News Details
CURTISS-WRIGHT REPORTS FOURTH QUARTER AND FULL-YEAR 2018 FINANCIAL RESULTS; FULL-YEAR 2019 GUIDANCE REFLECTS HIGHER SALES, OPERATING MARGIN, EPS AND FREE CASH FLOW
February 26, 2019
DAVIDSON, N.C.--(BUSINESS WIRE)-- Curtiss-Wright Corporation (NYSE: CW) reports financial results for the fourth quarter and full-year ended December 31, 2018.
Fourth quarter 2018 highlights
- Reported diluted earnings per share (EPS) of $1.89, with Adjusted diluted EPS of $1.90, up 25% compared with the prior year (defined below);
- Free cash flow of $214 million, up 3%;
- Net sales of $649 million, up 6%, including 3% organic growth (defined below);
- Reported and Adjusted operating income of $110 million, up 4% and 5%, respectively;
- Reported and Adjusted operating margin of 17.0%, down 20 basis points;
- New orders of $608 million, up 7%; and
- Share repurchases of approximately $119 million, or 1.1 million shares.
Full-year 2018 highlights
- Reported diluted EPS of $6.22, with Adjusted diluted EPS of $6.37, up 28% compared with the prior year, reflecting increased profitability in all three segments;
- Adjusted free cash flow of $333 million and Adjusted free cash flow conversion of 121%;
- Net sales of $2.4 billion, up 6%, including 3% organic growth, driven by higher sales in all end markets;
- Reported operating income of $374 million, with Adjusted operating income of $382 million, up 14%;
- Reported operating margin of 15.5%, with Adjusted operating margin of 15.8%, up 110 basis points;
- Effective tax rate of 22.6%;
- New orders of $2.4 billion increased 6%, while Backlog of $2.0 billion increased 1% from December 31, 2017; and
- Share repurchases of approximately $199 million, or 1.7 million shares.
Full-year 2019 business outlook
- Expect solid growth in sales (up 3-5%), driven by increases in all end markets;
- Anticipate higher operating income (up 4-6%), operating margin of 15.9% to 16.0% (up 10-20 basis points) and diluted earnings per share of $6.80 to $6.95 (up 7-9%), compared with Adjusted full-year 2018;
- Commercial/Industrial segment - improved profitability due to higher sales and benefits of our ongoing margin improvement initiatives, partially offset by $4 million for tariffs and a $3 million increase in R&D investments;
- Defense segment - reduced profitability, despite higher sales, due to a $5 million increase in R&D investments;
- Power segment - reduced profitability, despite solid sales growth, due to $6 million for transition and IT security costs related to the relocation of our DRG business and a $2 million increase in R&D investments;
- Absent these R&D investments, tariffs and DRG relocation costs, all three segments are expected to produce solid year-over-year operating margin expansion; and
- Expect Reported free cash flow to range from $300 to $310 million, with Adjusted free cash flow to range from $320 to $330 million, excluding a $20 million capital investment in the Power segment related to construction of a new, state-of-the-art naval facility principally for the DRG business.
“We delivered strong Adjusted diluted EPS of $1.90 in the fourth quarter, driven by better than expected operational performance in the Power segment,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation. “We reported a 6% increase in sales, led by a solid contribution from the DRG acquisition, as well as strong organic growth across all of our commercial markets. Further, we generated $214 million in free cash flow, driving 259% free cash flow conversion in the quarter.
“Full-year 2018 Adjusted diluted EPS of $6.37 exceeded our expectations, driven by a strong operational performance which included 6% top-line growth with higher sales in all end markets, and strong profitability that generated a 15.8% Adjusted operating margin, the highest level of profitability achieved by Curtiss-Wright in recent history. Full-year Adjusted free cash flow of $333 million was also strong, and enabled us to return nearly $200 million to shareholders through share repurchase activity this past year.
“For 2019, we are projecting another solid performance, as we expect higher sales in all end markets and overall improved operating profitability, despite a planned ramp up in research and development costs and other strategic growth investments, to drive operating margin to approximately 16.0%. These investments remain critical to supporting our objectives for long-term profitable growth and maintaining top-quartile financial performance for all of our key financial metrics, in order to generate significant value for our shareholders.”
