Energy, Automobile, EV, Renewable News | Curtiss-Wright Reports Third Quarter 2022 Financial Results and Updates Full-Year 2022 Guidance

Curtiss-Wright Reports Third Quarter 2022 Financial Results and Updates Full-Year 2022 Guidance

November 2, 2022

DAVIDSON, N.C.–(BUSINESS WIRE)–Curtiss-Wright Corporation (NYSE: CW) reports financial results for the third quarter ended September 30, 2022.

Third Quarter 2022 Highlights:

Reported sales of $631 million, operating income of $108 million, operating margin of 17.1%, and diluted earnings per share (EPS) of $1.91;
Adjusted operating income of $114 million, up 6%;
Adjusted operating margin of 18.2%, up 70 basis points;
Adjusted diluted EPS of $2.07, up 10%;
Reported free cash flow (FCF) of $86 million;
New orders of $818 million, up 32%, reflecting strong Aerospace & Defense (A&D) and Commercial market demand, and book-to-bill of 1.30; and
Backlog of $2.6 billion, up 19% year-to-date.

“Curtiss-Wright delivered solid third quarter results, despite continued supply chain challenges, as the strength of our combined portfolio, coupled with the benefits of our company-wide operational excellence initiatives, enabled us to generate stronger than expected profitability with 70 basis points in operating margin expansion and double-digit EPS growth,” said Lynn M. Bamford, Chair and CEO of Curtiss-Wright Corporation. “Sales in our Commercial markets increased 9% during the quarter, led by double-digit growth in our general industrial and process markets, while sales for Aerospace & Defense markets were relatively flat. We once again experienced robust order activity, as bookings increased 32% year over year, and both bookings and backlog grew 19% on a year-to-date basis. This was driven by strong demand across the majority of our defense and commercial markets, including record level quarterly orders within our Defense Electronics segment.”

Full-Year 2022 Financial Outlook:

Sales revised to new range of 2% to 4% growth (previously 4% to 6%), including 1% to 3% growth in our A&D markets and 6% to 8% growth in our Commercial markets;
Adjusted operating income revised to new range of 3% to 6% growth (previously 5% to 7%), reflecting the timing of revenues within our Defense Electronics segment, partially offset by stronger profitability within our Aerospace & Industrial segment;
Maintained Adjusted operating margin range of 17.1% to 17.3%, up 10 to 30 basis points compared with the prior year;
Adjusted diluted EPS revised to new range of $8.05 to $8.20 (previously $8.10 to $8.30), which continues to reflect double-digit growth; and
Adjusted free cash flow revised to a new range of $275 to $315 million (previously $345 to $365 million), reflecting the timing of defense revenues, as well as the expected delay in receipt of a significant cash payment upon the final delivery of our CAP1000 reactor coolant pumps to China, which has likely pushed to 2023, to align with our customer’s project schedule.

“Although underlying demand across the portfolio remains strong, we are revising our full-year 2022 guidance to reflect the ongoing global supply chain disruption which continues to impact the timing of production, deliveries and free cash flow within our Defense Electronics segment. We have taken numerous actions, including consistent engagement with our supply base that supported our prior expectations of a strong second half, however, conditions are not easing as quickly as anticipated. While we are confident these dynamics will get resolved over time, the challenges are delaying the recognition of our strong order book.”

“Looking forward, the business fundamentals in the Defense Electronics segment remain quite strong, driven by record bookings, strong profitability and favorable long-term secular tailwinds. In addition, we remain focused on mitigating the impact of other macro-level headwinds through our ongoing operational excellence initiatives. As a result, we are able to maintain our previous operating margin guidance despite the topline reset.”

“Overall, Curtiss-Wright remains in a strong position to deliver significant long-term value for our shareholders and on track to achieve the financial targets that we set out at our 2021 Investor Day.”

