Curtiss-Wright Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise stated. Curtiss-Wright supplies engineered products and services primarily to aerospace and defense markets, alongside commercial power, process, and industrial markets. It reports through Aerospace & Industrial, Defense Electronics, and Naval & Power.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $630.9 million | $559.5 million | +13% |
| Gross profit | $221.4 million | $201.4 million | +10% |
| Gross margin | 35.1% | 36.0% | −0.9 percentage points |
| Operating income | $78.6 million | $60.5 million | +30% |
| Operating margin | 12.5% | 10.8% | +1.7 percentage points |
| Net earnings | $56.8 million | $40.7 million | +40% |
| Diluted EPS | $1.48 | $1.05 | +41% |
| Operating cash flow | $(91.6) million | $(124.3) million | $32.7 million less cash used |
| Capital expenditures | $10.7 million | $10.9 million | — |
Sales growth was 11% organic, 3% from acquisitions, and reduced 1% by foreign currency. Aerospace & Defense sales rose 13% to $408.6 million; commercial-market sales rose 12% to $222.3 million. New orders increased 13% to $717.8 million. Backlog was approximately $2.7 billion, with about 90% expected to convert to sales within 36 months.
Segments and notable drivers
- Aerospace & Industrial: Sales increased 6% to $202.4 million; operating income rose 7% to $26.5 million and margin edged up to 13.1%. Higher commercial aerospace demand and favorable overhead absorption contributed. Orders rose 13%.
- Defense Electronics: Sales increased 13% to $162.2 million, while operating income was essentially unchanged at $23.4 million and margin fell 1.9 percentage points to 14.4%, reflecting unfavorable product mix. Orders increased 47%.
- Naval & Power: Sales increased 18% to $266.3 million; operating income rose 39% to $37.9 million and margin improved to 14.2%. Higher organic sales, the absence of the prior-year German industrial-valve divestiture loss, and acquisition contribution helped. Orders declined 9%, primarily due to timing of naval defense orders.
Liquidity, debt, and capital
Cash and cash equivalents were $130.7 million at March 31, down from $257.0 million at year-end. Current assets were $1.45 billion and current liabilities $672.2 million. Debt, net of issuance costs and swap proceeds, was $1.23 billion, versus $1.25 billion at year-end. The company repaid $202.5 million of senior notes that matured in February and had $178.2 million outstanding under its revolving credit facility. It reported $553 million of unused facility capacity and approximately $1.8 billion of additional borrowing capacity under its debt-to-capitalization covenant; it was in compliance with debt covenants.
Operating cash use improved year over year, largely due to higher cash earnings and improved working capital, partly offset by higher taxes. Cash use included inventory growth and reductions in accounts payable and accrued expenses. The company repurchased approximately 73,000 shares for $12.4 million and declared dividends of $0.19 per share.
Outlook, risks, and unusual items
- The filing provides no specific full-year revenue or earnings guidance in the supplied text. Management stated that cash, operating cash flow, available credit, and access to capital markets were expected to meet short- and long-term needs.
- Management identifies supply-chain delivery disruptions, inflation, interest rates, geopolitical developments including the Russia-Ukraine conflict, and other factors as uncertainties that could cause actual results to differ from forward-looking statements. The filing reports no material change in risk factors or market-risk exposure during the quarter.
- Interest expense rose 36% to $12.9 million, primarily due to senior notes issued in October 2022 and higher rates on revolving borrowings. Other income increased, partly because Q1 2022 included a pension settlement charge. The effective tax rate declined to 22.6% from 24.6%, primarily due to higher stock-compensation tax benefits.
- The prior-year period included a $4.7 million loss on sale of the German industrial-valve business; no such loss was recorded in Q1 2023. The company paid the final $10 million under its AP1000 settlement with Westinghouse in Q1 2023.
- Capitalized development costs included $10.6 million not currently supported by existing firm orders. Legal matters include asbestos and environmental claims, among others; management does not expect them, individually or collectively, to materially adversely affect the company, based on information available and insurance coverage.
Most important facts for investors to verify
- Whether higher orders and the $2.7 billion backlog convert into sales and cash on the expected schedule, particularly given timing-related naval order declines.
- Whether Defense Electronics margin pressure persists and whether the gross-margin decline reverses.
- Working-capital trends, especially inventory growth and cash conversion, alongside the quarter’s negative operating cash flow.
- Debt and interest-cost trends, including facility usage, rates, and covenant headroom.
- Progress and recoverability of development costs not supported by firm orders, and any material changes in litigation or environmental exposures.