Esterline Corporation (NYSE:ESL) (www.esterline.com), a leading
specialty manufacturer serving the global aerospace and defense
markets, today reported results for the third fiscal quarter ended
June 30, 2017. The company reported consolidated revenue of
$503.8 million during the quarter compared with $517.1 million
in the year-ago period. Lower sales volume in the company’s
Avionics & Controls segment primarily contributed to the lower
year-over-year quarterly revenue result. The company reported
year-to-date (YTD) fiscal 2017 revenues of $1.47 billion,
slightly ahead of the prior-year result of $1.45 billion.
Earnings from continuing operations in the third
fiscal quarter of 2017 were $31.3 million, or $1.04 per diluted
share, compared with prior-year earnings from continuing operations
of $38.0 million, or $1.28 per diluted share. Earnings from
continuing operations in the third fiscal quarter of 2017 were
affected by higher research, development and engineering (R&D)
spending and a higher effective tax rate. U.S. GAAP earnings
from continuing operations YTD in fiscal 2017 were
$88.0 million, or $2.94 per diluted share, compared with $64.9
million, or $2.18 per diluted share, in the 2016 period.
Adjusted earnings from continuing operations for
the third fiscal quarter of 2017 were $32.5 million, or $1.08
per diluted share (see Table 1 below). In the comparable period of
the prior year, adjusted earnings from continuing operations were
$40.9 million, or $1.38 per diluted share. Adjusted
earnings from continuing operations YTD in fiscal 2017 were $93.0
million, or $3.11 per diluted share, compared with $86.6 million,
or $2.91 per diluted share, in the prior year (see Table 2
below).
Curtis Reusser, Esterline’s Chief Executive
Officer, said, “We delivered modest year-to-date revenue growth
over last year and improved operating profit across our business
through the third quarter of fiscal 2017. The cadence of our
earnings has evolved from our original expectation and we expect to
achieve results within our original full-year guidance. Our global
facilities are focused on execution as our integration and
compliance enhancement efforts near completion, and we are
generating strong cash returns.”
|
|
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Table 1:
Effect of Certain Items on Third Fiscal Quarter
2017 |
|
Earnings from
Continuing Operations |
|
|
|
|
|
|
$ Millions |
EPS |
|
Earnings (U.S. GAAP) |
$ |
31.3 |
$ |
1.04 |
|
Advanced Displays Integration Costs |
0.1 |
0.01 |
|
Compliance Costs |
1.1 |
0.03 |
|
Adjusted Earnings |
$ |
32.5 |
$ |
1.08 |
|
|
|
|
|
|
|
Full-Year Outlook
The company noted that its fiscal 2017 full-year
expectation for sales is approximately $2.0 billion. For GAAP
earnings from continuing operations, the company narrowed its
guidance range to $4.30 to $4.50 per diluted share, from $4.30 to
$4.70 per diluted share. The expectation for full-year adjusted
earnings from continuing operations, which exclude certain
compliance and integration costs, was adjusted similarly to a range
of $4.50 to $4.70 per diluted share, from the prior range of $4.50
to $4.90 per diluted share. The company also updated its guidance
for fiscal 2017 full-year EBITDA to a range of $300 million to
$310 million. Full-year free cash flow is expected to be in
excess of 100% of net income and in a range of $130 million to
$150 million.
Results of Operations
Including discontinued operations, net earnings
for the third fiscal quarter of 2017 were $30.5 million, or
$1.01 per diluted share, compared with $29.4 million, or $0.99 per
diluted share, in the comparable period in fiscal 2016. Net
earnings in the third fiscal quarter of 2017 and 2016 included
losses from discontinued operations of $0.8 million and $8.7
million, respectively.
New orders in the third fiscal quarter of 2017
were $532.0 million, compared with $569.7 million in the comparable
prior-year period. Fiscal 2016 benefited from large defense orders
booked in the Avionics & Controls segment in the third
quarter. Backlog at the end of the third fiscal quarter of 2017 was
$1.24 billion, compared with $1.36 billion at the end of the
third fiscal quarter of 2016.
