Curtiss-Wright Reports Second Quarter 2018 Financial Results; Raises Full-Year Revenue, EPS and Free Cash Flow Guidance

DAVIDSON, N.C.--()--Curtiss-Wright Corporation (NYSE: CW) reports financial results for the second quarter ended June 30, 2018.

Beginning this quarter, coinciding with the initial reporting of the recent acquisition of Dresser-Rand’s government business (“DRG”), the Company has elected to change the presentation of its financials and guidance to include an Adjusted (non-GAAP) view that excludes first year purchase accounting costs associated with its acquisitions. We believe this change will provide improved transparency to the investment community in order to better measure Curtiss-Wright’s core operating and financial performance and improve comparisons of our key financial metrics to our peers. Reconciliations of “Reported” GAAP amounts to “Adjusted” non-GAAP amounts are furnished within this release.

Second Quarter 2018 Highlights

  • Reported (GAAP) diluted earnings per share (EPS) of $1.68, with Adjusted (non-GAAP) diluted EPS of $1.80, up 49% compared with the prior year, excluding first year acquisition-related purchase accounting costs;
  • Net sales of $620 million, up 9%, including 4% organic growth (defined below);
  • Reported (GAAP) operating income of $102 million, with Adjusted (non-GAAP) operating income of $109 million, up 28%;
  • Reported (GAAP) operating margin of 16.5%, with Adjusted (non-GAAP) operating margin of 17.6%, up 260 basis points;
  • Free cash flow of $87 million, up 19%;
  • New orders of $700 million, up 28%; and
  • Share repurchases of approximately $34 million.

Full-Year 2018 Business Outlook

  • Increased Reported (GAAP) full-year 2018 diluted EPS guidance by $0.28 reflecting strong operational performance in core business;
  • Introduced Adjusted (non-GAAP) full-year 2018 diluted EPS guidance, which reflects a $0.25 adjustment for first year acquisition-related purchase accounting costs associated with the acquisition of DRG;
  • Combining these items, introduced Adjusted (non-GAAP) full-year 2018 diluted EPS guidance range of $6.00 to $6.15, up $0.53 compared to the prior Reported guidance range of $5.47 to $5.62 (see table below);
  • Full-year 2018 Adjusted guidance reflects higher sales (up 8-9%), operating income (up 11-14%), operating margin of 15.2% to 15.4% (up 50-70 bps) and diluted EPS (up 21-24%), compared with Adjusted 2017 financial results; and
  • Increased Reported free cash flow by $10 million to new range of $250 to $270 million and Adjusted free cash flow range of $300 to $320 million, which excludes a $50 million voluntary pension contribution made in the first quarter of 2018.
       

Full-Year 2018 Adjusted EPS Guidance:

                 
   

Prior

Reported

Guidance

(GAAP)

 

Updated

Reported

Guidance

(GAAP)

 

Adjustments

(Non-GAAP)(1)

 

Current

Adjusted

Guidance

(Non-GAAP)

Forecasted reported diluted EPS (GAAP)   $5.47 - $5.62   -   -   -
Increase from Operational Performance   $0.28   $5.75 - $5.90   -   -
Adjustments (1) - - $0.33
Tax impact on Adjustments (1)   -   -   ($0.08)    
Forecasted Adjusted diluted EPS (Non-GAAP)   -   -   -   $6.00 - $6.15

(1) Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions.

 

“We generated strong second quarter results which exceeded our expectations, as we delivered solid 9% top-line growth led by strong defense and industrial sales, and improved profitability driven by the benefits of our ongoing margin improvement initiatives, to produce Adjusted diluted EPS of $1.80,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation.

“As a result of the strong first half results and our outlook for continued momentum through the remainder of this year, we have increased our full-year revenue, EPS and free cash flow guidance. We are projecting another solid operational performance including higher sales in all end markets, double-digit growth in operating income driving strong margin expansion and solid free cash flow generation.”

   

Second Quarter 2018 Operating Results

 
(In millions) 2Q-2018   2Q-2017   Change
Sales $ 620.3   $ 567.7   9%
Reported operating income (GAAP) $ 102.1 $ 79.7 28%
Adjustments (1) 7.0 5.2 -
Adjusted operating income (Non-GAAP) $ 109.1   $ 85.0   28%
Adjusted operating margin (Non-GAAP) 17.6%   15.0%   260 bps

(1) Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions, including DRG in 2018 (Power segment) and TTC in 2017 (Defense segment).

