SOURCE: Esterline Technologies

Esterline Technologies

February 02, 2017 16:05 ET

Esterline Reports Fiscal 2017 First Quarter Results

BELLEVUE, WA--(Marketwired - Feb 2, 2017) -  Esterline Corporation (NYSE: ESL)

  • Sales of $457.7 million in the fiscal first quarter, up 3.7% year-over-year
  • Earnings from continuing operations of $21.5 million; adjusted earnings from continuing operations of $24.4 million
  • GAAP earnings per diluted share from continuing operations of $0.72; adjusted earnings per diluted share of $0.82
  • Free cash flow of $30.2 million
  • Company reiterates full-year guidance for sales, earnings and free cash flow

Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace and defense markets, today reported results for the first fiscal quarter ended December 30, 2016. The company reported consolidated revenue of $457.7 million during the quarter, an increase of 3.7% compared with $441.5 million in the year-ago period. Higher year-over-year revenue is attributable to incremental sales growth in the company's Sensors & Systems and Avionics & Controls segments.

Earnings from continuing operations in the first fiscal quarter of 2017 were $21.5 million, or $0.72 per diluted share, compared with prior-year earnings from continuing operations of $9.9 million, or $0.33 per diluted share. Adjusted earnings from continuing operations for the first fiscal quarter of 2017 were $24.4 million, or $0.82 per diluted share. Adjusted results exclude $0.10 per diluted share mostly related to incremental compliance activities (see Table 1). In the comparable period of the prior year, adjusted earnings from continuing operations were $18.4 million, or $0.62 per diluted share. 

Curtis Reusser, Esterline's Chief Executive Officer, said, "I am pleased with the results for the start of our fiscal year. First quarter revenues were just above the high end of our expected range and earnings in the quarter were well ahead of our expectations. The combination of modestly stronger than expected operating trends and a shift in the timing of taxes and R&D spend drove the improved earnings performance." Reusser added, "We continue to focus on execution and operational excellence to drive results for our stakeholders."

     
Table 1: Effect of Certain Items on 1st Fiscal Quarter    
2017 Earnings from Continuing Operations    
         
    $ millions   EPS
Earnings - U.S. GAAP   $ 21.5   $ 0.72
             
DAT Integration Costs     0.6     0.02
Compliance Costs     2.3     0.08
             
Adjusted Earnings   $ 24.4   $ 0.82
             

The company reiterated its fiscal 2017 full-year expectation for sales of $2.0 billion to $2.05 billion and for GAAP earnings from continuing operations of $4.30 to $4.70 per diluted share. The expectation for full-year adjusted earnings from continuing operations, which excludes certain compliance and integration costs, remains in the range of $4.50 to $4.90 per diluted share. The company's prior guidance for fiscal 2017 full-year EBITDA and free cash flow also remained unchanged. 

Including discontinued operations, net earnings for the first fiscal quarter of 2017 were $16.2 million, or $0.54 per diluted share, compared with $5.1 million, or $0.17 per diluted share, in the comparable period in fiscal 2016. Net earnings in the first fiscal quarter of 2017 included a $5.3 million loss from discontinued operations, while the prior year included a $4.8 million loss from discontinued operations.

New orders in the first fiscal quarter of 2017 were $421.5 million, compared with $458.1 million in the comparable prior-year period. Backlog at the end of the first fiscal quarter of 2017 was $1.26 billion, compared with $1.24 billion at the end of the first quarter of fiscal 2016.

Gross profit in the fiscal first quarter of 2017 was $144.0 million, compared with $137.7 million in the prior-year period. Reported gross margin as a percentage of sales in the first fiscal quarter of 2017 was 31.5% compared with 31.2% in the prior-year period.

Selling, general and administrative (SG&A) expenses during the fiscal first quarter of 2017 were $95.6 million, compared with $94.1 million in the prior year. Fiscal first quarter SG&A expenses as a percentage of sales were 20.9%, compared with the prior-year level of 21.3%.

Research, development and engineering (R&D) spending in the first quarter of fiscal 2017 was $21.0 million, or 4.6% of sales, compared with $25.6 million, or 5.8% of sales, in the prior-year period. The company expects full-year R&D spending to be approximately 5.0% of sales as development activities on specific programs accelerate after the first quarter. 

The company's income tax rate in the first fiscal quarter of 2017 was 1.9% compared with a 0.3% benefit in the prior-year period. Tax rates in each of these periods were impacted by discrete tax benefits. For the full year, the company expects a tax rate of approximately 24% - 25%.

Cash flow from operations through the first fiscal quarter of 2017 was $45.5 million. After excluding capital expenditures of $15.3 million, free cash flow was $30.2 million during the same period. 

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: 46097519. 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 first 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, 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 is EBIT plus depreciation and amortization of $25 million in the first quarter of fiscal 2017 and $24 million in the first quarter 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.

