SOURCE: Esterline Technologies

Esterline Technologies

March 05, 2015 16:05 ET

Esterline Reports Fiscal 2015 First Quarter Results -- Reiterates Full-Year Guidance

BELLEVUE, WA--(Marketwired - Mar 5, 2015) - Esterline Corporation (NYSE: ESL)

Highlights:

  • Sales of $446 million for 13-week first fiscal quarter compared with $486 million in the prior year's 14-week first fiscal quarter 
  • Earnings from continuing operations of $25.1 million; adjusted earnings from continuing operations of $31.6 million
  • GAAP earnings per diluted share from continuing operations (GAAP EPS) of $0.78, or $0.98 adjusted to exclude integration and incremental compliance costs, compared with year-ago GAAP EPS of $1.05, or $1.20 per diluted share adjusted
  • Repurchased approximately 850,000 shares worth $92.6 million in the quarter

Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace and defense markets, today reported results for its first fiscal quarter, ended January 30, 2015, a 13-week quarter. First quarter 2015 GAAP earnings from continuing operations were $25.1 million, or $0.78 per diluted share, on sales of $446.3 million. This compares with results from the prior-year period, a 14-week quarter ended January 31, 2014, of GAAP earnings from continuing operations of $33.9 million, or $1.05 per diluted share, on sales of $485.9 million.

Excluding the company's previously announced integration and compliance activities, adjusted earnings from continuing operations were $31.6 million, or $0.98 per diluted share, in the first quarter of fiscal 2015 compared with $38.8 million, or $1.20 per diluted share, in the first quarter of fiscal 2014. First quarter fiscal 2015 results reflect several other discrete charges and benefits. These are detailed with the integration and compliance costs in Table 1 below.

   
Table 1: Effect of Certain Charges/Benefits on 1st Fiscal  
Quarter 2015 EPS from Continuing Operations  
     
Earnings Per Share - U.S. GAAP $ 0.78  
       
Accelerated Integration   (0.12 )
Compliance   (0.08 )
Certain Barco Closing Expenses   (0.09 )
Pension Expense   (0.07 )
Inventory and Fixed Assets   (0.14 )
Non-Income Tax Gain   0.42  
Total Items $ (0.08 )
       

Curtis Reusser, Esterline's Chief Executive Officer, noted that many of the discrete items are directly related to the company's efforts to streamline operations and continue building its core technology capabilities, saying, "We continued to make significant progress during the first quarter toward our vision of a more efficient, capable, and competitive business. We are also pleased to have completed the acquisition of Barco's aerospace, defense and training display businesses at the beginning of our second fiscal quarter. The group is a technology leader in this key category, an excellent fit for Esterline and should prove to be an important value-add for our entire line of visualization solutions."

Reusser continued, "Also in the first quarter, we implemented a stronger incentive compensation structure that is designed to foster accountability and cooperation across our business. As we look ahead, we're encouraged by a strong backlog and improved visibility." He added, "We expect to see accelerating performance through the next eight months, with second quarter EPS a little lighter than the third and fourth quarters." Reusser noted the third quarter EPS is expected to be roughly equivalent to the two-month fourth quarter. Over the longer term, Reusser said, "We remain confident that we are transforming Esterline to achieve stronger, sustainable rates of revenue growth and enhanced profitability."

In line with that sentiment, Reusser noted that during the quarter, the company repurchased about 850,000 shares, at an average price of $109, for a total of $92.6 million. Since the $200 million share repurchase plan was implemented in July 2014, the company has repurchased $120 million of its own shares.

Integration and Compliance Activities

During the first fiscal quarter of 2015, the company deployed an enterprise-wide operating system and lean transformation plan, and continued to advance previously announced integration efforts. These activities include the consolidation of facilities and improved cost efficiency through shared support services in sales and general and administrative functions. During the quarter, the company incurred integration and certain incremental compliance costs of $8.6 million, of which $1.9 million was reflected in gross margin, $3.6 million was reported in selling, general, and administrative (SG&A) expense, and $3.1 million was reported as restructuring charges on the company's income statement. For the full year, the company expects to spend approximately $21 million for these purposes; the integration efforts remain on track and are expected to generate savings in excess of $15 million annually starting in fiscal 2016.

Results of Operations

In the first quarter of fiscal 2015, Esterline reported sales from continuing operations of $446.3 million, a decrease of 8.1% compared with the prior-year level of $485.9 million. Lower sales were primarily the result of comparing this year's 13-week first fiscal quarter with the prior year's 14-week first fiscal quarter. In addition, foreign currency effects had a negative impact on fiscal 2015 first quarter sales of approximately $14 million.

