Curtiss-Wright Reports Third Quarter and Nine Months 2013 Financial Results

PARSIPPANY, N.J., Oct. 30, 2013 (GLOBE NEWSWIRE) -- Curtiss-Wright Corporation (NYSE:CW) today reports financial results for the third quarter and nine months ended September 30, 2013. The Company now expects to be at the high end of its previously announced full year sales and diluted EPS guidance and also increased the range of its full-year 2013 guidance for free cash flow by $10 million to a range of $110-$120 million.

All figures presented below, unless stated otherwise, reflect results from continuing operations and exclude the impact of the first quarter 2012 sale of the heat treating business. For discussion purposes the term "organic" excludes the year over year impact of foreign currency translation and the results of our acquisitions and divestitures over the past twelve months. "Acquisitions" as referenced below refer to the Company's seven acquisitions that closed between October 2012 and March 2013 -- AP Services, LLC, Cimarron Energy, Inc., Exlar Corporation, FW Gartner Thermal Spraying, Ltd., PG Drives Technology, Phönix Group and Williams Controls, Inc. For comparability purposes, certain amounts are referred to as "2012 adjusted amounts" and remove the third quarter 2012 one-time impacts of the strike at our EMD Facility, AP1000 investments, and lower associated compensation and benefit costs in our Flow Control segment along with restructuring charges in all three segments.

THIRD QUARTER 2013 OPERATING HIGHLIGHTS FROM CONTINUING OPERATIONS

• Net sales increased 25% to $601 million from $479 million in 2012;
   
• Operating income increased 169% to $63 million, compared to $23 million in 2012;
   
• Operating margin increased 560 basis points to 10.5%, compared to 4.9% in the prior year period; acquisitions were 90 basis points dilutive in the current year quarter;
   
• Net earnings increased 218% to $36 million, or $0.76 per diluted share, from $11 million, or $0.24 per diluted share, in 2012;
   
• New orders totaled $596 million, up 26% from 2012, primarily due to acquisitions, as well as higher demand in the naval defense, oil and gas, and commercial aerospace markets; and
   
• Free cash flow increased to $48 million, compared to $20 million in the prior year period, primarily due to higher net earnings.

"We generated another solid performance this quarter, with diluted earnings per share of $0.76, once again led by organic operating income growth, operating margin expansion and accretion from our acquisitions.  These operational improvements and increases also drove higher free cash flow in the third quarter," said David C. Adams , President and CEO of Curtiss-Wright Corporation. 

"Strong third quarter operating income growth of 169% (40% as compared to the 2012 adjusted amounts) exceeded our 25% sales growth, driven by double-digit gains across all three segments. The sales growth was largely driven by contributions from acquisitions, primarily in the commercial markets. We remain focused on improving profitability and generating operating margin expansion and once again succeeded in expanding our operating margin by 140 basis points to 10.5% as compared to the 2012 adjusted amounts, which was achieved despite low organic sales growth."

THIRD QUARTER 2013 OPERATING RESULTS

SALES

Sales of $601 million in the third quarter of 2013 increased $121 million, or 25%, compared to the prior year period, most of which was generated by our acquisitions and strength in the commercial markets. Sales improved in all three segments, with gains of 32% in Flow Control, 22% in Controls and 13% in Surface Technologies. 

The following is a breakdown of our third quarter 2013 sales by market:

OPERATING INCOME

Operating income in the third quarter of 2013 was $63 million, an increase of 169% compared to the prior year period, driven by solid increases in all three segments.  This growth reflects profitability improvements resulting from the benefits of prior year restructuring and ongoing cost reduction initiatives, and $6 million in favorable contributions from our seven acquisitions noted earlier.  Favorable foreign currency translation also improved current quarter results by nearly $2 million, mainly benefiting our Controls segment.  Third quarter 2013 operating income rose 40% as compared to 2012 adjusted operating income. 

The following is a breakdown of our third quarter 2013 profitability by segment:

Reported operating margin of 10.5% increased by 560 basis points over the prior year period, including 90 basis points in margin dilution from the acquisitions noted earlier. Third quarter 2013 operating margin increased 140 basis points compared to 2012 adjusted operating margin of 9.1%. 

