Curtiss-Wright (CW) Q2 Earnings Top Estimates, Orders Up Y/Y

Curtiss-Wright Corporation (NYSE:CW) reported second-quarter 2019 adjusted earnings of $1.90 per share, which surpassed the Zacks Consensus Estimate of $1.77 by 7.3%.

Excluding one-time items, GAAP earnings came in at $1.86 per share, up 10.7% from $1.68 registered in the year-ago quarter. This year-over-year improvement can be attributed to higher segment operating income, lower interest expense and a lower share count.

Operational Performance

In the quarter under review, the company’s total sales of $639 million increased 4% year over year. The top line, however, missed the Zacks Consensus Estimate of $640 million by a whisker.

Gross profit rose 2% year over year to $230 million. Operating income of $105.7 million improved 4% from $102.1 million a year ago.

Curtiss-Wright’s total backlog at the end of the second quarter was $2.2 billion, in line with the figure registered in the first quarter. New orders rose 3% year over year to $1.3 billion in the first six months of 2019, courtesy of strong organic growth in naval defense orders.

Segmental Performance

Commercial/Industrial: Sales at this segment rose 2% year over year to $318.3 million. Higher OEM sales of sensors along with increased sales of actuation systems in relation to the F-35 program and higher sales of valves on account of the Virginia class submarine program were the primary catalysts behind this unit’s top-line growth in the reported quarter.

While operating income increased 9% to $56.2 million, operating margin expanded 110 basis points (bps) to 17.7%. The improvement in the operating margin was driven by the company’s ongoing margin improvement initiatives and gain on the sale of a building.

Defense: Sales at this segment slipped 1% year over year to $145 million. This can be attributed to higher sales of tactical data link equipment (TCG acquisition), which was offset by lower sales of embedded computing equipment on various programs.

Meanwhile, adjusted operating income declined 21% to $30.5 million and adjusted operating margin contracted 540 bps to 21%. The downside in operating income can be attributed to unfavorable mix and higher research and development expenses.

Power: Sales at this segment improved 9% year over year to $175.8 million on account of higher Virginia class submarine and CVN-80 aircraft carrier revenues. Also, solid spares and service center revenues contributed to this unit’s top-line growth.

While adjusted operating income increased 19% to $31.2 million, operating margin expanded 160 bps to 17.8%. Both the upsides were driven by favorable overhead absorption on higher naval defense revenues.

Financial Update

Curtiss-Wright ended the second quarter with cash and cash equivalents of $216.3 million, down 22% from $276.1 million as of Dec 31, 2018. Long-term debt summed $761.5 million compared with $762.3 million as of Dec 31, 2018.

Operating cash outflow from continuing operations totaled $40.4 million at the end of the reported quarter compared with $26.7 million at the end of the prior-year quarter.

Adjusted free cash flow at the end of the quarter was $16.1 million compared with the year-ago figure of $56.8 million. During the second quarter, the company repurchased 0.11 million shares worth $13 million.

Guidance

Curtiss-Wright reiterated its financial guidance for 2019. The company continues to expect adjusted earnings of $7.00-$7.15 per share on sales of $2,510-$2,550 million. The Zacks Consensus Estimate for the company’s full-year earnings is pegged at $7.11, above the mid-point of the company’s guided range.

For full-year sales, the Zacks Consensus Estimate stands at $2.53 billion, in line with the midpoint of the company’s projected view.
These apart, Curtiss-Wright continues to expect its adjusted free cash flow in the range of $330-$340 million for the current year.

Zacks Rank

Curtiss-Wright has a Zacks Rank #4 (Sell).

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