SOURCE: Esterline Technologies

Esterline Technologies

September 01, 2011 16:00 ET

Esterline Reports FY11 3Q Income From Continuing Operations of $37.7 Million, or $1.21 per Share

Reiterates Comfort With Prior Full-Year Guidance for Operational Performance

BELLEVUE, WA--(Marketwire - Sep 1, 2011) - Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving aerospace/defense markets, today reported its fiscal 2011 third quarter (ended July 29) income from continuing operations of $37.7 million, or $1.21 per diluted share, on sales of $409.5 million. Year-ago income from continuing operations was $39.3 million, or $1.28 per diluted share, on sales of $378.3 million.

Brad Lawrence, Esterline's Chief Executive Officer, said, "...overall, we're pleased with our third quarter. All three of Esterline's segments posted sales improvements, and consolidated gross margins improved nearly 100 basis points over last year." Lawrence reiterated comments he made last quarter regarding the anticipated moderation of the "...exceptional strength in our spare parts business that we have experienced over the last several quarters." He said airlines and distributors had been restocking depleted inventories, and the spare parts business now more accurately reflects air transport usage.

Lawrence, in commenting on the acquisition of Souriau, noted, "We closed the transaction on July 26th and we are excited with the prospects before us involving the largest acquisition we've made to date. Today, we have greater clarity on revenue synergy opportunities and have begun executing a number of important integration projects."

The company remains confident that the acquisition will be accretive within its first twelve months of ownership. As required by U.S. Generally Accepted Accounting Principles (GAAP), the company will write up inventories to fair value and recognize this non-cash adjustment over one inventory turn -- estimated to be four months. Including this adjustment, the acquisition will incur an estimated pre-tax, non-cash loss of $18 million, or $0.40 per share in the fourth quarter. The company reiterated the top end and narrowed the band of its prior EPS guidance of $4.80-$4.95 per share for operational performance. Therefore, on an as-reported basis, including the GAAP adjustment, the company expects earnings per share for the full year to be between $4.45 and $4.55 per share.

Lawrence commented that the "diversification and strong capabilities of the business are serving us well as we position ourselves for market growth and capture new programs." He noted that commercial jet build rates are ramping up and "...we are better positioned than in past upcycles because our content on new-builds is significantly higher than on legacy aircraft."

With regard to the defense market, Lawrence commented that, "while we can grow in this challenging environment, we are clearly facing budgetary issues and a reduction in operational tempo." Even so, he noted a need for U.S. and non-U.S. militaries to retrofit older platforms, including Blackhawk and C130. Further, the company's capture rate on key new platforms such as the F35, T-6B and A400M, as well as a good presence in the C4ISR category, will offer strength despite tighter defense budgets.

As it pertains to Esterline's rail, medical equipment and other industrial businesses, Lawrence noted that the company continued to have "good opportunities," particularly with respect to nuclear power applications and the extension of its high speed rail applications into new geographic markets.

Gross margin as a percentage of sales was 35.1% in the quarter versus the year-ago level of 34.1%. The increase in gross margin was due to several factors, including an increased mix of spare parts in a number of businesses, as well as strong demand for avionics systems. Lawrence commented that there has been a sequential slowdown in spares shipments which caused gross margins to moderate from the second quarter rate.

Selling, general and administrative (SG&A) expenses were 18.7% of sales in the quarter compared with 16.7% of sales last year. This 200 basis point increase was due to a number of factors, including $6.4 million of expenses associated with the Souriau acquisition, additional expenses from the addition of Eclipse, which was acquired in December 2010, and a $1.4 million environmental liability reserve added in the quarter.

Research, development and engineering spending in the quarter was $23.1 million, or 5.6% of sales, compared with $17.3 million, or 4.6% of sales, a year ago. The increase resulted largely from initiatives advancing the company's products for next-generation avionics systems.

The company's quarterly income tax rate was 6.9% compared with 3.4% for the third fiscal quarter of 2010. Both quarters -- last year and this year -- benefited from various tax credits and certain discrete items, as well as foreign interest expense deductions.

Net income in the quarter was $37.7 million, or $1.21 per diluted share, compared with $39.9 million, or $1.30 per diluted share, in the prior-year period, which includes income from discontinued operations of $0.02 per fully diluted share.

For the first nine months of fiscal 2011, Esterline reported net income of $113.6 million, or $3.65 per diluted share, on sales of $1.2 billion. This compares to net income of $82.2 million, or $2.71 per diluted share, on $1.1 billion in sales in the same period last year. Net income in the first nine months of fiscal 2010 reflected $1.5 million, or $0.05 per share, from discontinued operations.

New orders for the first nine months of fiscal 2011 were $1.4 billion compared with $1.2 billion for the same period in 2010. Backlog was $1.3 billion at July 29, 2011, compared with $1.2 billion at the end of the prior-year period. The increases principally reflect the acquired backlog of Souriau.

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 800-638-4817; outside the U.S., use 617-614-3943. The pass code for the call is: 12459945.

