What drove Curtiss-Wright's strong 1997 earnings growth?

Growth came mainly from record metal treatment (shot-peening and heat-treating) volumes, higher commercial aircraft production levels (especially Boeing actuation and control programs), reduced military development cost overruns that hurt 1996, and a full year of the Miami overhaul facility acquired in May 1996. A $2.0 million real estate gain also contributed.

How sustainable are the 1997 results, and what are the risks?

Management noted that the rapid production ramp-up strained manufacturing capacity and created inefficiencies, and that margins on new programs are pressured because the company is early on the learning curve. Much of the current growth depends on commercial aircraft production, which is cyclical, and on continued Boeing demand. The company also flagged the possibility of military program reductions and high environmental remediation costs ($3.1 million in 1997).

How concentrated is Curtiss-Wright's customer base?

The Aerospace & Marine segment had one customer (Boeing) at 20% of total 1997 sales and one customer (Westinghouse, for U.S. Navy end use) at 11%. The company says the segment would be materially affected by losing either. Sales to the U.S. Government, direct or end use, were 20% of total 1997 sales, down from 23% in 1996 and 25% in 1995.

Is the balance sheet strong enough to support growth and dividends?

Yes. At year-end 1997, the current ratio was 4.4 to 1, working capital was $132.8 million, cash and short-term investments totaled $68.8 million, and long-term debt was $10.3 million in industrial revenue bonds. Management said operating cash flow was adequate for normal dividends, planned capital expenditures (projected to rise in 1998), and environmental programs. Operating cash flow was $13.5 million, lower than net earnings, mainly because of receivable and inventory growth.

CW 10-K FY1997 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 24, 1998. Cited figures are marked; the original filing is the authoritative source.

Curtiss-Wright Corporation's 1997 results show a sharp earnings rebound.

Sales rose 29% to $219.4 million^a from $170.5 million, and net earnings increased 73% to $27.9 million, or $2.74 basic EPS (split-adjusted following the two-for-one split in December 1997). Management attributes the gains to record metal treatment volumes, the commercial aircraft production ramp-up (notably Boeing), reduced military development cost overruns, and a full year of its Miami overhaul facility. Results also include a $2.0 million (about $0.20 per share) gain from sales of excess real estate, so earnings excluding that gain were $25.9 million, or $2.54 per share, still up roughly 60%.

New orders rose 51% to $259.3 million^b, and backlog reached $149.2 million, its highest level since 1993. The company operates in two segments. Aerospace & Marine (about 73% of sales) grew 45% to $159.0 million and more than doubled its operating income to $25.6 million.

Industrial sales were flat at $60.4 million^c, with operating income up as well. Balance sheet strength is evident, with a 4.4-to-1 current ratio, $68.8 million in cash and short-term investments, and $10.3 million of industrial revenue bond debt. Stockholders' equity reached $204.9 million.

Risk factors include customer concentration (Boeing 20%^d and Westinghouse/U.S. Navy 11% of sales), dependence on U.S. Government business (20% of sales), production inefficiencies from the rapid ramp-up, and ongoing environmental remediation costs. Management has signaled that cost and margin pressures from new programs must be addressed in 1998.

02—Key points

Key Highlights

Net sales rose 29% to $219.4 million in 1997, versus $170.5 million in 1996.
Net earnings rose 73% to $27.9 million ($2.74 basic EPS, split-adjusted), the company's most profitable year since 1989; excluding a $2.0 million real estate gain, earnings were $25.9 million ($2.54 per share).
New orders increased 51% to $259.3 million and year-end backlog grew 36% to $149.2 million.
Aerospace & Marine segment sales rose 45% to $159.0 million, and operating income more than doubled to $25.6 million, driven by Boeing commercial aircraft ramp-up and metal treatment services.
Industrial segment sales were stable at $60.4 million, with operating income improving on higher valve field service and spare parts sales.
Customer and government concentration remains high: Boeing accounted for 20% of total sales, Westinghouse (U.S. Navy end use) for 11%, and U.S. Government business for 20%.
Strong liquidity: current ratio of 4.4 to 1, $68.8 million in cash and short-term investments, and only $10.3 million in long-term debt; the board also declared a two-for-one stock split and the dividend rose to $0.505 per share.

03—Questions

Frequently Asked Questions

What drove Curtiss-Wright's strong 1997 earnings growth?
Growth came mainly from record metal treatment (shot-peening and heat-treating) volumes, higher commercial aircraft production levels (especially Boeing actuation and control programs), reduced military development cost overruns that hurt 1996, and a full year of the Miami overhaul facility acquired in May 1996. A $2.0 million real estate gain also contributed.
How sustainable are the 1997 results, and what are the risks?
Management noted that the rapid production ramp-up strained manufacturing capacity and created inefficiencies, and that margins on new programs are pressured because the company is early on the learning curve. Much of the current growth depends on commercial aircraft production, which is cyclical, and on continued Boeing demand. The company also flagged the possibility of military program reductions and high environmental remediation costs ($3.1 million in 1997).
How concentrated is Curtiss-Wright's customer base?
The Aerospace & Marine segment had one customer (Boeing) at 20% of total 1997 sales and one customer (Westinghouse, for U.S. Navy end use) at 11%. The company says the segment would be materially affected by losing either. Sales to the U.S. Government, direct or end use, were 20% of total 1997 sales, down from 23% in 1996 and 25% in 1995.
Is the balance sheet strong enough to support growth and dividends?
Yes. At year-end 1997, the current ratio was 4.4 to 1, working capital was $132.8 million, cash and short-term investments totaled $68.8 million, and long-term debt was $10.3 million in industrial revenue bonds. Management said operating cash flow was adequate for normal dividends, planned capital expenditures (projected to rise in 1998), and environmental programs. Operating cash flow was $13.5 million, lower than net earnings, mainly because of receivable and inventory growth.

04—Continue

← View all 10-K filings