Esterline Reports Fiscal 2017 First Quarter Results
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BELLEVUE, WA -- (Marketwired) -- 02/02/17 -- Esterline Corporation (NYSE: ESL)
- Sales of $457.7 million in the fiscal first quarter, up 3.7% year-over-year
- Earnings from continuing operations of $21.5 million; adjusted earnings from continuing operations of $24.4 million
- GAAP earnings per diluted share from continuing operations of $0.72; adjusted earnings per diluted share of $0.82
- Free cash flow of $30.2 million
- Company reiterates full-year guidance for sales, earnings and free cash flow
Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace and defense markets, today reported results for the first fiscal quarter ended December 30, 2016. The company reported consolidated revenue of $457.7 million during the quarter, an increase of 3.7% compared with $441.5 million in the year-ago period. Higher year-over-year revenue is attributable to incremental sales growth in the company's Sensors & Systems and Avionics & Controls segments.
Earnings from continuing operations in the first fiscal quarter of 2017 were $21.5 million, or $0.72 per diluted share, compared with prior-year earnings from continuing operations of $9.9 million, or $0.33 per diluted share. Adjusted earnings from continuing operations for the first fiscal quarter of 2017 were $24.4 million, or $0.82 per diluted share. Adjusted results exclude $0.10 per diluted share mostly related to incremental compliance activities (see Table 1). In the comparable period of the prior year, adjusted earnings from continuing operations were $18.4 million, or $0.62 per diluted share.
Curtis Reusser, Esterline's Chief Executive Officer, said, "I am pleased with the results for the start of our fiscal year. First quarter revenues were just above the high end of our expected range and earnings in the quarter were well ahead of our expectations. The combination of modestly stronger than expected operating trends and a shift in the timing of taxes and R&D spend drove the improved earnings performance." Reusser added, "We continue to focus on execution and operational excellence to drive results for our stakeholders."
Table 1: Effect of Certain Items on 1st Fiscal Quarter
2017 Earnings from Continuing Operations
$ millions EPS
----------- -----------
Earnings - U.S. GAAP $ 21.5 $ 0.72
=========== ===========
DAT Integration Costs 0.6 0.02
Compliance Costs 2.3 0.08
Adjusted Earnings $ 24.4 $ 0.82
=========== ===========
The company reiterated its fiscal 2017 full-year expectation for sales of $2.0 billion to $2.05 billion and for GAAP earnings from continuing operations of $4.30 to $4.70 per diluted share. The expectation for full-year adjusted earnings from continuing operations, which excludes certain compliance and integration costs, remains in the range of $4.50 to $4.90 per diluted share. The company's prior guidance for fiscal 2017 full-year EBITDA and free cash flow also remained unchanged.
Including discontinued operations, net earnings for the first fiscal quarter of 2017 were $16.2 million, or $0.54 per diluted share, compared with $5.1 million, or $0.17 per diluted share, in the comparable period in fiscal 2016. Net earnings in the first fiscal quarter of 2017 included a $5.3 million loss from discontinued operations, while the prior year included a $4.8 million loss from discontinued operations.
New orders in the first fiscal quarter of 2017 were $421.5 million, compared with $458.1 million in the comparable prior-year period. Backlog at the end of the first fiscal quarter of 2017 was $1.26 billion, compared with $1.24 billion at the end of the first quarter of fiscal 2016.
Gross profit in the fiscal first quarter of 2017 was $144.0 million, compared with $137.7 million in the prior-year period. Reported gross margin as a percentage of sales in the first fiscal quarter of 2017 was 31.5% compared with 31.2% in the prior-year period.
Selling, general and administrative (SG&A) expenses during the fiscal first quarter of 2017 were $95.6 million, compared with $94.1 million in the prior year. Fiscal first quarter SG&A expenses as a percentage of sales were 20.9%, compared with the prior-year level of 21.3%.
Research, development and engineering (R&D) spending in the first quarter of fiscal 2017 was $21.0 million, or 4.6% of sales, compared with $25.6 million, or 5.8% of sales, in the prior-year period. The company expects full-year R&D spending to be approximately 5.0% of sales as development activities on specific programs accelerate after the first quarter.
