Esterline Reports Fiscal 2018 Third Quarter Financial Results
Source: Nasdaq GlobeNewswire / 02 Aug 2018 16:06:45 America/New_York
- Fiscal 2018 Third Quarter Results
- Sales of $499.9 million
- Income from continuing operations of $29.7 million, or $1.00 per diluted share
- Free cash flow of $80.1 million year-to-date
- Reiterate FY18 full-year revenue, earnings and cash flow guidance
BELLEVUE, Wash., Aug. 02, 2018 (GLOBE NEWSWIRE) -- Esterline Corporation (NYSE:ESL) (www.esterline.com), a leading specialty manufacturer serving global aerospace and defense markets, today reported results for the fiscal 2018 third quarter ended June 29, 2018.
Consolidated third quarter revenue was $499.9 million compared with the prior-year result of $504.1 million. Prior-year results included $23.4 million in sales from the recently divested Kirkhill business.
Consolidated earnings from continuing operations in the third fiscal quarter of 2018 were $29.7 million, or $1.00 per diluted share. The results for the third quarter period of 2017 were $31.8 million, or $1.06 per diluted share. Adjusted earnings from continuing operations for the third fiscal quarter of 2017 were $33.0 million, or $1.10 per diluted share, excluding discrete advanced displays integration and compliance costs.
“We completed the quarter ahead of our most recent expectations,” said Curtis Reusser, Esterline’s Chairman, President & Chief Executive Officer. “Our avionics team successfully mitigated a significant portion of the effect of a previously reported 13-day work stoppage in Montreal. We expect to recapture the balance of the impacted sales volume in the fiscal fourth quarter. In addition, other Esterline businesses fulfilled more orders in the third quarter than planned, shifting some sales from the fourth quarter into the third. We remain focused on driving revenue growth across our global operations, supported by a very healthy backlog and year-to-date book-to-bill ratio of 1.15.”
Third Quarter Results of Operations
The company reported consolidated operating earnings before interest and tax in the third quarter of fiscal 2018 of $48.3 million, or 9.7% of sales, compared with $49.9 million, or 9.9% of sales, reported in the prior year.
The Avionics & Controls segment reported fiscal third quarter operating earnings of $23.8 million on sales of $210.8 million. This compares with operating earnings of $22.5 million on sales of $209.2 million in the same period of fiscal 2017. Solid performance in the recent quarter across the businesses within this segment more than offset lower year-over-year sales and profits resulting from the previously mentioned strike. Segment R&D spending was lower in the 2018 period as the company’s efforts on the Embraer E2 family of airliners shift from development to production.
The Sensors & Systems segment reported fiscal third quarter operating earnings of $22.1 million on sales of $190.9 million. The segment’s operating earnings in the same period of 2017 were $25.6 million on sales of $184.8 million. The fiscal 2017 results benefited from strong sales and above-average margins on an FAA-mandated GFI retrofit program that ended in the fourth quarter of fiscal 2017. Segment operating profit moderated with the completion of the GFI program but has returned to growth over the last two quarters.
The Advanced Materials segment reported fiscal third quarter operating earnings of $21.2 million on sales of $98.2 million. During the same period of fiscal 2017, the segment reported operating earnings of $17.8 million on sales of $110.1 million. The fiscal 2017 performance includes the operating results from the Kirkhill business, which was divested in the second quarter of fiscal 2018. Excluding $23.4 million in sales and a $2.6 million operating loss from the Kirkhill operations, adjusted segment sales in the fiscal 2017 third quarter were $86.7 million and adjusted operating earnings were $20.4 million. Sales growth in the fiscal 2018 third quarter was driven by strong performance across the segment.
Year-to-Date Results of Operations
Consolidated operating results for the first nine months of fiscal 2018 include discrete tax expenses of $48.6 million, or $1.63 per diluted share, related to the U.S. Tax Cuts and Jobs Act of 2017 (TCJA). Including that impact, the company reported earnings from continuing operations for the first nine months of fiscal 2018 of $18.9 million, or $0.63 per diluted share. Excluding the discrete impact of the TCJA, the company generated adjusted earnings from continuing operations during the first nine months of this fiscal year of $67.5 million, or $2.26 per diluted share. Earnings from continuing operations for the first nine months of fiscal 2017 were $87.3 million, or $2.92 per diluted share. Adjusted earnings from continuing operations for the first nine months of fiscal 2017 were $92.4 million, or $3.09 per diluted share (see further details in the Non-GAAP Financial Information section below).
