SOURCE: Esterline Technologies

Esterline Technologies

November 19, 2015 16:05 ET

Esterline Reports Fiscal 2015 Fourth Quarter and Full-Year Results

BELLEVUE, WA--(Marketwired - Nov 19, 2015) -  Esterline Corporation (NYSE: ESL)

  • Revenue of $349.6 million for the two-month fiscal fourth quarter
  • Earnings from continuing operations of $20.7 million, or $0.69 per diluted share
  • Adjusted earnings from continuing operations of $39.9 million, or $1.33 per diluted share
  • Full-year free cash flow conversion of 159% of net income
  • Company issues fiscal 2016 guidance

Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace and defense markets, today reported results for the 2015 two-month fiscal fourth quarter and 11-month fiscal year ended October 2, 2015. All amounts for the fourth quarter and full year periods of fiscal 2014 are presented for the two months and 11 months ended September 26, 2014. In the fourth quarter of fiscal 2015, the company reported that consolidated revenue increased 11.6% to $349.6 million compared with the comparable year-ago period of $313.2 million. Higher revenue was attributable to an additional week in the fourth quarter of fiscal 2015 and the inclusion of revenue from the defense, aerospace and training display business (DAT) acquired from Barco N.V. in the second quarter of fiscal 2015. These factors were partially offset by a negative foreign exchange impact in the fourth quarter of fiscal 2015 compared with 2014. Excluding these factors, organic sales were relatively unchanged.

Earnings from continuing operations in the fiscal fourth quarter of 2015 were $20.7 million, or $0.69 per diluted share, compared with fourth quarter fiscal 2014 earnings from continuing operations of $20.0 million, or $0.63 per diluted share.

Adjusted earnings from continuing operations for the fiscal fourth quarter in 2015 were $39.9 million, or $1.33 per diluted share. As previously noted by the company, adjusted results exclude $0.17 per diluted share related to integration and compliance activities, $0.16 per diluted share related to the financial results of the DAT business, and $0.31 per diluted share in conjunction with debt refinancing activity (see Table 1). In the prior-year period, the company would have reported adjusted earnings from continuing operations of $23.5 million, or $0.74 per diluted share. 

Curtis Reusser, Esterline's Chief Executive Officer, said, "2015 marked an important year for Esterline, as we navigated through strategic initiatives that touched many aspects of our business. Operationally this included continued progress on our accelerated integration, strategic sourcing and continuous improvement activities as well as reshaping our business portfolio. Also, we refinanced our outstanding debt, adjusted our reporting calendar to better align with our industry, and returned $260 million of cash to shareholders through our share repurchase program." 

Reusser continued, "While 2015 was a challenging year by many measures, I'm pleased with the focus of our teams to successfully execute on our plans and finish on a strong note."

       
       
Table 1:  Effect of Certain Items on 4th Fiscal Quarter      
  2015 Earnings from Continuing Operations      
       
  $ millions   EPS
Earnings - U.S. GAAP $ 20.7   $ 0.69
           
Accelerated Integration Costs   1.6     0.05
Compliance Costs   3.3     0.12
DAT Net Loss   5.0     0.16
Bond Redemption Costs   9.3     0.31
           
Adjusted Earnings $ 39.9   $ 1.33
           

Including discontinued operations, net earnings for the nine-week fiscal fourth quarter of 2015 were $3.0 million, or $0.10 per diluted share, compared with a loss of $31.4 million, or $(0.98) per diluted share, in the comparable period last year. Net earnings in the fourth quarter of fiscal 2015 included a $17.7 million loss from discontinued operations, while the prior year included a $51.5 million loss from discontinued operations.

For the 11-month fiscal year of 2015, the company reported revenues of $1.77 billion compared with $1.80 billion in the comparable prior-year period. Fiscal 2015 earnings from continuing operations were $96.7 million, or $3.10 per diluted share. In the comparable period of 2014, the company would have reported earnings from continuing operations of $133.7 million, or $4.12 per diluted share. Adjusted earnings from continuing operations in fiscal 2015 were $145.5 million, or $4.67 per diluted share, excluding the discrete items shown in Table 2. Adjusted earnings in the comparable period of 2014 were $154.0 million, or $4.75 per diluted share, excluding compliance and integration expenses.

Net income in fiscal 2015 was $59.6 million, or $1.91 per diluted share, compared with $74.5 million, or $2.29 per diluted share, in the prior year period. The loss from discontinued operations was $37.1 million in fiscal 2015 and $59.2 million in the comparable period of 2014.