Fourth quarter 2018 operating results |
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(In millions) | 4Q-2018 | 4Q-2017 | Change | ||||||||||
Sales | $ | 648.6 | $ | 611.9 | 6% | ||||||||
Reported operating income | $ | 110.0 | $ | 105.3 | 4% | ||||||||
Adjustments (1) | 0.4 | - | - | ||||||||||
Adjusted operating income | $ | 110.4 | $ | 105.3 | 5% | ||||||||
Adjusted operating margin | 17.0 | % | 17.2 | % | (20 bps) | ||||||||
(1) Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions. |
- Sales of $649 million up $37 million, or 6%, compared with the prior year (3% organic, 4% acquisitions, 1% unfavorable foreign currency translation);
- From an end market perspective, total sales to the defense markets increased 5%, as higher naval defense revenues associated with the DRG acquisition more than offset reduced revenues in the aerospace defense market, while total sales to the commercial markets increased 7%, led by higher power generation revenues from the China Direct AP1000 program and nuclear aftermarket, compared with the prior year. Please refer to the accompanying tables for a breakdown of sales by end market;
- Reported operating income was $110 million, with Reported operating margin of 17.0%;
- Adjusted operating income of $110 million, up $5 million, or 5%, compared with the prior year, principally reflects higher power generation revenues and the contribution from our DRG acquisition in the Power segment, partially offset by reduced revenues and operating income in the Defense segment;
- Adjusted operating margin of 17.0%, essentially flat compared with the prior year, reflects higher revenues and favorable overhead absorption in the Power segment, offset by reduced revenues and increased research and development expenses in the Defense segment, and the negative impact from tariffs (as expected and included in prior guidance) and restructuring charges in the Commercial/Industrial segment; and
- Non-segment expenses of $9 million were flat compared with the prior year, as lower pension costs were offset by higher environmental costs.
net earnings and diluted eps |
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(In millions, except EPS) | 4Q-2018 | 4Q-2017 | Change | |||||||||||||||
Reported net earnings | $ | 82.8 | $ | 67.8 | 22 | % | ||||||||||||
Adjustments (1) | 0.4 | - | - | |||||||||||||||
Tax impact on Adjustments (1) |
(0.1 |
) |
- | - | ||||||||||||||
Adjusted net earnings | $ | 83.2 | $ | 67.8 | 23 | % | ||||||||||||
Reported diluted EPS | $ | 1.89 | $ | 1.52 | 25 | % | ||||||||||||
Adjustments (1) | $ | 0.01 | - | - | ||||||||||||||
Tax impact on Adjustments (1) |
($0.00 |
) |
- | - | ||||||||||||||
Adjusted diluted EPS | $ | 1.90 | $ | 1.52 | 25 | % | ||||||||||||
(1) Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions. |
- Reported net earnings of $83 million and Reported diluted EPS of $1.89;
- Adjusted net earnings of $83 million, up $15 million, or 23%, compared with the prior year, reflecting higher operating income, lower interest expense and a lower tax rate;
- Adjusted diluted earnings per share of $1.90, up $0.38, or 25%, compared with the prior year, reflecting higher operating income, lower interest expense and a lower tax rate, as well as a lower share count; and
- The effective tax rate (ETR) was 21.7%, a decrease from 31.8% in the prior year quarter, primarily driven by the reduction of the U.S. corporate income tax rate from 35% to 21% associated with the 2017 Tax Cuts and Jobs Act (TCJA).
Free cash flow |
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(In millions) | 4Q-2018 | 4Q-2017 | Change | ||||||||||||||||
Net cash provided by operating activities | $ | 237.3 | $ | 226.4 | 5 | % | |||||||||||||
Capital expenditures | (23.1 | ) | (17.8 | ) | (30 | %) | |||||||||||||
Free cash flow | $ | 214.2 | $ | 208.6 | 3 | % |
- Free cash flow of $214 million, defined as cash flow from operations less capital expenditures, increased $6 million compared with the prior year, as higher cash earnings and lower taxes were largely offset by the timing of collections; and
- Capital expenditures increased by $5 million to $23 million compared with the prior year, due to higher capital investments within the Power segment.
new orders and backlog
- During the fourth quarter, new orders of $608 million increased 7% compared with the prior year, led by solid growth in aerospace and naval defense orders, including the contribution from the DRG acquisition;
- For full-year 2018, new orders of $2.4 billion increased 6% compared with the prior year; and
- Backlog of $2.0 billion increased 1% from December 31, 2017.
other items - share repurchase
- During the fourth quarter, the Company repurchased 1.1 million shares of its common stock for approximately $119 million, increasing full-year 2018 repurchase activity to 1.7 million shares for approximately $199 million.
