SOURCE: Esterline Technologies

Esterline Technologies

December 05, 2013 16:05 ET

Esterline Reports Fourth Quarter and Full Fiscal Year Results

Record Fourth Quarter Earnings of $66.2 Million, or $2.07 per Share, on $534.2 Million Sales

BELLEVUE, WA--(Marketwired - Dec 5, 2013) - Esterline Corporation (NYSE: ESL)

Highlights:

  • FY13 sales $2.0 billion
  • FY13 EPS $5.23; adjusted EPS of $5.65 excludes goodwill impairment and compliance settlement charges reported in Q3
  • Announces accelerated integration initiatives for fiscal 2014

Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving global aerospace and defense markets, today reported fiscal 2013 fourth quarter (ended October 25) earnings from continuing operations of $66.2 million, or $2.07 per diluted share, on sales of $534.2 million.

Curtis Reusser, Esterline's Chief Executive Officer, said, "As we expected, Esterline ended the year on a strong note, with record-high revenue and earnings. We were particularly pleased with these results given the challenging defense environment." He added that continuing strength in the commercial aircraft market and positive resolutions both to contract assertions and other matters offset expected weakness in certain domestic defense programs.

Reusser continued, "In the year ahead, it is essential that we continue to constantly strive to improve efficiency, streamline our operations, enhance our competitiveness and drive value into all aspects of our business."

The company announced it would accelerate plans to consolidate certain facilities, and create greater cost-efficiency through shared services in sales, general administrative and support functions. These integration activities are launching currently in each segment and are expected to result in one-time charges and expenses of approximately $40 million. The company expects to incur costs of $25 million to $30 million in fiscal 2014 to support these efforts, with the balance incurred in fiscal 2015. Expense savings on short-cycle activities will commence in fiscal 2014, with substantially more savings expected in fiscal 2015. The company expects these projects to build to anticipated savings in excess of $15 million annually starting in fiscal 2016. The projects have short payback periods of approximately two years with an internal rate of return nearing 100%. 

Reusser noted that he is encouraged by Esterline's solid business mix that generated record cash flow in fiscal 2013, saying the company's "...proven ability to generate exceptional cash levels will fund our integration projects and allow us to continue making strategic, bolt-on acquisitions without compromising our investment-grade balance sheet metrics and sound capital allocation strategies." Esterline's cash flow from operations as a percent of net earnings has exceeded 125% since 2009 and was 152% in fiscal 2013. 

Guidance

The company today provided guidance for full-year fiscal 2014. Revenues are expected to be in the range of $2.0 billion to $2.1 billion and adjusted earnings per share -- excluding the expected integration costs and specific expenses related to improving the company's compliance systems -- are expected to be in the range of $5.40 to $5.70 per diluted share. 

Reusser said the 2014 guidance reflects a higher tax rate and continued limited visibility for defense markets, particularly in the U.S. He also noted that, in addition to the company's specific near-term compliance tasks undertaken to enhance export compliance systems, "...ongoing administrative costs associated with compliance activities are increasing -- that's a reality in today's industry." However, Reusser noted that there are still significant opportunities in defense, including increased sales of elastomer materials for military applications and continued strong contributions from key defense programs such as the A400M, F-35, P-8 and T-6B aircraft. 

Fiscal Fourth Quarter and Full-Year 2013 Results

For the full fiscal year 2013, Esterline reported sales of $1.97 billion, with earnings from continuing operations of $166.0 million, or $5.23 per diluted share. Fiscal 2013 adjusted earnings from continuing operations were $179.5 million, or $5.65 per diluted share, excluding non-cash goodwill impairment and compliance charges of $13.5 million, or $0.42 per diluted share, recorded in the third fiscal quarter. In fiscal 2012, Esterline reported sales of $1.99 billion and earnings from continuing operations of $112.5 million, or $3.60 per diluted share. Fiscal 2012 adjusted earnings from continuing operations were $164.7 million, or $5.27 per diluted share, excluding a non-cash charge against goodwill of $52.2 million, or $1.67 per diluted share, recorded in the third fiscal quarter. 

Gross margin as a percentage of sales in the fourth quarter of fiscal 2013 was 38.4%, on par with the prior-year's fourth quarter. Full-year gross margin was 36.9% compared with 36.1% in the prior year. In the first quarter of fiscal 2012, a purchase accounting adjustment related to the Souriau acquisition reduced that year's gross margin by 60 basis points.

