Curtiss-Wright Reports Third Quarter 2016 Financial Results; Maintains Full-Year EPS And Increases Operating Margin Guidance

CHARLOTTE, N.C.--(BUSINESS WIRE)-- Curtiss-Wright Corporation (NYSE: CW) reported financial results for the third quarter and nine months ended September 30, 2016.

Third quarter 2016 highlights

• Earnings per diluted share of $1.02, exceeding expectations;
• Free cash flow of $100 million, resulting in free cash flow conversion of 218%, as defined herein;
• Net sales of $507 million;
• Operating income of $77 million;
• Operating margin of 15.1%, up 300 basis points as compared with the prior period;
• Backlog of $2.0 billion increased 6% from December 31, 2015; and
• Share repurchase of approximately $25 million.

full-year 2016 business outlook

• Increasing operating margin guidance by 10 basis points to new range of 14.3% to 14.5%, an increase of 100 to 120 basis points compared with pro forma 2015, despite a slight reduction to sales forecast;
• Maintaining expectations for diluted earnings per share (EPS) of $4.00 to $4.15; and
• Maintaining free cash flow guidance range of $300 million to $320 million.

“Our third quarter results were ahead of our expectations, led by strong margin improvement within the Defense and Power segments,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation. “This performance was primarily driven by increased profitability on our embedded computing products serving the defense markets, as well as higher margins on the AP1000 program, as we continue to support new nuclear power plant construction in the U.S. and China. Further, Curtiss-Wright’s commitment to ongoing margin improvement initiatives is driving increased profitability and generating significant value for our shareholders, as we continue to mitigate challenging conditions in the nuclear aftermarket and general industrial end markets.”

“Looking at the remainder of 2016, we are raising our full-year operating margin guidance to 14.3% to 14.5%, a 100 to 120 basis point improvement compared with pro forma 2015 results. As a result, we expect to be in the top quartile of our peer group. In addition, we are maintaining our full-year free cash flow guidance range of $300 to $320 million, which reflects strong year-to-date free cash flow and efficient working capital management.”

 

Third quarter 2016 operating results from continuing operations

SALES

Sales of $507 million in the third quarter decreased $18 million, or 4%, compared to the prior year, primarily reflecting a $14 million decrease in organic sales as well as $4 million, or 1%, in unfavorable foreign currency translation. Third quarter 2016 sales primarily reflect continued lower demand in the energy sector within the Commercial/Industrial segment, as well as lower aftermarket sales in the Power segment. Those decreases were partially offset by higher AP1000 program and naval defense revenues in the Power segment.

From an end market perspective, sales to the defense markets increased 2%, while sales to the commercial markets decreased 7%, compared to the prior year.

Please refer to the accompanying tables for a breakdown of sales by end market.

OPERATING INCOME

Operating income in the third quarter was $77 million, an increase of $13 million, or 20%, compared to the prior year. These results reflect higher profitability on our embedded computing products in the Defense segment and on our AP1000 program in the Power segment, as well as a prior year one-time $7 million pension settlement charge that did not recur in 2016. This was partially offset by reduced operating income in the Commercial/Industrial segment resulting from lower sales volumes.

Operating margin was 15.1%, an increase of 300 basis points over the prior year, reflecting higher segment operating income and the benefits of our ongoing margin improvement initiatives, despite lower sales.

Non-segement expense

Non-segment expenses decreased 65% compared with the prior year, principally due to lower pension expense resulting from the aforementioned prior year pension charge.

Net earnings

Third quarter net earnings increased 20% compared with the prior year, as higher operating income was partially offset by higher interest expense, which increased by nearly $2 million compared to the prior year. In addition, the effective tax rate for the current quarter was 31.0%, essentially flat compared with the prior year.

free cash flow

Free cash flow, defined as cash flow from operations less capital expenditures, was $100 million for the third quarter of 2016, an increase of $2 million compared with the prior year. Net cash provided by operating activities increased $4 million to $111 million, primarily due to higher cash earnings and advanced payments in the current year, partially offset by a large income tax refund in the prior year. Capital expenditures increased by $2 million to $10 million, due to increased investment in a facility expansion in the Commercial/Industrial segment.

New orders and backlog

New orders of $500 million in the third quarter increased 1% compared to the prior year, as higher orders within the Defense segment were mainly offset by lower orders within the Power segment. Backlog of $2.0 billion increased 6% from December 31, 2015, primarily due to growth in our naval defense businesses.

Other items - share repurchase

During the third quarter, the Company repurchased 287,900 shares of its common stock for approximately $25 million.

 

full-year 2016 guidance

The Company is updating its full-year 2016 financial guidance as follows:

Notes:
Full-year 2016 growth rates reflect comparisons to 2015 Pro Forma results, which exclude the one-time China AP1000 fee of $20 million recognized in the fourth quarter of 2015.

Additionally, 2016 growth in free cash flow is comparable to adjusted free cash flow for 2015, which excludes the contribution to the Company’s corporate defined benefit pension plan of $145 million in 2015.

A more detailed breakdown of the Company’s 2016 guidance by segment and by market can be found in the accompanying schedules.

