completion of the facility consolidation in the Commercial/Industrial segment.

New Orders and Backlog

New orders of $644 million in the first quarter increased 2% compared to the prior year, as higher orders within the Defense and Power segments were partially offset by lower orders within the Commercial/Industrial segment. Backlog of $2.1 billion increased 7% from December 31, 2016, due to gains in all three segments.

Other Items – Share Repurchase

During the first quarter, the Company repurchased 125,000 shares of its common stock for approximately $12 million.

Full-Year 2017 Guidance

The Company is updating its full-year 2017 financial guidance as follows:

   

Prior Guidance

Current Guidance

Total sales $2.17 - $2.21 billion No change
Operating income $316 - $325 million No change
Operating margin 14.6% - 14.7% No change
Interest expense $40 - $41 million No change
Diluted earnings per share $4.30 - $4.40 $4.40 - $4.50
Diluted shares outstanding 44.9 million No change
Free cash flow $260 - $280 million No change
 

Notes:

  • Full-year 2017 guidance includes the acquisition of TTC, which adds $65 million in sales to the Defense segment, and is breakeven on operating income and earnings per share, including purchase accounting costs.
  • Full-year 2017 guidance reflects the impact of a discrete tax benefit of $4.0 million from the adoption of ASU 2016-09 Improvements to Employee Share-Based Payment Accounting. This change resulted in a $0.10 increase to our prior EPS guidance.
  • A more detailed breakdown of the Company’s 2017 guidance by segment and by market can be found in the accompanying schedules.

First Quarter 2017 Segment Performance

Commercial/Industrial

       
(In thousands) 1Q-2017 1Q-2016 Change
Sales $ 278,822 $ 274,727 1%
Operating income 30,621 30,052 2%
Operating margin 11.0% 10.9% 10 bps
 

Sales for the first quarter were $279 million, an increase of $4 million, or 1%, over the prior year. Organic sales increased 3%, excluding $4 million in unfavorable foreign currency translation. In the general industrial market, we experienced improved demand for industrial vehicle and industrial automation products, partially offset by reduced sales of severe-service valves serving the energy markets. Elsewhere, we experienced declines in the commercial aerospace market, primarily due to reduced sales to Boeing on the 737 and 787 programs. In the naval defense market, we experienced lower revenues on the Virginia-class submarine program, based on the timing of production.

Operating income in the first quarter was $31 million, up 2% from the prior year, while operating margin improved 10 basis points to 11.0%. These improvements in operating income and margin reflect higher sales and improved profitability for industrial vehicle products driven by our ongoing margin improvement initiatives. This performance was partially offset by decreased profitability for industrial valves and surface treatment services, due to lower sales volumes. We also experienced lower profitability for sensors and controls products, due to unfavorable mix. Lastly, favorable foreign currency translation added approximately $1 million to current quarter operating income.

Defense

       
(In thousands) 1Q-2017 1Q-2016 Change
Sales $ 114,662 $ 105,391

9% 

Operating income 11,155 16,845 (34%)
Operating margin 9.7% 16.0% (630 bps)
 

Sales for the first quarter were $115 million, an increase of $9 million, or 9%, from the prior year. These results primarily reflect a $10 million contribution from our recent acquisition of TTC, partially offset by $1 million in unfavorable foreign currency translation. In the aerospace defense market, we experienced higher sales of data acquisition and flight test equipment on various fighter jet programs, including the F-35 Joint Strike Fighter, as well as higher sales of embedded computing products, most notably on the Global Hawk program. Those gains were partially offset by reduced sales on several military helicopter programs. In the ground defense market, we experienced higher sales of our turret drive stabilization systems to international customers.

Operating income in the first quarter was $11 million, a decrease of $6 million, or 34%, compared with the prior year, while operating margin decreased 630 basis points to 9.7%. This performance was primarily driven by purchase accounting costs related to our recent acquisition of TTC. Excluding the effects of this acquisition, operating income increased 2%, while operating margin increased 20 basis points to 16.2% compared with the prior year, driven primarily by the benefits of our ongoing margin improvement initiatives.

Power

       
(In thousands) 1Q-2017 1Q-2016 Change
Sales $ 130,107 $ 123,389 5%
Operating income 16,540 14,628 13%
Operating margin 12.7% 11.9% 80 bps
 

Sales for the first quarter were $130 million, an increase of $7 million, or 5%, from the prior year. These results primarily reflect higher AP1000 revenues within the power generation market, primarily on the 2015 China Direct contract, partially offset by lower aftermarket sales supporting currently operating nuclear reactors. In the naval defense market, higher revenues for development on the new Columbia class submarine program were partially offset by lower revenues on the CVN-79 aircraft carrier program as production is nearing completion, and the Virginia-class submarine program, based on the timing of production.