 
  • Sales of $620 million up $53 million, or 9%, compared with the prior year (4% organic, 4% acquisitions, 1% favorable foreign currency translation);
  • Higher organic revenues were principally driven by strong defense and industrial sales, partially offset by lower power generation revenues;
  • From an end market perspective, total sales to the defense markets increased 19%, 9% of which was organic, while total sales to the commercial markets increased 3%, 1% of which was organic, compared with the prior year. Please refer to the accompanying tables for a breakdown of sales by end market;
  • Reported operating income was $102 million, with Reported operating margin of 16.5%;
  • Adjusted operating income of $109 million, up $24 million, or 28%, compared with the prior year, reflects higher defense and industrial sales, increased profitability on defense electronics products in the Defense segment, and the benefits of our ongoing margin improvement initiatives, most notably in the Commercial/Industrial segment;
  • Adjusted operating margin of 17.6%, up 260 basis points compared with the prior year, reflects higher revenues and favorable overhead absorption, as well as the benefits of our ongoing margin improvement initiatives; and
  • Non-segment expenses of $8 million decreased by $1 million compared with the prior year, primarily due to lower corporate expenses.
     

Net Earnings and Diluted EPS

             
(In millions, except EPS)   2Q-2018   2Q-2017   Change
Reported net earnings (GAAP) $ 74.8 $ 50.7 48%
Adjustments (1) 7.0 5.2 -
Tax impact on Adjustments (1)  

(1.6)

 

(1.6)

 

-

Adjusted net earnings (Non-GAAP)   $ 80.2   $ 54.3   48%
Reported diluted EPS (GAAP) $1.68 $1.13 48%
Adjustments (1) $0.16 $0.12 -
Tax impact on Adjustments (1)  

($0.04)

 

($0.04)

  -
Adjusted diluted EPS (Non-GAAP)   $1.80   $1.21   49%

(1)  Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions.

 
  • Reported net earnings of $75 million and reported diluted EPS of $1.68;
  • Adjusted net earnings of $80 million, up $26 million, or 48%, compared with the prior year, reflecting higher operating income, lower interest expense and a lower tax rate;
  • Adjusted diluted earnings per share of $1.80, up $0.59, or 49%, compared with the prior year, reflecting higher operating income, lower interest expense and a lower tax rate, as well as a slightly lower share count; and
  • The effective tax rate (ETR) for the second quarter was 22.5%, a decrease from 30.3% in the prior year quarter, primarily driven by the current period 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)       2Q-2018       2Q-2017       Change
Net cash provided by operating activities $ 97.9 $ 85.9 14%
Capital expenditures (10.9) (12.9) 16%
Free cash flow       $ 87.1       $ 73.0       19%
Adjusted free cash flow       $ 87.1       $ 73.0       19%
 
  • Free cash flow of $87 million, defined as cash flow from operations less capital expenditures, up approximately $14 million compared with the prior year, primarily due to higher earnings partially offset by the timing of collections; and
  • Capital expenditures decreased by $2 million to $11 million compared with the prior year period, due to higher capital investments in the prior year period.

New Orders and Backlog

  • New orders of $700 million, up 28% compared with the prior year, primarily due to strong growth in naval defense orders and the contribution from the DRG acquisition within the Power segment; and
  • Backlog of $2.2 billion up 9% from December 31, 2017.

Other Items – Share Repurchase

  • During the second quarter, the Company repurchased 267,833 shares of its common stock for approximately $34 million. Year-to-date, the Company repurchased 361,271 shares for approximately $47 million.
                       

Second Quarter 2018 Segment Performance

 

 

Commercial/Industrial

                         
(In millions)       2Q-2018       2Q-2017       Change
Sales       $ 312.5       $ 291.6       7%
Reported operating income (GAAP)       $ 51.7       $ 43.6       19%
Reported operating margin (GAAP)         16.6%         15.0%       160 bps
 
  • Sales of $312 million, up $21 million, or 7%, compared with the prior year (5% organic, 2% favorable foreign currency translation);
  • Strong sales growth in the aerospace and naval defense markets, led by higher sales of actuation systems on various fighter jet programs and higher sales on the CVN-79 Ford class aircraft carrier program, respectively;
  • Commercial aerospace market sales were nearly flat, as higher sales of sensors and controls products and surface treatment services (including core OEM sales which increased more than 10%) were largely offset by lower revenues resulting from FAA directives, which are winding down;
  • General industrial market sales growth was driven by widespread, solid demand for industrial valves, controls and vehicle products, and surface treatment services;
  • Reported operating income of $52 million, up $8 million, or 19%, compared with the prior year (including 3% favorable foreign currency translation); and
  • Reported operating margin increased 160 basis points to 16.6%, reflecting higher sales and favorable overhead absorption in each of the aforementioned end markets as well as the benefits of our ongoing margin improvement initiatives.
     

