Curtiss-Wright Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The unaudited results cover the company’s Aerospace & Industrial, Defense Electronics, and Naval & Power segments. The segment structure changed on January 1, 2021; comparative segment results were recast, with no effect on consolidated results.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $620.6 million | $571.6 million | $1,839.2 million | $1,722.9 million |
| Gross profit | $237.0 million | $212.8 million | $671.5 million | $599.4 million |
| Operating income | $97.7 million | $84.6 million | $277.3 million | $212.4 million |
| Operating margin | 15.7% | 14.8% | 15.1% | 12.3% |
| Net earnings | $69.7 million | $64.6 million | $190.6 million | $147.4 million |
| Diluted EPS | $1.70 | $1.55 | $4.64 | $3.49 |
| Operating cash flow | — | $155.8 million | $3.8 million |
Q3 sales increased 9% and operating income increased 15%; nine-month sales rose 7% and operating income rose 31%. Gross margin was approximately 38.2% in Q3 versus 37.2% a year earlier, and approximately 36.5% year to date versus 34.8%. The company paid dividends of $0.18 per share in Q3 and $0.53 year to date.
Segments and drivers
- Aerospace & Industrial: Q3 sales rose 4%, while nine-month sales fell 3%, mainly reflecting pandemic-related weakness in commercial aerospace and the exit of a build-to-print product line. Industrial vehicle and general industrial demand supported growth and margin improvement.
- Defense Electronics: Q3 sales increased 22% and nine-month sales 23%, largely from the PacStar acquisition. Q3 operating margin declined to 22.5% from 23.7%, partly due to PacStar purchase-accounting costs, higher R&D, and currency effects.
- Naval & Power: Q3 sales increased 4% and nine-month sales 5%, supported by naval programs. Profitability benefited from restructuring savings and overhead absorption; the German industrial-valve business impairment and unfavorable power-and-process mix were offsets.
Liquidity, debt, and capital allocation
- At September 30, 2021, cash was $234.4 million; current assets were $1,423.8 million and current liabilities $765.1 million.
- Debt carrying value was $1,057.1 million, including $100 million current debt. The company had no revolving-credit borrowings and reported $478 million of unused facility capacity. It stated it was compliant with debt covenants and had $1.7 billion of additional debt capacity under its debt-to-capitalization covenant.
- Year-to-date investing cash outflow was $29.8 million, including $27.9 million of capital expenditures. Financing cash outflow was $84.4 million, including $79.1 million of share repurchases and $14.3 million of dividends.
- Operating cash flow improved substantially from 2020, when the company made a $150 million voluntary pension contribution. The 2021 increase also reflected higher earnings, partly offset by higher receivables.
Outlook, risks, and unusual items
- The filing provides no clear numerical full-year sales or earnings guidance. Management said cash, expected operating cash flow, and available borrowing capacity were expected to cover operating needs and planned obligations through the current year and beyond.
- Backlog was approximately $2.2 billion; the company expected to recognize about 84% as sales within 36 months. New orders increased 12% in Q3 and 8% for the nine-month period.
- Management cited ongoing COVID-19 exposure through supply chains, transportation, production, and commercial-aerospace demand. The filing also warned that potential vaccine requirements could affect employee retention, labor availability, supplier costs, and continuity of supply.
- The company recorded an $8.7 million impairment charge in Q3 and year to date on assets held for sale in its German industrial-valve business; a $33 million impairment had been recorded in Q4 2020. The planned sale remained relevant to reported assets held for sale.
- AP1000 contract disputes with Westinghouse remain a contingency. Westinghouse asserted $25 million of liquidated damages on the China contract and filed U.S. claims. Curtiss-Wright disclosed possible loss ranges of $0–$25 million for China and $0–$31 million for the U.S.; management considered potential U.S. liability remote and said it was adequately accrued overall.
- Other disclosed exposures include ordinary-course litigation, including asbestos claims, and letters of credit and guarantees. Management did not expect these matters to have a material adverse effect based on information available at filing.
Most important facts for investors to verify
- Whether backlog converts to revenue as expected, particularly the stated 84% expected within 36 months, and whether new orders remain strong.
- Whether commercial-aerospace demand and supply-chain constraints improve, and how these affect sales, costs, and cash conversion.
- The timing and proceeds of the German industrial-valve divestiture and whether further impairment is required.
- Developments and potential financial outcomes in the AP1000 disputes, including any change to accruals or disclosed loss ranges.
- Debt maturity and refinancing or repayment of the $100 million current portion, alongside the company’s substantial planned share repurchases.
- Whether the 2021 earnings and cash-flow improvement is sustained after accounting for prior-year restructuring, pension-contribution, and acquisition comparisons.