Fiscal 2013 fourth quarter selling, general and administrative (SG&A) expenses as a percent of sales were 17.3%, compared with 18.3% in the prior-year period. Certain expense contingencies recorded in the fourth quarter of fiscal 2012 contributed to the higher rate in the prior year. Full-year SG&A expenses for fiscal 2013 were 19.9%, compared with 19.2% in fiscal 2012; the increase was principally due to incremental SG&A expenses related to a reserve taken in the fiscal third quarter for a pending compliance settlement.

Research, development and engineering (R&D) spending in the fourth quarter of fiscal 2013 was $22.9 million, or 4.3% of sales, compared with $24.6 million, or 4.6% of sales, in the prior-year period. For the full year, R&D expenses were $95.7 million, or 4.9% of sales, compared with $107.7 million, or 5.4% of sales, in fiscal 2012. Reusser said the company expects R&D expense levels "...to remain around 5% for the next few years."

The company's income tax rate in the fourth quarter of 2013 was 20.4% compared with 13.0% for the prior-year period. The lower rate in 2012 was related to various tax credits and foreign deductions. For the full fiscal years of 2013 and 2012, the company's tax rate was 15.2% and 20.9%, respectively, mainly reflecting the impact of fiscal 2012 expense associated with the Racal Acoustics impairment, which was not deductible for income tax purposes. The company is expecting a tax rate in fiscal 2014 in the range of 21% to 22%.

A loss from discontinued operations of $0.3 million, or $0.01 per diluted share, was recorded in the fourth quarter of fiscal 2013. For the full fiscal year of 2013, the loss from discontinued operations was $1.3 million, or $0.04 per diluted share. There was no income or loss from discontinued operations in the prior-year periods.

Net earnings in the fourth quarter of fiscal 2013 were $65.9 million, or $2.06 per diluted share, compared with $61.7 million, or $1.97 per diluted share, in the prior-year period. Fiscal 2013 full-year net earnings were $164.7 million, or $5.19 per diluted share, compared with $112.5 million, or $3.60 per diluted share, for fiscal 2012.

Backlog at October 25, 2013, was $1.28 billion compared with $1.32 billion at the end of the prior year. New orders in the fourth quarter of fiscal 2013 were $499 million compared with $607 million in the prior-year period, reflecting large, long-term orders booked in our avionics business in the fiscal 2012 period. Fiscal 2013 full-year new orders were $1.93 billion compared with $2.06 billion for 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 866-318-8612; outside the U.S., use 617-399-5131. The pass code for the call is: 88978364. 

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     Fiscal Year Ended  
    Oct 25,     Oct 26,     Oct 25,     Oct 26,  
    2013     2012     2013     2012  
Segment Sales                                
  Avionics & Controls   $ 225,385     $ 220,359     $ 771,657     $ 790,015  
  Sensors & Systems     177,292       174,436       701,930       702,394  
  Advanced Materials     131,485       135,861       496,167       499,909  
                                 
Net Sales     534,162       530,656       1,969,754       1,992,318  
                                 
Cost of Sales     328,789       326,403       1,243,758       1,273,365  
      205,373       204,253       725,996       718,953  
Expenses                                
  Selling, general and administrative     92,436       97,371       391,147       382,887  
  Research, development and engineering     22,899       24,607       95,736       107,745  
  Gain on sale of product line     (2,264 )     --       (2,264 )     --  
  Gain on settlement of contingency     --       --       --       (11,891 )
  Goodwill impairment     --       --       3,454       52,169  
  Other income     --       --       --       (1,263 )
    Total Expenses     113,071       121,978       488,073       529,647  
                                 
Operating Earnings From Continuing Operations     92,302       82,275       237,923       189,306  
                                 
  Interest income     (158 )     (145 )     (539 )     (465 )
  Interest expense     8,691       11,067       39,667       46,238  
  Loss on extinguishment of debt     --       --       946       --  
                                 
Earnings From Continuing Operations                                
  Before Income Taxes     83,769       71,353       197,849       143,533  
Income Tax Expense     17,058       9,281       30,085       29,958  
Earnings From Continuing Operations                                
  Including Noncontrolling Interests     66,711       62,072       167,764       113,575  
Earnings Attributable to Noncontrolling Interests     (523 )     (412 )     (1,730 )     (1,040 )
                                 
Earnings From Continuing Operations                                
  Attributable to Esterline     66,188       61,660       166,034       112,535  
                                 
Loss From Discontinued Operations,                                
  Attributable to Esterline, Net of Tax     (325 )     --       (1,300 )     --  
                                 
