Motion Control Resources
Curtiss-Wright Reports Second Quarter and Six Month 2010 Financial Results
Net Sales Increase 3%; Net Earnings Increase 6%; Diluted Earnings Per Share of $0.56; Increases Free Cash Flow Guidance
PARSIPPANY, N.J. -- Curtiss-Wright Corporation /quotes/comstock/13*!cw/quotes/nls/cw (CW 28.46, +0.10, +0.35%) today reports financial results for the second quarter and six months ended June 30, 2010. The highlights are as follows (For discussion purposes the term "organic" excludes the year over year impact of foreign currency translation and the results of our acquisitions and divestitures over the past twelve months):
Second Quarter 2010 Operating Highlights
-- Net sales increased 3% to $462 million from $447 million in 2009;
-- Operating income decreased less than 1% to $43 million from $44 million
in 2009; organic operating income, which excludes $3 million of negative
foreign currency translation, increased 6% to $47 million from $44
million in 2009;
-- Net earnings increased 6% to $26 million, or $0.56 per diluted share,
from $24 million, or $0.54 per diluted share, in 2009; and
-- New orders were $392 million, down 3% from 2009.
Six Months 2010 Operating Highlights
-- Net sales increased 4% to $904 million from $871 million in 2009;
-- Operating income was essentially flat and amounted to $75 million in
2010 and 2009; organic operating income, which excludes $7 million of
negative foreign currency translation, increased 10% to $82 million
from $75 million in 2009;
-- Net earnings increased 5% to $42 million, or $0.91 per diluted share,
from $40 million, or $0.88 per diluted share, in 2009; and
-- New orders were $894 million, up 4% compared to 2009. At June 30, 2010,
our backlog was $1.61 billion, down slightly from $1.63 billion at
December 31, 2009.
"We are pleased to report a solid second quarter with increased revenues and net earnings as compared to the prior year," commented Martin R. Benante, Chairman and CEO of Curtiss-Wright Corporation. "This is particularly impressive when you consider we overcame more than $3 million of foreign currency translation that negatively impacted our operating income. Our strong operational performance and the benefits of our cost reduction and restructuring programs resulted in organic operating income growth and organic operating margin expansion in excess of 100 basis points in each of our three segments during the second quarter of 2010.
"From a market perspective, sales in our commercial markets increased 6%, led by a strong rebound in our general industrial market and solid gains in commercial aerospace. Our defense markets were flat overall as growth in both our aerospace and naval defense markets were offset by an anticipated decline in ground defense. We continue to see early signs of a positive recovery in markets that are sensitive to general economic conditions and are encouraged by the strong level of sales, particularly in our general industrial market, which grew 39% over the prior year quarter. "
Sales of $462 million in the second quarter of 2010 increased $15 million, or 3%, as compared to the prior year period. The sales increase was driven by higher organic sales of $11 million and $4 million of incremental sales from our 2009 and 2010 acquisitions of Skyquest Systems Ltd., Hybricon Corporation, and Specialist Electronics Services, Ltd. The organic sales increase was generated by a 13% and 3% improvement in our Metal Treatment and Flow Control segments, respectively, but was partially offset by a 2% decline in our Motion Control segment.
From a market perspective, our commercial markets grew 6% in the second quarter led by strong increases in our general industrial and commercial aerospace markets which grew 39% and 6%, respectively, as compared to the prior year period. These increases were partially offset by a 7% decline in our oil and gas market. Overall our defense market was essentially flat despite strong growth in both aerospace and naval defense, which grew 16% and 8%, respectively, over the prior year quarter. As expected, our ground defense market was down 39% due to the cancellation of the Future Combat Systems ("FCS") and lower sales on the Bradley platform.
Operating income of $43 million in the second quarter of 2010 was essentially flat with the second quarter of 2009. Organic operating income increased $3 million, or 6%, but was offset by $3 million of unfavorable foreign currency translation. Our 2009 and 2010 acquisitions had a minimal impact on operating income in the second quarter of 2010. The organic operating income growth was generated across all three of our segments with increases of 52% in Metal Treatment, 17% in Flow Control and 6% in Motion Control. These increases were partially reduced by higher non-segment operating costs.
