Esterline Announces Fiscal 2013 Third Quarter Earnings Results

Solid Operating Performance; Continued Expectation of Strong Finish for the Year

Marketwired

BELLEVUE, WA--(Marketwired - Aug 29, 2013) - Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving global aerospace/defense markets, today reported third fiscal quarter (ended July 26, 2013) earnings from continuing operations of $39.2 million, or $1.23 per diluted share, on sales of $478.1 million. Excluding certain discrete charges detailed below, earnings from continuing operations in the third quarter were $52.7 million, or $1.65 per diluted share. This compares with adjusted earnings from continuing operations in the third quarter of fiscal 2012 of $35.1 million, or $1.14 per diluted share, which excluded a $1.69 per diluted share charge detailed below. Sales in the year-ago third quarter were $485.9 million.

Esterline Chief Executive Officer Brad Lawrence said the company's third quarter operating results "...came in about where we expected, reflecting strength in commercial aerospace markets, offset by continued and anticipated softness in certain defense programs." Lawrence said the third quarter's solid operating results "…combine with a laser focus on executing against existing backlog to provide further confidence in the company's view of a strong finish for the year." He said that Esterline operations have "...responded quite well to the tough defense environment and are leveraging the positive trends in commercial markets to push profitability improvement, both through careful cost control and the advantages of scale that accompany growth," adding, "…you can see Esterline's underlying strength in the drop-through to free cash flow -- a record $159 million through nine months -- and our ability to maintain a rock-solid balance sheet, two keys to continuing our long-term growth strategy."

Lawrence went on to note that specific positive factors influencing the company's performance included "...the continuation of strong single-aisle build rates for new aircraft, stability in the commercial aircraft aftermarket, a good mix for our engineered materials in defense applications, and favorable tax items."

Lawrence said the company is "...intensely focused on execution in the fourth quarter" and is maintaining its full-year guidance for adjusted earnings per share from continuing operations in the range of $5.30 to $5.50, excluding certain discrete charges detailed in Table 1 below, on sales of approximately $2.0 billion. Lawrence noted that the company's view of the fourth quarter incorporates an expectation of "…robust sales and strong operating results tempered by customer approvals on shipments and unexpected push-outs, such as those that prompted our Racal Acoustics business to take an estimated, non-cash, $3.5 million charge for goodwill impairment in the third quarter." Lawrence noted that the reiterated full-year guidance excludes the goodwill impairment charge, as well as a third quarter estimated charge related to certain compliance errors, discussed in our second quarter 10-Q filing, of $10 million. The final charge amount will be subject to the outcome of discussions with and approval by the Directorate of Defense Trade Controls (DDTC).

     
Table 1: Effect of Discrete Charges on 3rdFiscal Quarter 2013
EPS from Continuing Operations
 
     
Earnings Per Share - U.S. GAAP $ 1.23  
       
Goodwill Impairment Estimated Charge   (0.11 )
DDTC Estimated Charge   (0.31 )
Total Discrete Items $ (0.42 )
       

The company's third quarter gross margin of 37.4% was up significantly compared with the 2012 third quarter level of 35.4%. The increase was primarily due to cost efficiency efforts and better product mix in some areas. Selling, general and administrative (SG&A) expense, excluding the $10 million DDTC estimated charge, was 19.2% of sales in the quarter, compared with the prior-year level of 18.9% of sales. Including the charge, SG&A expense was 21.3% of sales in the third quarter of fiscal 2013. 

R&D expense, at 5.0% of sales in the third quarter of fiscal 2013, remained consistent with our expectations. Last year, R&D expense was 5.6% of sales in the third quarter. 

As expected and previously disclosed, the company's income tax rate for the third quarter included $8.7 million in discrete tax benefits principally due to a release of tax reserves and a reduction in the U.K. corporate tax rates, resulting in a tax rate for the quarter of 2.8%.

Third quarter net earnings (including discontinued operations) for fiscal 2013 were $38.2 million, or $1.20 per diluted share, compared with a net loss of $17.1 million, or $(0.55) per diluted share, in the third quarter of fiscal 2012, which included a $52.2 million charge against goodwill for the Racal Acoustics business. Excluding the identified goodwill impairments in both periods and the DDTC charge in 2013, net earnings in the third quarter of fiscal 2013 were $51.7 million, or $1.62 per diluted share, compared with $35.1 million, or $1.14 per diluted share, in the prior-year period.