Cash flow from operations through the first nine months of fiscal 2018 was $119.4 million, compared with $138.9 million through the first nine months of fiscal 2017. Capital expenditures during the first nine months of fiscal 2018 were $39.2 million, resulting in free cash flow of $80.1 million for the 2018 period compared with $96.7 million for the same period in 2017. The decline in free cash flow is primarily attributable to lower net earnings in the fiscal 2018 period.
The company has booked more than $1.7 billion of new orders on a year-to-date basis, resulting in a year-to-date book-to-bill ratio of 1.15. The company’s backlog has increased over the past twelve months, standing at $1.47 billion at the end of the fiscal 2018 third quarter, compared with a $1.24 billion backlog at the end of the fiscal 2017 third quarter. The current backlog has greater depth with a higher proportion of system and sub-system orders, many with scheduled deliveries twelve months or more into the future.
During the third quarter of fiscal 2018, the company paid down $23.1 million of U.S. debt, resulting in a leverage ratio of 2.7 as of the end of the quarter.
Fiscal 2018 Outlook
The company reiterated its guidance for fiscal year 2018, continuing to expect revenue in the range of $2.00 billion to $2.05 billion and anticipating fiscal 2018 earnings in the range of $3.65 to $3.85 per diluted share, excluding the $1.63 impact from the TCJA. The company expects to generate free cash flow between $115 million and $140 million for the full year.
Additional information about the company’s financial results is available in a presentation on the company’s website (www.esterline.com) in the Investor Relations section under “Presentations.” The presentation is also included as Exhibit 99.2 to the company’s report on Form 8-K, which is being submitted today to the SEC.
Conference Call Information
Esterline will host a conference call to discuss this announcement today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). The U.S. dial-in number is 877-307-0078; outside the U.S., use 531-289-2890. The pass code for the call is: 9167058.
Non-GAAP Financial Information
This press release and the related presentation providing supplemental financial information may include non-GAAP financial measures—adjusted earnings from continuing operations, adjusted earnings from continuing operations per diluted share, adjusted operating earnings from continuing operations (EBIT), adjusted earnings before interest, tax, depreciation and amortization (EBITDA), adjusted segment sales, adjusted segment operating earnings (before income taxes) and free cash flow—that have not been calculated in accordance with generally accepted accounting principles (GAAP) in the U.S. Adjusted earnings from continuing operations consist of earnings from continuing operations attributable to Esterline less the costs associated with incremental compliance costs (described further below), discrete items associated with our acquisition of the Advanced Displays business in January 2015, and the one-time expenses associated with the TCJA. Adjusted earnings from continuing operations per diluted share divides each element of adjusted earnings from continuing operations by the weighted average number of shares outstanding, diluted for the periods presented. EBIT is defined as operating earnings from continuing operations. Adjusted EBIT excludes the same costs excluded from adjusted earnings from continuing operations set forth in the table below. EBITDA from continuing operations is defined as net earnings plus loss from discontinued operations plus earnings attributable to noncontrolling interests plus income tax expense less interest income plus interest expense plus depreciation & amortization (excluding amortization of debt issuance costs) of $25.2 million in the third quarter of fiscal 2018 and $25.5 million in the third quarter of fiscal 2017. Adjusted segment sales consist of net sales of our Advanced Materials segment reduced by the sales from our Kirkhill business. Adjusted segment operating earnings consist of operating earnings (before income taxes) of our Advanced Materials segment reduced by the operating earnings from our Kirkhill business. Free cash flow is defined as cash flow from operations of $119.4 million less capital expenditures of $39.2 million in the first nine months of fiscal 2018, and cash flow from operations of $138.9 million less capital expenditures of $42.2 million in the first nine months of fiscal 2017. In accordance with the SEC’s requirements, below is the reconciliation of the non-GAAP adjusted earnings from continuing operations to the comparable GAAP earnings from continuing operations in the applicable periods. Additional relevant reconciliations are included in the presentation providing supplemental financial information.