Gross profit in the third fiscal quarter of 2017
was $170.6 million, compared with $173.6 million in the prior-year
period. Gross margin as a percentage of sales in the third fiscal
quarter of 2017 was 33.9% compared with 33.6% in the prior-year
period. Improved gross margin performance on lower sales is the
result of favorable product mix in Avionics & Controls and
recovery of defense countermeasure volumes in Advanced
Materials.
Selling, general and administrative (SG&A)
expenses during the third fiscal quarter of 2017 were
$93.6 million, compared with $96.8 million in the prior year.
Fiscal 2017 third quarter SG&A expenses as a percentage of
sales were 18.6%, compared with the prior-year level of 18.7%.
R&D spending in the third fiscal quarter of
2017 was $27.9 million, or 5.5% of sales, compared with $22.2
million, or 4.3% of sales, in the prior-year period. Year-to-date
fiscal 2017 R&D spending was $75.7 million, or 5.1% of sales.
Full-year R&D expense for fiscal 2017 is expected to be
5.1%.
The company’s income tax rate in the third
fiscal quarter of 2017 was 24.8% compared with 17.2% in the
prior-year period. The company expects a tax rate in the fourth
fiscal quarter of 2017 of approximately 27% to 28% and a full-year
tax rate in a range of 24% to 25%. This will move to a normalized
rate of 27% to 28% in fiscal 2018 and beyond. U.K. tax law changes
implemented in 2017 are driving the tax rate increase from prior
years.
Year-to-Date Results of Operations
For the nine months of fiscal 2017 ended June
30, 2017, sales were $1.47 billion, compared with $1.45 billion in
the prior-year period. Fiscal 2017 YTD GAAP earnings from
continuing operations were $88.0 million, or $2.94 per diluted
share, compared with the prior-year period results of
$64.9 million, or $2.18 per diluted share. Excluding the
discrete costs described in Table 2 below, adjusted earnings from
continuing operations in the first nine months of fiscal 2017 were
$93.0 million, or $3.11 per diluted share. Adjusted earnings
from continuing operations for the first nine months of 2016 were
$86.6 million, or $2.91 per diluted share.
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|
Table 2:
Effect of Certain Items on YTD Fiscal
2017 |
|
Earnings from
Continuing Operations |
|
|
|
|
|
|
$ Millions |
EPS |
|
Earnings (U.S. GAAP) |
$ |
88.0 |
$ |
2.94 |
|
Advanced Displays Integration Costs |
0.9 |
0.03 |
|
Compliance Costs |
4.1 |
0.14 |
|
Adjusted Earnings |
$ |
93.0 |
$ |
3.11 |
|
|
|
|
|
Cash flow from operations through the nine months ended June 30,
2017, was $138.9 million, compared with $118.6 million through
the nine months ended July 1, 2016. Free cash flow was
$96.7 million in the first nine months of fiscal 2017 and
capital expenditures were $42.2 million. Free cash flow was
$60.1 million in the first nine months of fiscal 2016 and
capital expenditures were $58.5 million.
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: 51662751.
The company has posted a presentation on its website
(www.esterline.com) under “Presentations” in the Investor Relations
section to provide additional information about its third fiscal
quarter operational and financial results. 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.
Non-GAAP Financial Information
This press release and the related presentation
providing supplemental financial information include non-GAAP
financial measures—adjusted earnings from continuing operations,
adjusted earnings from continuing operations per diluted share,
adjusted earnings before interest and tax (EBIT), operating
earnings from continuing operations adjusted to exclude
depreciation and amortization expense (EBITDA), adjusted gross
margin, and free cash flow—that have not been calculated in
accordance with generally accepted accounting principles in the
U.S. (GAAP). Adjusted earnings from continuing operations consist
of earnings from continuing operations attributable to Esterline
less the costs associated with certain integration
activities—including restructuring charges—and incremental
compliance costs as well as discrete items associated with our
acquisition of the Advanced Displays business in January 2015, in
each case, as further detailed in the tables below. 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 and adjusted gross margin
exclude the same costs excluded from adjusted earnings from
continuing operations. EBITDA consists of EBIT plus depreciation
and amortization of $25.5 million in the third quarter and $76.0
million in the first nine months of fiscal 2017, and $24.2 million
in the third quarter and $72.2 million in the first nine
months of fiscal 2016. 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. Additional relevant reconciliations are
included in the presentation providing supplemental financial
information.
