Curtiss-Wright Corporation — Q1 2022 Form 10-Q
Business context and period. Global supplier of engineered products, solutions, and services, primarily for aerospace and defense, with commercial power, process, and industrial businesses. This unaudited report covers the three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. Operations are reported in Aerospace & Industrial, Defense Electronics, and Naval & Power.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 / comparator |
|---|---|---|
| Net sales | $559.5 million | $597.1 million; down 6% |
| Gross profit / margin | $201.4 million / 36.0% | $209.8 million / 35.1% |
| Operating income / margin | $60.5 million / 10.8% | $85.1 million / 14.2% |
| Net earnings | $40.7 million | $59.5 million; down 32% |
| Diluted EPS | $1.05 | $1.45 |
| Operating cash flow | $(124.3) million | $(26.6) million |
Service sales rose to $106.0 million from $88.1 million, while product sales declined to $453.4 million from $509.0 million. Income tax expense was $13.3 million; the reported effective tax rate was 24.6%, versus 25.6%.
Cash and equivalents were $136.7 million at March 31, down from $171.0 million at year-end. Total debt, net, was $1.170 billion, compared with $1.051 billion at December 31, 2021; $202.5 million was classified as current. The company had $214 million drawn on its revolving facility and $267 million of unused facility capacity. Management reported compliance with debt covenants and capacity to borrow a further $1.5 billion without violating the debt-to-capitalization covenant.
Investing cash outflow was $10.4 million, including $10.9 million of capital expenditures. Financing provided $106.2 million, principally reflecting net revolver borrowing. The quarterly dividend was $0.18 per share, up from $0.17; the company repurchased approximately 134,000 shares for $18.9 million.
Material changes and operating trends
- Sales fell 6%, while operating income declined 29%. Management attributed the overall earnings decline primarily to weaker segment results, lower sales, unfavorable mix and overhead absorption, and a loss on the German industrial valve divestiture.
- Aerospace & Industrial sales increased 6% to $191.1 million; operating income rose 31% to $24.9 million and margin improved to 13.0%. Higher commercial aerospace and industrial vehicle demand and operational improvements contributed.
- Defense Electronics sales decreased 21% to $143.1 million; operating income fell 36% to $23.3 million and margin declined to 16.3%. Management cited defense-market timing, supply-chain disruption, lower sales, and unfavorable mix and overhead absorption.
- Naval & Power sales decreased 4% to $225.3 million; operating income fell 28% to $27.3 million and margin declined to 12.1%. Results included the German valve-sale loss and lower naval sales, partly offset by higher Columbia-class submarine demand.
- New orders increased 9% to $634.3 million. Total backlog was approximately $2.3 billion, with about 89% expected to be recognized as sales over the next 36 months.
Outlook, risks, contingencies, and unusual items
- The filing provides no clear quantified full-year earnings or sales guidance. Management said cash, expected remaining-year operating cash flow, and borrowing capacity should be sufficient for operating needs, planned capital expenditures, debt interest, leases, pension obligations, and dividends.
- Management discussed continued potential effects from COVID-19 on supply chains, transportation, and production, as well as risks related to the Russia-Ukraine conflict. Supply-chain disruption was cited as affecting orders and sales timing. Actual outcomes may differ materially from forward-looking statements.
- In February 2022, Curtiss-Wright settled open AP1000 claims with Westinghouse: $15 million was paid in March 2022 and a further $10 million is due in Q1 2023. The company reported that it had been adequately accrued at year-end 2021.
- The German industrial valve business was sold in January for $3 million gross cash proceeds, with a $5 million loss recorded in Q1.
- Non-segment operating expense increased by $6 million, primarily due to shareholder-activism costs. Other income also reflected pension settlement charges related to a former executive.
- The company reported ordinary-course legal matters, including asbestos claims, and stated it did not expect their disposition to materially adversely affect its financial condition, results, or cash flows. It also disclosed $19.5 million of standby letters of credit, $2.7 million of bank guarantees, and a $35.2 million surety bond for facility decommissioning assurance.
Important facts for investors to verify
- Whether the Q1 sales and margin weakness in Defense Electronics and Naval & Power reverses, and how supply-chain disruption and defense-program timing affect subsequent orders and deliveries.
- Whether operating cash flow recovers from the $124.3 million quarterly outflow, particularly as inventory, receivables, deferred revenue, and customer advance-payment timing change.
- Debt maturities and refinancing needs, including $202.5 million of senior notes due in 2023 and the current revolver balance.
- Payment and accounting treatment of the remaining $10 million AP1000 settlement amount due in Q1 2023, and any developments in other legal or environmental contingencies.
- Whether the backlog converts to revenue on the expected schedule; the filing states that approximately 89% is expected to convert within 36 months.