Fourth quarter 2018 segment performance
(In millions) | 4Q-2018 | 4Q-2017 | Change | ||||||||||||||||
Sales | $ | 304.8 | $ | 298.3 | 2 | % | |||||||||||||
Reported operating income | $ | 46.9 | $ | 47.3 | (1 | %) | |||||||||||||
Reported operating margin | 15.4 | % | 15.8 | % | (40 bps) |
- Sales of $305 million, up $7 million, or 2%, compared with the prior year (3% organic, 1% unfavorable foreign currency translation);
- Defense market sales were down slightly, as lower sales of sensors and controls products on various fighter jet programs in the aerospace defense market were partially offset by higher sales of valves on the Virginia class submarine program in the naval defense market;
- Commercial aerospace market sales growth reflects higher OEM sales of sensors and controls products and surface treatment services;
- General industrial market sales growth was principally driven by solid demand for industrial valves;
- Reported operating income of $47 million, down less than $1 million, or 1%, compared with the prior year ((2%) organic, 1% favorable foreign currency translation), as the benefit from higher sales was offset by the impact from tariffs and restructuring charges; and
- Reported operating margin decreased 40 basis points to 15.4%, principally reflecting the aforementioned impact from tariffs and restructuring, partially offset by higher sales and improved profitability for sensors and controls products; Operating margin would have increased 60 basis points excluding the impact from tariffs and restructuring charges.
(In millions) | 4Q-2018 | 4Q-2017 | Change | ||||||||||
Sales | $ | 150.9 | $ | 172.5 | (13 | %) | |||||||
Reported operating income | $ | 36.5 | $ | 43.5 | (16 | %) | |||||||
Reported operating margin | 24.2 | % | 25.2 | % | (100 bps) |
- Sales of $151 million, down $22 million, or 13%, compared with the prior year ((12%) organic, 1% unfavorable foreign currency translation);
- Aerospace defense market sales declines reflect reduced sales of flight test equipment on fighter jet and bomber programs, as well as lower sales of embedded computing equipment on unmanned aerial vehicle (UAV) platforms;
- Naval defense market revenue declines principally reflect reduced sales of embedded computing and aircraft handling equipment on various naval defense platforms;
- Commercial aerospace market sales declines principally reflect reduced sales of avionics and electronics equipment on various domestic and international platforms; and
- Reported operating income of $36 million, down $7 million, or 16%, compared with the prior year, while reported operating margin decreased 100 basis points to 24.2%, driven by lower sales and higher research and development expenses, as expected, to support future organic growth initiatives, partially offset by favorable mix for our embedded computing products.
Power |
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(In millions) | 4Q-2018 | 4Q-2017 | Change | |||||||||||||||
Sales | $ | 192.9 | $ | 141.0 | 37% | |||||||||||||
Reported operating income | $ | 36.1 | $ | 23.9 | 51% | |||||||||||||
Adjustments (1) | 0.4 | - | - | |||||||||||||||
Adjusted operating income | $ | 36.5 | $ | 23.9 | 52% | |||||||||||||
Adjusted operating margin | 18.9 | % | 17.0 | % | 190 bps | |||||||||||||
(1) Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions. |
- Sales of $193 million, up $52 million, or 37%, compared with the prior year (21% organic, 16% acquisition);
- Strong naval defense market sales were driven by higher CVN-80 aircraft carrier revenues and solid DRG service center revenues;
- Strong power generation market sales reflect higher revenues on the China Direct AP1000 program as well as solid growth in domestic aftermarket sales supporting currently operating nuclear reactors;
- Reported operating income was $36 million, with Reported operating margin of 18.7%; and
- Adjusted operating income of $36 million, up $13 million, or 52%, compared with the prior year, while Adjusted operating margin increased 190 basis points to 18.9%, reflecting higher naval defense and power generation revenues, favorable overhead absorption and increased profitability on the China Direct AP1000 program.
