Curtiss-Wright Reports Second Quarter 2024 Financial Results and Raises Full-Year 2024 Guidance

Curtiss-Wright Corporation (NYSE:CW) reports financial results for the second quarter ended June 30, 2024.

Second Quarter 2024 Highlights:

• Reported sales of $785 million, up 11%;
• Reported operating income of $129 million, operating margin of 16.4%, and diluted earnings per share (EPS) of $2.58;
• Adjusted operating income of $133 million, up 16%;
• Adjusted operating margin of 17.0%, up 60 basis points;
• Adjusted diluted EPS of $2.67, up 24%;
• New orders of $995 million, up 18%, reflected a book-to-bill of approximately 1.3x driven by strong demand within our Aerospace & Defense (A&D) markets;
• Backlog of $3.2 billion, up 13% year-to-date; and
• Free cash flow (FCF) of $100 million, generating 97% Adjusted FCF conversion.

Raised Full-Year 2024 Adjusted Financial Guidance:

• Sales increased to new range of 6% to 8% growth (previously 5% to 7%), driven by strong growth in our A&D markets;
• Operating income increased to new range of 6% to 9% growth (previously 5% to 8%);
• Maintained operating margin range of 17.4% to 17.6%, flat to up 20 basis points compared with the prior year;
• Diluted EPS increased to new range of $10.40 to $10.65, up 11% to 14% (previously $10.10 to $10.40, up 8% to 11%);
• Reduced effective tax rate by 100 bps to 22.5% following consolidation of U.K. legal entity structure, and
• Free cash flow increased to new range of $425 to $445 million, up 3% to 8% (previously $415 to $435 million, up 0% to 5%), and continues to reflect greater than 105% FCF conversion.

"Curtiss-Wright delivered strong second quarter results, highlighted by mid-teens revenue growth in our A&D end markets, continued operating margin expansion, and 24% growth in Adjusted diluted EPS," said Lynn M. Bamford, Chair and CEO of Curtiss-Wright Corporation. "We once again demonstrated robust order activity, as bookings increased 18% year over year, yielding a book-to-bill of 1.3x. Based on the strong first half results and our outlook for the remainder of 2024, we have increased our full-year Adjusted guidance for sales, operating income, diluted EPS and free cash flow."

"As we discussed at our Investor Day event in May, we continue to build momentum through the execution of our Pivot to Growth strategy. We remain focused on accelerating operational excellence to drive margin expansion and generate funding to reinvest into the business. As part of this strategy, we recently launched restructuring actions to support volume increases, improve efficiencies and further optimize our operations. These actions are expected to produce both recurring operational savings and increased free cash flow."

2024 Restructuring Program and Other Cost Savings Initiatives

• During the second quarter of 2024, the Company initiated restructuring actions across all three segments, principally within the Aerospace & Industrial segment. These initiatives are expected to result in approximately $15 million in restructuring costs in 2024, and are expected to yield initial savings in 2024, as well as approximately $10 million in annualized savings in 2025; and
• Curtiss-Wright launched a U.K. legal entity consolidation program anticipated to facilitate more efficient cash repatriation. This initiative is expected to generate approximately $5 million in annualized savings, based on a 100 basis point reduction in the effective tax rate, and approximately $5 million in annual recurring free cash flow.

Acquisition of Ultra Energy

• On June 3, 2024, the Company announced the acquisition of Ultra Nuclear Limited and Weed Instrument Co., Inc. ("Ultra Energy") for $200 million in cash.
• Ultra Energy is a leading global provider of safety-critical monitoring systems, temperature and pressure sensors, and reactor protection and control systems principally to the commercial nuclear and A&D markets;
• The business is expected to be accretive to Curtiss-Wright's adjusted diluted earnings per share in its first full year of ownership, excluding first year purchase accounting costs, and produce a free cash flow conversion rate in excess of 100%; and
• The acquisition is expected to close in the third quarter of 2024, subject to U.K. regulatory approval, and the acquired business will operate within Curtiss-Wright's Naval & Power segment.

Second Quarter 2024 Operating Results

• Sales of $785 million increased 11% compared with the prior year period;
• Total A&D market sales increased 16%, while total Commercial market sales increased 2%;
• In our A&D markets, we experienced strong growth in the defense markets principally driven by strong demand for our defense electronics products and the timing of production ramps in naval defense, as well as higher OEM sales in the commercial aerospace market;
• In our Commercial markets, we experienced solid growth in the power & process markets, principally driven by higher sales of our commercial nuclear products, while sales in the general industrial market declined modestly; and
• Adjusted operating income of $133 million increased 16%, while Adjusted operating margin increased 60 basis points to 17.0%, principally driven by favorable overhead absorption on higher revenues in all three segments and favorable mix in the Defense Electronics segment, partially offset by unfavorable mix and timing of development programs in the Naval & Power segment.

