SOURCE: Esterline Technologies

Esterline Technologies

May 05, 2016 16:05 ET

Esterline Reports Fiscal 2016 Second Quarter Financial Results

BELLEVUE, WA--(Marketwired - May 5, 2016) - Esterline Corporation (NYSE: ESL)

  • Sales of $490.3 million in the fiscal second quarter; strong book-to-bill of 1.2
  • Earnings from continuing operations of $17.0 million; adjusted earnings from continuing operations of $27.3 million
  • GAAP earnings per diluted share from continuing operations of $0.57; adjusted earnings per diluted share of $0.92

Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace and defense markets, today reported results for the second fiscal quarter ended April 1, 2016. During the quarter, the company reported consolidated revenue of $490.3 million, an increase of 4.7% compared with the year-ago period of $468.2 million. Higher revenue in the fiscal 2016 period was primarily attributable to higher sales volumes and demand across all business segments. All comparisons to prior-year periods are against a recast fiscal 2015 for the 12 months ended October 2, 2015, to align with the company's new fiscal calendar. 

Earnings from continuing operations in the second quarter of fiscal 2016 were $17.0 million, or $0.57 per diluted share, compared with prior-year earnings from continuing operations of $24.9 million, or $0.79 per diluted share. Adjusted earnings from continuing operations for the second fiscal quarter of 2016 were $27.3 million, or $0.92 per diluted share. In the comparable period of the prior year, adjusted earnings from continuing operations were $29.4 million, or $0.92 per diluted share. For the second fiscal quarter of 2016, adjusted results exclude $0.21 per diluted share related to previously announced integration and incremental compliance activities and $0.14 per diluted share related to long-term contract adjustments (see Table 1). GAAP and adjusted earnings from continuing operations in the second fiscal quarter of 2016 include a $0.17 per diluted share negative impact from foreign exchange mark-to-market accounting. 

 
Table 1: Effect of Certain Items on 2nd Fiscal Quarter 2016
Earnings from Continuing Operations
 
    $ Millions   EPS
Earnings (GAAP)   $ 17.0   $ 0.57
             
Accelerated Integration Costs     1.6     0.05
Compliance Costs     1.4     0.05
DAT Integration Costs     3.1     0.11
Long-term Contract Adjustments     4.2     0.14
             
Adjusted Earnings (non-GAAP)   $ 27.3   $ 0.92
             

Curtis Reusser, Esterline's Chief Executive Officer, said, "This was a solid quarter for us focused on execution. We continued to make progress in our strategic areas, we saw good improvement in our top-line, and we're on track with our current full-year guidance expectations."

Including discontinued operations, net earnings for the second fiscal quarter of 2016 were $15.0 million, or $0.50 per diluted share, compared with $10.3 million, or $0.33 per diluted share, in the comparable period in fiscal 2015. Net earnings in the second fiscal quarter of 2016 included a $2.0 million loss from discontinued operations, while the prior year included a $14.6 million loss from discontinued operations.

New orders in the second quarter of fiscal 2016 were $567.9 million, compared with $418.5 million in the comparable prior-year period. The higher orders reflect strong commercial aerospace and defense demand across the company's three business segments. Backlog at the end of the quarter was $1.4 billion, compared with $1.1 billion at the end of the second quarter of fiscal 2015.

Gross profit in the second fiscal quarter of 2016 was $156.2 million, compared with $150.0 million in the prior-year period. Reported gross margin as a percentage of sales in the second fiscal quarter of 2016 was 31.9% compared with 32.0% in the prior-year period. On an adjusted basis, excluding the discrete items consistent with adjusted earnings, the company reported gross margin of $162.9 million, or 33.2% of sales, in the second fiscal quarter of 2016, compared with adjusted gross margin of $159.3 million, or 34.0% of sales, in the prior year.

Selling, general and administrative (SG&A) expenses during the second fiscal quarter of 2016 were $102.4 million, compared with $99.4 million in the prior-year period. Higher SG&A was driven by the inclusion of the defense, aerospace and training businesses (DAT) for a full quarter in 2016. Second fiscal quarter SG&A expenses as a percent of sales were 20.9% in fiscal 2016, compared with the prior-year level of 21.2%. 