The Company is issuing full-year 2019 financial guidance as follows: |
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(In millions, except EPS) | 2018
Reported |
2018 Adjustments (1)(2) |
2018
Adjusted (1)(2) |
2019E Reported
Guidance |
2019
Adjustments (3) |
2019E
Adjusted Guidance |
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Total Sales | $2,412 | - | $2,412 | $2,490 - $2,535 | - | $2,490 - $2,535 | ||||||||||||||||||||
Operating Income | $374 | $9 | $382 | $396 - $405 | - | $396 - $405 | ||||||||||||||||||||
Operating Margin | 15.5% | 30 bps | 15.8% | 15.9% - 16.0% | - | 15.9% - 16.0% | ||||||||||||||||||||
Effective Tax Rate | 22.6% | - | 22.6% | 23.0% | - | 23.0% | ||||||||||||||||||||
Diluted EPS | $6.22 | $0.15 | $6.37 | $6.80 - $6.95 | - | $6.80 - $6.95 | ||||||||||||||||||||
Diluted Shares Outstanding | 44.3 | - | 44.3 | 43.4 | - | 43.4 | ||||||||||||||||||||
Free Cash Flow | $283 | $50 | $333 | $300 - $310 | $20 | $320 - $330 | ||||||||||||||||||||
(1) 2018 Adjusted results for operating income, operating margin and diluted EPS exclude the one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions. |
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(2) 2018 Adjusted results for free cash flow exclude a $50 million voluntary pension contribution made in the first quarter of 2018. |
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(3) 2019 Adjusted results exclude a $20 million capital investment in the Power segment related to the construction of a new, state-of-the-art naval facility principally for DRG. |
Full-year 2019 guidance notes:
- Expect solid growth in sales (up 3-5%), driven by increases in all end markets;
- Anticipate higher operating income (up 4-6%), operating margin of 15.9% to 16.0% (up 10-20 basis points) and diluted earnings per share of $6.80 to $6.95 (up 7-9%), compared with Adjusted full-year 2018;
- Commercial/Industrial segment - improved profitability due to higher sales and benefits of our ongoing margin improvement initiatives, partially offset by $4 million for tariffs and a $3 million increase in R&D investments;
- Defense segment - reduced profitability, despite higher sales, due to a $5 million increase in R&D investments;
- Power segment - reduced profitability, despite solid sales growth, due to $6 million for transition and IT security costs related to the relocation of our DRG business and a $2 million increase in R&D investments;
- Absent these R&D investments, tariffs and DRG relocation costs, all three segments are expected to produce solid year-over-year operating margin expansion;
- Reflects lower share count driven by 2018 share repurchase activity; and
- A more detailed breakdown of the Company’s 2019 guidance by segment and by market can be found in the accompanying schedules.
conference call & webcast information
The Company will host a conference call to discuss fourth quarter and full-year 2018 financial results and expectations for 2019 guidance at 9:00 a.m. EST on Wednesday, February 27, 2019. A live webcast of the call and the accompanying financial presentation, as well as a replay of the call, will be made available on the internet by visiting the Investor Relations section of the Company’s website at www.curtisswright.com.
(Tables to Follow)
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES | ||||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) | ||||||||||||||||||||||||||||||||||||||
($'s in thousands, except per share data) | ||||||||||||||||||||||||||||||||||||||
December 31, | Change | December 31, | Change | |||||||||||||||||||||||||||||||||||
2018 | 2017 | $ | % | 2018 | 2017 | $ | % | |||||||||||||||||||||||||||||||
Product sales | $ | 541,689 | $ | 503,140 | $ | 38,549 | 8 | % | $ | 1,993,249 | $ | 1,854,216 | $ | 139,033 | 7 | % | ||||||||||||||||||||||