Defense

             
(In millions)   2Q-2018   2Q-2017   Change
Sales   $ 146.2   $ 126.4   16%
Reported operating income (GAAP) $ 38.6 $ 21.1 83%
Adjustments (1)   -   5.2 -
Adjusted operating income (Non-GAAP)   $ 38.6   $ 26.3   47%
Adjusted operating margin (Non-GAAP)     26.4%     20.8%   560 bps

(1)  Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions.

 
  • Sales of $146 million, up $20 million, or 16%, compared with the prior year (15% organic, 1% favorable foreign currency translation);
  • Strong organic sales growth primarily reflects higher sales of flight test equipment serving the aerospace defense market, higher aircraft carrier revenues in the naval defense market and increased sales of avionics equipment in the commercial aerospace market;
  • Reported operating income was $39 million, with Reported operating margin of 26.4%; and
  • Adjusted operating income of $39 million, up $12 million, or 47%, compared with the prior year, while Adjusted operating margin increased 560 basis points to 26.4%, reflecting higher sales and favorable overhead absorption, favorable contract adjustments within our naval defense business and the benefits of our ongoing margin improvement initiatives.
     

 

Power

             
(In millions)   2Q-2018   2Q-2017   Change
Sales   $ 161.7   $ 149.7   8%
Reported operating income (GAAP) $ 19.2 $ 23.9 (20%)
Adjustments (1)   7.0   - -
Adjusted operating income (Non-GAAP)   $ 26.2   $ 23.9   10%
Adjusted operating margin (Non-GAAP)     16.2%     15.9%   30 bps

(1)  Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions.

 
  • Sales of $162 million, up $12 million, or 8%, compared with the prior year (15% acquisition, (7%) organic);
  • Strong naval defense market sales were driven by higher CVN-80 aircraft carrier revenues and solid DRG service center revenues;
  • Lower power generation market sales reflect lower revenues on the domestic AP1000 program, which was substantially completed last year, as well as reduced domestic aftermarket sales supporting currently operating nuclear reactors following a seasonally strong spring outage season in the prior year period;
  • Revenues on the China Direct AP1000 program were flat year-over-year;
  • Reported operating income was $19 million, with Reported operating margin of 11.9%; and
  • Adjusted operating income of $26 million, up $2 million, or 10%, compared with the prior year, while Adjusted operating margin increased 30 basis points to 16.2%, reflecting higher naval defense market sales and improved profitability on the China Direct AP1000 program, partially offset by reduced sales and profitability in the nuclear aftermarket business and lower revenues on the domestic AP1000 program.
         

Full-Year 2018 Guidance

 

The Company is updating its full-year 2018 financial guidance as follows:

                     
(In millions, except EPS)  

Prior

Reported

Guidance

(GAAP)

 

Increase from

Operational

Performance

 

Updated

Reported

Guidance

(GAAP)

 

Adjustments

(Non-GAAP)(1)

 

Current

Adjusted

Guidance

(Non-GAAP)

Total Sales   $2,415 - $2,455   $30   $2,445 - $2,485       $2,445 - $2,485
Operating Income   $343 - $353   $13   $357 - $367   $14   $371 - $382
Operating Margin   14.2% - 14.4%   40 bps   14.6% - 14.8%   60 bps   15.2% - 15.4%
Interest Expense   ($36 - $37)   $1   ($35 - $36)   -   ($35 - $36)
Effective Tax Rate   24%   -   24%   -   24%
Diluted EPS   $5.47 - $5.62   $0.28   $5.75 - $5.90   $0.25   $6.00 - $6.15
Diluted Shares Outstanding   44.7   (0.1)   44.6   -   44.6
Free Cash Flow   $240 - $260   $10   $250 - $270   $50   $300 - $320

(1) Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions.