Research, development and engineering (R&D) spending in the second quarter of fiscal 2016 was $25.0 million, or 5.1% of sales, compared with $25.1 million, or 5.4% of sales, in the prior-year period. The company expects full-year R&D spending to be approximately 5.0% of sales.

The company's income tax rate in the second quarter of fiscal 2016 was 16.6% compared with 18.6% in the prior-year period. For the full year, the company expects a tax rate of 17% to 19%.

For the first half of fiscal 2016, sales were $931.8 million, a decline of 4.2% compared with $972.8 million in the first half of fiscal 2015. Lower revenue compared to the prior-year period was primarily due to lower end-market demand and shipment and production delays in the first fiscal quarter of 2016. Additionally, the incremental contribution from DAT, acquired from Barco N.V. in January of 2015, was partially offset by an unfavorable impact from foreign exchange rates. First-half fiscal 2016 GAAP earnings from continuing operations were $26.9 million, or $0.90 per diluted share, compared with the prior-year period results of $59.4 million, or $1.86 per diluted share. Excluding the discrete costs described in Table 2 below, adjusted earnings from continuing operations in the first six months of fiscal 2016 were $45.7 million, or $1.53 per diluted share, compared with the prior-year period results of $77.1 million, or $2.41 per diluted share.

 
Table 2: Effect of Certain Items on YTD Fiscal 2016
Earnings from Continuing Operations
 
    $ Millions   EPS
Earnings (GAAP)   $ 26.9   $ 0.90
             
Accelerated Integration Costs     3.0     0.10
Compliance Costs     4.9     0.16
DAT Integration Costs     6.8     0.23
Long-term Contract Adjustments     4.1     0.14
             
Adjusted Earnings (non-GAAP)   $ 45.7   $ 1.53
             

Cash flow from operations through the six months ended April 1, 2016, was $79.9 million, compared with $50.9 million through the six months ended March 27, 2015. Excluding capital expenditures of $42.5 million, free cash flow was $37.4 million in the first six months of fiscal 2016. In the six months ended March 27, 2015 and excluding capital expenditures of $25.3 million, free cash flow was $25.6 million. Additionally, during the second fiscal quarter of 2016, the company repurchased 202,310 of its shares for $12.1 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: 92658389. 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 second 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 DAT business in January 2015, adjustments to reserves on long-term contracts incurred in the periods presented and unique amounts related to pension expense, 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 excludes the same costs excluded from adjusted earnings from continuing operations set forth in the table below. Second fiscal quarter 2016 adjusted gross margin excludes the cost of certain integration activities and adjustments to long-term contract reserves totaling $6.7 million from GAAP gross margin. Fiscal second quarter 2015 adjusted gross margin excludes certain integration costs, purchase accounting charges and adjustments to long-term contract reserves totaling $9.3 million. 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 and additional relevant reconciliations are included in the presentation providing supplemental financial information.

           
In millions, except per share amounts          
    Three   Recast Three  
    Months Ended   Months Ended  
    April 1, 2016   March 27, 2015  
             Diluted               Diluted  
             EPS               EPS  
                             
Earnings from Continuing Operations Attributable to Esterline (GAAP), Net of Tax   $ 17.0   $ 0.57   $ 24.9     $ 0.79  
  Accelerated Integration Costs, Net of Tax of $0.3 and $0.7     1.6     0.05     3.1       0.09  
  Compliance Costs, Net of Tax of $0.6 and $0.7     1.4     0.05     3.0       0.09  
  DAT Integration and Purchase Acctg Adjustments, Net of Tax of $0.9 and $0.8     3.1     0.11     3.7       0.11  
  DAT Closing Expenses, Net of Tax of $1.1     -     -     4.2       0.14  
  Long-term Contract Adjustments, Net of Tax of $0.5 and $1.1     4.2     0.14     4.2       0.13  
  Non-Income Tax Gain, Net of Tax of $4.4     -     -     (13.7 )     (0.43 )
Adjusted Earnings from Continuing Operations (non-GAAP), Net of Tax   $ 27.3   $ 0.92   $ 29.4     $ 0.92  
                             