Earnings from continuing operations in the first quarter of fiscal 2015 were $25.1 million, or $0.78 per diluted share, compared with $33.9 million, or $1.05 per diluted share, in the same period last year. Excluding after-tax integration activity expenses of $3.8 million and compliance expenses of $2.8 million, adjusted earnings from continuing operations were $31.6 million, or $0.98 per diluted share. 

Net earnings for the first fiscal quarter of 2015 were $8.3 million, or $0.26 per diluted share, compared with $30.1 million, or $0.93 per diluted share, in the prior-year period. Net earnings in the first quarter of fiscal 2015 included a $16.7 million loss from discontinued operations, including $14.1 million on assets held for sale. The prior-year period included a $3.9 million discontinued operations impact.

New orders in the first quarter of fiscal 2015 were $432.1 million. Backlog at the end of the first quarter of fiscal 2015 was $1.13 billion, compared with $1.22 billion at the end of the first quarter of fiscal 2014.

Gross margin as a percentage of sales in the first quarter of fiscal 2015 was 32.6%, compared with 35.1% in the prior-year period. This change reflects a lower recovery of fixed overhead on decreased sales volumes compared with the prior year's 14-week revenue total, somewhat softer product mix, and higher margin sales moving into the second quarter, particularly in Avionics & Controls and Advanced Materials.

Fiscal 2015 first quarter SG&A expense as a percent of sales was 21.0% compared with the prior-year level of 18.3%. Excluding integration and compliance adjustments in both 2015 and 2014, SG&A in the respective first quarters was 20.2% and 18.0% of sales.

Research, development and engineering spending in the first quarter of fiscal 2015 was $22.5 million, or 5.0% of sales, compared with $25.6 million, or 5.3% of sales, in the prior-year period.

The company's income tax rate in the first quarter of fiscal 2015 was 24.5% compared with 20.2% for the prior-year period. This difference is primarily a function of the timing of recognizing discrete tax benefits and expenses. The company continues to forecast a full-year average tax rate in the 22% to 23% range.

Reiteration of Guidance for 11-Month Fiscal 2015

The company reiterated its previously announced full-year guidance for the 11-month fiscal year ending on October 2, 2015. The change in year-end, as previously announced, is to better align reporting with the company's peer group, and to smooth the somewhat artificial seasonality of the prior fiscal year-end timing. The company continues to expect revenues for the 11-month fiscal 2015 in the range of $1.85 billion to $1.95 billion and adjusted earnings per share from continuing operations, excluding anticipated integration and compliance costs, in the range of $5.35 to $5.75 per diluted share. This guidance does not include the sales and margin effects from integrating the newly acquired display businesses.

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 1-866-515-2914; outside the U.S., use 617-399-5128. The pass code for the call is: 59392776.

Non-GAAP Financial Information

This press release includes non-GAAP financial measures -- adjusted earnings from continuing operations, and adjusted earnings from continuing operations per diluted share -- 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 plus the costs associated with certain integration activities -- including restructuring charges -- and incremental compliance costs incurred in the periods presented. 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.

In accordance with the SEC's requirements, below is the reconciliation of the non-GAAP financial measures to the comparable GAAP financial measures.

               
In thousands, except per share amounts              
  Three Months Ended   Three Months Ended
  January 30, 2015   January 31, 2014
  Per Diluted   Per Diluted
          Share           Share
                       
Earnings from Continuing Operations                      
  Attributable to Esterline (GAAP), Net of Tax $ 25,058   $ 0.78   $ 33,943   $ 1.05
  Restructuring Costs,                      
  Net of $1,222 and $1,749 Tax Benefit   3,767     0.12     3,655     0.12
  Compliance Costs,                      
  Net of $896 and $588 Tax Benefit   2,763     0.08     1,224     0.03
Adjusted Earnings from Continuing Operations                      
  (non-GAAP), Net of Tax $ 31,588   $ 0.98   $ 38,822   $ 1.20
                         

The company provides these non-GAAP financial measures as supplemental information to our GAAP financial measures. Management uses adjusted earnings from continuing operations and adjusted earnings from continuing operations per diluted share 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 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. 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 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.