Second Quarter 2024 Segment Performance

Aerospace & Industrial

• Sales of $233 million, up $7 million, or 3%;
• Commercial aerospace market revenue increases reflected strong demand and higher OEM sales of sensors and actuation products, as well as surface treatment services, on narrowbody and widebody platforms;
• General industrial market revenues declined modestly, as the benefit of higher sales of surface treatment services was more than offset by reduced sales of industrial vehicle products to off-highway vehicle platforms; and
• Adjusted operating income was $38 million, up 6% from the prior year, while adjusted operating margin increased 40 basis points to 16.2%, mainly due to solid absorption on higher sales and the initial benefits of our restructuring initiatives.

Defense Electronics

• Sales of $228 million, up $31 million, or 16%;
• Higher revenue in the aerospace defense market was principally driven by increased sales of our embedded computing equipment on various domestic and international helicopter programs;
• Strong revenue growth in the ground defense market primarily reflected higher sales of tactical battlefield communications equipment; and
• Adjusted operating income was $59 million, up 36% from the prior year, while adjusted operating margin increased 390 basis points to 25.7%, reflecting favorable absorption and mix on higher revenues, and the benefits of our cost containment initiatives.

Naval & Power

• Sales of $323 million, up $43 million, or 15%;
• Strong revenue growth in the naval defense market principally reflected higher demand on various submarine programs and the CVN-81 aircraft carrier program;
• Higher revenue in the aerospace defense market was primarily driven by increased sales of our arresting systems equipment supporting various domestic and international customers;
• Higher power & process market revenues mainly reflected increased commercial nuclear aftermarket sales supporting the maintenance of U.S. operating reactors; and
• Adjusted operating income was $47 million, down 6% from the prior year, while adjusted operating margin decreased 320 basis points to 14.4%, as favorable absorption on higher revenues was more than offset by unfavorable mix of products and timing of development programs.

Free Cash Flow

• Reported free cash flow of $100 million increased slightly as higher cash earnings were essentially offset by the timing of tax payments and working capital;
• Adjusted free cash flow of $100 million; and
• Capital expenditures decreased $1 million compared with the prior year.

New Orders and Backlog

• New orders of $995 million increased 18% compared with the prior year and generated an overall book-to-bill of approximately 1.3x, principally driven by strong demand for naval defense and commercial aerospace products within our A&D markets; and
• Backlog of $3.2 billion, up 13% from December 31, 2023, reflects strong demand in both our A&D and Commercial markets.

Share Repurchase and Dividends

• During the second quarter, the Company repurchased 47,174 shares of its common stock for approximately $13 million; and
• The Company also declared a quarterly dividend of $0.21 a share, an increase of 5% from the previous quarter.

Full-Year 2024 Guidance

The Company is updating its full-year 2024 Adjusted financial guidance⁽¹⁾ as follows:

**********

A more detailed breakdown of the Company's 2024 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 its second quarter 2024 financial results and updates to 2024 guidance at 10:00 a.m. ET on Thursday, August 8, 2024. 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)

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) costs associated with the Company's 2024 Restructuring Program; and (iii) the sale or divestiture of a business or product line, as applicable.

Organic Sales and Organic Operating Income

The Corporation discloses organic sales and organic operating income because the Corporation believes it provides investors with insight as to the Company's ongoing business performance. Organic sales and organic operating income are defined as sales and operating income, excluding contributions from acquisitions and results of operations from divested businesses or product lines during the last twelve months, costs associated with the Company's 2024 Restructuring Program, and foreign currency fluctuations.

Free Cash Flow and Free Cash Flow Conversion

The Corporation discloses free cash flow because it measures cash flow available for investing and financing activities. Free cash flow represents cash available to repay outstanding debt, invest in the business, acquire businesses, return capital to shareholders and make other strategic investments. Free cash flow is defined as net cash provided by operating activities less capital expenditures. Adjusted free cash flow excludes payments associated with the Westinghouse legal settlement in the prior year period. The Corporation discloses adjusted free cash flow conversion because it measures the proportion of net earnings converted into free cash flow and is defined as adjusted free cash flow divided by adjusted net earnings.