           
Table 2:  Effect of Certain Items on Full-Year          
  2015 Earnings from Continuing Operations          
           
  $ millions     EPS  
Earnings - U.S. GAAP $ 96.7     $ 3.10  
               
Accelerated Integration Costs   9.8       0.31  
Compliance Costs   15.3       0.49  
DAT Closing Expenses   4.7       0.15  
DAT Net Loss   13.4       0.43  
Long-term Contract Adjustments   7.7       0.25  
Pension Expense   2.3       0.08  
Bond Redemption Costs   9.3       0.30  
Non-Income Tax Gain   (13.7 )     (0.44 )
               
Adjusted Earnings $ 145.5     $ 4.67  
               

New orders in the fiscal fourth quarter of 2015 were $306.8 million, compared with $273.7 million in the comparable prior-year period. Backlog at the end of fiscal 2015 was $1.2 billion, compared with $1.1 billion at the end of the fiscal year ending October 31, 2014.

Reported gross margin as a percentage of sales in the fourth quarter of fiscal 2015 was 32.7%, compared with 32.6% in the prior-year period. For the 2015 fiscal year, reported gross margin as a percentage of sales was 33.2%, compared with 34.7% in the prior year. The lower gross margins in fiscal 2015 were due to weaker sales mix and lower sales in Avionics & Controls and Advanced Materials. 

Fiscal fourth quarter selling, general and administrative (SG&A) expenses as a percent of sales were 17.8%, compared with the prior-year level of 18.0%. For fiscal-year 2015, selling, general and administrative expenses as a percentage of sales were 19.5%, compared with 18.0% in the prior-year period. The higher rate in fiscal 2015 mainly reflected higher incremental SG&A expenses from the DAT acquisition and increased compliance expense.

Research, development and engineering (R&D) spending in the fourth quarter of fiscal 2015 was $13.1 million, or 3.7% of sales, compared with $14.1 million, or 4.5% of sales, in the prior-year period. Fiscal 2015 R&D spending was $91.5 million, or 5.2% of sales, compared with $88.7 million, or 4.9% of sales, in the comparable period of 2014. 

The company's income tax rate in the fourth quarter of fiscal 2015 was 1.3%, compared with 19.1% for the prior-year period. Lower taxes in the fourth quarter of 2015 reflect certain discrete tax benefits during the period, including those associated with the DAT net loss. The fiscal 2015 tax rate was 16.3%, compared with a tax rate of 21.0% during the comparable 2014 period. The company expects a tax rate in a range of 21% to 22% in fiscal 2016.

Cash flow from operations for fiscal 2015 was $144.3 million. Free cash flow conversion was 159% of net income. During fiscal 2015, the company repurchased 2.6 million shares of common stock for $259.5 million. Within the company's $400 million share repurchase authorization, it has purchased a total of 2.8 million shares for a purchase price of approximately $290 million.

Guidance for Fiscal Year 2016

The company today also provided guidance for fiscal 2016 ending on September 30, 2016. Revenues for fiscal 2016 are expected to be in the range of $2.03 billion to $2.08 billion. Adjusted earnings per share from continuing operations, excluding anticipated integration and compliance costs, are expected to be in the range of $5.50 to $5.80 per diluted share.

Reusser said 2016 would not be without challenges, but that the company "...looked closely at our plan and took into account some of the uncertainty that still exists in several of our core markets when we developed this guidance." He further commented that as the company completes its accelerated integration projects and continues to make progress within strategic sourcing, the Esterline operating system, the DAT integration and its trade compliance activities, incremental sales and profits should become more evident.

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 1-866-318-8611; outside the U.S., use 617-399-5130. The pass code for the call is: 23783176. The company has posted a presentation on its website (www.esterline.com) to provide additional information about its fourth fiscal quarter operational and financial results. 

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), adjusted sales, adjusted gross margin, and free cash flow conversion -- that have not been calculated in accordance with generally accepted accounting principles in the U.S. (GAAP). Adjusted earnings from continuing operations consists 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 the acquisition of the DAT business in January 2015, a bond redemption completed in August 2015, adjustments to reserves on long-term contracts incurred in the periods presented, and unique amounts related to pension expense and a non-income tax gain, 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 (except the fourth quarter of fiscal 2014). EBIT is defined as operating earnings from continuing operations. Adjusted EBIT excludes the same costs excluded from adjusted earnings from continuing operations, as well as excluding from GAAP sales the DAT sales of $20.0 million in the fiscal 2015 fourth quarter and $82.5 million for full fiscal year 2015. Adjusted gross margin excludes the cost of certain integration activities and DAT's gross margin from GAAP gross margin and excludes DAT's sales from GAAP sales. Full-year 2015 free cash flow conversion is calculated by dividing free cash flow of $95.0 million (cash flow from operations of $144.3 million less capital expenditures of $49.3 million) by net earnings of $59.6 million. In accordance with the SEC's requirements, the reconciliations of adjusted sales, adjusted gross margin, and adjusted EBIT to their respective GAAP measures are included in the supplemental information related to this press release. Below is the reconciliation of the non-GAAP adjusted earnings from continuing operations to the comparable GAAP earnings from continuing operations.

