10-QPeriod: Q3 FY2017

CURTISS WRIGHT CORP Quarterly Report for Q3 Ended Sep 30, 2017

Filed October 26, 2017For Securities:CW

Summary

Curtiss-Wright Corporation (CW) reported strong third-quarter and nine-month results for 2017, demonstrating significant year-over-year growth in both net sales and earnings. Total net sales increased by 12% in Q3 and 8% for the nine-month period, driven by robust performance across all three segments: Commercial/Industrial, Defense, and Power. The company's strategic acquisitions, particularly Teletronics Technology Corporation (TTC), contributed meaningfully to the top-line growth, especially within the Defense segment. Profitability also saw substantial improvement, with operating income up 26% in Q3 and 14% for the nine months, reflecting higher production volumes, successful margin improvement initiatives, and the positive impact of recent acquisitions. Key financial metrics indicate a healthy operational performance. Diluted earnings per share rose to $1.43 in Q3 2017 from $1.02 in Q3 2016, and from $2.63 to $3.29 for the nine-month period. The company also saw a favorable shift in its effective tax rate due to accounting standard adoption and valuation allowance changes. Despite a significant increase in cash used for investing activities, largely due to two strategic acquisitions totaling $233 million, the company maintained solid liquidity, ending the period with $432 million in cash and cash equivalents and ample availability under its revolving credit facility. Management remains confident in the company's ability to meet its short-term and long-term capital needs.

Financial Highlights

55 data points
Beta

Revenue

$567.90M

36.5% Gross Margin

Net Income

$63.94M

11.3% Net Margin

EPS (Diluted)

$1.43

Total Assets

$3.22B

Cash & Equivalents

$432.19M

Free Cash Flow

$89.79M

Financial Statements
Beta
Revenue$567.90M
Cost of Revenue$360.40M
Gross Profit$207.50M
R&D Expenses$14.83M
Operating Income$92.41M
Interest Expense$10.46M
Net Income$63.94M
EPS (Basic)$1.45
EPS (Diluted)$1.43
Shares Outstanding (Basic)44.14M
Shares Outstanding (Diluted)44.69M

Key Highlights

  • 1Total net sales increased by 12% to $567.9 million in Q3 2017 and by 8% to $1.66 billion for the nine months ended September 30, 2017, compared to the prior year periods.
  • 2Net earnings rose significantly, with Q3 2017 net earnings at $63.9 million (EPS $1.43), up from $45.9 million (EPS $1.02) in Q3 2016. Nine-month net earnings reached $147.1 million (EPS $3.29), up from $118.7 million (EPS $2.63) in the prior year.
  • 3Operating income showed strong growth, increasing by 26% to $96.6 million in Q3 2017 and by 14% to $231.0 million for the nine months, with corresponding margin improvements.
  • 4The company completed two strategic acquisitions during the first nine months of 2017 for an aggregate purchase price of $233 million, significantly impacting the Defense and Commercial/Industrial segments.
  • 5Cash flow from operations decreased by $105 million to $162.3 million for the nine months ended September 30, 2017, primarily due to a prior year AP1000 program collection and an interest rate swap termination.
  • 6The effective tax rate decreased to 26.0% in Q3 2017 and 26.5% for the nine months, down from 31.0% in the prior year periods, benefiting from ASU 2016-09 adoption and valuation allowance changes.
  • 7The company ended the period with $432.2 million in cash and cash equivalents and $477 million in unused credit availability, indicating a strong liquidity position.

Frequently Asked Questions

Sales and earnings growth were primarily driven by strong performance across all three segments: Commercial/Industrial, Defense, and Power. Key factors included higher production volumes (notably on the AP1000 China Direct program), the positive contribution from recent acquisitions (such as TTC), improved aftermarket sales in the Power segment, and ongoing margin improvement initiatives. Favorable foreign currency translation adjustments also positively impacted comprehensive income.

The company completed two acquisitions during the first nine months of 2017 for a total of $233 million. These acquisitions, particularly Teletronics Technology Corporation (TTC) in the Defense segment, contributed approximately $45 million in net sales and significantly boosted operating income growth. The TTC acquisition alone contributed $18 million in Q3 sales and $40 million in the nine-month period.

Curtiss-Wright maintains a strong liquidity position. As of September 30, 2017, the company had $432.2 million in cash and cash equivalents and $477 million in unused borrowing capacity under its revolving credit facility. While cash from operations decreased year-over-year, it was due to specific non-recurring items in the prior year. Management believes its current cash, operational cash flow, and credit facilities are sufficient to meet its short-term and long-term capital needs.

The company is involved in several legal proceedings. Most notably, it's a party to a significant claim from Canadian Natural Resources Limited (CNRL) related to a 2011 refinery incident, with total alleged damages potentially exceeding $1 billion. While mediation is planned, the outcome and potential financial impact are currently unknown and could materially affect financial results. The company also faces asbestos litigation, for which it believes it has adequate insurance and minimal historical exposure. Additionally, the Westinghouse bankruptcy has resulted in $6.5 million in outstanding pre-petition billings, which the company expects to be substantially recoverable.