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|
In millions, except per
share amounts |
|
|
Three Months Ended |
Three Months Ended |
|
|
June 30, 2017 |
July 1, 2016 |
|
|
|
Diluted |
|
Diluted |
|
|
|
EPS |
|
EPS |
|
Earnings from
Continuing Operations Attributable |
|
|
|
|
|
to
Esterline (GAAP), Net of Tax |
$ |
31.3 |
$ |
1.04 |
$ |
38.0 |
$ |
1.28 |
|
Advanced
Displays Integration Costs, |
|
|
|
|
|
Net of
Tax of $0.1 and $0.7 |
0.1 |
0.01 |
2.1 |
0.07 |
|
Compliance Costs, |
|
|
|
|
|
Net of
Tax of $0.4 and $0.6 |
1.1 |
0.03 |
2.1 |
0.08 |
|
Accelerated Integration Costs, |
|
|
|
|
|
Net of
Tax of $0.3 |
-- |
-- |
1.2 |
0.04 |
|
Long-term
Contract Adjustments, |
|
|
|
|
|
Net of
Tax of $0.2 |
-- |
-- |
(2.5) |
(0.09) |
|
Adjusted Earnings from
Continuing Operations |
|
|
|
|
|
(non-GAAP), Net of Tax |
$ |
32.5 |
$ |
1.08 |
$ |
40.9 |
$ |
1.38 |
|
|
|
|
|
|
|
|
|
|
In millions, except per
share amounts |
|
|
|
Nine Months Ended |
Nine Months Ended |
|
|
June 30, 2017 |
July 1, 2016 |
|
|
|
Diluted |
|
Diluted |
|
|
|
EPS |
|
EPS |
|
Earnings from
Continuing Operations Attributable |
|
|
|
|
|
to
Esterline (GAAP), Net of Tax |
$ |
88.0 |
$ |
2.94 |
$ |
64.9 |
$ |
2.18 |
|
Advanced
Displays Integration Costs, |
|
|
|
|
|
Net of
Tax of $0.3 and $1.5 |
0.9 |
0.03 |
8.9 |
0.30 |
|
Compliance Costs, |
|
|
|
|
|
Net of
Tax of $1.1 and $1.2 |
4.1 |
0.14 |
7.0 |
0.23 |
|
Accelerated Integration Costs, |
|
|
|
|
|
Net of
Tax of $0.7 |
-- |
-- |
4.2 |
0.14 |
|
Long-term
Contract Adjustments, |
|
|
|
|
|
Net of
Tax of $0.3 |
-- |
-- |
1.6 |
0.06 |
|
Adjusted Earnings from
Continuing Operations |
|
|
|
|
|
(non-GAAP), Net of Tax |
$ |
93.0 |
$ |
3.11 |
$ |
86.6 |
$ |
2.91 |
|
|
|
|
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 the performance of its competitors, (b)
allocate resources, and (c) measure the operational performance of
the company’s business units.