Non-segment costs of $6 million were lower by approximately $2 million as compared with the prior year period, due to lower pension and other unallocated corporate expenses.

NET EARNINGS

Third quarter net earnings increased 218% from the comparable prior year period, reflecting higher operating income, partially offset by $3 million in higher interest expense as a result of our February 2013 private placement debt offering, which led to higher average debt levels compared to the prior year period. Our effective tax rate for the current quarter was 32.1%, compared to 31.1% in the prior year period.

FREE CASH FLOW

Free cash flow was approximately $48 million for the third quarter of 2013, a $28 million increase compared to the prior year period.  This improvement was mainly due to higher cash provided by operating activities driven by higher net earnings before income taxes, depreciation, and amortization.  Capital expenditures were $26 million, $10 million higher than the prior year period primarily due to facility expansions in our power generation and oil and gas businesses.

THIRD QUARTER 2013 SEGMENT PERFORMANCE

Flow Control – Sales for the third quarter of 2013 were approximately $311 million, an increase of $75 million, or 32%, over the comparable prior year period, with nearly $58 million in this sales growth coming from the acquisitions of Cimarron, Phönix and AP Services serving the oil and gas and power generation markets. Within the power generation market, sales also increased due to solid global aftermarket demand and technology upgrades supporting existing nuclear reactors, despite fewer domestic outages, as well as higher revenues on the domestic AP1000 program. Sales to the oil and gas market, excluding the acquisitions of Cimarron and Phönix, were flat in the third quarter, as solid global Maintenance, Repair and Overhaul (MRO) sales were offset by softness in the large international projects business. Declines in the general industrial market were primarily driven by lower orders from our global commercial heating, ventilation, and air conditioning (HVAC) business due to the previously announced customer cancellation. Naval defense sales surged 18%, primarily due to higher year-over-year production of pumps and generators on the Virginia Class submarine and CVN-79 Ford class aircraft carrier programs.

Operating income in the third quarter of 2013 was $25 million, an increase of approximately $24 million from the comparable prior year period, while operating margin increased 750 basis points to 8.0%. The aforementioned acquisitions contributed approximately $3 million to operating income; however the acquisitions were 80 basis points dilutive to operating margin in the current quarter.  Operating income and operating margin, excluding acquisition dilution, increased 3% or 30 basis points, as compared to 2012 adjusted third quarter results.

Controls – Sales for the third quarter of 2013 were approximately $213 million, an increase of $38 million, or 22%, over the comparable prior year period, primarily driven by the 2012 acquisitions of Williams Controls, PG Drives and Exlar serving the general industrial market. These acquisitions contributed to strong sales growth of 76% in the commercial markets, which more than offset a 14% reduction in sales in the defense markets. Growth in the commercial markets was also driven by increased sales in commercial aerospace due to strong organic increases on most Boeing and Airbus platforms, continued sales generated by our Emergent Operations facility in support of the Boeing 787 program and solid overall demand for sensors and controls products. The decline in defense sales was due to lower year-over-year revenues across several aerospace and ground defense platforms, principally for helicopters and the Bradley Fighting Vehicle, partially offset by solid growth of turret drive systems to international customers. 

Operating income for the third quarter of 2013 was $33 million, an increase of $10 million, or 43%, compared to the prior year period, while operating margin grew 220 basis points to 15.3%. Acquisitions contributed $4 million of operating income to the current year quarter; however the acquisitions were 130 basis points dilutive to operating margin in the current quarter. Current quarter operating income also benefited from favorable foreign currency translation which contributed approximately $1 million to current quarter results. The growth in operating income and operating margin was primarily driven by the benefits of our prior restructuring initiatives, most notably within our defense businesses, and ongoing cost reduction and operational improvement initiatives. 

Surface Technologies – Sales for the third quarter of 2013 were approximately $77 million, an increase of $9 million, or 13%, compared to the prior year period. The higher sales were driven by solid demand across most major service offerings and markets, most notably for our highly engineered coatings, as well as shot and laser peening services to the commercial markets. The 2012 acquisition of Gartner added approximately $6 million to sales in our coatings business during the third quarter, resulting in higher sales to both the oil and gas and general industrial markets. We also experienced 10% growth in the commercial aerospace market for our highly critical shot and laser peening services, as our Surface Technologies business continues to benefit from the continued ramp up in OEM production rates at Airbus and Boeing. This growth was somewhat offset by lower sales in the aerospace defense market for our shot and laser peening services.