In millions, except per share amounts          
    Six   Recast Six  
    Months Ended   Months Ended  
    April 1, 2016   March 27, 2015  
             Diluted               Diluted  
             EPS               EPS  
                             
Earnings from Continuing Operations Attributable to Esterline (GAAP), Net of Tax   $ 26.9   $ 0.90   $ 59.4     $ 1.86  
  Accelerated Integration Costs, Net of Tax of $0.3 and $2.0     3.0     0.10     7.3       0.23  
  Compliance Costs, Net of Tax of $0.6 and $1.6     4.9     0.16     5.7       0.17  
  DAT Integration and Purchase Acctg Adjustments, Net of Tax of $0.8 and $0.8     6.8     0.23     3.7       0.12  
  DAT Closing Expenses, Net of Tax of $1.3     -     -     4.7       0.15  
  Long-term Contract Adjustments, Net of Tax of $0.5 and $2.2     4.1     0.14     7.7       0.24  
  Pension Expense, Net of Tax of $0.7     -     -     2.3       0.07  
  Non-Income Tax Gain, Net of Tax of $4.4     -     -     (13.7 )     (0.43 )
Adjusted Earnings from Continuing Operations (non-GAAP), Net of Tax   $ 45.7   $ 1.53   $ 77.1     $ 2.41  
                             

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 Transition Report on Form 10-K.

   
ESTERLINE TECHNOLOGIES CORPORATION  
Consolidated Statement of Operations (unaudited)  
In thousands, except per share amounts  
   
    Three Months Ended     Six Months Ended  
    April 1,     March 27,     April 1,     March 27,  
    2016     2015     2016     2015  
          (Recast)           (Recast)  
Segment Sales                                
  Avionics & Controls   $ 198,665     $ 187,330     $ 384,910     $ 393,947  
  Sensors & Systems     176,069       171,538       328,499       354,432  
  Advanced Materials     115,576       109,342       218,378       224,442  
                                 
Net Sales     490,310       468,210       931,787       972,821  
                                 
Cost of Sales     334,137       318,193       637,895       644,563  
      156,173       150,017       293,892       328,258  
Expenses                                
  Selling, general and administrative     102,423       99,432       196,514       197,521  
  Research, development and engineering     24,974       25,143       50,549       48,674  
  Restructuring charges     940       1,634       1,871       4,927  
  Other income     -       (12,744 )     -       (12,744 )
    Total Expenses     128,337       113,465       248,934       238,378  
                                 
Operating Earnings from Continuing                                
  Operations     27,836       36,552       44,958       89,880  
  Interest Income     (94 )     (135 )     (181 )     (319 )
  Interest Expense     7,294       5,934       14,510       14,016  
                                 
Earnings from Continuing Operations                                
Before Income Taxes     20,636       30,753       30,629       76,183  
Income Tax Expense     3,416       5,714       3,383       16,686  
Earnings from Continuing Operations Including Noncontrolling Interests     17,220       25,039       27,246       59,497  
Earnings Attributable to Noncontrolling Interests     (224 )     (108 )     (386 )     (91 )
Earnings from Continuing Operations                                
Attributable to Esterline, Net of Tax     16,996       24,931       26,860       59,406  
Loss from Discontinued Operations,                                
Attributable to Esterline, Net of Tax     (2,023 )     (14,600 )     (6,803 )     (20,476 )
                                 
Net Earnings Attributable to Esterline   $ 14,973     $ 10,331     $ 20,057     $ 38,930  
                                 
Earnings (Loss) Per Share -- Basic:                                
  Continuing Operations   $ .58     $ .80     $ .91     $ 1.89  
  Discontinued Operations     (.07 )     (.47 )     (.23 )     (.65 )
                                 