Curtiss-Wright and X-energy Sign Preferred Strategic Supplier Agreement:

On September 15, 2022, the Company signed a preferred strategic supplier agreement to advance the design and deployment of X-energy’s Xe-100 advanced Small Modular Reactor (SMR);
Under the agreement, Curtiss-Wright has been selected as a preferred supplier to develop and provide three of the most critical systems for the Nuclear Steam Supply System; and
Curtiss-Wright estimates that its content for these three systems will be in excess of $100 million in revenue per four-unit (320 MW) plant.

Poland Selects Westinghouse AP1000 Technology for its First Nuclear Power Plant:

Earlier in 2022, Curtiss-Wright secured Westinghouse’s commitment to our reactor coolant pump (RCP) technology in future AP1000 power plants, including Eastern Europe;
Westinghouse’s initial partnership with Poland covers the first three of potentially six AP1000 reactors, which are expected to begin producing electricity in 2033; and
The agreement provides an opportunity for Curtiss-Wright to receive new RCP orders within the next three to five years.

Third Quarter 2022 Operating Results

(In millions)	Q3-2022			Q3-2021			Change
*Reported*
Sales	$	631		$	621		2	%
Operating income	$	108		$	98		10	%
Operating margin		17.1	%		15.7	%	140 bps

*Adjusted ⁽¹⁾*
Sales	$	631		$	614		3	%
Operating income	$	114		$	108		6	%
Operating margin		18.2	%		17.5	%	70 bps

⁽¹⁾

Reconciliations of Reported to Adjusted operating results are available in the Appendix.

Adjusted sales of $631 million increased 3% compared with the prior year, and included a 1% headwind from unfavorable foreign currency translation;
Total A&D market sales were flat, while total Commercial market sales increased 9%;
In our A&D markets, our results reflected the contribution from the acquisition of our new engineered arresting systems business in the aerospace defense market and mid-single digit sales growth in commercial aerospace; Those increases were principally offset by the timing of defense electronics revenues due to ongoing supply chain headwinds;
In our Commercial markets, we experienced double-digit sales growth in the general industrial market and mid-single digit sales growth within the power & process market, despite the wind down on the China Direct AP1000 program as it nears completion; and
Adjusted operating income of $114 million increased 6%, while Adjusted operating margin increased 70 basis points to 18.2%, principally driven by the benefits of our ongoing company-wide operational excellence initiatives and favorable overhead absorption on higher revenues in the Aerospace & Industrial and Naval & Power segments, partially offset by unfavorable overhead absorption on lower revenues in our Defense Electronics segment.

Third Quarter 2022 Segment Performance

Aerospace & Industrial

(In millions)	Q3-2022			Q3-2021			Change
*Reported*
Sales	$	213		$	196		9	%
Operating income	$	39		$	31		27	%
Operating margin		18.3	%		15.7	%	260 bps

*Adjusted ⁽¹⁾*
Sales	$	213		$	196		9	%
Operating income	$	39		$	31		27	%
Operating margin		18.3	%		15.7	%	260 bps

⁽¹⁾

Reconciliations of Reported to Adjusted operating results are available in the Appendix.

Adjusted sales of $213 million, up $17 million, or 9% overall, and included a 3% headwind from unfavorable foreign currency translation;
Higher commercial aerospace market revenue reflected continued strong demand for sensors products and surface treatment services on numerous narrowbody and widebody platforms;
Strong double-digit revenue growth in the general industrial market was driven by increased sales of industrial vehicle products, principally serving on-highway and specialty platforms, and higher sales of surface treatment services; and
Adjusted operating income was $39 million, up 27% from the prior year, while Adjusted operating margin increased 260 basis points to 18.3%, reflecting favorable absorption on strong sales and the benefits of our ongoing operational excellence and pricing initiatives.

