Curtiss-Wright Reports Second Quarter 2017 Financial Results; Raises Full-Year Sales and EPS Guidance; Declares 15% Increase in Quarterly Dividend

 

CHARLOTTE, N.C.--(BUSINESS WIRE)-- Curtiss-Wright Corporation (NYSE: CW) reports financial results for the second quarter and six months ended June 30, 2017.

second quarter 2017 highlights

• Diluted earnings per share (EPS) of $1.13, ahead of expectations, and up 28% compared with the prior year;
• Net sales of $568 million, up 7%, including 5% organic growth;
• Operating income of $83 million, up 22%;
• Operating margin of 14.7%, up 190 basis points, despite 50 basis point dilution from acquisitions;
• New orders of $548 million, up 5%;
• Backlog of $2.1 billion increased 7% from December 31, 2016;
• Free cash flow of $73 million, resulting in free cash flow conversion of 144%, as defined in table below; and
• Share repurchases of approximately $14 million.

full-year 2017 business outlook

• Increasing sales guidance by $20 million to new range of $2.19 to $2.23 billion, primarily due to improved outlook in industrial markets;
• Increasing operating income guidance by $5 million, primarily due to improved industrial outlook and lower amortization estimates associated with the Teletronics Technology Corporation (TTC) acquisition;
• Increasing operating margin guidance by 10 basis points to new range of 14.7% to 14.8%;
• Increasing EPS guidance by $0.05 to new range of $4.45 to $4.55;
• Increasing quarterly dividend by 15% to fifteen cents ($0.15) per share; and
• Maintaining free cash flow guidance range of $260 million to $280 million.

“Our second quarter results were ahead of our expectations driven by robust 7% top-line growth and improved profitability that generated stronger than anticipated EPS of $1.13,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation. “We achieved higher sales and operating income growth in each of our segments, particularly in our Power segment. This drove overall operating margin up 190 basis points to 14.7%. In addition, the incremental benefits of our ongoing margin improvement initiatives enabled us to more than offset the first-year purchase accounting costs associated with the TTC acquisition.”

“As a result of our strong start and improved performance in several of our industrial businesses, we are increasing our full-year 2017 guidance for sales, operating income, operating margin and EPS. We remain committed to increasing shareholder value by delivering solid profitability and free cash flow, maintaining a balanced capital allocation strategy and driving for top-quartile financial performance in our key financial metrics.”

sales

Sales of $568 million in the second quarter increased $35 million, or 7%, compared with the prior year, reflecting a $27 million, or 5%, increase in organic sales, and a $13 million, or 3%, contribution from acquisitions, partially offset by $5 million, or (1%), in unfavorable foreign currency translation.

Higher organic sales were principally driven by strong AP1000 revenues in the Power segment and improved industrial demand in the Commercial/Industrial segment. Higher Defense segment sales primarily reflect the contribution from our acquisition of TTC.

From an end market perspective, sales to the defense markets increased 4%, while sales to the commercial markets increased 8%, 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 second quarter was $83 million, an increase of $15 million, or 22%, compared with the prior year, due to strong increases in each of our segments. In the Commercial/Industrial segment, higher operating income was primarily driven by the benefits of our margin improvement initiatives. In the Defense segment, our results reflect higher profitability on our embedded computing products, partially offset by first-year purchase accounting costs from the TTC acquisition. Finally, in the Power segment, our results reflect a strong improvement in operating income resulting from higher revenues on the AP1000 China Direct program and higher profitability in the aftermarket business.

Operating margin was 14.7%, an increase of 190 basis points over the prior year, reflecting higher revenues and the benefits of our ongoing margin improvement initiatives, partially offset by 50 basis points in margin dilution from acquisitions.

non-segment expense

Non-segment expenses increased by approximately $1 million compared with the prior year, due to higher foreign currency transactional losses.

net earnings

Second quarter net earnings increased 27% compared with the prior year, as higher operating income was partially offset by higher interest expense. In addition, the effective tax rate for the current quarter was 30.3%, a decrease from 31.0% in the prior year.

free cash flow

 