In millions, except per share amounts Three Months Ended Three Months Ended June 29, 2018 June 30, 2017 Diluted
Earnings from Continuing Operations Attributable to Esterline (GAAP), Net of Tax $ 29.7 $ 1.00 $ 31.8 $ 1.06 Advanced Displays Integration Costs, Net of Tax of $0.1 − − 0.1 0.00 Compliance Costs¹, Net of Tax of $0.4 − − 1.1 0.04 Adjusted Earnings from Continuing Operations (non-GAAP), Net of Tax $ 29.7 $ 1.00 $ 33.0 $ 1.10 In millions, except per share amounts Nine Months Ended Nine Months Ended June 29, 2018 June 30, 2017 Diluted
Earnings from Continuing Operations Attributable to Esterline (GAAP), Net of Tax $ 18.9 $ 0.63 $ 87.3 $ 2.92 Advanced Displays Integration Costs, Net of Tax of $0.2 − − 0.9 0.03 Compliance Costs¹, Net of Tax of $1.1 − − 4.2 0.14 Provisional Tax Expense Due to TCJA 48.6 1.63 − − Adjusted Earnings from Continuing Operations (non-GAAP), Net of Tax $ 67.5 $ 2.26 $ 92.4 $ 3.09
¹See explanation of these costs in Exhibit 99.2 to the company’s Form 8-K filed today with the SEC.
The company provides these non-GAAP financial measures as supplemental information to the GAAP financial measures. Management uses these non-GAAP financial measures to (a) evaluate the company’s historical and prospective financial performance and its performance relative to its competitors, (b) allocate resources, and (c) measure the operational performance of the company’s business units.
In addition, management believes including these non-GAAP financial measures enhances investors’ and financial analysts’ understanding of the company’s performance as well as their ability to assess and compare the company’s historical results of operations.
These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measures, and free cash flow is not necessarily indicative of amounts available for discretionary use. There are limitations to these non-GAAP financial measures because they are not prepared in accordance with GAAP and may not be comparable to similarly titled measures of other companies due to potential differences in methods of calculation and items that comprise the calculation. The company compensates for these limitations by using these non-GAAP financial measures as a supplement to the GAAP measures and by providing reconciliations of the non-GAAP and comparable GAAP financial measures. The non-GAAP financial measures should be read only in conjunction with the company’s consolidated financial statements prepared in accordance with GAAP.
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or the company’s future financial performance. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should” or “will,” or the negative of such terms or other comparable terminology. These forward-looking statements are only predictions based on the current intent and expectations of the management of Esterline, are not guarantees of future performance or actions, and involve risks and uncertainties that are difficult to predict and may cause Esterline’s or its industry’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Esterline’s actual results and the timing and outcome of events may differ materially from those expressed in or implied by the forward-looking statements due to risks detailed in Esterline’s public filings with the Securities and Exchange Commission including its most recent Report on Form 10-K/A.
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Statement of Operations (unaudited)
In thousands, except per share amounts
Three Months Ended Nine Months Ended June 29, June 30, June 29, June 30, 2018 2017 2018 2017 Segment Sales Avionics & Controls $ 210,787 $ 209,168 $ 626,304 $ 615,143 Sensors & Systems 190,895 184,804 564,516 535,287 Advanced Materials 98,189 110,135 308,725 321,224 Net Sales 499,871 504,107 1,499,545 1,471,654 Cost of Sales 329,951 330,408 1,017,562 977,837 169,920 173,699 481,983 493,817 Expenses Selling, general and administrative 98,895 93,615 299,817 286,649 Research, development and