In the second quarter of 2010, our segment organic operating margin was 11.5%, a 130 basis point improvement as compared to the prior year period. The margin improvement was due to higher volumes and favorable absorption primarily in our Metal Treatment segment, savings generated from our cost reduction and restructuring programs, and improved productivity and cost performance on certain long-term contracts. Non-segment operating costs of $6 million in the second quarter of 2010 increased by $4 million as compared with prior year period mainly due to foreign exchange transactional gains in the prior year that did not recur in the current year, as well as higher pension and medical costs.
Net earnings for the second quarter of 2010 increased 6% from the comparable prior year period. The improvement was mainly due to lower interest expense and a lower effective tax rate. Lower interest expense for the second quarter of 2010 was due to lower average debt levels as compared to the prior year period. Our effective tax rate for the second quarter of 2010 was 32.0% versus 34.4% for the second quarter of 2009. The lower effective tax rate in 2010 was due to the additional tax benefit received from the domestic manufacturing deduction.
Our free cash flow was $14 million for the second quarter of 2010, a $32 million decrease as compared to the prior year period. Net cash provided by operating activities in the second quarter of 2010 was $26 million, a decrease of $42 million from the prior year. This decrease was mainly due to higher progress payments of approximately $30 million on our AP1000 program in the prior year and higher unbilled receivables on long-term contracts. Capital expenditures were $11 million in the second quarter of 2010 versus $21 million in the comparable prior year period. The AP1000 program accounted for the majority of the decrease as our facility expansion was completed in the fourth quarter of 2009.
Flow Control -- Sales for the second quarter of 2010 were $252 million, an increase of $9 million, or 4%, over the prior year period. This was mainly driven by strong double digit growth in our naval defense market. In addition, favorable foreign currency translation added $1 million or 1% to the sales increase during the second quarter.
The higher sales in our naval defense market were led by strong increases in the Virginia class submarine and Ford Class Aircraft Carrier programs, most notably for our Electro-Magnetic Aircraft Launching System ("EMALS"). In addition, we had higher sales for our helicopter handling systems. These increases were partially offset by a reduction in production on the DDG1000 destroyer program. Organic sales in our commercial markets were essentially flat, as strong growth in our general industrial market was mostly offset by a decline in the oil and gas market. The increase in the general industrial market resulted from higher demand of industrial control products to the industrial heating, ventilation, and air conditioning ("HVAC") industry. The sales decline in our oil and gas market was due to delays in new order placement for our traditional valve products, which was largely offset by an increase in sales of our coker valve products.
Operating income in the second quarter of 2010 was $25 million, an increase of $3 million, or 14%, over the comparable prior year period. Excluding negative foreign currency translation of $1 million in the second quarter of 2010, operating income and operating margin increased by 17% and 120 basis points, respectively, over the prior year period. This improvement was due to improved productivity and cost performance on certain long-term contracts, savings generated by our cost reduction and restructuring programs, improved cost absorption resulting from higher volumes, and higher gross margins from our prior year acquisitions, which are usually lower in the early years of ownership.
Motion Control -- Sales for the second quarter of 2010 were $156 million and were essentially flat with the prior year. Organic sales decreased $3 million, or 2%, as compared to the prior year period, largely due to a decline in our ground defense market. In addition, unfavorable foreign currency translation reduced sales by $1 million in the second quarter. These decreases were offset by $4 million of incremental sales from our 2009 and 2010 acquisitions.
Sales in our defense markets were lower despite a strong performance in aerospace defense, primarily from higher sales of our embedded computing products on the Global Hawk Unmanned Aerial Vehicle program, as well as higher demand for integrated sensor products on international aircraft and helicopter programs. This increase was more than offset by a decline in ground defense mainly driven by the cancellation of the FCS program, as well as lower sales of embedded computing products primarily for the Bradley Fighting vehicle. Our commercial markets experienced strong organic sales growth driven in particular by our general industrial market which more than doubled from the prior year quarter, due to improving economic conditions. In addition, commercial aerospace had higher sales due to increased demand for our integrated sensor products as our customers replenished inventory that was depleted in the prior year, as well as increased production on the Boeing 787 program.
