10-QPeriod: Q3 FY2016

CURTISS WRIGHT CORP Quarterly Report for Q3 Ended Sep 30, 2016

Filed October 27, 2016For Securities:CW

Summary

Curtiss-Wright Corporation (CW) reported its third-quarter and nine-month results for the period ending September 30, 2016. For the third quarter, total net sales were $507.1 million, a decrease of 4% compared to the prior year, impacted by lower sales in the Commercial/Industrial and Defense segments. However, operating income saw a significant increase of 20% to $76.6 million, primarily driven by a favorable year-over-year comparison due to a pension settlement charge in the prior year and improved operating leverage. Net earnings from continuing operations were $45.9 million, or $1.02 per diluted share, an increase from $38.1 million ($0.80 per diluted share) in the prior year. For the nine-month period, total net sales decreased by 5% to $1,543.4 million. Net earnings from continuing operations were $118.7 million, or $2.63 per diluted share, a slight decrease from $121.5 million ($2.53 per diluted share) in the prior year. A key factor impacting year-over-year net earnings comparison was the absence of significant losses from discontinued operations in the current year, which were present in the prior year. The company's liquidity remains strong, with substantial cash and cash equivalents and available borrowing capacity under its credit facility.

Financial Highlights

55 data points
Beta

Revenue

$507.09M

36.4% Gross Margin

Net Income

$45.93M

9.1% Net Margin

EPS (Diluted)

$1.02

Total Assets

$3.01B

Cash & Equivalents

$452.05M

Free Cash Flow

$100.19M

Financial Statements
Beta
Revenue$507.09M
Cost of Revenue$322.62M
Gross Profit$184.48M
R&D Expenses$14.07M
Operating Income$76.57M
Interest Expense$10.49M
Net Income$45.93M
EPS (Basic)$1.04
EPS (Diluted)$1.02
Shares Outstanding (Basic)44.32M
Shares Outstanding (Diluted)45.00M

Key Highlights

  • 1Total net sales for the third quarter were $507.1 million, down 4% year-over-year, driven by declines in Commercial/Industrial and Defense segments.
  • 2Operating income for the third quarter increased 20% to $76.6 million, benefiting from a favorable comparison to a prior year pension settlement charge and improved operating margins.
  • 3Net earnings from continuing operations for the third quarter rose to $45.9 million ($1.02/share) from $38.1 million ($0.80/share) in the prior year.
  • 4For the nine-month period, net sales declined 5% to $1,543.4 million, while net earnings from continuing operations were relatively stable at $118.7 million ($2.63/share) compared to $121.5 million ($2.53/share) last year.
  • 5The company reported a significant increase in cash flow from operating activities for the nine months, reaching $267.2 million, up from a negative $4.7 million in the prior year, partly due to the absence of a large voluntary pension contribution in the current year.
  • 6Goodwill remains substantial at $964.4 million as of September 30, 2016.
  • 7The company repurchased $80 million of its common stock during the first nine months of 2016, a decrease from $185 million in the same period of 2015.

Frequently Asked Questions

The primary driver for the increase in operating income in the third quarter was a favorable year-over-year comparison, significantly influenced by a one-time pension settlement charge of $7 million recorded in the prior year period. Additionally, a favorable shift in product mix for Commercial Off-the-Shelf (COTS) products and smaller non-recurring items in the Defense segment also contributed to the improved operating income.

Total net sales decreased by 4% in the third quarter and 5% for the nine-month period. The Commercial/Industrial segment experienced a 6% sales decrease in both periods, primarily due to lower sales of severe-service industrial valves and surface treatment services. The Defense segment saw a 3% decrease in the third quarter and a 5% decrease for the nine months, mainly from lower sales of embedded computing products and foreign military sales. The Power segment showed a slight 2% increase in the third quarter but a marginal decrease for the nine months, with mixed performance across naval defense and power generation markets.

Curtiss-Wright maintains a strong liquidity position. As of September 30, 2016, the company had $452.1 million in cash and cash equivalents. Furthermore, it had $463 million in unused credit available under its revolving credit facility, indicating ample financial resources to meet its short-term and long-term capital needs.

The company is involved in several legal proceedings, including lawsuits alleging injury from asbestos exposure, where it believes it is unlikely to face material liability. A more significant matter is a claim from Canadian Natural Resources Limited (CNRL) related to a refinery incident, where the company is unable to estimate a potential loss but believes it has adequate legal defenses. While the company believes these matters, individually or in aggregate, will not have a material effect, the CNRL claim could materially affect financial condition, results of operations, and cash flows if unfavorable developments occur. Additionally, there are potential liquidated damages related to the AP1000 China and US contracts, with a range of possible loss from $0 to $55.5 million, where responsibility for delays is uncertain.