10-QPeriod: Q3 FY2018

CURTISS WRIGHT CORP Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 31, 2018For Securities:CW

Summary

Curtiss-Wright Corporation (CW) reported strong performance in its third quarter and the first nine months of 2018, demonstrating solid revenue growth and improved profitability across key segments. Total net sales for the nine months ended September 30, 2018, increased by 6% to $1.76 billion, driven by contributions from all three segments: Commercial/Industrial, Defense, and Power. Notably, the Power segment saw a significant 11% sales increase, bolstered by the acquisition of Dresser-Rand Government Business (DRG) and strong performance in the AP1000 China Direct program. Profitability also saw a substantial uplift, with operating income for the nine months growing 20% to $264 million. This improvement was attributed to higher sales volumes, favorable overhead absorption, ongoing margin enhancement initiatives, and the absence of certain acquisition-related accounting costs from the prior year. Despite some headwinds like increased pension and environmental costs, the company's strategic focus on diversified markets and niche leadership appears to be yielding positive financial results, positioning CW for continued operational success.

Financial Highlights

55 data points
Beta

Revenue

$595.39M

37.4% Gross Margin

Net Income

$74.48M

12.5% Net Margin

EPS (Diluted)

$1.68

Total Assets

$3.28B

Cash & Equivalents

$245.92M

Free Cash Flow

$61.85M

Financial Statements
Beta
Revenue$595.39M
Cost of Revenue$372.88M
Gross Profit$222.52M
R&D Expenses$14.24M
Operating Income$97.05M
Interest Expense$7.95M
Net Income$74.48M
EPS (Basic)$1.70
EPS (Diluted)$1.68
Shares Outstanding (Basic)43.89M
Shares Outstanding (Diluted)44.33M

Key Highlights

  • 1Total net sales for the nine months ended September 30, 2018, increased by 6% to $1.76 billion, compared to $1.66 billion in the prior year period.
  • 2Operating income for the nine months increased by a robust 20% to $264 million, with operating margin expanding by 170 basis points to 15.0%.
  • 3The Power segment exhibited strong growth, with sales up 11% for the nine months ($455 million vs. $412 million), driven by acquisitions and the AP1000 China Direct program.
  • 4The Defense segment also showed healthy growth, with sales up 5% for the nine months ($403 million vs. $383 million), largely due to increased demand in aerospace defense and commercial aerospace markets.
  • 5Net earnings for the nine months rose significantly to $192.9 million, a substantial increase from $147.1 million in the prior year, reflecting improved operational performance.
  • 6The company successfully integrated acquisitions, notably the Dresser-Rand Government Business (DRG), which contributed to sales growth, although it also incurred initial purchase accounting costs.
  • 7Cash flow from operations saw a decrease of $63 million due to a voluntary pension contribution of $50 million and timing of working capital accounts, but the company maintained sufficient liquidity.

Frequently Asked Questions

Curtiss-Wright Corporation appears to be in a strong financial position. The company demonstrated significant year-over-year growth in both revenue and operating income for the nine months ended September 30, 2018. Profitability has improved across segments, and while cash flow from operations decreased due to specific one-time events like a pension contribution, the company has ample liquidity and access to credit facilities to meet its obligations.

Acquisitions played a role in the company's performance, particularly the Dresser-Rand Government Business (DRG) acquisition, which contributed to sales growth in the Power segment. While these acquisitions added to revenue, they also incurred initial purchase accounting costs that slightly impacted operating income in the short term. The company has a history of strategic acquisitions aimed at expanding its portfolio and markets.

Revenue and profit growth are driven by a combination of factors including increased sales volumes across its diversified segments (Commercial/Industrial, Defense, Power), favorable overhead absorption, successful integration of acquisitions, and the implementation of margin improvement initiatives. Specific programs like the AP1000 China Direct program in the Power segment and strong demand in aerospace defense also contribute significantly.

Investors should be aware of the ongoing Canadian Natural Resources Limited (CNRL) claim, which could materially affect financial results if an unfavorable outcome occurs, though mediation is planned. The company also faces potential asbestos litigation, though it believes its exposure is minimal and adequately covered by insurance. Additionally, there are contractual considerations and potential liquidated damages related to the AP1000 program. While the company believes it has adequate defenses for these matters, they represent potential risks.