Curtiss-Wright Corporation (NYSE: CW) — Q2 2021 Form 10-Q
Business context and reporting period. Curtiss-Wright is a diversified manufacturer and service provider to aerospace, defense, power and process, and industrial markets. This unaudited filing covers the quarter and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. The company reports three segments: Aerospace & Industrial, Defense Electronics, and Naval & Power. It reorganized segment reporting in January 2021, recasting prior segment figures without changing consolidated results.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $621.5 million | $550.0 million | $1,218.6 million | $1,151.3 million |
| Operating income | $94.6 million | $55.3 million | $179.6 million | $127.8 million |
| Operating margin | 15.2% | 10.1% | 14.7% | 11.1% |
| Net earnings | $61.4 million | $31.0 million | $120.9 million | $82.8 million |
| Diluted EPS | $1.49 | $0.74 | $2.94 | $1.95 |
| New orders | $689.7 million | $620.2 million | $1,269.2 million | $1,190.1 million |
- Q2 sales rose 13% and operating income rose 71%; six-month sales rose 6% and operating income rose 41%. Management attributed stronger profitability mainly to operational excellence, prior-year restructuring savings, favorable overhead absorption, and, in Defense Electronics, the PacStar acquisition.
- Q2 gross profit was $224.7 million, versus $186.0 million; six-month gross profit was $434.5 million, versus $386.6 million. Research and development expense increased to $23.2 million in Q2 and $45.1 million for the six months. No restructuring expense was recorded in 2021, compared with $14.6 million and $17.4 million, respectively, in 2020.
- Segment sales increased in Q2 across all three segments. For the six months, Aerospace & Industrial sales declined 6%, largely due to weaker commercial aerospace demand and the exit of a build-to-print product line; Defense Electronics rose 23%, including PacStar; Naval & Power rose 6%. Naval & Power new orders fell 12% in Q2 and 11% for the six months, primarily due to order timing.
Cash, debt and liquidity
- Six-month operating cash flow was $48.5 million, compared with cash used of $52.2 million in 2020. The improvement chiefly reflected the prior-year $150 million voluntary pension contribution and higher earnings, partly offset by higher receivables.
- Investing cash outflow was $20.1 million, including $17.8 million of capital expenditures and $5.3 million of additional consideration for prior acquisitions. Financing cash outflow was $26.9 million, including $24.4 million of share repurchases and $7.0 million of dividends. Cash ended the period at $197.5 million.
- Debt was approximately $1.058 billion on the balance sheet, including $100 million current and $957.5 million long-term. The company had no borrowings under its revolving credit facility and reported $477 million of unused facility capacity. It stated that it was compliant with debt covenants and had $1.7 billion of additional debt capacity under its debt-to-capitalization covenant.
- Current assets were $1.401 billion and current liabilities $774.5 million at June 30, 2021. Management said cash, expected operating cash flow, borrowing capacity, and access to capital markets were sufficient for near- and long-term needs.
Outlook, commentary and risks
- The filing provides no specific revenue, earnings, or EPS guidance. Backlog was approximately $2.2 billion; management expected about 87% to be recognized as sales over the following 36 months.
- Management noted continuing potential COVID-19 effects on supply chains, production, and demand, including uncertainty around future variants, while stating that the company’s diversification and liquidity position help mitigate risk. Approximately 55% of 2021 revenue was expected to come from defense-related markets.
- In the AP1000 reactor coolant pump disputes, Westinghouse sought $25 million in a China-contract arbitration and also filed U.S.-contract claims. The disclosed possible-loss ranges were $0–$25 million for China and $0–$31 million for the U.S. The company said it was adequately accrued for the China matter, considered U.S. liability remote, and intended to defend the claims.
- The planned sale of the German industrial valve business remained classified as held for sale. A $33 million impairment had been recorded in Q4 2020; no additional impairment was recorded in the first half of 2021.
- Other notable items included a pension settlement charge related to a former executive and a U.K. tax-rate change that contributed to the Q2 effective tax rate. The company reported no material change in risk factors or market-risk disclosures.
Most important facts for investors to verify
- Whether commercial aerospace demand and the related sales recovery continue after first-half weakness.
- Whether order timing in Naval & Power, particularly naval defense, converts into revenue and how backlog develops.
- Cash conversion and working-capital trends, especially receivables and inventory, alongside planned capital spending and shareholder returns.
- Final outcomes and any changes in accruals for the AP1000 disputes, and progress on the German valve-business sale.
- PacStar’s contribution to growth and profitability, and the extent to which reported operating improvement is sustained without restructuring comparisons.