Curtiss-Wright Reports Second Quarter 2014 Financial Results and Increases Full-Year Guidance

Second quarter 2014 operating highlights from continuing operations

• Net sales increased 9% to $652 million, from $598 million in 2013;
• Operating income increased 27% to $77 million, from $61 million in 2013;
• Operating margin increased 160 basis points to 11.7%, from 10.1% in 2013;
• Net earnings increased 31% to $46 million, or $0.93 per diluted share, from $35 million, or $0.74 per diluted share, in 2013;
• Earnings from discontinued operations, excluding the loss on divestitures, amounted to ($0.10) in diluted earnings per share;
• New orders totaled $750 million, up 30% from 2013, primarily due to higher demand within the aerospace and naval defense markets, driving book-to-bill to 1.15x;
• Backlog was approximately $1.8 billion, up 9% from December 31, 2013; and
• Company updates full-year guidance for sales, operating income, diluted EPS and free cash flow, expanding operating margin range to 11.1-11.3% and increasing free cash flow range to $180-200 million.

CHARLOTTE, N.C., July 30, 2014 (GLOBE NEWSWIRE) -- Curtiss-Wright Corporation (NYSE:CW) reported financial results for the second quarter ended June 30, 2014.

"We are pleased with our solid second quarter results, which were led by strong organic operating income growth in our commercial businesses and continued dedication to improving profitability as we execute our strategy," said David C. Adams , President and CEO of Curtiss-Wright Corporation.

"Higher sales volumes, lower costs associated with our new organizational realignment, ongoing margin improvement initiatives, and our recent divestiture activity all contributed to increased profitability.

"Based on the solid first half results, we raised our full-year 2014 guidance. Overall, we remain focused on continuing to expand operating margins, generating strong free cash flow and maintaining a balanced capital allocation strategy in order to drive shareholder value."

SECOND QUARTER 2014 OPERATING results from continuing operations

 

SALES

Sales of $652 million in the second quarter increased $55 million, or 9%, compared to the prior year period, primarily driven by our acquisitions and strength in the commercial markets.

From a market perspective, second quarter sales to the commercial markets were up 12% compared to the prior year period, while sales to the defense markets increased 2%. Refer to the table on page 9 for a full breakdown of sales by end market.

OPERATING INCOME

Operating income in the second quarter was $77 million, an increase of 27% compared to the prior year period, primarily driven by solid organic (excluding effects of foreign currency translation, acquisitions and divestitures) increases in our Commercial/Industrial and Energy segments. Additionally, our results reflect ongoing margin improvement initiatives across each of our segments, primarily lower costs resulting from our organizational realignment. Acquisitions contributed approximately $3 million to operating income in the current quarter.  

Operating margin was 11.7%, an increase of 160 basis points over the prior year period.

non-segment operating expense

Non-segment costs were lower by approximately $6 million as compared with the prior year period, mainly due to lower pension and post retirement costs in the current quarter.

NET EARNINGS

Second quarter net earnings increased 31% from the comparable prior year period, reflecting solid growth in operating income. Interest expense of approximately $9 million was essentially flat compared to the prior year period, as higher average debt levels were offset by lower average interest rates. Our effective tax rate for the current quarter was 32.4%, essentially flat compared to the prior year period.

free CASH FLOW

 

Free cash flow was $81 million for the second quarter of 2014, compared to $45 million in the prior year period, or an increase of approximately $37 million. Net cash generated from operating activities increased by $37 million from the prior year period, primarily due to higher net earnings and higher deferred revenue. Free cash flow is defined as cash flow from operations less capital expenditures.

CASH FLOW other items - discontinued operations

During the second quarter, the Company divested two non-core businesses within the Defense segment and also reclassified the super vessels business within the Energy segment as assets held for sale. As a result of these actions, all three businesses are reflected as discontinued operations, and accordingly have been removed from our prior actual results and future financial guidance. The divestitures resulted in a $0.17 benefit to diluted EPS from continuing operations in the first half of 2014, including $0.10 in the second quarter.

The Company recorded an after-tax net book loss on sales in the second quarter of approximately $4 million, or $0.09 per diluted share. 

CASH FLOW other items -  share repurchase

The Company repurchased approximately 289,000 shares of its common stock during the second quarter at an average price of $65.34 for approximately $19 million. Year-to-date, the Company has repurchased 366,800 shares for approximately $24 million.