Defense Electronics

(In millions)	Q3-2022			Q3-2021			Change
*Reported*
Sales	$	161		$	182		(11	%)
Operating income	$	37		$	41		(10	%)
Operating margin		22.7	%		22.5	%	20 bps

*Adjusted ⁽¹⁾*
Sales	$	161		$	183		(12	%)
Operating income	$	37		$	42		(14	%)
Operating margin		22.7	%		23.2	%	(50 bps)

⁽¹⁾

Reconciliations of Reported to Adjusted operating results are available in the Appendix.

Adjusted sales of $161 million, down $21 million, or 12%, principally reflected the timing of defense market sales due to ongoing supply chain headwinds related to the availability of electronic components;
Lower aerospace defense market revenue reflected decreased sales of our embedded computing and flight test equipment;
Ground defense market revenue declines reflected reduced sales of our tactical communications equipment; and
Adjusted operating income was $37 million, down 14% from the prior year, while adjusted operating margin decreased 50 basis points to 22.7%, primarily reflecting unfavorable absorption and mix on lower A&D revenues, partially offset by the benefits of our ongoing operational excellence initiatives.

Naval & Power

(In millions)	Q3-2022			Q3-2021			Change
*Reported*
Sales	$	256		$	243		6	%
Operating income	$	42		$	35		17	%
Operating margin		16.2	%		14.6	%	160 bps

*Adjusted ⁽¹⁾*
Sales	$	256		$	235		9	%
Operating income	$	48		$	44		11	%
Operating margin		18.9	%		18.6	%	30 bps

⁽¹⁾

Reconciliations of Reported to Adjusted operating results are available in the Appendix.

Adjusted sales of $256 million, up $21 million, or 9%, principally driven by the contribution from the arresting systems acquisition for arresting systems equipment within the aerospace defense market;
Naval defense market revenues increased slightly as higher revenues on the Columbia-class submarine and CVN-81 aircraft carrier programs were mainly offset by timing of revenues on the Virginia-class submarine and CVN-80 aircraft carrier programs;
Higher power & process market revenues reflected continued strong growth in industrial valve sales in the process market, as well as higher nuclear aftermarket revenues supporting existing operating reactors; Those increases were partially offset by the wind down of production on the China Direct AP1000 program; and
Adjusted operating income was $48 million, up 11% from the prior year, while adjusted operating margin increased 30 basis points to 18.9%, as favorable absorption on higher organic revenues, as well as the benefits of our restructuring and ongoing operational excellence initiatives, were partially offset by unfavorable mix in the power & process market.

Free Cash Flow

(In millions)	Q3-2022			Q3-2021			Change
Net cash provided by operating activities	$	96		$	107		(11	%)
Capital expenditures		(9	)		(10	)	(8	%)
Reported free cash flow	$	86		$	97		(11	%)
Adjusted free cash flow ⁽¹⁾	$	86		$	97		(11	%)

⁽¹⁾

A reconciliation of Reported to Adjusted free cash flow is available in the Appendix.

Reported free cash flow of $86 million decreased $11 million, primarily due to the timing of defense revenues and higher inventory levels as we continue to work through the challenging supply chain environment;
Adjusted free cash flow of $86 million; and
Capital expenditures decreased $1 million compared with the prior year.

New Orders and Backlog

New orders of $818 million increased 32% in the third quarter and generated a book-to-bill of 1.30, principally driven by strong demand for defense and commercial aerospace products within our A&D markets, and for nuclear aftermarket and process products within our Commercial markets; and
Backlog of $2.6 billion, up 19% from December 31, 2021, reflects strong demand in both our A&D and Commercial markets.

Share Repurchase and Dividends

During the third quarter, the Company repurchased 90,307 shares of its common stock for approximately $13 million; and
The Company also declared a quarterly dividend of $0.19 a share.

Other Items – Completion of Financing of $300 Million in Senior Notes

On October 27, 2022, the Company announced the successful completion of a private placement debt offering of $300 million for senior notes (the “Notes”), consisting of $200 million 4.49% notes due 2032 and $100 million 4.64% notes due 2034.

