Why did Curtiss-Wright raise its 2024 guidance?

Management pointed to a strong start to the year, exceeding its own expectations in Q1, and a continued strength in its order book, particularly in Defense Electronics. The company raised its sales, operating income, and EPS ranges while keeping operating margin and free cash flow outlooks unchanged. The raise includes contribution from the WSC, Inc. acquisition, which closed in April 2024.

What caused the weakness in the Naval & Power segment?

The segment's profitability was hurt by an unfavorable naval contract adjustment that affected both Q1 2024 and the full-year outlook. Adjusted segment operating income fell 13% to $35 million and margin declined 280 bps to 12.5%. Management also cited a higher R&D investment and a shift toward development programs in the segment's 2024 margin outlook, which is now guided to 16.1% to 16.3%, down from the prior year.

What is the WSC, Inc. acquisition and how will it affect results?

WSC, Inc. is a supplier of power plant control room simulation technology with over 225 installed plant simulators globally. Curtiss-Wright acquired it in April 2024 for $34 million in cash, at roughly 9.5x NTM EBITDA and about $15 million of 2023 sales. Management expects it to be dilutive to adjusted operating margin in year one, accretive to adjusted EPS in year one, and to generate more than 100% free cash flow conversion.

What should investors expect from the May 21, 2024 investor day?

Management said the investor day will review Curtiss-Wright's strategy for profitable growth under its Pivot to Growth plan and introduce new long-term financial targets. It will also include a commercial nuclear panel with industry experts from the Nuclear Energy Institute, Westinghouse, and Energy Northwest, and will focus on how the company's technologies align with secular growth trends in its end markets.

CW 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed May 2, 2024. Cited figures are marked; the original filing is the authoritative source.

Curtiss-Wright (NYSE: CW) reported first quarter 2024 results on May 1, 2024 that beat management's expectations, with sales up 13% to $713 million^a, operating income up 27% to $100 million (adjusted up 23%), and diluted EPS of $1.99, up 30% on an adjusted basis.

The quarter was led by Defense Electronics, where sales rose 31% and operating margin expanded to 22.7%, while Naval & Power was the main drag after an unfavorable naval contract adjustment that pressured segment profitability. Total new orders reached $901 million^b, up 26%, producing a book-to-bill above 1.25x, and backlog grew 7% from year-end to $3.1 billion. Management raised full-year 2024 guidance for sales (now 5% to 7% growth), operating income (5% to 8%), and diluted EPS ($10.10 to $10.40, up 8% to 11%), while holding operating margin at 17.4% to 17.6% and free cash flow at $415 to $435 million.

The company also completed the April 2024 acquisition of WSC, Inc., a commercial nuclear control room simulation business purchased for $34 million^c, which management expects to be dilutive to margins in year one but accretive to adjusted EPS. Management previewed a May 21, 2024 investor day where it plans to introduce new long-term financial targets.

The filing is a furnished (not filed) 8-K under Item 2.02, so the press release and presentation are not subject to Section 18 liability. For investors, the key takeaways are the strong defense demand and order momentum, the offsetting naval contract issue, and the modest guidance raise, which was driven largely by the Defense Electronics outlook.

02—Key points

Key Highlights

Q1 2024 sales of $713 million, up 13% year over year; Aerospace & Defense markets grew 20% while Commercial markets were flat.
Operating income of $100 million, up 27% reported (23% adjusted), with operating margin of 14.0%, up 150 bps reported (110 bps adjusted).
Diluted EPS of $1.99, up 34% reported from $1.48 and up 30% on an adjusted basis from $1.53.
Defense Electronics delivered sales of $212 million (up 31%) and operating margin of 22.7% (up 830 bps), the standout segment result.
Naval & Power adjusted operating income fell 13% to $35 million as a naval contract adjustment hit margins, which fell 280 bps to 12.5%.
New orders of $901 million (up 26%) gave a book-to-bill above 1.25x; backlog reached $3.1 billion, up 7% from December 31, 2023.
Full-year 2024 guidance raised for sales (5% to 7%), operating income (5% to 8%), and diluted EPS ($10.10 to $10.40); operating margin and free cash flow guidance were maintained.

03—Questions

Frequently Asked Questions

Why did Curtiss-Wright raise its 2024 guidance?
Management pointed to a strong start to the year, exceeding its own expectations in Q1, and a continued strength in its order book, particularly in Defense Electronics. The company raised its sales, operating income, and EPS ranges while keeping operating margin and free cash flow outlooks unchanged. The raise includes contribution from the WSC, Inc. acquisition, which closed in April 2024.
What caused the weakness in the Naval & Power segment?
The segment's profitability was hurt by an unfavorable naval contract adjustment that affected both Q1 2024 and the full-year outlook. Adjusted segment operating income fell 13% to $35 million and margin declined 280 bps to 12.5%. Management also cited a higher R&D investment and a shift toward development programs in the segment's 2024 margin outlook, which is now guided to 16.1% to 16.3%, down from the prior year.
What is the WSC, Inc. acquisition and how will it affect results?
WSC, Inc. is a supplier of power plant control room simulation technology with over 225 installed plant simulators globally. Curtiss-Wright acquired it in April 2024 for $34 million in cash, at roughly 9.5x NTM EBITDA and about $15 million of 2023 sales. Management expects it to be dilutive to adjusted operating margin in year one, accretive to adjusted EPS in year one, and to generate more than 100% free cash flow conversion.
What should investors expect from the May 21, 2024 investor day?
Management said the investor day will review Curtiss-Wright's strategy for profitable growth under its Pivot to Growth plan and introduce new long-term financial targets. It will also include a commercial nuclear panel with industry experts from the Nuclear Energy Institute, Westinghouse, and Energy Northwest, and will focus on how the company's technologies align with secular growth trends in its end markets.

04—Continue

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