In addition, management believes investors’ and
financial analysts’ understanding of the company’s performance is
enhanced by including these non-GAAP financial measures as a
reasonable basis for comparing 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 Annual Report on
Form 10-K. |
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|
|
|
|
|
|
|
ESTERLINE
TECHNOLOGIES CORPORATION |
|
|
Consolidated Statement of Operations
(unaudited) |
|
|
In
thousands, except per share amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
June 30, |
|
July 1, |
|
June 30, |
|
July 1, |
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Segment Sales |
$ |
209,168 |
|
$ |
222,583 |
|
$ |
615,443 |
|
$ |
607,493 |
|
|
Avionics
& Controls |
184,450 |
|
186,337 |
|
534,001 |
|
514,836 |
|
|
Sensors
& Systems |
110,135 |
|
108,172 |
|
321,224 |
|
326,550 |
|
|
Advanced
Materials |
|
|
|
|
|
|
|
|
|
Net Sales |
503,753 |
|
517,092 |
|
1,470,668 |
|
1,448,879 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Sales |
333,124 |
|
343,508 |
|
980,073 |
|
981,403 |
|
|
|
170,629 |
|
173,584 |
|
490,595 |
|
467,476 |
|
|
Expenses |
|
|
|
|
|
|
|
|
|
Selling,
general and administrative |
93,615 |
|
96,769 |
|
286,331 |
|
293,283 |
|
|
Research,
development and |
|
|
|
|
|
|
|
|
|
engineering |
27,866 |
|
22,211 |
|
75,712 |
|
72,760 |
|
|
Insurance
recovery |
― |
|
― |
|
(7,789) |
|
― |
|
|
Restructuring charges |
― |
|
559 |
|
― |
|
2,430 |
|
|
Total
Expenses |
121,481 |
|
119,539 |
|
354,254 |
|
368,473 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings from
Continuing |
|
|
|
|
|
|
|
|
|
Operations |
49,148 |
|
54,045 |
|
136,341 |
|
99,003 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income |
(150) |
|
(30) |
|
(346) |
|
(211) |
|
|
Interest
Expense |
7,299 |
|
7,659 |
|
22,645 |
|
22,169 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from
Continuing Operations |
|
|
|
|
|
|
|
|
|
Before
Income Taxes |
41,999 |
|
46,416 |
|
114,042 |
|
77,045 |
|
|
Income Tax Expense |
10,433 |
|
7,975 |
|
25,013 |
|
11,358 |
|
|
Earnings from
Continuing Operations |
|
|
|
|
|
|
|
|
|
Including
Noncontrolling Interests |
31,566 |
|
38,441 |
|
89,029 |
|
65,687 |
|
|
Earnings Attributable
to Noncontrolling |
|
|
|
|
|
|
|
|
|
Interests |
(278) |
|
(395) |
|
(1,069) |
|
(781) |
|
|
Earnings from
Continuing Operations |
|
|
|
|
|
|
|
|
|
Attributable to Esterline, Net of Tax |
31,288 |
|
38,046 |
|
87,960 |
|
64,906 |
|
|
Gain (Loss) from
Discontinued Operations, |
|
|
|
|
|
|
|
|
|
Attributable to Esterline, Net of Tax |
(815) |
|
(8,690) |
|
(6,185) |
|
(15,493) |
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
Attributable to Esterline |
$ |
30,473 |
|
$ |
29,356 |
|
$ |
81,775 |
|
$ |
49,413 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per
Share—Basic: |
|
|
|
|
|
|
|
|
|
Continuing Operations |
$ |
1.05 |
|
$ |
1.30 |
|
$ |
2.96 |
|
$ |
2.19 |
|
|
Discontinued Operations |
(.03) |
|
(.30) |
|
(.21) |
|
(.52) |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per
Share—Basic |
$ |
1.02 |
|
$ |
1.00 |
|
$ |
2.75 |
|
$ |
1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per
Share—Diluted: |
|
|
|
|
|
|
|
|
|
Continuing Operations |
$ |
1.04 |
|
$ |
1.28 |
|
$ |
2.94 |
|
$ |
2.18 |
|
|
Discontinued Operations |
|
(.03 |
) |
|
(.29 |
) |
|
(.21 |
) |
|
(.52 |
) |
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per
Share—Diluted |
$ |
1.01 |
|
$ |
.99 |
|
$ |
2.73 |
|
$ |
1.66 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Number |