Full-Year 2022 Guidance

The Company is updating its full-year 2022 Adjusted financial guidance⁽¹⁾ as follows:

($ in millions, except EPS)	2022 Adjusted Non-GAAP Guidance (Prior)	2022 Adjusted Non-GAAP Guidance (Current)	% Chg vs 2021
Total Sales	$2,570 – $2,620	$2,525 – $2,575	Up 2% – 4%
Operating Income	$439 – $452	$433 – $444	Up 3% – 6%
Operating Margin	17.1% – 17.3%	17.1% – 17.3%	Up 10 – 30 bps
Diluted EPS	$8.10 – $8.30	$8.05 – $8.20	Up 10% – 12%
Free Cash Flow	$345 – $365	$275 – $315	Down 9% – 21%

⁽¹⁾

Reconciliations of Reported to Adjusted 2021 operating results and 2022 financial guidance are available in the Appendix. Adjusted guidance includes the contribution from the arresting systems acquisition to the Company’s second half 2022 performance.

Revised Adjusted free cash flow reflects the timing of defense revenues, as well as the expected delay in receipt of a significant cash payment upon the final delivery of our CAP1000 reactor coolant pumps to China, which has likely pushed to 2023, to align with our customer’s project schedule.

**********

A more detailed breakdown of the Company’s 2022 financial guidance by segment and by market, as well as all reconciliations of Reported GAAP amounts to Adjusted non-GAAP amounts, can be found in the accompanying schedules. Historical financial results are available in the Investor Relations section of Curtiss-Wright’s website.

Conference Call & Webcast Information

The Company will host a conference call to discuss third quarter 2022 financial results and updates to 2022 guidance at 10:00 a.m. ET on Thursday, November 3, 2022. A live webcast of the call and the accompanying financial presentation, as well as a webcast replay of the call, will be made available on the internet by visiting the Investor Relations section of the Company’s website at www.curtisswright.com.

(Tables to Follow)

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
($’s in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Product sales	$	530,782		$	528,339		$	1,489,619		$	1,552,706
Service sales		99,760			92,280			309,741			286,467
Total net sales		630,542			620,619			1,799,360			1,839,173

Cost of product sales		338,264			328,424			949,180			989,759
Cost of service sales		60,069			55,187			188,055			177,930
Total cost of sales		398,333			383,611			1,137,235			1,167,689

Gross profit		232,209			237,008			662,125			671,484

Research and development expenses		17,387			21,618			61,804			66,675
Selling expenses		31,888			30,067			90,387			89,227
General and administrative expenses		75,351			78,998			239,085			229,608
Loss on divestiture		—			—			4,651			—
Impairment of assets held for sale		—			8,656			—			8,656

Operating income		107,583			97,669			266,198			277,318

Interest expense		13,997			9,955			33,315			30,094
Other income, net		3,746			3,627			11,298			8,910

Earnings before income taxes		97,332			91,341			244,181			256,134
Provision for income taxes		(23,564	)		(21,638	)		(58,856	)		(65,554	)
Net earnings	$	73,768		$	69,703		$	185,325		$	190,580

Net earnings per share:
Basic earnings per share	$	1.92		$	1.71		$	4.82		$	4.66
Diluted earnings per share	$	1.91		$	1.70		$	4.79		$	4.64

Dividends per share	$	0.19		$	0.18		$	0.56		$	0.53

Weighted-average shares outstanding:
Basic		38,368			40,769			38,416			40,865
Diluted		38,647			40,950			38,655			41,040

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
($’s in thousands, except par value)

	September 30,			December 31,
	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	113,552		$	171,004
Receivables, net		713,592			647,148
Inventories, net		503,064			411,567
Assets held for sale		—			10,988
Other current assets		84,468			67,101
Total current assets		1,414,676			1,307,808
Property, plant, and equipment, net		338,549			360,031
Goodwill		1,512,231			1,463,026
Other intangible assets, net		618,563			538,077
Operating lease right-of-use assets, net		145,252			143,613
Prepaid pension asset		267,262			256,422
Other assets		45,629			34,568
Total assets	$	4,342,162		$	4,103,545