Service sales | 106,933 | 108,741 | (1,808 | ) | (2 | %) | 418,586 | 416,810 | 1,776 | 0 | % | |||||||||||||||||||||||||||
Total net sales | 648,622 | 611,881 | 36,741 | 6 | % | 2,411,835 | 2,271,026 | 140,809 | 6 | % | ||||||||||||||||||||||||||||
Cost of product sales | 336,402 | 311,570 | 24,832 | 8 | % | 1,272,599 | 1,198,881 | 73,718 | 6 | % | ||||||||||||||||||||||||||||
Cost of service sales | 71,168 | 68,967 | 2,201 | 3 | % | 267,975 | 271,360 | (3,385 | ) | (1 | %) | |||||||||||||||||||||||||||
Total cost of sales | 407,570 | 380,537 | 27,033 | 7 | % | 1,540,574 | 1,470,241 | 70,333 | 5 | % | ||||||||||||||||||||||||||||
Gross profit | 241,052 | 231,344 | 9,708 | 4 | % | 871,261 | 800,785 | 70,476 | 9 | % | ||||||||||||||||||||||||||||
Research and development expenses | 19,291 | 15,188 | 4,103 | 27 | % | 64,525 | 61,393 | 3,132 | 5 | % | ||||||||||||||||||||||||||||
Selling expenses | 32,095 | 34,108 | (2,013 | ) | (6 | %) | 126,641 | 121,873 | 4,768 | 4 | % | |||||||||||||||||||||||||||
General and administrative expenses | 79,661 | 76,766 | 2,895 | 4 | % | 306,469 | 292,399 | 14,070 | 5 | % | ||||||||||||||||||||||||||||
Operating income | 110,005 | 105,282 | 4,723 | 4 | % | 373,626 | 325,120 | 48,506 | 15 | % | ||||||||||||||||||||||||||||
Interest expense | 8,264 | 9,887 | (1,623 | ) | (16 | %) | 33,983 | 41,471 | (7,488 | ) | (18 | %) | ||||||||||||||||||||||||||
Other income, net | 4,099 | 3,937 | 162 | 4 | % | 16,596 | 15,970 | 626 | 4 | % | ||||||||||||||||||||||||||||
Earnings before income taxes | 105,840 | 99,332 | 6,508 | 7 | % | 356,239 | 299,619 | 56,620 | 19 | % | ||||||||||||||||||||||||||||
Provision for income taxes | (23,005 | ) | (31,582 | ) | 8,577 | 27 | % | (80,490 | ) | (84,728 | ) | 4,238 | 5 | % | ||||||||||||||||||||||||
Net earnings | $ | 82,835 | $ | 67,750 | $ | 15,085 | 22 | % | $ | 275,749 | $ | 214,891 | $ | 60,858 | 28 | % | ||||||||||||||||||||||
Net earnings per share: | ||||||||||||||||||||||||||||||||||||||
Basic earnings per share | $ | 1.91 | $ | 1.54 | $ | 6.28 | $ | 4.86 | ||||||||||||||||||||||||||||||
Diluted earnings per share | $ | 1.89 | $ | 1.52 | $ | 6.22 | $ | 4.80 | ||||||||||||||||||||||||||||||
Dividends per share | $ | 0.15 | $ | 0.15 | $ | 0.60 | $ | 0.56 | ||||||||||||||||||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||||||||||||||||
Basic | 43,447 | 44,132 | 43,892 | 44,182 | ||||||||||||||||||||||||||||||||||
Diluted | 43,782 | 44,692 | 44,316 | 44,761 |
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES | |||||||||||||||
CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||||||||||||||
($'s in thousands, except par value) | |||||||||||||||
December 31, | December 31, | Change | |||||||||||||
2018 | 2017 | % | |||||||||||||
Assets | |||||||||||||||
Current assets: | |||||||||||||||
Cash and cash equivalents | $ | 276,066 | $ | 475,120 | (42 | %) | |||||||||
Receivables, net | 593,755 | 494,923 | 20 | % | |||||||||||
Inventories, net | 423,426 | 378,866 | 12 | % | |||||||||||
Other current assets | 50,719 | 52,951 | (4 | %) | |||||||||||
Total current assets | 1,343,966 | 1,401,860 | (4 | %) | |||||||||||
Property, plant, and equipment, net | 374,660 | 390,235 | (4 | %) | |||||||||||
Goodwill | 1,088,032 | 1,096,329 | (1 | %) | |||||||||||
Other intangible assets, net | 429,567 | 329,668 | 30 | % | |||||||||||
Other assets | 19,160 | 18,229 | 5 | % | |||||||||||
Total assets | $ | 3,255,385 | $ | 3,236,321 | 1 | % | |||||||||
Liabilities | |||||||||||||||
Current liabilities: | |||||||||||||||
Current portion of long-term and short term debt | $ | 243 | $ | 150 | 62 | % | |||||||||
Accounts payable | 232,983 | 185,176 | 26 | % | |||||||||||