FULL YEAR 2014 GUIDANCE

The Company is updating its previously issued full-year 2014 financial guidance for its continuing operations as follows:

All other full-year 2014 expectations remain unchanged from our previously released guidance. 

FULL YEAR 2012 diluted eps guidance reconciliation

The Company is updating its range for full-year 2014 diluted EPS guidance as follows:

 

second quarter 2014 segment perfromance

Commercial/Industrial

Sales for the second quarter were approximately $276 million, an increase of $34 million, or 14%, over the comparable prior year period, aided by the contribution from acquisitions and solid 5% organic growth. Acquisitions contributed approximately $18 million to sales in the current quarter, primarily due to the acquisition of Arens Controls serving the general industrial market, while favorable foreign currency translation added more than $4 million to current quarter sales. Within the commercial aerospace market, we experienced a solid 7% increase in sales, as our business continues to benefit from the ramp up in OEM production rates, particularly on the Boeing 737 and 787 programs, as well as solid demand for sensors and controls equipment. This growth was aided by higher sales of coatings and analytical testing services to various aerospace customers. Within the oil and gas market, we experienced solid global demand for our industrial valve products.  

Operating income in the second quarter was $38 million, an increase of $11 million, or 40%, from the comparable prior year period, while operating margin increased 250 basis points to 13.7%. Acquisitions contributed $2 million to operating income in the current quarter. Strong organic growth in operating income and operating margin was driven by higher sales volumes related to industrial vehicles products, sensors and controls equipment and industrial valve products, as well as improved profitability resulting from our ongoing margin improvement initiatives, particularly the benefits from our organizational realignment initiatives.  

Defense

Sales for the second quarter were $192 million, nearly flat with the comparable prior year period, as improved naval defense sales were offset by lower sales to the power generation market. Within the defense markets, we experienced strong naval defense sales driven by increased year-over-year production of pumps and generators on the Virginia-class submarine program and increased sales on the DDG-51 Destroyer program. In addition, the Parvus acquisition contributed approximately $5 million to sales in the current quarter, primarily to the aerospace and ground defense markets. Those gains were somewhat offset by reduced year-over-year sales to various programs in the aerospace and ground defense markets as compared to the prior year period, primarily due to lower sales on military helicopter programs. Meanwhile, within the power generation market, we experienced lower year-over-year revenues on the domestic and China AP1000 programs.  

Operating income in the second quarter was $24 million, a decrease of $5 million, or 18%, compared to the prior year period, while operating margin decreased 270 basis points to 12.7%. Acquisitions contributed $1 million of operating income to the current year quarter.  Lower operating margin was primarily driven by reduced higher margin domestic AP1000 and China technology transfer revenues in the current period. Those decreases were partially offset by the benefits of our organizational realignment initiatives, along with ongoing cost reduction and operational improvement initiatives. 

Energy

Sales for the second quarter were approximately $185 million, an increase of approximately $22 million, or 13%, compared to the prior year period. Within the power generation market, we experienced increased demand in the domestic aftermarket for our extensive array of products supporting existing nuclear reactors, aided by a rebound in projects that had previously shifted out of the first quarter. Higher sales to the oil and gas market were driven by the contribution of upstream sales, as well as improved international coker equipment sales. 

Operating income in the second quarter was $21 million, a 31% increase from the comparable prior year period, while operating margin increased 150 basis points to 11.2%. This improvement in operating income and operating margin was driven by higher sales volumes in the oil and gas market as well as the benefit of organizational realignment activities. We also experienced improved profitability in the power generation market based on the aforementioned higher sales volumes.

CONFERENCE CALL INFORMATION

The Company will host a conference call to discuss the second quarter 2014 results and guidance at 9:00 a.m. EDT on Thursday, July 31, 2014. 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 curtisswright2014r.q4web.com.

(Tables to Follow)

Use of Non-GAAP Financial Information

The Corporation supplements our financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial information. We believe 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. We encourage investors to review our 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

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 (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 10,000 people worldwide. For more information, visit curtisswright2014r.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, 2013, and subsequent reports filed with the Securities and Exchange Commission.

This press release and additional information are available at curtisswright2014r.q4web.com.

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

Source: Curtiss-Wright Corporation