Earnings (Loss) Per Share -- Basic   $ .51     $ .33     $ .68     $ 1.24  
                                 
Earnings (Loss) Per Share -- Diluted:                                
  Continuing Operations   $ .57     $ .79     $ .90     $ 1.86  
  Discontinued Operations     (.07 )     (.46 )     (.23 )     (.64 )
                                 
Earnings (Loss) Per Share -- Diluted   $ .50     $ .33     $ .67     $ 1.22  
                                 
Weighted Average Numberof Shares Outstanding -- Basic     29,588       31,162       29,585       31,401  
                                 
Weighted Average Number of Shares Outstanding -- Diluted     29,825       31,687       29,882       31,937  
                                 
                                 
   
ESTERLINE TECHNOLOGIES CORPORATION  
Consolidated Sales and Earnings From Continuing Operations by Segment (unaudited)  
In thousands  
   
    Three Months Ended     Six Months Ended  
    April 1,     March 27,     April 1,     March 27,  
    2016     2015     2016     2015  
          (Recast)           (Recast)  
Segment Sales                                
  Avionics & Controls   $ 198,665     $ 187,330     $ 384,910     $ 393,947  
  Sensors & Systems     176,069       171,538       328,499       354,432  
  Advanced Materials     115,576       109,342       218,378       224,442  
                                 
Net Sales   $ 490,310     $ 468,210     $ 931,787     $ 972,821  
                                 
Earnings from Continuing Operations Before Income Taxes                                
  Avionics & Controls   $ 2,649     $ 7,934     $ 12,062     $ 45,260  
  Sensors & Systems     20,944       16,256       33,728       33,714  
  Advanced Materials     23,208       19,469       36,198       41,024  
    Segment Earnings     46,801       43,659       81,988       119,998  
                                   
  Corporate expense     (18,965 )     (19,851 )     (37,030 )     (42,862 )
  Other income     -       12,744       -       12,744  
  Interest income     94       135       181       319  
  Interest expense     (7,294 )     (5,934 )     (14,510 )     (14,016 )
                                 
Earnings from Continuing Operations                                
  Before Income Taxes   $ 20,636     $ 30,753     $ 30,629     $ 76,183  
                                   
                                   
 
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Balance Sheet (unaudited)
In thousands
 
    April 1,   October 2,
    2016   2015
Assets            
Current Assets            
  Cash and cash equivalents   $ 219,271   $ 191,355
  Escrow cash     1,125     -
  Accounts receivable, net     374,090     380,748
  Inventories     460,717     446,768
  Income tax refundable     11,411     12,575
  Deferred income tax benefits     -     41,082
  Prepaid expenses     21,816     23,008
  Other current assets     6,213     5,427
  Current assets of businesses held for sale     19,217     27,851
    Total Current Assets     1,113,860     1,128,814
             
Property, Plant and Equipment, Net     327,364     309,399
             
Other Non-Current Assets            
  Goodwill     1,042,283     1,041,991
  Intangibles, net     425,457     452,040
  Deferred income tax benefits     65,783     28,979
  Other assets     15,988     14,348
  Non-current assets of businesses held for sale     21,305     24,917
    $ 3,012,040   $ 3,000,488
             
Liabilities and Shareholders' Equity            
  Current Liabilities            
  Accounts payable   $ 123,309   $ 117,976
  Accrued liabilities     257,681     259,734
  Current maturities of long-term debt     17,182     13,376
  Federal and foreign income taxes     1,527     2,404
  Current liabilities of businesses held for sale     14,180     17,106
    Total Current Liabilities     413,879     410,596
             
Long-Term Liabilities            
  Credit facilities     165,000     160,000
  Long-term debt, net of current maturities     698,583     701,457
  Deferred income tax liabilities     63,073     73,849
  Pension and post-retirement obligations     74,188     75,019
  Other liabilities     24,182     29,367
  Non-current liabilities of businesses held for sale     822     2,409
             
Total Shareholders' Equity     1,572,313     1,547,791
    $ 3,012,040   $ 3,000,488