22,830 30,190 73,397 80,937 Insurance recovery — — — (7,789 ) License fee income — — (5,293 ) — Loss (Gain) on sale of business (97 ) — 5,213 — Total Expenses 121,628 123,805 373,134 359,797 Operating Earnings from Continuing
48,292 49,894 108,849 134,020 Interest Income (579 ) (150 ) (1,326 ) (346 ) Interest Expense 7,902 7,299 23,673 22,645 Earnings from Continuing Operations
Before Income Taxes
40,969 42,745 86,502 111,721 Income Tax Expense 11,094 10,703 66,962 23,320 Earnings from Continuing Operations
Including Noncontrolling Interests
29,875 32,042 19,540 88,401 Earnings Attributable to
(158 ) (278 ) (684 ) (1,069 ) Earnings from Continuing Operations
Attributable to Esterline, Net of Tax
29,717 31,764 18,856 87,332 Gain (Loss) from Discontinued
Operations, Attributable to Esterline, Net of Tax
(1,894 ) (815 ) (2,137 ) (6,185 ) Net Earnings Attributable to Esterline $ 27,823 $ 30,949 $ 16,719 $ 81,147 Earnings (Loss) Per Share — Basic: Continuing Operations $ 1.01 $ 1.07 $ 0.63 $ 2.94 Discontinued Operations (0.06 ) (0.03 ) (0.07 ) (0.21 ) Earnings (Loss) Per Share — Basic $ 0.95 $ 1.04 $ 0.56 $ 2.73 Earnings (Loss) Per Share — Diluted: Continuing Operations $ 1.00 $ 1.06 $ 0.63 $ 2.92 Discontinued Operations (0.06 ) (0.03 ) (0.07 ) (0.21 ) Earnings (Loss) Per Share — Diluted $ 0.94 $ 1.03 $ 0.56 $ 2.71 Weighted Average Number of Shares Outstanding — Basic 29,430 29,830 29,649 29,698 Weighted Average Number of Shares Outstanding — Diluted 29,548 30,068 29,775 29,953 ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Sales and Earnings From Continuing Operations by Segment (unaudited)
Three Months Ended Nine Months Ended June 29, June 30, June 29, June 30, 2018 2017 2018 2017 Segment Sales Avionics & Controls $ 210,787 $ 209,168 $ 626,304 $ 615,143 Sensors & Systems 190,895 184,804 564,516 535,287 Advanced Materials 98,189 110,135 308,725 321,224 Net Sales $ 499,871 $ 504,107 $ 1,499,545 $ 1,471,654 Earnings from Continuing Operations Before Income Taxes Avionics & Controls $ 23,781 $ 22,496 $ 67,839 $ 61,185 Sensors & Systems 22,135 25,587 53,119 70,087 Advanced Materials 21,152 17,780 45,288 55,982 Segment Earnings 67,068 65,863 166,246 187,254 Corporate expense (18,776 ) (15,969 ) (57,397 ) (53,234 ) Interest income 579 150 1,326 346 Interest expense (7,902 ) (7,299 ) (23,673 ) (22,645 ) Earnings from Continuing Operations Before Income Taxes $ 40,969 $ 42,745 $ 86,502 $ 111,721 ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Balance Sheet (unaudited)
June 29, September 29, 2018 2017 Assets Current Assets Cash and cash equivalents $ 351,039 $ 307,826 Accounts receivable, net 401,244 430,524 Inventories 479,494 477,969 Income tax refundable 18,503 12,814 Prepaid expenses 23,778 19,239 Other current assets 4,574 13,836 Current assets of businesses held for sale 4,052 6,501 Total Current Assets 1,282,684 1,268,709 Property, Plant and Equipment, Net 316,876 348,634 Other Non-Current Assets Goodwill 1,031,234 1,053,573 Intangibles, net 318,169 359,166 Deferred income tax benefits 55,532 56,793 Other assets 17,323 19,804 Non-current assets of businesses held for sale 12,632 13,334 $ 3,034,450 $ 3,120,013 Liabilities and Shareholders’ Equity Current Liabilities Accounts payable $ 133,470 $ 138,595 Accrued liabilities 218,953 230,007 Current maturities of long-term debt 15,245 17,424 U.S. and foreign income taxes 7,151 582 Current liabilities of businesses held for sale 3,212 7,184 Total Current Liabilities 378,031 393,792 Long-Term Liabilities Credit facilities 25,000 50,000 Long-term debt, net of current maturities 695,884 709,424 Deferred income tax liabilities 34,927 43,978 Pension and post-retirement obligations 65,443 66,981 Long-term U.S. income taxes payable 38,640 — Other liabilities 17,703 18,838 Non-current liabilities of businesses held for sale 2,910 1,724 Total Shareholders’ Equity 1,775,912 1,835,276 $ 3,034,450 $ 3,120,013
Investor Relations – John Hobbs
Media – Michelle DeGrand
- Fiscal 2018 Third Quarter Results