Operating income in the third quarter of 2013 was $12 million, an increase of $4 million, or 43% from the comparable prior year period, while operating margin grew 320 basis points to 15.3%. Excluding the effect of the Gartner acquisition, segment operating margin increased 450 basis points to 16.6% compared to the prior year period. These solid improvements in operating income and margin were driven by the benefit of prior restructuring activities and continued improvements in operational efficiency across our operations.

FULL YEAR 2013 GUIDANCE

The Company is updating its previously issued full-year 2013 financial guidance as follows:

All other full-year 2013 expectations remain unchanged from our previously released guidance.

(Free cash flow is defined as cash flow from operations less capital expenditures and includes estimated payments of approximately $41 million to the Curtiss-Wright Pension Plan and $40 million of interest in 2013.)

Note: A more detailed breakdown of our 2013 guidance by segment and by market can be found on the attached accompanying schedules.

Mr. Adams concluded, "We are pleased with our solid year-to-date performance, which reflects both acquisitions that are performing slightly ahead of expectations and Curtiss-Wright's ongoing profitability improvements. 

"We are maintaining our full-year 2013 guidance for sales, operating income and diluted earnings per share, which include our expectations for an additional $20 million in sales and $0.03 in dilution from our recent fourth quarter 2013 acquisitions. Despite the additional dilution, we expect to be near the high end of our guidance range for sales and diluted EPS. We also raised free cash flow guidance based on our strong year to date performance and continued improvements expected in the fourth quarter.  Across all three segments, we expect to generate healthy organic margin expansion as we realize the benefits from previous restructuring and cost reduction initiatives, and we will continue to seek improved operating efficiencies that deliver more growth to the bottom line. 

"Within our end markets, our guidance remains unchanged. We expect strong sales growth of 30%-34% in our commercial markets in 2013, primarily led by the positive momentum of our acquisitions, while the uncertain environment in defense keeps our sales guidance unchanged at flat to down slightly from 2012.

"Overall, the strength and diversification of our business model and the continued efforts to improve profitability across our operations are expected to provide solid financial performance for Curtiss-Wright in 2013 and well into the future."

CONFERENCE CALL INFORMATION

The Company will host a conference call to discuss the third quarter 2013 results and guidance at 10:00 a.m. EDT on Thursday, October 31, 2013. A live webcast of the call and the accompanying financial presentation will be made available on the internet by visiting the Investor Relations section of the Company's website at curtisswright2014.q4web.com.

(Tables to Follow) 

(1) The Corporation discloses free cash flow and cash conversion because the Corporation believes they are measurements of cash flow available for investing and financing activities. Free cash flow is defined as net cash flow provided by operating activities less capital expenditures. Free cash flow represents cash generated after paying for interest on borrowings, income taxes, capital expenditures, and working capital requirements, but before repaying outstanding debt and investing cash or utilizing debt credit lines to acquire businesses and make other strategic investments. Cash conversion is defined as free cash flow divided by net earnings. Free cash flow, as we define it, may differ from similarly named measures used by other entities and, consequently, could be misleading unless all entities calculate and define free cash flow in the same manner.

ABOUT CURTISS-WRIGHT CORPORATION

Curtiss-Wright Corporation is an innovative engineering company that provides highly engineered, critical-function products, systems and services in the areas of flow control, motion control and surface treatment technologies to the defense, energy and commercial/industrial markets. The legacy company of Glenn Curtiss and the Wright brothers, Curtiss-Wright has a long tradition of design and manufacturing innovation and prides itself on long-standing customer relationships. The company employs approximately 10,000 people worldwide. For more information, visit curtisswright2014.q4web.com.

Certain statements made in this 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 our 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 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, 2012, and subsequent reports filed with the Securities and Exchange Commission.

This press release and additional information are available at curtisswright2014.q4web.com.
 

CONTACT: Jim Ryan
         (973) 541-3766
         [email protected]

Source: Curtiss-Wright Corporation