                 
In millions, except per share amounts                
    Two Months Ended   Two Months Ended
    Oct. 2, 2015   Sept. 26, 2014
    Per Diluted   Per Diluted
    Share   Share
                         
Earnings from Continuing Operations Attributable to Esterline (GAAP), Net of Tax   $ 20.7   $ 0.69   $ 20.0   $ 0.63
  Accelerated Integration Costs, Net of $0 and $0.7 Tax Benefit     1.6     0.05     2.4     0.07
  Compliance Costs, Net of $0 and $0.3 Tax Benefit     3.3     0.12     1.1     0.04
  DAT Net Loss, Net of $0.7 Tax Benefit     5.0     0.16     --     --
  Bond Redemption Costs, Net of $1.8 Tax Benefit     9.3     0.31     --     --
                         
Adjusted Earnings from Continuing Operations (non-GAAP), Net of Tax   $ 39.9   $ 1.33   $ 23.5   $ 0.74
                         
                         
                         
In millions, except per share amounts                    
    Eleven Months Ended     Eleven Months Ended
    Oct. 2, 2015     Sept. 26, 2014
    Per Diluted     Per Diluted
    Share     Share
                             
Earnings from Continuing Operations Attributable to Esterline (GAAP), Net of Tax   $ 96.7     $ 3.10     $ 133.7   $ 4.12
  Accelerated Integration Costs, Net of $2.0 and $3.7 Tax Benefit     9.8       0.31       13.8     0.43
  Compliance Costs, Net of $3.0 and $1.8 Tax Benefit     15.3       0.49       6.5     0.20
  DAT Closing Expenses, Net of $1.3 Tax Benefit     4.7       0.15       --     --
  DAT Net Loss, Net of $2.6 Tax Benefit     13.4       0.43       --     --
  Long-term Contract Adjustments, Net of $2.2 Tax Benefit     7.7       0.25       --     --
  Pension Expense, Net of $0.7 Tax Benefit     2.3       0.08       --     --
  Bond Redemption Costs, Net of $1.8 Tax Benefit     9.3       0.30       --     --
  Non-Income Tax Gain, Net of $4.4 Tax Expense     (13.7 )     (0.44 )     --     --
                             
Adjusted Earnings from Continuing Operations (non-GAAP), Net of Tax   $ 145.5     $ 4.67     $ 154.0   $ 4.75
                             

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 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.

                         
ESTERLINE TECHNOLOGIES CORPORATION                    
Consolidated Statement of Operations (unaudited)              
In thousands, except per share amounts                    
                         
    Two Months Ended     Eleven Months Ended  
    Oct. 2,     Sept. 26,     Oct. 2,     Sept. 26,  
    2015     2014     2015     2014  
Segment Sales                                
  Avionics & Controls   $ 151,086     $ 112,412     $ 727,801     $ 668,595  
  Sensors & Systems     117,835       110,719       633,446       689,850  
  Advanced Materials     80,706       90,069       413,202       442,682  
                                 
Net Sales     349,627       313,200       1,774,449       1,801,127  
                                 
Cost of Sales     235,462       211,100       1,185,056       1,176,413  
      114,165       102,100       589,393       624,714  
Expenses                                
  Selling, general and administrative     62,356       56,285       346,781       323,957  
  Research, development and engineering     13,075       14,142       91,491       88,656  
  Restructuring charges     1,264       1,824       6,639       12,103  
  Other income     241       --       (12,503 )     --  
    Total Expenses     76,936       72,251       432,408       424,716  
                                 
                                 
Operating Earnings From Continuing Operations     37,229       29,849       156,985       199,998  
                                 
Interest Income     (131 )     (101 )     (578 )     (501 )
Interest Expense     5,067       5,062       30,090       29,986  
Loss on Extinguishment of Debt     11,122       --       11,451       533  
                                 
Earnings From Continuing Operations Before Income Taxes     21,171       24,888       116,022       169,980  
Income Tax Expense     284       4,761       18,956       35,759  
Earnings From Continuing Operations Including Noncontrolling Interests     20,887       20,127       97,066       134,221  
Earnings Attributable to Noncontrolling Interests     (183 )     (98 )     (401 )     (527 )
Earnings From Continuing Operations Attributable to Esterline, Net of Tax     20,704       20,029       96,665       133,694  
Loss From Discontinued Operations,                                
Attributable to Esterline, Net of Tax     (17,718 )     (51,465 )     (37,053 )     (59,240 )
                                 
