Curtiss-Wright Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with the three months ended March 31, 2023 unless otherwise noted. Curtiss-Wright supplies engineered products, solutions, and services primarily to aerospace and defense markets, as well as commercial power, process, and industrial markets. Its reportable segments are Aerospace & Industrial, Defense Electronics, and Naval & Power.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $713.2 million | $630.9 million | +13% |
| Gross profit | $253.8 million | $221.4 million | +15% |
| Gross margin | 35.6% | 35.1% | +0.5 percentage points |
| Operating income | $100.0 million | $78.6 million | +27% |
| Operating margin | 14.0% | 12.5% | +1.5 percentage points |
| Net earnings | $76.5 million | $56.8 million | +35% |
| Diluted earnings per share | $1.99 | $1.48 | +$0.51 |
| New orders | $901.3 million | $717.8 million | +26% |
| Operating cash flow | $(45.6) million | $(91.6) million | $46.0 million less cash used |
Revenue growth was entirely organic in the company’s presentation, with no material acquisition contribution. Management attributed improved operating income and margin mainly to higher sales and favorable absorption, as well as favorable product mix in Defense Electronics. Other income was $9.6 million, interest expense was $10.6 million, and the effective tax rate was 22.7%.
Segment results
- Aerospace & Industrial: Sales rose 8% to $219.3 million; operating income increased 3% to $27.5 million. Margin declined to 12.5% from 13.1%, reflecting product mix and development-contract timing. Orders decreased 2%.
- Defense Electronics: Sales rose 31% to $211.7 million; operating income more than doubled to $48.1 million. Margin increased to 22.7% from 14.4%, supported by higher-volume absorption and favorable mix. Orders increased 23%.
- Naval & Power: Sales rose 6% to $282.1 million, but operating income fell 7% to $35.2 million and margin declined to 12.5% from 14.2%, primarily due to an unfavorable naval contract adjustment. Orders increased 61%, mainly from naval defense.
Aerospace and defense sales increased 20% to $490.3 million; commercial-market sales were essentially flat at $222.9 million. Total backlog was approximately $3.1 billion at March 31, 2024, with about 90% expected to convert to sales over the next 36 months.
Cash, liquidity, and debt
Cash and cash equivalents were $338.0 million at March 31, down from $406.9 million at year-end 2023. The company used $45.6 million in operating cash, principally reflecting working-capital outflows, including increases in receivables and inventory. Investing cash outflow was $12.0 million, including $12.1 million of capital expenditures. Financing cash outflow was $7.0 million; the company repurchased $12.2 million of stock and paid quarterly dividends of $0.20 per share.
Total debt, net, was approximately $1.05 billion, including $90 million classified as current. The company reported $731 million of unused credit-facility availability and stated it could incur approximately $2.4 billion of additional debt without breaching its debt-to-capitalization covenant. It was in compliance with its debt covenants. Average debt outstanding was $1.05 billion, at an average interest rate of 3.8% for the quarter.
Outlook, risks, and notable items
- The filing provides no specific updated full-year financial guidance. Management said available cash, operating cash flow, credit capacity, and access to capital markets are expected to meet short- and long-term needs, including investment, acquisitions, dividends, and repurchases.
- Forward-looking statements are subject to risks including supply-chain disruption, inflation and interest rates, labor availability, geopolitical conflicts and related sanctions, regulation, and litigation. The company reported no material change in its risk factors or market-risk profile during the quarter.
- Legal matters include asbestos-related claims and other proceedings; management does not believe their resolution will materially adversely affect financial condition, results, or cash flows. The company also disclosed letters of credit, bank guarantees, and a $35 million surety bond for a nuclear facility decommissioning assurance requirement.
- Foreign-currency translation produced a $15.6 million comprehensive loss, compared with a $14.7 million gain in Q1 2023, contributing to lower comprehensive income despite higher net earnings.
- On April 1, 2024, after quarter-end, the company acquired WSC, Inc. for approximately $34 million cash. WSC had 2023 sales of approximately $15 million and will operate in Naval & Power.
Most important facts for investors to verify
- Whether the strong Defense Electronics growth and margin gains are sustainable, and how much depends on product mix and higher-volume absorption.
- Whether Naval & Power margins recover following the unfavorable contract adjustment, and how naval program timing affects sales and orders.
- Whether receivables and inventory convert to cash, given the quarter’s operating cash outflow and working-capital increases.
- Backlog conversion, including the timing and execution of the approximately $3.1 billion backlog.
- The impact and integration of the WSC acquisition, together with debt maturities and ongoing capital returns.