For the first nine months of fiscal 2013, the company reported earnings from continuing operations of $99.8 million, or $3.15 per diluted share. Excluding the goodwill impairment and DDTC charges noted earlier, earnings from continuing operations in the first nine months were $113.3 million, or $3.58 per diluted share. This compares with the prior-year period adjusted earnings of $103.0 million, or $3.30 per diluted share. Net earnings (including discontinued operations) for the first nine months of fiscal 2013 were $98.9 million, or $3.12 per diluted share. Net sales in the first nine months of fiscal 2013 and 2012 were $1.44 billion and $1.46 billion, respectively.

New orders in the third quarter of fiscal 2013 were $463.1 million compared with $415.4 million for the same period last year, primarily reflecting increased order volumes in commercial and adjacent markets, partially offset by the decrease in order volumes for certain defense products.

New orders for the first nine months of fiscal 2013 were $1.43 billion compared with $1.45 billion for the same period last year. Total backlog grew to $1.31 billion compared with $1.24 billion at the end of the prior-year period.

Conference Call Information

Esterline will host a conference call to discuss this announcement today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). The U.S. dial-in number is 866-515-2907; outside the U.S., use 617-399-5121. The pass code for the call is: 19075152.

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "should" or "will," or the negative of such terms, or other comparable terminology. These forward-looking statements are only predictions based on the current intent and expectations of the management of Esterline, are not guarantees of future performance or actions, and involve risks and uncertainties that are difficult to predict and may cause Esterline's or its industry's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Esterline's actual results and the timing and outcome of events may differ materially from those expressed in or implied by the forward-looking statements due to risks detailed in Esterline's public filings with the Securities and Exchange Commission including its most recent Annual Report on Form 10-K.

                       
                       
ESTERLINE TECHNOLOGIES CORPORATION              
Consolidated Statement of Operations (unaudited)              
In thousands, except per share amounts              
                       
  Three Months Ended     Nine Months Ended  
  Jul 26,     Jul 27,     Jul 26,     Jul 27,  
  2013     2012     2013     2012  
Segment Sales                              
  Avionics & Controls $ 179,572     $ 195,059     $ 546,272     $ 569,656  
  Sensors & Systems   175,864       171,603       524,638       527,958  
  Advanced Materials   122,632       119,287       364,682       364,048  
                               
Net Sales   478,068       485,949       1,435,592       1,461,662  
                               
Cost of Sales   299,166       313,853       914,969       946,962  
    178,902       172,096       520,623       514,700  
Expenses                              
  Selling, general and administrative   101,822       91,869       298,711       285,516  
  Research, development and engineering   24,103       27,198       72,837       83,138  
  Gain on settlement of contingency   --       --       --       (11,891 )
  Goodwill impairment   3,454       52,169       3,454       52,169  
  Other income   --       (1,263 )     --       (1,263 )
    Total Expenses   129,379       169,973       375,002       407,669  
                               
Operating Earnings From Continuing Operations   49,523       2,123       145,621       107,031  
                               
  Interest income   (132 )     (109 )     (381 )     (320 )
  Interest expense   9,050       12,159       30,976       35,171  
  Loss on extinguishment of debt   --       --       946       --  
                               
Earnings (Loss) From Continuing Operations Before Income Taxes   40,605       (9,927 )     114,080       72,180  
Income Tax Expense   1,151       6,963       13,027       20,677  
Earnings (Loss) From Continuing Operations Including Noncontrolling Interests   39,454       (16,890 )     101,053       51,503  
Earnings Attributable to Noncontrolling Interests   (241 )     (214 )     (1,207 )     (628 )
                               
Earnings (Loss) From Continuing Operations Attributable to Esterline   39,213       (17,104 )     99,846       50,875  
                               
Loss From Discontinued Operations Attributable to Esterline, Net of Tax   (975 )     --       (975 )     --  
                               
Net Earnings (Loss) Attributable to Esterline $ 38,238     $ (17,104 )   $ 98,871     $ 50,875  
                               
Earnings (Loss) Per Share - Basic:                              
  Continuing Operations $ 1.25     $ (.55 )   $ 3.21     $ 1.66  
  Discontinued Operations   (.03 )     .00       (.03 )     .00  
                               