 

Notes:

  • Full-year 2018 Adjusted guidance reflects higher sales (up 8-9%), operating income (up 11-14%), operating margin of 15.2% to 15.4% (up 50-70 bps) and diluted EPS (up 21-24%), compared with Adjusted 2017 financial results;
  • Increased Reported (GAAP) full-year 2018 diluted EPS guidance by $0.28, led by the benefit of strong operational performance and solid outlook in the Commercial/Industrial segment, which added $20 million to sales and $6 million to operating income, and in the Defense segment, which added $10 million to sales and $3 million to operating income, as well as increased profitability in the Power segment;
  • Introduced Adjusted (non-GAAP) full-year 2018 diluted EPS guidance, which reflects a $0.25 adjustment for first year acquisition-related purchase accounting costs associated with the acquisition of DRG;
  • Combining these items, introduced Adjusted (non-GAAP) full-year 2018 diluted EPS guidance range of $6.00 to $6.15, up $0.53 compared to the prior guidance range of $5.47 to $5.62;
  • A more detailed breakdown of the Company’s 2018 guidance by segment and by market can be found in the accompanying schedules.

Non-GAAP Financial Results

The company reports its financial performance in accordance with accounting principles generally accepted in the United States of America ("GAAP"). This press release refers to "Adjusted" amounts, which are Non-GAAP financial measures described below.

We utilize a number of different financial measures in analyzing and assessing the overall performance of our business, and in making operating decisions, forecasting and planning for future periods. We consider the use of the non-GAAP measures to be helpful in assessing the performance of the ongoing operation of our business. We believe that disclosing non-GAAP financial measures provides useful supplemental data that, while not a substitute for financial measures prepared in accordance with GAAP, allows for greater transparency in the review of our financial and operational performance.

Beginning with the second quarter of 2018 coinciding with the initial reporting of the DRG acquisition, the Company has elected to also present its financials and guidance on an Adjusted, non-GAAP basis for operating income, operating margin, net earnings and diluted earnings per share to exclude first year purchase accounting costs associated with its acquisitions, specifically one-time inventory step-up, backlog amortization and transaction costs for current and prior year acquisitions.

Management believes that this approach will provide improved transparency to the investment community in order to measure Curtiss-Wright’s core operating and financial performance, provide quarter-over-quarter comparisons excluding one-time items and show better comparisons among company peers.

Reconciliations of “Reported” GAAP amounts to “Adjusted” non-GAAP amounts are furnished within this release. All per share amounts are reported on a diluted basis.

Conference Call & Webcast Information

The Company will host a conference call to discuss second quarter 2018 financial results at 9:00 a.m. EDT on Thursday, July 26, 2018. 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
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
($'s in thousands, except per share data)
                               
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2018 2017 $ % 2018 2017 $ %
Product sales $ 511,676 $ 459,774 $ 51,902 11 % $ 956,363 $ 883,003 $ 73,360 8 %
Service sales 108,622   107,879   743   1 % 211,457   208,241   3,216   2 %
Total net sales 620,298 567,653 52,645 9 % 1,167,820 1,091,244 76,576 7 %
 
Cost of product sales 324,184 302,794 21,390 7 % 623,495 592,404 31,091 5 %
Cost of service sales 69,614   69,849   (235 ) 0 % 136,634   136,895   (261 ) 0 %
Total cost of sales 393,798 372,643 21,155 6 % 760,129 729,299 30,830 4 %
 
Gross profit 226,500 195,010 31,490 16 % 407,691 361,945 45,746 13 %
 
Research and development expenses 15,054 15,788 (734 ) (5 %) 30,995 31,379 (384 ) (1 %)
Selling expenses 32,665 29,055 3,610 12 % 64,185 58,513 5,672 10 %
General and administrative expenses 76,705   70,435   6,270   9 % 145,937   144,629   1,308   1 %
 
Operating income 102,076 79,732 22,344 28 % 166,574 127,424 39,150 31 %
 
Interest expense 9,566 10,750 (1,184 ) (11 %) 17,770 21,127 (3,357 ) (16 %)
Other income, net 3,971   3,729   242   6% 8,654   7,576   1,078   14%
 
Earnings before income taxes 96,481 72,711 23,770 33 % 157,458 113,873 43,585 38 %
Provision for income taxes (21,693 ) (22,061 ) 368   (2 %) (39,027 ) (30,676 ) (8,351 ) 27 %
Net earnings $ 74,788   $ 50,650   $ 24,138   48 % $ 118,431   $ 83,197   $ 35,234   42 %
 