 

third quarter 2016 segment performance

Commercial/Industrial

Sales for the third quarter were $276 million, a decrease of $17 million, or 6%, over the prior year. Organic sales decreased 5%, excluding $3 million in unfavorable foreign currency translation. In the general industrial market, we experienced a continued reduction in sales of severe-service valves, primarily serving the oil and gas markets, as well as lower sales for industrial vehicle products. Within the commercial aerospace market, sales were up slightly, primarily due to higher actuation systems sales to Boeing, partially offset by lower sales of surface treatment services.

Operating income in the third quarter was $39 million, down 3% from the prior year, while operating margin improved 40 basis points to 14.2%. The decrease in operating income primarily reflects lower sales volumes for industrial valves and surface treatment services. However, improved operating margin was primarily driven by higher profitability for industrial vehicle products, despite lower sales volumes, due to ongoing margin improvement initiatives. In addition, favorable foreign currency translation added $1 million to current quarter operating income.

Defense

Sales for the third quarter were $114 million, a decrease of $3 million, or 3%, from the prior year. Organic sales decreased 2% from the prior year, excluding approximately $1 million in unfavorable foreign currency translation. In the aerospace defense market, we experienced lower sales of embedded computing products on various fighter jet and Intelligence, Surveillance and Reconnaissance (ISR) programs. In the ground defense market, we experienced higher sales of our ammunition handling systems. Within the commercial aerospace market, we experienced lower revenues for avionics and electronics equipment, primarily due to reduced helicopter demand.

Operating income in the third quarter was $29 million, an increase of $3 million, or 13%, compared to the prior year, while operating margin increased 360 basis points to 25.3%. These improvements in operating income and margin were driven primarily by favorable mix for our defense electronics products, despite flat sales volumes, as well as the benefits of our ongoing margin improvement initiatives. In addition, there were several non-recurring items that favorably impacted margins in the current quarter. These results were partially offset by lower profitability in our commercial avionics and electronics business. Favorable foreign currency translation added approximately $1 million to current quarter operating income.

Power

Sales for the third quarter were $117 million, an increase of $2 million, or 2%, from the prior year. In the naval defense market, our results reflect higher development revenues supporting the ramp-up on the new Ohio-class replacement submarine program, as well as higher sales on the Electromagnetic Aircraft Launching System (EMALS) program. Those gains were partially offset by lower revenues on the CVN-79 aircraft carrier program as production is nearing completion. Within the power generation market, higher revenues on the AP1000 program were more than offset by lower aftermarket sales supporting currently operating nuclear reactors.

Operating income in the third quarter was $14 million, an increase of less than $1 million, or 4%, compared to the prior year, while operating margin increased 30 basis points to 12.0%. These results primarily reflect higher profitability on the AP1000 program, partially offset by reduced profitability in the aftermarket power generation business due to lower sales volumes.

CONFERENCE CALL INFORMATION

The Company will host a conference call to discuss third quarter 2016 financial results at 9:00 a.m. EDT on Thursday, October 27, 2016. 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 www.curtisswright.com.

 

 

 

Use of Non-GAAP Financial Information (Unaudited)

The Corporation supplements its financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial information. Curtiss-Wright believes that these non-GAAP measures provide investors with additional insight into the Company’s ongoing business performance. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. Curtiss-Wright encourages investors to review its financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. The following definitions are provided:

Organic Revenue and Organic Operating Income

The Corporation discloses organic revenue and organic operating income because the Corporation believes it provides investors with insight as to the Company’s ongoing business performance. Organic revenue and organic operating income are defined as revenue and operating income excluding the impact of foreign currency fluctuations and contributions from acquisitions made during the last twelve months.

 

Free Cash Flow and Free Cash Flow Conversion

The Corporation discloses free cash flow because it measures cash flow available for investing and financing activities. Free cash flow represents cash available to repay outstanding debt, invest in the business, acquire businesses, return capital to shareholders and make other strategic investments. Free cash flow is defined as cash flow provided by operating activities less capital expenditures. The Corporation discloses free cash flow conversion because it measures the proportion of net earnings converted into free cash flow and is defined as free cash flow divided by net earnings from continuing operations.

 

* Excludes the one-time China AP1000 fee of $20 million recognized as revenue and operating income in the fourth quarter of 2015. This affects the Power segment and Total Curtiss-Wright.

* The Company’s full-year 2016 guidance reflects sales growth rates compared to 2015 Pro Forma results, which exclude the one-time China AP1000 fee of $20 million recognized as revenue in the fourth quarter of 2015. This affects 2016 growth rates for Power Generation, Total Commercial and Total Curtiss-Wright sales.

 

ABOUT CURTISS-WRIGHT CORPORATION

Curtiss-Wright Corporation (NYSE: CW) is a global innovative company that delivers highly engineered, critical function products and services to the commercial, industrial, defense and energy markets. Building on the heritage of Glenn Curtiss and the Wright brothers, Curtiss-Wright has a long tradition of providing reliable solutions through trusted customer relationships. The company employs approximately 8,400 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, 2015, and subsequent reports filed with the Securities and Exchange Commission.

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

 

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Source: Curtiss-Wright Corporation