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

                   
(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

                   

Commercial/Industrial

                       
(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.
       

Defense

               
(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.
                                     

Full-Year 2019 Guidance

 

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)
                               
Three Months Ended Year Ended
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.

 
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
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 %
 

                     
CURTISS-WRIGHT CORPORATION
2019 Guidance
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 - 126 142 173 555 - 555
Power   130         -         130           150     -         150     132     141     553         -         553  
Total sales $ 524 - $ 524 $ 568 - $ 568 $ 568 $ 612 $ 2,271 - $ 2,271
 

Operating income:

Commercial/Industrial $ 31 $ - $ 31 $ 44 $ - $ 44 $ 47 $ 47 $ 168 $ - $ 168
Defense 11 5 16 21 5 26 34 44 109 10 119
Power   16         -         16     24         -         24     18     24     81         -         81  
Total segments 57 5 62 89 5 94 98 115 359 10 368
Corporate and other   (10 )       -         (10 )   (9 )       -         (9 )   (6 )   (9 )   (34 )       -         (34 )
Total operating income $ 48       $ 5       $ 52   $ 80       $ 5       $ 85   $ 92   $ 105   $ 325       $ 10       $ 335  
 
Interest expense $ (10 ) $ - $ (10 ) $ (11 ) $ - $ (11 ) $ (10 ) $ (10 ) $ (41 ) $ - $ (41 )
Other income, net 4 - 4 4 - 4 4 4 16 - 16
Earnings before income taxes 41 5 46 73 5 78 86 99 300 10 309
Provision for income taxes   (9 )       (1 )       (10 )   (22 )       (2 )       (24 )   (22 )   (32 )   (85 )       (3 )       (88 )
Net earnings $ 33       $ 4       $ 36   $ 51       $ 4       $ 54   $ 64   $ 68   $ 215       $ 7       $ 222  
 
Diluted earnings per share $ 0.73 $ 0.08 $ 0.81 $ 1.13 $ 0.08 $ 1.21 $ 1.43 $ 1.52 $ 4.80 $ 0.16 $ 4.96
Diluted shares outstanding 44.9 44.9 44.8 44.8 44.7 44.7 44.8 44.8
Effective tax rate 20.9 % 20.9 % 30.3 % 30.3 % 26.0 % 31.8 % 28.3 % 28.3 %
 

Operating margins:

Commercial/Industrial 11.0 % 11.0 % 15.0 % 15.0 % 15.9 % 15.8 % 14.5 % 14.5 %
Defense 9.7 % +395 bps 13.6 % 16.7 % +410 bps 20.8 % 23.7 % 25.2 % 19.7 % +170 bps 21.4 %
Power 11.9 % 11.9 % 15.9 % 15.9 % 13.5 % 17.0 % 14.7 % 14.7 %
Total operating margin 9.1 % +90 bps 10.0 % 14.0 % +100 bps 15.0 % 16.3 % 17.2 % 14.3 % +40 bps 14.7 %
 
Note: Full year amounts may not add due to rounding
 
(1) Reported 2017 results reflect the retrospective impact from the adoption of ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which results in 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. This accounting change lowers operating income by $14.6 million and lowers operating margin by 70 basis points for the full-year 2017 period. This change is neutral to earnings per share.
 
(2) Adjusted operating income, operating margin and diluted EPS exclude first year purchase accounting costs, specifically one-time inventory step-up, backlog amortization and transaction costs, associated with the acquisition of TTC in 2017 (Defense segment). First year purchase accounting costs in the third and fourth quarters of 2017 are not material.
 

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 9,000 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, 2017, and subsequent reports filed with the Securities and Exchange Commission.

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

Jim Ryan
(704) 869-4621
Jim.Ryan@curtisswright.com

Source: Curtiss-Wright Corporation