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 Nine Months Ended
July 29, July 30, July 29, July 30,
2011 2010 2011 2010
Segment Sales
Avionics & Controls $ 208,021 $ 194,300 $ 632,020 $ 563,276
Sensors & Systems 88,605 74,110 250,841 220,020
Advanced Materials 112,886 109,939 332,727 312,855
Net Sales 409,512 378,349 1,215,588 1,096,151
Cost of Sales 265,973 249,394 778,980 737,889
143,539 128,955 436,608 358,262
Expenses
Selling, general and administrative 76,418 63,220 214,919 188,582
Research, development and engineering 23,075 17,262 63,945 52,012
Other income (6,366 ) (8 ) (6,366 ) (5 )
Total Expenses 93,127 80,474 272,498 240,589
Operating Earnings From Continuing Operations 50,412 48,481 164,110 117,673
Interest income (658 ) (248 ) (1,428 ) (651 )
Interest expense 10,286 8,082 28,381 23,391
Loss on extinguishment of debt -- -- 831 --
Income From Continuing Operations Before Income Taxes 40,784 40,647 136,326 94,933
Income Tax Expense 2,821 1,364 22,323 14,077
Income From Continuing Operations Including Noncontrolling Interests 37,963 39,283 114,003 80,856
Income Attributable to Noncontrolling Interests (222 ) (30 ) (328 ) (108 )
Income From Continuing Operations 37,741 39,253 113,675 80,748
Income (Loss) From Discontinued Operations, Net of Tax (46 ) 605 (75 ) 1,483
Net Earnings $ 37,695 $ 39,858 $ 113,600 $ 82,231
Earnings Per Share - Basic:
Continuing Operations $ 1.23 $ 1.31 $ 3.73 $ 2.70
Discontinued Operations .00 .02 .00 .05
Earnings Per Share - Basic $ 1.23 $ 1.33 $ 3.73 $ 2.75
Earnings Per Share - Diluted:
Continuing Operations $ 1.21 $ 1.28 $ 3.65 $ 2.66
Discontinued Operations .00 .02 .00 .05
Earnings Per Share - Diluted $ 1.21 $ 1.30 $ 3.65 $ 2.71
Weighted Average Number of Shares Outstanding - Basic 30,579 30,043 30,475 29,913
Weighted Average Number of Shares Outstanding - Diluted 31,260 30,558 31,144 30,394
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Sales and Income from Continuing Operations by Segment (unaudited)
In thousands
Three Months Ended Nine Months Ended
July 29, July 30, July 29, July 30,
2011 2010 2011 2010
Segment Sales
Avionics & Controls $ 208,021 $ 194,300 $ 632,020 $ 563,276
Sensors & Systems 88,605 74,110 250,841 220,020
Advanced Materials 112,886 109,939 332,727 312,855
Net Sales $ 409,512 $ 378,349 $ 1,215,588 $ 1,096,151
Income From Continuing Operations
Avionics & Controls $ 28,604 $ 30,464 $ 104,523 $ 78,357
Sensors & Systems 10,837 9,588 33,403 21,978
Advanced Materials 18,797 19,175 57,044 45,032
58,238 59,227 194,970 145,367
Corporate expense (14,192 ) (10,754 ) (37,226 ) (27,699 )
Other income 6,366 8 6,366 5
Interest income 658 248 1,428 651
Interest expense (10,286 ) (8,082 ) (28,381 ) (23,391 )
Loss on extinguishment of debt -- -- (831 ) --
Income From Continuing Operations Before Income Taxes $ 40,784 $ 40,647 $ 136,326 $ 94,933
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Balance Sheet (unaudited)
In thousands July 29, July 30,
2011 2010
Assets
Current Assets
Cash and cash equivalents $ 207,838 $ 282,910
Cash in escrow 5,000 --
Accounts receivable, net 364,303 272,529
Inventories 444,771 266,974
Income tax refundable 7,086 11,691
Deferred income tax benefits 49,342 38,313
Prepaid expenses 21,752 17,350
Other current assets 13,924 13,023
Total Current Assets 1,114,016 902,790
Property, Plant and Equipment, Net 340,453 274,207
Other Non-Current Assets
Goodwill 1,190,506 733,537
Intangibles, net 728,642 392,183
Debt issuance costs, net 11,177 5,706
Deferred income tax benefits 93,276 83,727
Other assets 21,200 10,143
$ 3,499,270 $ 2,402,293
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 125,079 $ 79,588
Accrued liabilities 289,630 200,343
Credit facilities -- 2,196
Current maturities of long-term debt 13,174 10,008
Deferred income tax liabilities 22,335 7,139
Federal and foreign income taxes 11,415 3,310
Total Current Liabilities 461,633 302,584
Long-Term Liabilities
Credit facilities 395,000 --
Long-term debt, net of current maturities 675,290 531,698
Deferred income taxes liabilities 255,534 128,327
Pension and post-retirement obligations 91,072 88,126
Other liabilities 20,161 18,347
Total Shareholders' Equity 1,600,580 1,333,211
$ 3,499,270 $ 2,402,293