Liabilities
Current liabilities:
Current portion of long-term debt	$	202,500		$	—
Accounts payable		182,621			211,640
Accrued expenses		139,982			147,701
Deferred revenue		220,259			260,157
Liabilities held for sale		—			12,655
Other current liabilities		95,002			102,714
Total current liabilities		840,364			734,867
Long-term debt		1,141,211			1,050,610
Deferred tax liabilities, net		150,721			147,349
Accrued pension and other postretirement benefit costs		85,865			91,329
Long-term operating lease liability		125,493			127,152
Long-term portion of environmental reserves		13,186			13,656
Other liabilities		101,079			112,092
Total liabilities		2,457,919			2,277,055

Stockholders’ equity
Common stock, $1 par value	$	49,187		$	49,187
Additional paid in capital		131,230			127,104
Retained earnings		3,072,639			2,908,827
Accumulated other comprehensive loss		(274,114	)		(190,465	)
Less: cost of treasury stock		(1,094,699	)		(1,068,163	)
Total stockholders’ equity		1,884,243			1,826,490

Total liabilities and stockholders’ equity	$	4,342,162		$	4,103,545

Use and Definitions of Non-GAAP Financial Information (Unaudited)

The Corporation supplements its financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial information. Curtiss-Wright believes that these Adjusted (non-GAAP) measures provide investors with improved transparency in order to better measure Curtiss-Wright’s ongoing operating and financial performance and better comparisons of our key financial metrics to our peers. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. Curtiss-Wright encourages investors to review its financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. Reconciliations of “Reported” GAAP amounts to “Adjusted” non-GAAP amounts are furnished within this release.

The following definitions are provided:

Adjusted Sales, Operating Income, Operating Margin, Net Earnings and Diluted EPS

These Adjusted financials are defined as Reported Sales, Operating Income, Operating Margin, Net Earnings and Diluted Earnings per Share under GAAP excluding: (i) the impact of first year purchase accounting costs associated with acquisitions, specifically one-time inventory step-up, backlog amortization, deferred revenue adjustments and transaction costs; (ii) the sale or divestiture of a business or product line; (iii) pension settlement charges; and (iv) significant legal settlements, impairment costs, and costs associated with shareholder activism, as applicable.

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
RECONCILIATION OF AS REPORTED TO ADJUSTED (UNAUDITED)
($’s in thousands)

	Three Months Ended								Three Months Ended
	September 30, 2022								September 30, 2021									% Change
	As Reported			Adjustments		Adjusted			As Reported			Adjustments			Adjusted			As Reported		Adjusted
Sales:
Aerospace & Industrial ⁽¹⁾	$	213,093		$	—	$	213,093		$	196,296		$	(381	)	$	195,915		9	%	9	%
Defense Electronics⁽²⁾		161,188			—		161,188			181,504			1,080			182,584		(11	)%	(12	)%
Naval & Power ⁽⁴⁾		256,261			—		256,261			242,819			(7,471	)		235,348		6	%	9	%

Total sales	$	630,542		$	—	$	630,542		$	620,619		$	(6,772	)	$	613,847		2	%	3	%

Operating income (expense):
Aerospace & Industrial ⁽¹⁾	$	39,080		$	—	$	39,080		$	30,872		$	(97	)	$	30,775		27	%	27	%
Defense Electronics⁽²⁾		36,588			—		36,588			40,762			1,561			42,323		(10	)%	(14	)%
Naval & Power ⁽³⁾⁽⁴⁾		41,576			6,905		48,481			35,483			8,381			43,864		17	%	11	%

