SOURCE: Esterline Technologies

Esterline Technologies

February 28, 2013 16:01 ET

Esterline Reports Fiscal 2013 First Quarter Results

Net Income of $25.1 Million, or $0.80 per Share, on Sales of $458.0 Million

BELLEVUE, WA--(Marketwire - Feb 28, 2013) - Esterline Corporation (NYSE: ESL) (, a leading specialty manufacturer serving the global aerospace/defense markets, today reported fiscal 2013 first quarter (ended January 25) net income of $25.1 million, or $0.80 per diluted share, on sales of $458.0 million. Earnings in the quarter included about $0.11 per diluted share of income tax benefits due to the extension of U.S. federal research & development tax credits and the settlement of uncertain tax positions related to U.S. and global tax examinations. Year-ago first quarter net income was $22.8 million, or $0.73 per diluted share, on $470.9 million in sales.

Brad Lawrence, Esterline's Chief Executive Officer, said the company posted, "...a solid quarter -- somewhat better than expected." Looking forward, Lawrence said he would expect the current uncertainty surrounding U.S. defense spending to "...dampen our second quarter a bit," but reiterated the company's fiscal 2013 earnings per diluted share guidance of $5.45 - $5.80, saying, "...there is still a lot of the year left to cover and our full-year revenues in the $2.1 billion range continue to look solid." He said, " this point we believe we are right where we need to be."

The current strength of commercial aerospace underscores Esterline's long-term strategy of a balanced global approach to commercial and defense markets. Lawrence said that the company's current view of fiscal 2013 includes "...strengthening commercial aerospace and our best analysis of the impact of anticipated U.S. defense spending reductions." 

He emphasized that Esterline's diversification efforts over the years have reduced the company's percentage of total revenues from U.S. defense customers to approximately 25%. He said, "Esterline is strategically designed to perform through the cyclicality in our markets."

Lawrence highlighted healthy year-over-year backlog growth as a positive sign for continued business strength through the year. He said that fiscal 2013 is "...shaping up much like last year, with a slow start ramping up to a very strong fourth quarter, thanks in part to improvement in build rates for several programs late in the year." 

The company saw increased order activity in the first quarter of fiscal 2013 compared with the same period last year for the Avionics & Controls and Sensors & Systems segments, mainly as a result of the ongoing strong commercial aerospace cycle. 

In the company's technology-driven adjacent industrial markets, Lawrence noted there are several significant opportunities for growth, including high-speed rail projects in China, nuclear power initiatives in the U.K., and casino gaming console installations worldwide. The last opportunity mentioned is enhanced by a promising new gaming acquisition that closed in early February. Lawrence said that "...we believe these adjacent market segments, while small relative to our aerospace and defense business, will experience the fastest rate of growth in 2013."

Gross margin in the first quarter of fiscal 2013 was 35.0%, up 1.4% compared with 33.6% in the same period last year, though the prior-year margins were compressed by approximately $12 million in Souriau purchase accounting adjustments.

Selling, general and administrative (SG&A) expenses as a percent of sales were 21.5% in the first quarter of fiscal 2013, compared with 20.1% a year ago. Lawrence said the spending was at the level expected and the percent of sales increase " more a reflection of lower first quarter sales."

Research, development and engineering (R&D) expenses were 5.0% of sales in the first quarter compared with 5.6% in the same period of 2012. Lawrence said the reduction in the year-over-year R&D level "...came from significant program progress in certain business lines within our Control Systems platform." Full-year R&D expense as a percent of sales is expected to settle at about 5%. 

The income tax rate for the first quarter of fiscal 2013 was 8.5% compared with 10.1% in the same period last year.

Lawrence noted that the company's cash flow was exceptional. Cash flow from operations in the quarter was $86.5 million, compared with last year's $46.6 million.

New orders for the first quarter of 2013 were $473.6 million, compared with $467.8 million in the same period last year. Backlog was $1.3 billion at the end of the first quarter of fiscal 2013, compared with $1.2 billion at the end of the prior-year period and $1.3 billion at the end of fiscal 2012.