Operating income for the second quarter of 2010 amounted to $18 million, a decrease of $1 million, or 6%, as compared to the prior year period. Organic operating income increased $1 million, or 6%, as compared to the prior year quarter, mainly due to savings generated from our cost reduction and restructuring programs, but was offset by unfavorable foreign currency translation of $2 million. Acquisitions had a minimal impact on the second quarter of 2010. Organic operating margin improved to 13.5%, an increase of 100 basis points over the comparable prior year quarter. This improvement was mainly due to savings generated from our cost reduction and restructuring programs.
Metal Treatment -- Sales for the second quarter of 2010 were $55 million, an increase of $5 million, or 11%, as compared to the prior year period. Sales increased by $6 million, or 13%, excluding foreign currency translation which negatively impacted sales by $1 million in the second quarter of 2010. Sales increased across most major markets, most notably higher shot peening sales to the commercial aerospace and general industrial/automotive markets, higher heat treating sales to the general industrial market, and higher coatings sales to the general industrial/automotive market.
Operating income in the second quarter of 2010 amounted to $6 million, an increase of $2 million, or 45%, as compared to the prior year period. Operating margin, excluding $0.3 million of unfavorable foreign currency translation, amounted to 12.2%, a 310 basis point improvement over the prior year. This significant improvement was primarily driven by higher volumes resulting in favorable absorption of fixed overhead costs in our shot peening and heat treating businesses and savings generated from our cost reduction and restructuring programs.
Full Year 2010 Guidance
The Company reaffirms its full year 2010 financial guidance as follows:
* Total Sales - $1.80 - $1.85 billion
* Operating Income - $176 - $ 183 million
* Effective Tax Rate - 34.0%
* Diluted Earnings Per Share - $2.15 - $2.25
* Diluted Shares Outstanding - 46.5 million
The Company is updating its full year 2010 free cash flow guidance as follows:
* Free Cash Flow $85 - $95 million (previously $75 - $85 million)
Mr. Benante concluded, "I am pleased that we are able to increase our free cash flow guidance for the full year of 2010. Our second quarter results were modestly better than our expectations and if the positive trends continue, we expect to be at the high end of our guidance range for the year despite having to absorb an estimated $0.06 per share of unplanned negative foreign currency translation for the full year 2010. We continue to focus on cost reduction and restructuring programs across the company, which should enhance profitability for the second half of 2010 and better position our portfolio of highly engineered products for long-term success as the economy gains momentum. In addition, our backlog and capitalization remain strong and we expect to continue to demonstrate our ability to produce long-term organic growth while strategically reinvesting in both our technologies and select acquisitions in order to enhance our portfolio and market diversification."
Organic results exclude the impact of year over year foreign currency translation and the results of our acquisitions and divestitures over the past twelve months.
The term "incremental" is used to highlight the net impact acquisitions and divestitures had on the current year results, for which there is no comparable prior year period.
Free cash flow is defined as cash flow from operations less capital expenditures.
The Company will host a conference call to discuss the second quarter 2010 results at 10:00 A.M. EDT Friday, July 30, 2010. A live webcast of the call can be heard on the Internet by visiting the company's website at www.curtisswright.com and clicking on the investor information page or by visiting other websites that provide links to corporate webcasts.
Curtiss-Wright Corporation is a diversified company headquartered in Parsippany, New Jersey. The Company designs, manufactures and overhauls products for motion control and flow control applications and provides a variety of metal treatment services. The firm employs approximately 7,500 people.
Certain statements made in this release, including statements about future revenue, organic revenue growth, quarterly and annual revenue, net income, organic operating income growth, future business opportunities, cost saving initiatives, and future cash flow from operations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements present management's expectations, beliefs, plans and objectives regarding future financial performance, and assumptions or judgments concerning such performance. Any discussions contained in this press release, except to the extent that they contain historical facts, are forward-looking and accordingly involve estimates, assumptions, judgments and uncertainties. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Such risks and uncertainties include, but are not limited to: a reduction in anticipated orders; an economic downturn; changes in competitive marketplace and/or customer requirements; a change in government spending; an inability to perform customer contracts at anticipated cost levels; and other factors that generally affect the business of aerospace, defense contracting, electronics, marine, and industrial companies. Such factors are detailed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as amended, and subsequent reports filed with the Securities and Exchange Commission.
SOURCE: Curtiss-Wright Corporation