|
|
|
|
|
|
|
|
|
of Shares
Outstanding—Basic |
29,830 |
|
29,381 |
|
29,698 |
|
29,517 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Number |
|
|
|
|
|
|
|
|
|
of Shares
Outstanding—Diluted |
30,068 |
|
29,601 |
|
29,953 |
|
29,788 |
|
|
|
|
|
|
|
|
ESTERLINE TECHNOLOGIES CORPORATION |
|
Consolidated Sales and Earnings From Continuing
Operations by Segment (unaudited) |
|
In thousands |
|
|
|
|
|
|
|
|
Three Months Ended |
Nine Months Ended |
|
|
June 30, |
July 1, |
June 30, |
July 1, |
|
|
2017 |
2016 |
2017 |
2016 |
|
|
|
|
|
|
|
Segment Sales |
$ |
209,168 |
$ |
222,583 |
$ |
615,443 |
$ |
607,493 |
|
Avionics
& Controls |
184,450 |
186,337 |
534,001 |
514,836 |
|
Sensors
& Systems |
110,135 |
108,172 |
321,224 |
326,550 |
|
Advanced
Materials |
|
|
|
|
|
|
$ |
503,753 |
$ |
517,092 |
1,470,668 |
$ |
1,448,879 |
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
Earnings from
Continuing Operations |
|
|
|
|
|
Before
Income Taxes |
$ |
22,495 |
$ |
28,517 |
$ |
62,173 |
$ |
40,579 |
|
Avionics
& Controls |
24,842 |
27,942 |
71,944 |
61,670 |
|
Sensors
& Systems |
17,780 |
15,512 |
55,982 |
51,710 |
|
Advanced
Materials |
65,117 |
71,971 |
190,099 |
153,959 |
|
Segment
Earnings |
|
|
|
|
|
|
(15,969) |
(17,926) |
(53,758) |
(54,956) |
|
Corporate
expense |
150 |
30 |
346 |
211 |
|
Interest
income |
(7,299) |
(7,659) |
(22,645) |
(22,169) |
|
Interest
expense |
|
|
|
|
|
|
|
|
|
|
|
Earnings from
Continuing Operations |
|
|
Before
Income Taxes |
$ |
41,999 |
$ |
46,416 |
$ |
114,042 |
$ |
77,045 |
|
|
|
|
|
|
|
ESTERLINE TECHNOLOGIES CORPORATION |
|
Consolidated Balance Sheet
(unaudited) |
|
In thousands |
|
|
|
|
|
|
June 30, |
September 30, |
|
|
2017 |
2016 |
|
Assets |
|
|
|
Current Assets |
|
|
|
Cash and
cash equivalents |
$ |
279,398 |
$ |
258,520 |
|
Cash in
escrow |
― |
1,125 |
|
Accounts
receivable, net |
401,479 |
422,073 |
|
Inventories |
487,700 |
450,206 |
|
Income
tax refundable |
5,569 |
5,183 |
|
Prepaid
expenses |
22,371 |
17,909 |
|
Other
current assets |
9,689 |
5,322 |
|
Current
assets of businesses held for sale |
3,868 |
15,450 |
|
Total
Current Assets |
1,210,074 |
1,175,788 |
|
|
|
|
|
Property, Plant and
Equipment, Net |
343,082 |
338,034 |
|
|
|
|
|
Other Non-Current
Assets |
|
|
|
Goodwill |
1,032,034 |
1,024,667 |
|
Intangibles, net |
361,927 |
393,035 |
|
Deferred
income tax benefits |
75,387 |
75,409 |
|
Other
assets |
16,870 |
13,698 |
|
Non-current assets of businesses held for sale |
10,257 |
11,400 |
|
|
$ |
3,049,631 |
$ |
3,032,031 |
|
|
|
|
|
Liabilities and
Shareholders' Equity |
|
|
|
Current
Liabilities |
|
|
|
Accounts
payable |
$ |
128,293 |
$ |
121,816 |
|
Accrued
liabilities |
228,742 |
238,163 |
|
Current
maturities of long-term debt |
14,215 |
16,774 |
|
Federal
and foreign income taxes |
4,561 |
10,932 |
|
Current
liabilities of businesses held for sale |
471 |
10,813 |
|
Total
Current Liabilities |
376,282 |
398,498 |
|
|
|
Long-Term
Liabilities |
|
|
|
Credit
facilities |
65,000 |
155,000 |
|
Long-term
debt, net of current maturities |
701,024 |
698,796 |
|
Deferred
income tax liabilities |
45,357 |
53,798 |
|
Pension
and post-retirement obligations |
93,347 |
92,520 |
|
Other
liabilities |
19,388 |
21,968 |
|
Non-current liabilities of businesses held for sale |
1,685 |
320 |
|
|
|
|
|
|
|
Total Shareholders'
Equity |
1,747,548 |
1,611,131 |
|
|
$ |
3,049,631 |
$ |
3,032,031 |
|
Contact:
John Hobbs
+1 425-453-9400
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