• 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.

    Booking Activity

    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.      

    Capital Allocation

    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 EndedThree Months Ended
      June 29, 2018June 30, 2017
       Diluted
    EPS
     Diluted
    EPS
    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 0.10.00
    Compliance Costs¹,     
    Net of Tax of $0.4 1.10.04
    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 EndedNine Months Ended
     June 29, 2018June 30, 2017
      Diluted
    EPS
     Diluted
    EPS
    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 $0.20.90.03
    Compliance Costs¹,    
    Net of Tax of $1.14.20.14
    Provisional Tax Expense Due to TCJA48.61.63
    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
    engineering
      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
    Operations
      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
    Noncontrolling Interests
      (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)
    In thousands
     
      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)
    In thousands
     
        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
           

    Contact:
    Investor Relations – John Hobbs
    Media – Michelle DeGrand
    +1 425-453-9400

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