Total segments	$	117,244		$	6,905	$	124,149		$	107,117		$	9,845		$	116,962		9	%	6	%
Corporate and other		(9,661	)		—		(9,661	)		(9,448	)		9			(9,439	)	(2	)%	(2	)%

Total operating income	$	107,583		$	6,905	$	114,488		$	97,669		$	9,854		$	107,523		10	%	6	%

Operating margins:	As Reported					Adjusted			As Reported						Adjusted			As Reported		Adjusted
Aerospace & Industrial		18.3	%				18.3	%		15.7	%					15.7	%	260 bps		260 bps
Defense Electronics		22.7	%				22.7	%		22.5	%					23.2	%	20 bps		(50 bps)
Naval & Power		16.2	%				18.9	%		14.6	%					18.6	%	160 bps		30 bps
Total Curtiss-Wright		17.1	%				18.2	%		15.7	%					17.5	%	140 bps		70 bps

Segment margins		18.6	%				19.7	%		17.3	%					19.1	%	130 bps		60 bps

⁽¹⁾ Excludes our build-to-print actuation product line supporting the Boeing 737 Max program, which we substantially exited in the fourth quarter of 2020.

⁽²⁾ Excludes first year purchase accounting adjustments in the prior period.

⁽³⁾ Excludes first year purchase accounting adjustments in the current period.

⁽⁴⁾Excludes the results of operations from our German valves business, which was sold in January 2022, including an impairment loss in the prior period.

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
RECONCILIATION OF AS REPORTED TO ADJUSTED (UNAUDITED)
($’s in thousands)

	Nine Months Ended								Nine Months Ended
	September 30, 2022								September 30, 2021									% Change
	As Reported			Adjustments		Adjusted			As Reported			Adjustments			Adjusted			As Reported		Adjusted
Sales:
Aerospace & Industrial ⁽¹⁾	$	612,777		$	—	$	612,777		$	576,340		$	(8,764	)	$	567,576		6	%	8	%
Defense Electronics⁽²⁾		453,806			—		453,806			525,067			3,240			528,307		(14	)%	(14	)%
Naval & Power ⁽⁴⁾		732,777			—		732,777			737,766			(20,468	)		717,298		(1	)%	2	%

Total sales	$	1,799,360		$	—	$	1,799,360		$	1,839,173		$	(25,992	)	$	1,813,181		(2	)%	(1	)%

Operating income (expense):
Aerospace & Industrial ⁽¹⁾	$	96,397		$	—	$	96,397		$	81,874		$	(2,079	)	$	79,795		18	%	21	%
Defense Electronics⁽²⁾		84,338			—		84,338			106,656			4,692			111,348		(21	)%	(24	)%
Naval & Power ⁽³⁾⁽⁴⁾		118,865			12,332		131,197			116,635			11,337			127,972		2	%	3	%

Total segments	$	299,600		$	12,332	$	311,932		$	305,165		$	13,950		$	319,115		(2	)%	(2	)%
Corporate and other ⁽⁵⁾		(33,402	)		4,876		(28,526	)		(27,847	)		75			(27,772	)	(20	)%	(3	)%

Total operating income	$	266,198		$	17,208	$	283,406		$	277,318		$	14,025		$	291,343		(4	)%	(3	)%

Operating margins:	As Reported					Adjusted			As Reported						Adjusted			As Reported		Adjusted
Aerospace & Industrial		15.7	%				15.7	%		14.2	%					14.1	%	150 bps		160 bps
Defense Electronics		18.6	%				18.6	%		20.3	%					21.1	%	(170 bps)		(250 bps)
Naval & Power		16.2	%				17.9	%		15.8	%					17.8	%	40 bps		10 bps
Total Curtiss-Wright		14.8	%				15.8	%		15.1	%					16.1	%	(30 bps)		(30 bps)

Segment margins		16.7	%				17.3	%		16.6	%					17.6	%	10 bps		(30 bps)