Accrued expenses | 166,954 | 150,406 | 11 | % | |||||||||||
Income taxes payable | 5,811 | 4,564 | 27 | % | |||||||||||
Deferred revenue | 236,508 | 214,891 | 10 | % | |||||||||||
Other current liabilities | 44,829 | 35,810 | 25 | % | |||||||||||
Total current liabilities | 687,328 | 590,997 | 16 | % | |||||||||||
Long-term debt, net | 762,313 | 813,989 | (6 | %) | |||||||||||
Deferred tax liabilities, net | 47,121 | 49,360 | (5 | %) | |||||||||||
Accrued pension and other postretirement benefit costs | 101,227 | 121,043 | (16 | %) | |||||||||||
Long-term portion of environmental reserves | 15,777 | 14,546 | 8 | % | |||||||||||
Other liabilities | 110,838 | 118,586 | (7 | %) | |||||||||||
Total liabilities | 1,724,604 | 1,708,521 | 1 | % | |||||||||||
Stockholders' equity | |||||||||||||||
Common stock, $1 par value | $ | 49,187 | $ | 49,187 | 0 | % | |||||||||
Additional paid in capital | 118,234 | 120,609 | (2 | %) | |||||||||||
Retained earnings | 2,191,471 | 1,944,324 | 13 | % | |||||||||||
Accumulated other comprehensive loss | (288,447 | ) | (216,840 | ) | 33 | % | |||||||||
Less: cost of treasury stock | (539,664 | ) | (369,480 | ) | 46 | % | |||||||||
Total stockholders' equity | 1,530,781 | 1,527,800 | 0 | % | |||||||||||
Total liabilities and stockholders' equity | $ | 3,255,385 | $ | 3,236,321 | 1 | % |
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES | ||||||||||||||||||||||||||||
SEGMENT INFORMATION (UNAUDITED) | ||||||||||||||||||||||||||||
($'s in thousands) | ||||||||||||||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||
2018 | 2017 | % | 2018 | 2017 | % | |||||||||||||||||||||||
Sales: |
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Commercial/Industrial | $ | 304,835 | $ | 298,329 | 2 | % | $ | 1,209,178 | $ | 1,162,689 | 4 | % | ||||||||||||||||
Defense | 150,924 | 172,511 | (13 | %) | 554,374 | 555,479 | 0 | % | ||||||||||||||||||||
Power | 192,863 | 141,041 | 37 | % | 648,283 | 552,858 | 17 | % | ||||||||||||||||||||
Total sales | $ | 648,622 | $ | 611,881 | 6 | % | $ | 2,411,835 | $ | 2,271,026 | 6 | % | ||||||||||||||||
Operating income (expense): |
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Commercial/Industrial | $ | 46,922 | $ | 47,272 | (1 | %) | $ | 182,669 | $ | 168,146 | 9 | % | ||||||||||||||||
Defense | 36,462 | 43,538 | (16 | %) | 128,446 | 109,338 | 17 | % | ||||||||||||||||||||
Power | 36,066 | 23,928 | 51 | % | 98,858 | 81,119 | 22 | % | ||||||||||||||||||||
Total segments | $ | 119,450 | $ | 114,738 | 4 | % | $ | 409,973 | $ | 358,603 | 14 | % | ||||||||||||||||
Corporate and other | (9,445 | ) | (9,456 | ) | 0 | % | (36,347 | ) | (33,483 | ) | (9 | %) | ||||||||||||||||
Total operating income | $ | 110,005 | $ | 105,282 | 4 | % | $ | 373,626 | $ | 325,120 | 15 | % | ||||||||||||||||
Operating margins: |
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Commercial/Industrial | 15.4 | % | 15.8 | % | (40 | bps) | 15.1 | % | 14.5 | % | 60 | bps | ||||||||||||||||
Defense | 24.2 | % | 25.2 | % | (100 | bps) | 23.2 | % | 19.7 | % | 350 | bps | ||||||||||||||||
Power | 18.7 | % | 17.0 | % | 170 | bps | 15.2 | % | 14.7 | % | 50 | bps | ||||||||||||||||
Total Curtiss-Wright | 17.0 | % | 17.2 | % | (20 | bps) | 15.5 | % | 14.3 | % | 120 | bps | ||||||||||||||||
Segment margins | 18.4 | % | 18.8 | % | (40 | bps) | 17.0 | % | 15.8 | % | 120 | bps |
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES | ||||||||||||||||||||||||||||
SALES BY END MARKET (UNAUDITED) | ||||||||||||||||||||||||||||
($'s in thousands) | ||||||||||||||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||
2018 | 2017 | % | 2018 | 2017 | % | |||||||||||||||||||||||
Defense markets: | ||||||||||||||||||||||||||||
Aerospace | $ | 104,142 | $ | 112,193 | (7 | %) | $ | 376,951 | $ | 372,678 | 1 | % | ||||||||||||||||