Net Earnings Attributable to Esterline   $ 65,863     $ 61,660     $ 164,734     $ 112,535  
                                 
Earnings Per Share - Basic:                                
  Continuing Operations   $ 2.11     $ 2.00     $ 5.32     $ 3.66  
  Discontinued Operations     (.01 )     .00       (.04 )     .00  
                                 
Earnings Per Share - Basic   $ 2.10     $ 2.00     $ 5.28     $ 3.66  
                                 
Earnings Per Share - Diluted:                                
  Continuing Operations   $ 2.07     $ 1.97     $ 5.23     $ 3.60  
  Discontinued Operations     (.01 )     .00       (.04 )     .00  
                                 
Earnings Per Share - Diluted   $ 2.06     $ 1.97     $ 5.19     $ 3.60  
                                 
Weighted Average Number of Shares Outstanding - Basic     31,391       30,860       31,173       30,749  
                                 
Weighted Average Number of Shares Outstanding - Diluted     31,964       31,330       31,738       31,282  
                                 
                                 

ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Sales and Earnings from Continuing Operations by Segment (unaudited)
In thousands

             
    Three Months Ended     Fiscal Year Ended  
    Oct 25,     Oct 26,     Oct 25,     Oct 26,  
    2013     2012     2013     2012  
                         
Segment Sales                                
  Avionics & Controls   $ 225,385     $ 220,359     $ 771,657     $ 790,015  
  Sensors & Systems     177,292       174,436       701,930       702,394  
  Advanced Materials     131,485       135,861       496,167       499,909  
                                 
Net Sales   $ 534,162     $ 530,656     $ 1,969,754     $ 1,992,318  
                                 
Earnings From Continuing Operations                                
  Before Income Taxes                                
  Avionics & Controls   $ 42,581     $ 42,214     $ 103,232 1     $ 54,917 2  
  Sensors & Systems     25,904       21,060       89,696       70,890  
  Advanced Materials     32,759       27,020       107,161       93,546  
    Segment Earnings     101,244       90,294       300,089       219,353  
                                 
  Corporate expense     (8,942 )     (8,019 )     (62,166 )     (43,201 )
  Other income     --       --       --       1,263  
  Gain on settlement of contingency     --       --       --       11,891  
  Interest income     158       145       539       465  
  Interest expense     (8,691 )     (11,067 )     (39,667 )     (46,238 )
  Loss on extinguishment of debt     --       --       (946 )     --  
                                 
Earnings From Continuing Operations                                
  Before Income Taxes   $ 83,769     $ 71,353     $ 197,849     $ 143,533  

1 Includes a $3.5 million charge against goodwill of Racal Acoustics.
2 Includes a $52.2 million charge against goodwill of Racal Acoustics.

ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Balance Sheet (unaudited)
In thousands 

         
    Oct 25,   Oct 26,
    2013   2012
Assets            
Current Assets            
  Cash and cash equivalents   $ 179,178   $ 160,675
  Cash in escrow     4,018     5,016
  Accounts receivable, net     383,666     383,362
  Inventories     447,663     409,837
  Income tax refundable     6,526     4,832
  Deferred income tax benefits     47,277     46,000
  Prepaid expenses     18,183     21,340
  Other current assets     5,204     4,631
    Total Current Assets     1,091,715     1,035,693
             
Property, Plant and Equipment, Net     371,197     356,401
             
Other Non-Current Assets            
  Goodwill     1,128,977     1,098,962
  Intangibles, net     580,949     609,045
  Debt issuance costs, net     6,211     8,818
  Deferred income tax benefits     71,840     97,952
  Other assets     11,223     20,246
    $ 3,262,112   $ 3,227,117
             
Liabilities and Shareholders' Equity            
Current Liabilities            
  Accounts payable   $ 123,597   $ 108,689
  Accrued liabilities     253,561     269,553
  Current maturities of long-term debt     21,279     10,610
  Deferred income tax liabilities     2,307     5,125
  Federal and foreign income taxes     7,348     2,369
    Total Current Liabilities     408,092     396,346
             
Long-Term Liabilities            
  Credit facilities     130,000     240,000
  Long-term debt, net of current maturities     537,859     598,060
  Deferred income tax liabilities     193,119     205,198
  Pension and post-retirement obligations     68,102     132,074
  Other liabilities     40,188     34,904
             
Total Shareholders' Equity     1,884,752     1,620,535
    $ 3,262,112   $ 3,227,117