Curtiss-Wright Reports Fourth Quarter and Full-Year 2017 Financial Results and Issues 2018 Guidance

CHARLOTTE, N.C.--(BUSINESS WIRE)-- Curtiss-Wright Corporation (NYSE: CW) reports financial results for the fourth quarter and full-year ended December 31, 2017.

Fourth quarter 2017 highlights

• Diluted earnings per share (EPS) of $1.52;
• Free cash flow of $209 million and free cash flow conversion of 308%, as defined in table below;
• Net sales of $612 million, up 8%, including 3% organic growth;
• Operating income of $109 million, up 2%;
• Operating margin of 17.8%, down 100 basis points;
• Effective tax rate of 31.8%, including the impact of the Tax Cuts and Jobs Act (TCJA); and
• New orders of $580 million, up 17%.

Full-year 2017 highlights

• Diluted earnings per share (EPS) of $4.80, came in ahead of expectations and up 14% compared with the prior year;
• Free cash flow of $336 million and free cash flow conversion of 156%, driven by a solid reduction in working capital;
• Net sales of $2.3 billion, up 8%, including 5% organic growth, driven by higher sales in all end markets;
• Operating income of $340 million, up 10%;
• Operating margin of 15.0%, up 40 basis points;
• Effective tax rate of 28.3%, including the impact of the Tax Cuts and Jobs Act;
• Backlog of $2.0 billion increased 3% from December 31, 2016; and
• Share repurchase of approximately $51 million or 0.5 million shares.

Full-year 2018 business outlook

• Expect higher sales (+3-5%), operating income (+9-12%), operating margin (+90-110 basis points) and diluted earnings per share (+18-21%);
• Anticipate higher sales in all end markets;
• Adjusted free cash flow (which excludes a $50 million voluntary pension contribution) to range from $280 to 300 million; and
• Announced acquisition of Dresser-Rand government business expected to provide solid increase to sales and would be accretive to EPS, excluding purchase accounting.

“We were pleased with our fourth quarter results, as we generated a solid operational performance and delivered stronger than anticipated diluted EPS of $1.52,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation. “We reported an 8% increase in sales, led by a solid contribution from the Teletronics Technology Corporation (TTC) acquisition in the Defense segment. Further, we generated over $200 million in free cash flow driven by a significant reduction in working capital, while new orders increased 17% driven by strong demand in both our defense and commercial businesses.”

“Full-year 2017 results reflect a strong operational performance which exceeded our expectations driven by solid 8% top-line growth, 5% of which was organic, improved profitability that generated a 15.0% operating margin and stronger than anticipated EPS of $4.80. In addition, we significantly exceeded expectations by generating nearly $340 million in free cash flow in 2017, as we efficiently reduced working capital to 18.8% of sales and achieved our goal to reach the top quartile of our peer group. We are delivering on our long-term strategy and continue to drive solid operating margin expansion and free cash flow generation.”

“For 2018, we are projecting another solid operational performance, as we expect higher sales in all end markets, double-digit growth in operating income and EPS, and 80 to 100 basis point improvement in unadjusted operating margin to a range of 15.8% to 16.0%. We are excited about the recently announced acquisition of the Dresser-Rand government business, which will significantly expand our naval defense business and supports our objective for long-term profitable growth. We remain extremely focused on driving increased operational efficiencies, continuing to invest in our future growth, and maintaining top-quartile financial performance for all of our key metrics to generate significant value for our shareholders.”

 

sales

Sales of $612 million in the fourth quarter increased $46 million, or 8%, compared with the prior year, reflecting a $25 million, or 4%, contribution from our acquisition of TTC, a $15 million, or 3%, increase in organic sales, and a $6 million, or 1%, benefit from favorable foreign currency translation.

Higher organic sales were driven by improved industrial demand in the Commercial/Industrial segment and higher aerospace and naval defense sales in the Defense segment, partially offset by lower power generation revenues in the Power segment.

From an end market perspective, sales to the defense markets increased 18%, 7% of which was organic, while sales to the commercial markets increased 2%, 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 fourth quarter was $109 million, an increase of $3 million, or 2%, compared with the prior year. These results primarily reflect strong profitability associated with the TTC acquisition in the Defense segment, partially offset by lower sales and reduced profitability in the nuclear aftermarket business in the Power segment, and higher incentive compensation expense across all three segments.

Operating margin was 17.8%, a decrease of 100 basis points over the prior year, primarily reflecting lower sales and operating income in the Power segment, unfavorable sales mix in the Commercial/Industrial segment, and higher incentive compensation expense.

non-segment expense

Non-segment expenses decreased by approximately $2 million compared with the prior year, primarily due to lower corporate expenses and lower foreign currency transactional losses.

net earnings

Fourth quarter net earnings decreased 4% compared with the prior year, as higher operating income was more than offset by a higher tax rate.

The effective tax rate (ETR) for the fourth quarter was 31.8%, an increase from 26.3% in the prior year quarter, primarily driven by a net charge of approximately $10 million, or $0.23 per share, related to the 2017 TCJA, reflecting:

• a $22 million charge for the mandatory deemed repatriation of foreign earnings (“transition tax”), which is payable over 8 years beginning in 2018, partially offset by:
• a $12 million benefit relative to re-measurement of U.S. deferred tax balances to reflect the new lower U.S. corporate income tax rate.