Ground | 28,667 | 29,518 | (3 | %) | 97,131 | 96,042 | 1 | % | ||||||||||||||||||||
Naval | 134,020 | 112,371 | 19 | % | 486,476 | 408,221 | 19 | % | ||||||||||||||||||||
Total Defense | $ | 266,829 | $ | 254,082 | 5 | % | $ | 960,558 | $ | 876,941 | 10 | % | ||||||||||||||||
Commercial markets: | ||||||||||||||||||||||||||||
Aerospace | $ | 108,529 | $ | 105,457 | 3 | % | $ | 414,422 | $ | 409,384 | 1 | % | ||||||||||||||||
Power Generation | 124,317 | 109,742 | 13 | % | 431,793 | 423,747 | 2 | % | ||||||||||||||||||||
General Industrial | 148,947 | 142,600 | 4 | % | 605,062 | 560,954 | 8 | % | ||||||||||||||||||||
Total Commercial | $ | 381,793 | $ | 357,799 | 7 | % | $ | 1,451,277 | $ | 1,394,085 | 4 | % | ||||||||||||||||
Total Curtiss-Wright | $ | 648,622 | $ | 611,881 | 6 | % | $ | 2,411,835 | $ | 2,271,026 | 6 | % |
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 | ||||||||||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||||||||||
2018 vs. 2017 | ||||||||||||||||||||||||||||||||
Commercial/Industrial | Defense | Power | Total Curtiss-Wright | |||||||||||||||||||||||||||||
Sales |
Operating income |
Sales |
Operating income |
Sales |
Operating income |
Sales |
Operating income |
|||||||||||||||||||||||||
Organic | 3 | % | (2 | %) | (12 | %) | (18 | %) | 21 | % | 37 | % | 3 | % | 0 | % | ||||||||||||||||
Acquisitions | 0 | % | 0 | % | 0 | % | 0 | % | 16 | % | 14 | % | 4 | % | 3 | % | ||||||||||||||||
Foreign Currency | (1 | %) | 1 | % | (1 | %) | 2 | % | 0 | % | 0 | % | (1 | %) | 1 | % | ||||||||||||||||
Total | 2 | % | (1 | %) | (13 | %) | (16 | %) | 37 | % | 51 |
% |
|
6 | % | 4 | % | |||||||||||||||
Year Ended | ||||||||||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||||||||||
2018 vs. 2017 | ||||||||||||||||||||||||||||||||
Commercial/Industrial | Defense | Power | Total Curtiss-Wright | |||||||||||||||||||||||||||||
Sales |
Operating income |
Sales |
Operating income |
Sales |
Operating income |
Sales |
Operating income |
|||||||||||||||||||||||||
Organic | 3 | % | 7 | % | (1 | %) | 17 | % | 6 | % | 21 | % | 3 | % | 14 | % | ||||||||||||||||
Acquisitions | 0 | % | 0 | % | 0 | % | 0 | % | 11 | % | 1 | % | 3 | % | 0 | % | ||||||||||||||||
Foreign Currency | 1 | % | 2 | % | 1 | % | 0 | % | 0 | % | 0 | % | 0 | % | 1 | % | ||||||||||||||||
Total | 4 | % | 9 | % | 0 | % | 17 | % | 17 | % | 22 |
% |
|
6 | % | 15 | % | |||||||||||||||
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.
NON-GAAP FINANCIAL DATA (UNAUDITED) | |||||||||||||||||||||
($'s in thousands) | |||||||||||||||||||||
Three Months Ended | Year Ended | ||||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Net cash provided by operating activities | $ | 237,298 | $ | 226,405 | $ | 336,273 | $ | 388,712 | |||||||||||||
Capital expenditures | (23,130 | ) | (17,831 | ) | (53,417 | ) | (52,705 | ) | |||||||||||||
Free cash flow | $ | 214,168 | $ | 208,574 | $ | 282,856 | $ | 336,007 | |||||||||||||
Pension payment | — | — | 50,000 | ||||||||||||||||||
Adjusted free cash flow | $ | 214,168 | $ | 208,574 | $ | 332,856 | $ | 336,007 | |||||||||||||
Free Cash Flow Conversion | 259 | % | 308 | % | 121 | % | 156 | % |
As of February 26, 2019 | ||||||||||||||||||||||||||||
($'s in millions, except per share data) | ||||||||||||||||||||||||||||
2018 Reported (GAAP) |
2018 Adjustments (1) (Non-GAAP) |
2018 Adjusted (Non-GAAP) |
2019 Reported Guidance (2)(3)(4) (GAAP) |
|||||||||||||||||||||||||
Low | High | 2019 Chg vs 2018 Adjusted | ||||||||||||||||||||||||||
Sales: |
||||||||||||||||||||||||||||
Commercial/Industrial | $ | 1,209 | $ | - | $ | 1,209 | $ | 1,245 | $ | 1,270 | ||||||||||||||||||
Defense | 554 | - | 554 | 565 | 575 | |||||||||||||||||||||||