Earnings (Loss) Per Share - Basic $ 1.22     $ (.55 )   $ 3.18     $ 1.66  
                               
Earnings (Loss) Per Share - Diluted:                              
  Continuing Operations $ 1.23     $ (.55 )   $ 3.15     $ 1.63  
  Discontinued Operations   (.03 )     .00       (.03 )     .00  
                               
Earnings (Loss) Per Share - Diluted $ 1.20     $ (.55 )   $ 3.12     $ 1.63  
                               
Weighted Average Number of Shares Outstanding - Basic   31,297       30,835       31,100       30,712  
                               
Weighted Average Number of Shares Outstanding - Diluted   31,870       30,835       31,663       31,266  
                               
                               
                               
ESTERLINE TECHNOLOGIES CORPORATION        
Consolidated Sales and Earnings (Loss) from Continuing Operations by Segment (unaudited)  
In thousands                      
                       
  Three Months Ended     Nine Months Ended  
  Jul 26,     Jul 27,     Jul 26,     Jul 27,  
  2013     2012     2013     2012  
                               
Segment Sales                              
  Avionics & Controls $ 179,572     $ 195,059     $ 546,272     $ 569,656  
  Sensors & Systems   175,864       171,603       524,638       527,958  
  Advanced Materials   122,632       119,287       364,682       364,048  
                               
Net Sales $ 478,068     $ 485,949     $ 1,435,592     $ 1,461,662  
                               
                               
Earnings (Loss) From Continuing Operations Before Income Taxes                              
  Avionics & Controls $ 20,5971     $ (25,611)2     $ 60,6511     $ 12,7032  
  Sensors & Systems   21,584       18,305       63,792       49,830  
  Advanced Materials   28,135       17,293       74,402       66,526  
    Segment Earnings   70,316       9,987       198,845       129,059  
                               
  Corporate expense   (20,793 )     (9,127 )     (53,224 )     (35,182 )
  Gain on settlement of contingency   --       --       --       11,891  
  Other income   --       1,263       --       1,263  
  Interest income   132       109       381       320  
  Interest expense   (9,050 )     (12,159 )     (30,976 )     (35,171 )
  Loss on extinguishment of debt   --       --       (946 )     --  
                               
Earnings (Loss) From Continuing Operations Before Income Taxes $ 40,605     $ (9,927 )   $ 114,080     $ 72,180  
 
1 Includes a $3.5 million estimated impairment charge against goodwill of Racal Acoustics.
2 Includes a $52.2 million impairment charge against goodwill of Racal Acoustics.
 
 
 
ESTERLINE TECHNOLOGIES CORPORATION      
Consolidated Balance Sheet (unaudited)      
In thousands Jul 26,   Jul 27,
  2013   2012
Assets          
Current Assets          
  Cash and cash equivalents $ 199,248   $ 213,073
  Cash in escrow   4,017     5,014
  Accounts receivable, net   332,069     333,815
  Inventories   445,790     410,515
  Income tax refundable   9,084     10,409
  Deferred income tax benefits   47,329     46,078
  Prepaid expenses   21,524     23,872
  Other current assets   3,774     2,651
    Total Current Assets   1,062,835     1,045,427
           
Property, Plant and Equipment, Net   363,155     355,051
           
Other Non-Current Assets          
  Goodwill   1,106,867     1,076,874
  Intangibles, net   584,485     608,416
  Debt issuance costs, net   6,637     9,294
  Deferred income tax benefits   93,374     88,208
  Other assets   7,558     18,756
  $ 3,224,911   $ 3,202,026
           
Liabilities and Shareholders' Equity          
Current Liabilities          
  Accounts payable $ 117,041   $ 109,936
  Accrued liabilities   258,447     268,889
  Credit facilities   109     127
  Current maturities of long-term debt   21,939     12,521
  Deferred income tax liabilities   1,215     3,503
  Federal and foreign income taxes   1,954     13,713
    Total Current Liabilities   400,705     408,689
           
Long-Term Liabilities          
  Credit facilities   170,000     300,000
  Long-term debt, net of current maturities   562,444     619,753
  Deferred income tax liabilities   198,809     208,702
  Pension and post-retirement obligations   125,673     89,770
  Other liabilities   32,616     34,180
           
Total Shareholders' Equity   1,734,664     1,540,932
  $ 3,224,911   $ 3,202,026
           

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