Net earnings per share:
Basic earnings per share $ 1.69 $ 1.15 $ 2.68 $ 1.88
Diluted earnings per share $ 1.68 $ 1.13 $ 2.66 $ 1.86
 
Dividends per share $ 0.15 $ 0.13 $ 0.30 $ 0.26
 
Weighted average shares outstanding:
Basic 44,124 44,213 44,144 44,221
Diluted 44,553 44,807 44,604 44,825

 
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
($'s in thousands, except par value)
             
 
 
June 30, December 31, Change
2018 2017 %
Assets
Current assets:
Cash and cash equivalents $ 218,898 $ 475,120 (54 %)
Receivables, net 575,142 494,923 16 %
Inventories, net 436,250 378,866 15 %
Other current assets 53,953   52,951   2 %
Total current assets 1,284,243   1,401,860   (8 %)
Property, plant, and equipment, net 374,995 390,235 (4 %)
Goodwill 1,103,562 1,096,329 1 %
Other intangible assets, net 449,096 329,668 36 %
Other assets 18,292   18,229   0 %
Total assets $ 3,230,188   $ 3,236,321   0 %
 
Liabilities
Current liabilities:
Current portion of long-term and short-term debt $ 959 $ 150 539 %
Accounts payable 179,566 185,176 (3 %)
Accrued expenses 131,263 150,406 (13 %)
Income taxes payable 4,957 4,564 9 %
Deferred revenue 231,187 214,891 8 %
Other current liabilities 47,752   35,810   33 %
Total current liabilities 595,684   590,997   1 %
Long-term debt 813,150 813,989 0 %
Deferred tax liabilities, net 56,143 49,360 14 %
Accrued pension and other postretirement benefit costs 65,698 121,043 (46 %)
Long-term portion of environmental reserves 14,757 14,546 1 %
Other liabilities 108,660   118,586   (8 %)
Total liabilities 1,654,092   1,708,521   (3 %)
 
Stockholders' equity
Common stock, $1 par value 49,187 49,187 0 %
Additional paid in capital 119,025 120,609 (1 %)
Retained earnings 2,047,250 1,944,324 5 %
Accumulated other comprehensive loss (239,516 ) (216,840 ) (10 %)
Less: cost of treasury stock (399,850 ) (369,480 ) (8 %)
Total stockholders' equity 1,576,096   1,527,800   3 %
   
Total liabilities and stockholders' equity $ 3,230,188   $ 3,236,321   0 %

 
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
SEGMENT INFORMATION (UNAUDITED)
($'s in thousands)
                       
 
Three Months Ended Six Months Ended
June 30, June 30,
Change Change
2018 2017 % 2018 2017 %

Sales:

Commercial/Industrial $ 312,463 $ 291,599 7 % $ 609,104 $ 570,421 7 %
Defense 146,177 126,361 16 % 265,078 241,023 10 %
Power 161,658   149,693   8 % 293,638     279,800   5 %
 
Total sales $ 620,298 $ 567,653 9 % $ 1,167,820 $ 1,091,244 7 %
 

Operating income (expense):

Commercial/Industrial $ 51,736 $ 43,620 19 % $ 90,961 $ 74,172 23 %
Defense 38,641 21,128 83 % 58,369 32,225 81 %
Power 19,201   23,875   (20 %) 34,543   39,420   (12 %)
 
Total segments $ 109,578 $ 88,623 24 % $ 183,873 $ 145,817 26 %
Corporate and other (7,502 ) (8,891 ) 16 % (17,299 ) (18,393 ) 6 %
 
Total operating income $ 102,076   $ 79,732   28 % $ 166,574   $ 127,424   31 %
 
 

Operating margins:

Commercial/Industrial 16.6 % 15.0 % 160 bps 14.9 % 13.0 % 190 bps
Defense 26.4 % 16.7 % 970 bps 22.0 % 13.4 % 860 bps
Power 11.9 % 15.9 % (400 bps) 11.8 % 14.1 % (230 bps)
Total Curtiss-Wright 16.5 % 14.0 %

250

bps

14.3 % 11.7 %

260

bps

 
Segment margins 17.7 % 15.6 % 210 bps 15.7 % 13.4 % 230 bps

 
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
SALES BY END MARKET (UNAUDITED)
($'s in thousands)
                       