Free cash flow, defined as cash flow from operations less capital expenditures, was $209 million for the fourth quarter of 2017, an increase of $73 million compared with the prior year. Net cash provided by operating activities increased $70 million to $226 million, due to higher cash earnings and improved working capital, specifically lower receivables and higher deferred revenue, including a $25 million advanced cash payment on the AP1000 China Direct program that was originally expected in 2018. Capital expenditures decreased by $3 million to $18 million, as the prior year period included increased investment in a facility expansion in the Commercial/Industrial segment.

new orders and backlog

New orders of $580 million in the fourth quarter increased 17% compared with the prior year, due to higher demand for commercial aerospace and industrial vehicle products within the Commercial/Industrial segment, as well as higher demand for embedded computing and flight test instrumentation products within the Defense segment. Backlog of $2.0 billion increased 3% from December 31, 2016.

other items - share repurchase

During the fourth quarter, the Company repurchased 112,881 shares of its common stock for approximately $13 million. For full-year 2017, the Company repurchased 516,313 shares of its common stock for approximately $51 million.

other itmes-pension

The adoption of Accounting Standards Update (ASU) 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” results in the reclassification of the non-service components of Pension expense from Operating Income to Other Income/Expense effective for fiscal years beginning after December 15, 2017. The adoption of the new standard is not expected to impact our sales, net earnings, cash flows or liabilities. For comparison purposes, as shown in the guidance table below and in the financial tables that follow, we have provided restated financial information for 2017 results and 2018 guidance incorporating the adoption of this new accounting standard.

Notes:

• Full-year 2017 and 2018 effective tax rate guidance includes the impacts of the Tax Cuts and Jobs Act.
• Full-year 2017 adjusted results and 2018 guidance include the impacts from the aforementioned pension reclassification. This accounting change lowers operating income by $14.6 million and $14.0 million, respectively, and lowers operating margin by 70 and 60 basis points, respectively, in full-year 2017 and projected full-year 2018 periods. This change is neutral to earnings per share in both periods.
• In February 2018, the Company elected to make a $50 million voluntary contribution to its corporate defined benefit pension plan.
• Adjusted free cash flow for full-year 2018 excludes the aforementioned pension contribution of $50 million.
• In January 2018, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASC 606). The impact to 2018 is projected to be immaterial.
• The Company will update its guidance to reflect the financial impact of the Dresser-Rand government business following the closing of the transaction, currently expected in the second quarter of 2018.
• A more detailed breakdown of the Company’s 2018 guidance by segment and by market can be found in the accompanying schedules.

Sales for the fourth quarter were $298 million, an increase of $20 million, or 7%, over the prior year. Organic sales increased $16 million, or 6%, while favorable foreign currency translation added $4 million, or 1%. Our results primarily reflect higher sales in the general industrial market, due to continued solid demand for industrial vehicle products. We also experienced higher sales in the commercial aerospace market, primarily due to higher sales of sensors and actuation systems on narrow body aircraft. In the naval defense market, our results reflect lower revenues on the Virginia-class submarine program, based on the timing of production.

Operating income in the fourth quarter was $47 million, a decrease of $1 million, or 3%, compared with the prior year, while operating margin decreased 160 basis points to 15.8%. The decrease in operating income and margin primarily reflects lower sales and profitability for naval valves, unfavorable mix in industrial vehicle products, and higher incentive compensation expense. Those results were partially offset by higher sales and improved profitability for sensors and controls products and surface treatment services.

Sales for the fourth quarter were $173 million, an increase of $39 million, or 29%, from the prior year. These results primarily reflect a $25 million, or 18%, contribution from our acquisition of TTC, a $12 million, or 9%, increase in organic sales, and a $2 million, or 2%, benefit from favorable foreign currency translation. In the aerospace defense market, our results reflect higher sales of data acquisition and flight test equipment from TTC, most notably on the F-35 Joint Strike Fighter program, as well as higher sales of embedded computing products supporting various Intelligence, Surveillance and Reconnaissance (ISR) programs. We also experienced higher sales in the naval defense market, most notably for our defense electronics products on the Virginia-class submarine program. In the ground defense market, our results reflect higher sales of our embedded computing products supporting upgrades to the Abrams main battle tank program.

Operating income in the fourth quarter was $43 million, an increase of $9 million, or 28%, compared with the prior year, while operating margin decreased 40 basis points to 25.1%. Excluding a $9 million, or 27%, benefit from the TTC acquisition, organic operating income increased 4%, while operating margin decreased 120 basis points to 24.3% compared with the prior year, driven primarily by an unfavorable shift in mix for our defense electronics products, and higher incentive compensation expense. Meanwhile, unfavorable foreign currency translation reduced current quarter operating income by approximately $1 million, or 3%.

 

Sales for the fourth quarter were $141 million, a decrease of $13 million, or 8%, from the prior year. Our results primarily reflect decreased sales in the power generation market, as lower aftermarket sales supporting currently operating nuclear reactors and lower revenues on the domestic AP1000 program were only partially offset by higher revenues on the AP1000 China Direct program. In the naval defense market, our results reflect higher revenues on the Virginia-class submarine and CVN-80 aircraft carrier programs, based on the timing of production, as well as the new Columbia class submarine program, supporting the ramp-up in development.

Operating income in the fourth quarter was $24 million, a decrease of $7 million, or 23%, compared with the prior year, while operating margin decreased 320 basis points to 17.3%. This performance reflects reduced sales and profitability in the nuclear aftermarket business, lower revenues on the domestic AP1000 program, and higher incentive compensation expense, partially offset by higher production and profitability on the AP1000 China Direct program.

 

conference call & webcast information

The Company will host a conference call to discuss fourth quarter and full-year 2017 financial results and expectations for 2018 guidance at 9:00 a.m. EST on Thursday, February 22, 2018. 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 8,600 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