           
ESTERLINE TECHNOLOGIES CORPORATION           
Consolidated Statement of Operations (unaudited)          
In thousands, except per share amounts          
           
  Three Months Ended  
  Jan 30,     Jan 31,  
  2015     2014  
Segment Sales              
  Avionics & Controls $ 176,478     $ 193,890  
  Sensors & Systems   163,656       181,774  
  Advanced Materials   106,210       110,276  
               
Net Sales   446,344       485,940  
               
Cost of Sales   300,994       315,205  
    145,350       170,735  
Expenses              
  Selling, general and administrative   93,656       89,132  
  Research, development and engineering   22,455       25,646  
  Restructuring charges   3,050       4,796  
  Other income   (12,744 )     --  
    Total Expenses   106,417       119,574  
               
Operating Earnings From Continuing Operations   38,933       51,161  
  Interest Income   (179 )     (119 )
  Interest Expense   5,841       8,625  
               
Earnings From Continuing Operations Before Income Taxes   33,271       42,655  
Income Tax Expense   8,150       8,626  
Earnings From Continuing Operations Including Noncontrolling Interests   25,121       34,029  
               
Earnings Attributable to Noncontrolling Interests   (63 )     (86 )
Earnings From Continuing Operations Attributable to Esterline, Net of Tax   25,058       33,943  
               
Loss From Discontinued Operations, Attributable to Esterline, Net of Tax   (16,739 )     (3,865 )
               
Net Earnings Attributable to Esterline $ 8,319     $ 30,078  
               
Earnings (Loss) Per Share--Basic:              
  Continuing Operations $ .79     $ 1.07  
  Discontinued Operations   (.53 )     (.12 )
               
Earnings (Loss) Per Share--Basic $ .26     $ .95  
               
Earnings (Loss) Per Share--Diluted:              
  Continuing Operations $ .78     $ 1.05  
  Discontinued Operations   (.52 )     (.12 )
               
Earnings (Loss) Per Share--Diluted $ .26     $ .93  
               
Weighted Average Number of Shares Outstanding--Basic   31,608       31,608  
               
Weighted Average Number of Shares Outstanding--Diluted   32,154       32,230  
               
               
               
ESTERLINE TECHNOLOGIES CORPORATION  
Consolidated Sales and Earnings from Continuing Operations by Segment (unaudited)  
In thousands        
           
  Three Months Ended  
  Jan 30,     Jan 31,  
  2015     2014  
Segment Sales              
  Avionics & Controls $ 176,478     $ 193,890  
  Sensors & Systems   163,656       181,774  
  Advanced Materials   106,210       110,276  
               
Net Sales $ 446,344     $ 485,940  
               
Earnings From Continuing Operations Before Income Taxes              
  Avionics & Controls $ 19,102     $ 27,740  
  Sensors & Systems   9,571       20,632  
  Advanced Materials   16,531       18,008  
    Segment Earnings   45,204       66,380  
               
  Corporate Expense   (19,015 )     (15,219 )
  Other income   12,744       --  
  Interest Income   179       119  
  Interest Expense   (5,841 )     (8,625 )
               
    Earnings From Continuing Operations              
    Before Income Taxes $ 33,271     $ 42,655  
                   
                   
                   
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Balance Sheet (unaudited)
In thousands
       
  Jan 30,   Jan 31,
  2015   2014
Assets          
Current Assets          
  Cash and cash equivalents $ 128,122   $ 208,438
  Cash in escrow   180,091     4,018
  Accounts receivable, net   342,399     328,016
  Inventories   425,965     474,656
  Income tax refundable   6,416     5,878
  Deferred income tax benefits   54,823     46,482
  Prepaid expenses   25,205     24,850
  Other current assets   2,321     4,013
  Current assets held for sale   38,357     --
    Total Current Assets   1,203,699     1,096,351
           
Property, Plant and Equipment, Net   303,180     366,454
           
Other Non-Current Assets          
  Goodwill   1,003,380     1,130,754
  Intangibles, net   429,577     581,179
  Debt issuance costs, net   3,952     5,785
  Deferred income tax benefits   59,533     71,173
  Other assets   20,690     18,639
  Non-current assets held for sale   59,379     --
  $ 3,083,390   $ 3,270,335
           
Liabilities and Shareholders' Equity          
Current Liabilities          
  Accounts payable $ 106,532   $ 116,052
  Accrued liabilities   241,009     238,918
  Current maturities of long-term debt   12,670     21,044
  Deferred income tax liabilities   3,190     2,609
  Federal and foreign income taxes   2,448     4,926
  Current liabilities held for sale   13,434     --
    Total Current Liabilities   379,283     383,549
           
Long-Term Liabilities          
  Credit facilities   280,000     155,000
  Long-term debt, net of current maturities   502,041     530,245
  Deferred income tax liabilities   136,898     187,063
  Pension and post-retirement obligations   57,581     64,229
  Other liabilities   34,144     55,005
  Non-current liabilities held for sale   19,794     --
           
Total Shareholders' Equity   1,673,649     1,895,244
  $ 3,083,390   $ 3,270,335