Power | 648 | - | 648 | 680 | 690 | |||||||||||||||||||||||
Total sales | $ | 2,412 | $ | - | $ | 2,412 | $ | 2,490 | $ | 2,535 | 3 to 5% | |||||||||||||||||
Operating income: |
||||||||||||||||||||||||||||
Commercial/Industrial | $ | 183 | $ | - | $ | 183 | $ | 193 | $ | 198 | ||||||||||||||||||
Defense | 128 | - | 128 | 128 | 131 | |||||||||||||||||||||||
Power | 99 | 9 | 108 | 109 | 111 | |||||||||||||||||||||||
Total segments | 410 | 9 | 419 | 430 | 440 | |||||||||||||||||||||||
Corporate and other | (36 | ) | - | (36 | ) | (34 | ) | (36 | ) | |||||||||||||||||||
Total operating income | $ | 374 | $ | 9 | $ | 382 | $ | 396 | $ | 405 | 4 to 6% | |||||||||||||||||
Interest expense | $ | (34 | ) | $ | - | $ | (34 | ) | $ | (33 | ) | $ | (33 | ) | ||||||||||||||
Other income, net | 17 | - | 17 | 19 | 19 | |||||||||||||||||||||||
Earnings before income taxes | 356 | 9 | 365 | 383 | 391 | |||||||||||||||||||||||
Provision for income taxes | (81 | ) | (2 | ) | (83 | ) | (88 | ) | (90 | ) | ||||||||||||||||||
Net earnings | $ | 276 | $ | 7 | $ | 282 | $ | 295 | $ | 301 | ||||||||||||||||||
Diluted earnings per share | $ | 6.22 |
$ |
0.15 |
$ | 6.37 | $ | 6.80 | $ | 6.95 | 7 to 9% | |||||||||||||||||
Diluted shares outstanding | 44.3 | 44.3 | 43.4 | 43.4 | ||||||||||||||||||||||||
Effective tax rate | 22.6 | % | 22.6 | % | 23.0 | % | 23.0 | % | ||||||||||||||||||||
Operating margins: |
||||||||||||||||||||||||||||
Commercial/Industrial | 15.1 | % | - | 15.1 | % | 15.5 | % | 15.6 | % | 40 to 50 bps | ||||||||||||||||||
Defense | 23.2 | % | - | 23.2 | % | 22.6 | % | 22.7 | % | (50 to 60 bps) | ||||||||||||||||||
Power | 15.2 | % | +140 bps | 16.6 | % | 16.0 | % | 16.1 | % | (50 to 60 bps) | ||||||||||||||||||
Total operating margin | 15.5 | % | +30 bps | 15.8 | % | 15.9 | % | 16.0 | % | 10 to 20 bps |
Note: Full year amounts may not add due to rounding
(1) 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.
(2) Commercial/Industrial segment 2019 guidance reflects improved profitability due to higher sales and benefits of our ongoing margin improvement initiatives, partially offset by $4 million for tariffs and a $3 million increase in R&D investments.
(3) Defense segment 2019 guidance reflects reduced profitability, despite higher sales, due to a $5 million increase in R&D investments.
(4) Power segment 2019 guidance reflects reduced profitability, despite solid sales growth, due to $6 million for transition and IT security costs related to the relocation of our DRG business and a $2 million increase in R&D investments.
CURTISS-WRIGHT CORPORATION | ||
2019 Sales Growth Guidance by End Market | ||
As of February 26, 2019 | ||
2019 % Change vs 2018 | ||
Defense Markets |
||
Aerospace | 6 - 8% | |
Ground | 5 - 7% | |
Navy | 6 - 8% | |
Total Defense | 6 - 8% | |
Commercial Markets |
||
Commercial Aerospace | 4 - 6% | |
Power Generation | 1 - 3% | |
General Industrial | 1 - 3% | |
Total Commercial | 1 - 3% | |
Total Curtiss-Wright Sales | 3 - 5% |
CURTISS-WRIGHT CORPORATION | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 Reconciliation Reported (GAAP) (1) to Adjusted (Non-GAAP) (2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
($'s in millions, except per share data) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reported 1Q 2017 |
Adjustments (Non-GAAP) |
Adjusted 1Q 2017 |
Reported 2Q 2017 |
Adjustments (Non-GAAP) |
Adjusted 2Q 2017 |
Reported 3Q 2017 |
Reported 4Q 2017 |
Reported FY 2017 |
Adjustments Non-GAAP) |
Adjusted FY 2017 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Sales: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial/Industrial | $ | 279 | $ | - | $ | 279 | $ | 292 | $ | - | $ | 292 | $ | 294 | $ | 298 | $ | 1,163 | $ | - | $ | 1,163 | ||||||||||||||||||||||||||||||||||||||||
Defense | 115 |