Net Earnings Attributable to Esterline   $ 2,986     $ (31,436 )   $ 59,612     $ 74,454  
                                 
Earnings (Loss) Per Share--Basic:                                
  Continuing Operations   $ .70     $ .63     $ 3.15     $ 4.20  
  Discontinued Operations     (.60 )     (1.61 )     (1.21 )     (1.86 )
                                 
Earnings (Loss) Per Share--Basic   $ .10     $ (.98 )   $ 1.94     $ 2.34  
                                 
Earnings (Loss) Per Share--Diluted:                                
  Continuing Operations   $ .69     $ .63     $ 3.10     $ 4.12  
  Discontinued Operations     (.59 )     (1.61 )     (1.19 )     (1.83 )
                                 
Earnings (Loss) Per Share--Diluted   $ .10     $ (.98 )   $ 1.91     $ 2.29  
                                 
Weighted Average Number of Shares Outstanding--Basic     29,543       31,975       30,729       31,839  
                                 
Weighted Average Number of Shares Outstanding--Diluted     29,901       31,975       31,215       32,443  
                                 
                                 
                                 
ESTERLINE TECHNOLOGIES CORPORATION                    
Consolidated Sales and Earnings From Continuing Operations by Segment (unaudited)  
In thousands                        
                         
    Two Months Ended     Eleven Months Ended  
    Oct. 2,     Sept. 26,     Oct. 2,     Sept. 26,  
    2015     2014     2015     2014  
                                 
Segment Sales                                
  Avionics & Controls   $ 151,086     $ 112,412     $ 727,801     $ 668,595  
  Sensors & Systems     117,835       110,719       633,446       689,850  
  Advanced Materials     80,706       90,069       413,202       442,682  
                                 
    Net Sales   $ 349,627     $ 313,200     $ 1,774,449     $ 1,801,127  
                                 
Earnings From Continuing Operations Before Income Taxes                                
  Avionics & Controls   $ 15,230     $ 11,402     $ 65,910     $ 92,227  
  Sensors & Systems     16,296       11,842       71,787       73,653  
  Advanced Materials     15,043       18,539       80,951       94,450  
    Segment Earnings     46,569       41,783       218,648       260,330  
                                 
  Corporate expense     (9,099 )     (11,934 )     (74,166 )     (60,332 )
  Other income     (241 )     --       12,503       --  
  Interest income     131       101       578       501  
  Interest expense     (5,067 )     (5,062 )     (30,090 )     (29,986 )
  Loss on extinguishment of debt     (11,122 )     --       (11,451 )     (533 )
                                 
    Earnings From Continuing Operations Before Income Taxes   $ 21,171     $ 24,888     $ 116,022     $ 169,980  
                                     
                                     
                                     
ESTERLINE TECHNOLOGIES CORPORATION      
Consolidated Balance Sheet (unaudited)      
In thousands      
  October 2,   October 31,
  2015   2014
Assets          
Current Assets          
  Cash and cash equivalents $ 191,355   $ 238,144
  Accounts receivable, net   380,748     379,889
  Inventories   446,768     433,595
  Income tax refundable   12,575     5,266
  Deferred income tax benefits   41,082     48,679
  Prepaid expenses   23,008     20,336
  Other current assets   5,427     2,149
  Current assets held for sale   27,851     41,446
    Total Current Assets   1,128,814     1,169,504
           
Property, Plant and Equipment, Net   309,399     319,342
           
Other Non-Current Assets          
  Goodwill   1,041,991     1,071,786
  Intangibles, net   452,040     471,377
  Debt issuance costs, net   8,467     4,295
  Deferred income tax benefits   28,979     71,307
  Other assets   12,423     14,179
  Non-current assets held for sale   24,917     71,677
  $ 3,007,030   $ 3,193,467
           
Liabilities and Shareholders' Equity          
Current Liabilities          
  Accounts payable $ 117,976   $ 115,284
  Accrued liabilities   259,734     262,536
  Current maturities of long-term debt   13,589     12,774
  Deferred income tax liabilities   11     1,773
  Federal and foreign income taxes   2,393     1,571
  Current liabilities held for sale   17,106     14,191
    Total Current Liabilities   410,809     408,129
           
Long-Term Liabilities          
  Credit facilities   160,000     100,000
  Long-term debt, net of current maturities   707,786     509,720
  Deferred income tax liabilities   73,849     149,165
  Pension and post-retirement obligations   75,019     62,693
  Other liabilities   29,367     46,884
  Non-current liabilities held for sale   2,409     18,876
           
Total Shareholders' Equity   1,547,791     1,898,000
  $ 3,007,030   $ 3,193,467