 
In millions, except per share amounts
 
    Three Months Ended   Three Months Ended
    December 30, 2016   January 1, 2016
        Per Diluted       Per Diluted
        Share       Share
Earnings from Continuing Operations                        
  Attributable to Esterline (GAAP), Net of Tax   $ 21.5   $ 0.72   $ 9.9   $ 0.33
  DAT Integration Costs,                        
    Net of $0.0 and $0.0 Tax     0.6     0.02     3.6     0.12
  Compliance Costs,                        
    Net of $0.0 and $0.0 Tax     2.3     0.08     3.5     0.12
  Accelerated Integration Costs,                        
    Net of $0.0 and $0.0 Tax     --     --     1.4     0.05
Adjusted Earnings from Continuing                        
  Operations (non-GAAP), Net of Tax   $ 24.4   $ 0.82   $ 18.4   $ 0.62
                           

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  
    December 30,     January 1,  
    2016     2016  
Segment Sales                
  Avionics & Controls   $ 192,682     $ 186,245  
  Sensors & Systems     167,073       152,430  
  Advanced Materials     97,978       102,802  
                 
Net Sales     457,733       441,477  
                 
Cost of Sales     313,686       303,758  
      144,047       137,719  
Expenses                
  Selling, general and administrative     95,633       94,091  
  Research, development and engineering     21,038       25,575  
  Restructuring charges     --       931  
  Insurance recovery     (2,600 )     --  
    Total Expenses     114,071       120,597  
                 
Operating Earnings From Continuing Operations     29,976       17,122  
  Interest Income     (96 )     (87 )
  Interest Expense     7,888       7,216  
                 
Earnings From Continuing Operations                
  Before Income Taxes     22,184       9,993  
Income Tax Expense (Benefit)     420       (33 )
Earnings From Continuing Operations                
  Including Noncontrolling Interests     21,764       10,026  
                 
Earnings Attributable to Noncontrolling Interests     (239 )     (162 )
Earnings From Continuing Operations                
  Attributable to Esterline, Net of Tax     21,525       9,864  
Loss From Discontinued Operations,                
  Attributable to Esterline, Net of Tax     (5,336 )     (4,780 )
                 
Net Earnings Attributable to Esterline   $ 16,189     $ 5,084  
                 
Earnings (Loss) Per Share--Basic:                
  Continuing Operations   $ .73     $ .33  
  Discontinued Operations     (.18 )     (.16 )
                 
Earnings (Loss) Per Share--Basic   $ .55     $ .17  
                 
Earnings (Loss) Per Share--Diluted:                
  Continuing Operations   $ .72     $ .33  
  Discontinued Operations     (.18 )     (.16 )
                 
Earnings (Loss) Per Share--Diluted   $ .54     $ .17  
                 
Weighted Average Number                
  of Shares Outstanding--Basic     29,547       29,582  
                 
Weighted Average Number                
  of Shares Outstanding--Diluted     29,831       29,939  
                 
                 
                 
ESTERLINE TECHNOLOGIES CORPORATION  
Consolidated Sales and Earnings from Continuing Operations by Segment (unaudited)  
In thousands  
   
    Three Months Ended  
    December 30,     January 1,  
    2016     2016  
                 
Segment Sales                
  Avionics & Controls   $ 192,682     $ 186,245  
  Sensors & Systems     167,073       152,430  
  Advanced Materials     97,978       102,802  
                 
Net Sales   $ 457,733     $ 441,477  
                 
Earnings From Continuing Operations Before Income Taxes                
  Avionics & Controls   $ 17,917     $ 9,413  
  Sensors & Systems     19,946       12,784  
  Advanced Materials     9,880       12,990  
    Segment Earnings     47,743       35,187  
                 
  Corporate Expense     (17,767 )     (18,065 )
  Interest Income     96       87  
  Interest Expense     (7,888 )     (7,216 )
                 
    Earnings From Continuing Operations                
    Before Income Taxes   $ 22,184     $ 9,993  
                 
                 
                 
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Balance Sheet (unaudited)
In thousands
 
    December 30,   September 30,
    2016   2016
Assets            
Current Assets            
  Cash and cash equivalents   $ 278,024   $ 258,520
  Escrow cash     --     1,125
  Accounts receivable, net     363,825     422,073
  Inventories     454,233     450,206
  Income tax refundable     10,097     5,183
  Prepaid expenses     19,481     17,909
  Other current assets     5,130     5,322
  Current assets of businesses held for sale     9,618     15,450
    Total Current Assets     1,140,408     1,175,788
             
Property, Plant and Equipment, Net     330,565     338,034
             
Other Non-Current Assets            
  Goodwill     992,810     1,024,667
  Intangibles, net     366,706     393,035
  Deferred income tax benefits     74,133     75,409
  Other assets     12,166     13,698
  Non-current assets of businesses held for sale     11,012     11,400
    $ 2,927,800   $ 3,032,031
             
Liabilities and Shareholders' Equity            
Current Liabilities            
  Accounts payable   $ 108,129   $ 121,816
  Accrued liabilities     223,561     238,163
  Current maturities of long-term debt     16,717     16,774
  Federal and foreign income taxes     9,257     10,932
  Current liabilities of businesses held for sale     9,535     10,813
    Total Current Liabilities     367,199     398,498
             
Long-Term Liabilities            
  Credit facilities     150,000     155,000
  Long-term debt, net of current maturities     671,441     698,796
  Deferred income tax liabilities     40,524     53,798
  Pension and post-retirement obligations     90,726     92,520
  Other liabilities     22,157     21,968
  Non-current liabilities of businesses held for sale     154     320
             
Total Shareholders' Equity     1,585,599     1,611,131
    $ 2,927,800   $ 3,032,031