Operating income in the first quarter was $17 million, an increase of $2 million, or 13%, compared with the prior year, while operating margin increased 80 basis points to 12.7%. This performance was primarily driven by higher AP1000 revenues, as well as improved profitability in the aftermarket power generation business despite lower sales, reflecting the benefits of our ongoing margin improvement initiatives.

Conference Call & Webcast Information

The Company will host a conference call to discuss first quarter 2017 financial results at 9:00 a.m. EDT on Thursday, May 4, 2017. 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)

 
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
($'s in thousands, except per share data)
       
Three Months Ended
March 31, Change
2017 2016 $ %
Product sales $ 423,229 $ 402,918 $ 20,311 5%
Service sales 100,362   100,589   (227 ) 0%
Total net sales 523,591 503,507 20,084 4%
 
Cost of product sales 286,492 264,735 21,757 8%
Cost of service sales 66,324   66,869   (545 ) (1%)
Total cost of sales 352,816 331,604 21,212 6%
 
Gross profit 170,775 171,903 (1,128 ) (1%)
 
Research and development expenses 15,298 15,160 138 1%
Selling expenses 28,953 29,626 (673 ) (2%)
General and administrative expenses 75,297   69,854   5,443   8%
 
Operating income 51,227 57,263 (6,036 ) (11%)
 
Interest expense 10,377 9,933 444 4%
Other income, net 312   234   78   NM
 
Earnings before income taxes 41,162 47,564 (6,402 ) (13%)
Provision for income taxes (8,615 ) (14,745 ) 6,130   42%
Net earnings $ 32,547   $ 32,819   $ (272 ) (1%)
 
Net earnings per share
Basic earnings per share $ 0.74 $ 0.74
Diluted earnings per share $ 0.73 $ 0.73
 
Dividends per share $ 0.13 $ 0.13
 
Weighted average shares outstanding:
Basic 44,246 44,578
Diluted 44,860 45,240
 
NM- not meaningful
 

 
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
($'s in thousands, except par value)
       
March 31, December 31, Change
2017 2016 %
Assets
Current assets:
Cash and cash equivalents $ 272,906 $ 553,848 (51 %)
Receivables, net 476,506 463,062 3 %
Inventories, net 395,183 366,974 8 %
Other current assets 45,514   30,927   47 %
Total current assets 1,190,109   1,414,811   (16 %)
Property, plant, and equipment, net 389,250 388,903 0 %
Goodwill 1,071,145 951,057 13 %
Other intangible assets, net 352,876 271,461 30 %
Other assets 14,493   11,549   25 %
Total assets $ 3,017,873   $ 3,037,781  

(1

%)

 
Liabilities
Current liabilities:
Current portion of long-term and short term debt $ 150,579 $ 150,668 0 %
Accounts payable 146,232 177,911 (18 %)
Accrued expenses 95,397 130,239 (27 %)
Income taxes payable 20,834 18,274 14 %
Deferred revenue 176,274 170,143 4 %
Other current liabilities 35,501   28,027   27 %
Total current liabilities 624,817   675,262   (7 %)
Long-term debt, net 815,220 815,630 0 %
Deferred tax liabilities, net 53,092 49,722 7 %
Accrued pension and other postretirement benefit costs 103,967 107,151 (3 %)
Long-term portion of environmental reserves 14,250 14,024 2 %
Other liabilities 82,172   84,801   (3 %)
Total liabilities 1,693,518   1,746,590   (3 %)
 
Stockholders' equity
Common stock, $1 par value $ 49,187 $ 49,187 0 %
Additional paid in capital 120,099 129,483 (7 %)
Retained earnings 1,780,570 1,754,907 1 %
Accumulated other comprehensive loss (278,581 ) (291,756 ) 5 %
Less: cost of treasury stock (346,920 ) (350,630 ) 1 %
Total stockholders' equity 1,324,355   1,291,191   3 %
   
Total liabilities and stockholders' equity $ 3,017,873   $ 3,037,781  

(1

%)

 

 
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
SEGMENT INFORMATION (UNAUDITED)
($'s in thousands)
     
Three Months Ended
March 31,
Change
2017 2016 %

Sales:

Commercial/Industrial $ 278,822 $ 274,727 1 %
Defense 114,662 105,391 9 %
Power 130,107   123,389   5 %
 
Total sales $ 523,591 $ 503,507 4 %
 

Operating income (expense):

Commercial/Industrial $ 30,621 $ 30,052 2 %
Defense 11,155 16,845 (34 %)
Power 16,540   14,628   13 %
 
Total segments $ 58,316 $ 61,525

(5

%)

Corporate and other (7,089 ) (4,262 ) (66 %)
 
Total operating income $ 51,227   $ 57,263   (11 %)
 
 

Operating margins:

