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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

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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

(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

                           
(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

                           
(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

                           
(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:

     
(In millions, except EPS)     2018

Reported

     

2018

Adjustments (1)(2)

      2018

Adjusted (1)(2)

      2019E Reported

Guidance

      2019

Adjustments (3)

      2019E

Adjusted

Guidance

     
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.

(2) 2018 Adjusted results for free cash flow exclude a $50 million voluntary pension contribution made in the first quarter of 2018.

(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:

                                   
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):

                                 
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:

                                   
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         -         115           126         -         126           142