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 866-804-6927; outside the U.S., use 857-350-1673. The pass code for the call is: 96814855.

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 our 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.

Consolidated Statement of Operations (unaudited)  
In thousands, except per share amounts  
    Three Months Ended  
    Jan 25,     Jan 27,  
    2013     2012  
Segment Sales                
  Avionics & Controls   $ 174,570     $ 179,572  
  Sensors & Systems     171,810       171,672  
  Advanced Materials     111,582       119,638  
Net Sales     457,962       470,882  
Cost of Sales     297,617       312,801  
      160,345        158,081  
  Selling, general and administrative     98,611       94,697  
  Research, development and engineering     23,076       26,395  
  Total Expenses     121,687       121,092  
Operating Earnings     38,658       36,989  
  Interest Income     (101 )     (95 )
  Interest Expense     10,444       11,528  
Income Before Income Taxes     28,315       25,556  
Income Tax Expense     2,394       2,576  
Income Including Noncontrolling Interests     25,921       22,980  
Income Attributable to Noncontrolling Interests     (810 )     (192 )
Net Earnings   $ 25,111     $ 22,788  
Earnings per Share - Basic   $ .81     $ .74  
Earnings per Share - Diluted   $ .80     $ .73  
Weighted Average Number of Shares Outstanding - Basic     30,904       30,631  
Weighted Average Number of Shares Outstanding - Diluted     31,423       31,157  
Consolidated Sales and Income from Operations by Segment (unaudited)  
In thousands  
    Three Months Ended  
    Jan 25,     Jan 27,  
    2013     2012  
Segment Sales                
  Avionics & Controls   $ 174,570     $ 179,572  
  Sensors & Systems     171,810       171,672  
  Advanced Materials     111,582       119,638  
Net Sales   $ 457,962     $ 470,882  
Income from Operations                
  Avionics & Controls   $ 18,589     $ 20,063  
  Sensors & Systems     19,001       6,815  
  Advanced Materials     17,644       23,073  
    Segment Earnings     55,234       49,951  
  Corporate Expense     (16,576 )     (12,962 )
  Interest Income     101       95  
  Interest Expense     (10,444 )     (11,528 )
Income Before Income Taxes   $ 28,315     $ 25,556  
Consolidated Balance Sheet (unaudited)
In thousands
  Jan 25,   Jan 27,
  2013   2012
Current Assets          
  Cash and cash equivalents $ 202,776   $ 193,289
  Cash in escrow   5,017     5,017
  Accounts receivable, net   331,335     350,080
  Inventories   421,626     395,050
  Income tax refundable   6,516     10,811
  Deferred income tax benefits   47,430     45,161
  Prepaid expenses   27,207     21,098
  Other current assets   6,083     3,221
    Total Current Assets   1,047,990     1,023,727
Property, Plant and Equipment, Net   356,973     360,368
Other Non-Current Assets          
  Goodwill   1,105,656     1,130,489
  Intangibles, net   599,396     655,642
  Debt issuance costs, net   8,349     10,226
  Deferred income tax benefits   97,758     82,891
  Other assets   19,282     24,420
  $ 3,235,404   $ 3,287,763
Liabilities and Shareholders' Equity          
Current Liabilities          
  Accounts payable $ 103,315   $ 111,934
  Accrued liabilities   259,014     265,080
  Credit facilities   82     223
  Current maturities of long-term debt   10,953     13,098
  Deferred income tax liabilities   5,620     2,943
  Federal and foreign income taxes   4,326     12,420
    Total Current Liabilities   383,310     405,698
Long-Term Liabilities          
  Credit facilities   225,000     335,000
  Long-term debt, net of current maturities   578,329     656,448
  Deferred income tax liabilities   204,509     229,375
  Pension and post-retirement obligations   143,475     104,513
  Other liabilities   35,519     20,647
Total Shareholders' Equity   1,665,262     1,536,082
  $ 3,235,404   $ 3,287,763