Commercial/Industrial 11.0 % 10.9 %
Defense 9.7 % 16.0 %
Power 12.7 % 11.9 %
Total Curtiss-Wright 9.8 % 11.4 %
 
Segment margins 11.1 % 12.2 %
 

 
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
SALES BY END MARKET (UNAUDITED)
($'s in thousands)
     
Three Months Ended
March 31,
Change
2017 2016 %
Defense markets:
Aerospace $ 65,783 $ 61,548 7%
Ground 19,737 19,175 3%
Naval 90,970 92,951 (2%)
Other 7,041   1,255   NM
Total Defense $ 183,531 $ 174,929 5%
 
Commercial markets:
Aerospace $ 98,824 $ 102,187 (3%)
Power Generation 105,551 99,890 6%
General Industrial 135,685   126,501   7%
Total Commercial $ 340,060 $ 328,578 3%
   
Total Curtiss-Wright $ 523,591   $ 503,507   4%
 
NM- not meaningful
 

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.

 
Three Months Ended
March 31,
2017 vs. 2016
Commercial/Industrial   Defense   Power Total Curtiss-Wright
Sales  

Operating
income

Sales  

Operating
income

Sales  

Operating
income

Sales  

Operating
income

Organic 3% 0% 0% 2% 5% 13% 3% (1%)
Acquisitions 0% 0% 9% (34%) 0% 0% 2% (10%)
Foreign Currency (2%) 2% 0% (2%) 0% 0% (1%) 0%
Total 1% 2% 9% (34%) 5% 13% 4% (11%)
 

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. 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.

 
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NON-GAAP FINANCIAL DATA (UNAUDITED)
($'s in thousands)
   
Three Months Ended
March 31,
2017 2016
 
Net cash provided by (used for) operating activities $ (24,941 ) $ 70,260
Capital expenditures (10,374 ) (8,825 )
Free cash flow $ (35,315 ) $ 61,435  
 
Free Cash Flow Conversion (109 %) 187 %
 

 
CURTISS-WRIGHT CORPORATION
2017 Guidance (from Continuing Operations)
As of May 3, 2017
($'s in millions, except per share data)
   

2016
Reported

2017 Guidance
Low   High

Sales:

Commercial/Industrial $ 1,119 $ 1,100 $ 1,120
Defense 467 540 550
Power 524   525   535  
Total sales $ 2,109 $ 2,165 $ 2,205
 

Operating income:

Commercial/Industrial $ 157 $ 158 $ 163
Defense 98 103 106
Power 76   77   79  
Total segments 331 337 347
Corporate and other (23 ) (21 ) (23 )
Total operating income $ 308   $ 316   $ 325  
 
Interest expense $ 41 $ 40 $ 41
Earnings before income taxes 268 278 284
Provision for income taxes (79 ) (81 ) (83 )
Net earnings $ 189   $ 197   $ 202  
 
Reported diluted earnings per share $ 4.20 $ 4.40 $ 4.50
Diluted shares outstanding 45.0 44.9 44.9
Effective tax rate 29.3 % 29.1 % 29.1 %
 

Operating margins:

Commercial/Industrial 14.0 % 14.3 % 14.5 %
Defense 21.1 % 19.0 % 19.2 %
Power 14.6 % 14.6 % 14.7 %
Total operating margin 14.6 % 14.6 % 14.7 %
 
Notes:
Full year amounts may not add due to rounding
 
Full-year 2017 guidance includes the acquisition of TTC, which adds $65 million in sales to the Defense segment, and is breakeven on operating income and earnings per share, including purchase accounting costs.
 
Full-year 2017 guidance reflects the impact of a discrete tax benefit of $4.0 million from the adoption of Accounting Standards Update (ASU) 2016-09 regarding the accounting for share-based payments. This change resulted in a $0.10 increase to our prior EPS guidance.
 

 
CURTISS-WRIGHT CORPORATION
2017 Sales Growth Guidance by End Market (from Continuing Operations)
As of May 3, 2017
   
2017 % Change vs 2016
 

Defense Markets

Aerospace 23 - 25%
Ground Flat
Navy (1 - 3%)
Total Defense 7 to 9%
(Including Other Defense)
 

Commercial Markets

Commercial Aerospace Flat
Power Generation 3 - 5%
General Industrial (1 - 3%)
Total Commercial 0 to 2%
 
Total Curtiss-Wright Sales 3 to 5%
 
Note: Full year amounts may not add due to rounding
 
Full-year 2017 guidance includes the acquisition of TTC, which adds $65 million in sales, primarily to the aerospace defense market and to a lesser extent to the commercial aerospace market.
 

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 8,000 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, 2016, and subsequent reports filed with the Securities and Exchange Commission.

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

Source: Curtiss-Wright Corporation

Curtiss-Wright Corporation

Jim Ryan, 704-869-4621

Jim.Ryan@curtisswright.com