 
Three Months Ended Six Months Ended
June 30, June 30,
Change Change
2018 2017 % 2018 2017 %
Defense markets:
Aerospace $ 98,268 $ 89,367 10 % $ 174,209 $ 154,661 13 %
Ground 20,272 17,515 16 % 42,282 37,251 14 %
Naval 132,005 100,048 32 % 234,786 191,018 23 %
Other 3,422   5,964   (43 %) 8,004   13,006   (38 %)
Total Defense $ 253,967 $ 212,894 19 % $ 459,281 $ 395,936 16 %
 
Commercial markets:
Aerospace $ 104,617 $ 100,353 4 % $ 204,021 $ 198,966 3 %
Power Generation 102,075 114,773 (11 %) 201,087 220,324 (9 %)
General Industrial 159,639   139,633   14 % 303,431   276,018   10 %
Total Commercial $ 366,331 $ 354,759 3 % $ 708,539 $ 695,308 2 %
       
Total Curtiss-Wright $ 620,298   $ 567,653   9 % $ 1,167,820   $ 1,091,244   7 %
 

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.

Beginning with the second quarter of 2018, coinciding with the initial reporting of the DRG acquisition, the Company has elected to also present its financials and guidance on an Adjusted, non-GAAP basis for operating income, operating margin, net earnings and diluted earnings per share to exclude first year purchase accounting costs associated with its acquisitions, specifically one-time inventory step-up, backlog amortization and transaction costs for current and prior year acquisitions that are included under GAAP.

Management believes that this approach will provide improved transparency to the investment community in order to measure Curtiss-Wright’s core operating and financial performance, provide quarter-over-quarter comparisons excluding one-time items and show better comparisons among company peers. Additional details and tables reconciling the GAAP to non-GAAP financial measures are included in this release.

The following definitions are provided:

Adjusted Operating Income, Operating Margin, Net Income and Diluted EPS

These 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.

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
June 30,
2018 vs. 2017
Commercial/Industrial     Defense     Power     Total Curtiss-Wright
Sales     Operating income Sales     Operating income Sales     Operating income Sales     Operating income
Organic 5 % 16 % 15 % 86 % (7 %) (3 %) 4 % 32 %
Acquisitions 0 % 0 % 0 % 0 % 15 % (17 %) 4 % (5 %)
Foreign Currency 2 % 3 % 1 % (3 %) 0 % 0 % 1 % 1 %
Total 7 % 19 % 16 % 83 % 8 % (20

%)

 

9 % 28 %
 
Six Months Ended
June 30,
2018 vs. 2017
Commercial/Industrial Defense Power Total Curtiss-Wright
Sales Operating income Sales Operating income Sales Operating income Sales Operating income
Organic 5 % 21 % 9 % 86 % (3 %) (2 %) 4 % 34 %
Acquisitions 0 % 0 % 0 % 0 % 8 % (10 %) 2 % (3 %)
Foreign Currency 2 % 2 % 1 % (5 %) 0 % 0 % 1 % 0 %
Total 7 % 23 % 10 % 81 % 5 % (12

%)

 

7 % 31 %
 

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 Six Months Ended
June 30, June 30,
2018 2017 2018 2017
 
Net cash provided by operating activities $ 97,947 $ 85,873 $ 26,685 $ 60,932
Capital expenditures (10,881 ) (12,914 ) (19,852 ) (23,288 )
Free cash flow $ 87,066   $ 72,959   $ 6,833   $ 37,644  
Pension payment     50,000    
Adjusted free cash flow $ 87,066   $ 72,959   $ 56,833   $ 37,644  
Free Cash Flow Conversion 116 % 144 % 48 % 45 %

                                             
CURTISS-WRIGHT CORPORATION
2018 Guidance (1) (2)
As of July 25, 2018
($'s in millions, except per share data)
 

Adjusted

(Non-GAAP)

2018 Prior Reported Guidance

(GAAP)

 

2018 Reported Guidance

(GAAP)

2018 Current Adjusted Guidance

(Non-GAAP)

 

2017

  Low High

2018 Chg vs

2017 Reported

Increase from

Operational

Performance

Low High

2018 Chg vs

2017 Adjusted

Adjustments (Non-GAAP)(3)

Low High

2018 Chg vs

2017

Adjusted (3)

Sales:

Commercial/Industrial $ 1,163 $ 1,193 $ 1,213 $ 20 $ 1,213 $ 1,233 $ - $ 1,213 $ 1,233
Defense 555 565 575 10 575 585 - 575 585
Power   553     657     667       -     657     667       -     657     667    
Total sales $ 2,271 $ 2,415 $ 2,455 6 to 8% $ 30 $ 2,445 $ 2,485 8 to 9% $ - $ 2,445 $ 2,485 8 to 9%
 

Operating income:

Commercial/Industrial $ 168 $ 177 $ 182 $ 6 $ 183 $ 188 $ - $ 183 $ 188
Defense 119 121 124 3 124 127 - 124 127
Power   81     80     83     4     85     87     14     99     102  
Total segments 368 378 389 13 391 - 402 14 405 # 416
Corporate and other   (34 )   (34 )   (35 )     -     (34 )   (35 )     -     (34 )   (35 )  
Total operating income $ 335   $ 343   $ 353   6 to 9% $ 13   $ 357   $ 367   7 to 10% $ 14   $ 371   $ 382   11 to 14%
 
Interest expense $ (41 ) $ (36 ) $ (37 ) $ 1 $ (35 ) $ (36 ) $ - $ (35 ) $ (36 )
Other income, net 16 14 14 1 15 15 - 15 15
Earnings before income taxes 309 322 331 - 337 347 - 352 361
Provision for income taxes   (88 )   (77 )   (79 )   (4 )   (81 )   (83 )   (3 )   (84 )   (87 )
Net earnings $ 222   $ 245   $ 251   $ 12   $ 256   $ 263   $ 11   $ 267   $ 274  
     
Diluted earnings per share $ 4.96 $ 5.47 $ 5.62 14 to 17% $ 0.28 $ 5.75 $ 5.90 16 to 19% $ 0.25 $ 6.00 $ 6.15 21 to 24%
Diluted shares outstanding 44.8 44.7 44.7 44.6 44.6 44.6 44.6 44.6
Effective tax rate 28.3 % 24.0 % 24.0 % 24.0 % 24.0 % 24.0 % 24.0 %
 

Operating margins:

Commercial/Industrial 14.5 % 14.8 % 15.0 % +30 bps 15.1 % 15.2 % 60 to 70 bps - 15.1 % 15.2 % 60 to 70 bps
Defense 21.4 % 21.3 % 21.5 % +20 bps 21.5 % 21.7 % 10 to 30 bps - 21.5 % 21.7 % 10 to 30 bps
Power 14.7 % 12.2 % 12.4 % +70 bps 12.9 % 13.1 % (160 to 180 bps) +220 bps 15.1 % 15.3 % 40 to 60 bps
Total operating margin 14.7 % 14.2 % 14.4 % +40 bps 14.6 % 14.8 % (10) to 10 bps +60 bps 15.2 % 15.4 % 50 to 70 bps
 
Note: Full year amounts may not add due to rounding
(1) Full-year 2017 and 2018 effective tax rate guidance includes the impacts of the Tax Cuts and Jobs Act.
(2) Reconciliations of 2017 Reported (GAAP) results to Adjusted (non-GAAP) results are furnished within this release.
(3) Adjustments include one-time inventory step-up, backlog amortization and transaction costs for current and prior year acquisitions.

       
CURTISS-WRIGHT CORPORATION
2018 Sales Growth Guidance by End Market
As of July 25, 2018
 
2018 % Change vs 2017 2018 % Change vs 2017
 
(Prior) (Current)

Defense Markets

Aerospace 8 - 10% 11 - 13%
Ground 0 - 2% 0 - 2%
Navy 16 - 18% 20 - 22%
 
Total Defense (Including Other Defense) 9 - 11% 13 - 15%
 

Commercial Markets

Commercial Aerospace 0 - 2% 0 - 2%
Power Generation 6 - 8% 2 - 4%
General Industrial 4 - 6% 8 - 10%
Total Commercial 3 - 5% 3 - 5%
 
Total Curtiss-Wright Sales 6 - 8% 8 - 9%
 
Note: Full year amounts may not add due to rounding

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 8,600 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.

Contacts

Curtiss-Wright Corporation
Jim Ryan, 704-869-4621
Jim.Ryan@curtisswright.com

Release Summary

Curtiss-Wright Reports Second Quarter 2018 Financial Results; Raises Full-Year Revenue, EPS and Free Cash Flow Guidance

Social Media Profiles

Contacts

Curtiss-Wright Corporation
Jim Ryan, 704-869-4621
Jim.Ryan@curtisswright.com