Free cash flow, defined as cash flow from operations less capital expenditures, was $73 million for the second quarter of 2017, a decrease of $6 million compared with the prior year. Net cash provided by operating activities of $86 million was essentially flat, primarily due to higher cash earnings, partially offset by higher trade receivables on increased sales. Capital expenditures increased by $6 million to $13 million, primarily due to capital investments being made in each of our segments.

new orders and backlog

New orders of $548 million in the second quarter increased 5% compared to the prior year, as higher orders within the Commercial/Industrial and Defense segments were partially offset by lower orders within the Power segment. Backlog of $2.1 billion increased 7% from December 31, 2016, due to increases in all three segments.

other items - share repurchase

During the second quarter, the Company repurchased 151,552 shares of its common stock for approximately $14 million.

full-year 2017 guidance

Notes:

• Full-year 2017 guidance includes the acquisition of TTC, which adds $65 million in sales to the Defense segment, and is now expected to be slightly accretive to operating income and earnings per share, including purchase accounting costs.
• Full-year 2017 guidance reflects the impact of a discrete tax benefit of $4.1 million from the adoption of ASU 2016-09 Improvements to Employee Share-Based Payment Accounting, which resulted in a $0.10 increase to our EPS guidance as disclosed in our press release dated May 3, 2017.
• A more detailed breakdown of the Company’s 2017 guidance by segment and by market can be found in the accompanying schedules.

second quarter 2017 segment performance

Commercial/Industrial

 

Sales for the second quarter were $292 million, an increase of $2 million, or 1%, over the prior year. Organic sales increased 2%, excluding $4 million, or (1%), in unfavorable foreign currency translation. In the general industrial market, we experienced solid sales growth for industrial vehicle products, while sales of severe-service valves to the energy markets were flat with the prior year but demonstrated sequential quarterly improvement. Elsewhere, our results reflect a decline in the commercial aerospace market, primarily due to reduced sales to Boeing on the 747 and 787 programs, despite higher sales on the 737 program. 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 second quarter was $44 million, up 12% from the prior year, while operating margin improved 160 basis points to 15.0%. This performance principally reflects increased profitability resulting from our ongoing margin improvement initiatives, most notably for facility consolidations, as well as higher profitability for industrial vehicle products, driven by higher sales volumes.

Defense

Sales for the second quarter were $126 million, an increase of $12 million, or 11%, from the prior year. These results primarily reflect a $13 million contribution from the acquisition of TTC, partially offset by $1 million in unfavorable foreign currency translation, while organic sales were flat compared with the prior year. In the aerospace defense market, our results reflect higher sales of data acquisition and flight test equipment from TTC, increased sales to unmanned aerial vehicle (UAV) programs and higher foreign military sales. These increases were offset by lower domestic vehicle product sales, most notably on the G/ATOR program, in the ground defense market.

Operating income in the second quarter was $21 million, an increase of $3 million, or 14%, compared with the prior year, while operating margin increased 50 basis points to 16.8%, despite 300 basis point dilution from TTC. These improvements in operating income and margin were primarily driven by favorable mix for our defense electronics products, as well as the benefits of our margin improvement initiatives. Favorable foreign currency translation also added approximately $1 million to current quarter operating income.

Power

Sales for the second quarter were $150 million, an increase of $21 million, or 16%, from the prior year. These results primarily reflect higher sales in the power generation market, driven by higher revenues on the AP1000 program, primarily on the 2015 China Direct contract, as well as improved aftermarket sales supporting currently operating nuclear reactors, driven by seasonally high spring outages. In the naval defense market, higher revenues on the CVN-80 aircraft carrier program were mainly offset by lower revenues on the Virginia-class submarine program, based on the timing of production.

Operating income in the second quarter was $25 million, an increase of $9 million, or 54%, compared with the prior year, while operating margin increased 410 basis points to 16.6%. This performance reflects higher production on the AP1000 China Direct program, as well as improved profitability in the aftermarket business driven by higher sales and the benefits of our ongoing margin improvement initiatives.

conference call & webcast information

The Company will host a conference call to discuss second quarter 2017 financial results at 9:00 a.m. EDT on Thursday, July 27, 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)

 

 

 

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. 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 8,000 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.

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Source: Curtiss-Wright Corporation