The company's income tax rate in the first fiscal quarter of 2017 was 1.9% compared with a 0.3% benefit in the prior-year period. Tax rates in each of these periods were impacted by discrete tax benefits. For the full year, the company expects a tax rate of approximately 24% - 25%.
Cash flow from operations through the first fiscal quarter of 2017 was $45.5 million. After excluding capital expenditures of $15.3 million, free cash flow was $30.2 million during the same 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 877-307-0078; outside the U.S., use 531-289-2890. The pass code for the call is: 46097519. The company has posted a presentation on its website (www.esterline.com) under "Presentations" in the Investor Relations section to provide additional information about its first fiscal quarter operational and financial results. The presentation is also included as Exhibit 99.2 to the company's report on Form 8-K, which is being submitted today to the SEC.
Non-GAAP Financial Information
This press release and the related presentation providing supplemental financial information include non-GAAP financial measures -- adjusted earnings from continuing operations, adjusted earnings from continuing operations per diluted share, adjusted earnings before interest and tax (EBIT), operating earnings from continuing operations adjusted to exclude depreciation and amortization expense (EBITDA), adjusted gross margin, and free cash flow -- that have not been calculated in accordance with generally accepted accounting principles in the U.S. (GAAP). Adjusted earnings from continuing operations consist of earnings from continuing operations attributable to Esterline less the costs associated with certain integration activities -- including restructuring charges -- and incremental compliance costs as well as discrete items associated with our acquisition of the DAT business in January 2015, in each case, as further detailed in the tables below. Adjusted earnings from continuing operations per diluted share divides each element of adjusted earnings from continuing operations by the weighted average number of shares outstanding, diluted for the periods presented. EBIT is defined as operating earnings from continuing operations. Adjusted EBIT and adjusted gross margin exclude the same costs excluded from adjusted earnings from continuing operations. EBITDA is EBIT plus depreciation and amortization of $25 million in the first quarter of fiscal 2017 and $24 million in the first quarter of fiscal 2016. In accordance with the SEC's requirements, below is the reconciliation of the non-GAAP adjusted earnings from continuing operations to the comparable GAAP earnings from continuing operations.
In millions, except per share amounts
Three Months Ended Three Months Ended
December 30, 2016 January 1, 2016
--------------------- ---------------------
Per Diluted Per Diluted
Share Share
Earnings from Continuing
Operations
Attributable to Esterline
(GAAP), Net of Tax $ 21.5 $ 0.72 $ 9.9 $ 0.33
DAT Integration Costs,
Net of $0.0 and $0.0 Tax 0.6 0.02 3.6 0.12
Compliance Costs,
Net of $0.0 and $0.0 Tax 2.3 0.08 3.5 0.12
Accelerated Integration Costs,
Net of $0.0 and $0.0 Tax -- -- 1.4 0.05
--------- ----------- --------- -----------
Adjusted Earnings from
Continuing
Operations (non-GAAP), Net of
Tax $ 24.4 $ 0.82 $ 18.4 $ 0.62
========= =========== ========= ===========
The company provides these non-GAAP financial measures as supplemental information to the GAAP financial measures. Management uses these non-GAAP financial measures to (a) evaluate the company's historical and prospective financial performance and its performance relative to its competitors, (b) allocate resources, and (c) measure the operational performance of the company's business units.
In addition, management believes investors' and financial analysts' understanding of the company's performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing the company's historical results of operations.
These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measures, and free cash flow is not necessarily indicative of amounts available for discretionary use. There are limitations to these non-GAAP financial measures because they are not prepared in accordance with GAAP and may not be comparable to similarly titled measures of other companies due to potential differences in methods of calculation and items that comprise the calculation. The company compensates for these limitations by using these non-GAAP financial measures as a supplement to the GAAP measures and by providing reconciliations of the non-GAAP and comparable GAAP financial measures. The non-GAAP financial measures should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP.
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 the company's 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 Transition Report on Form 10-K.
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Statement of Operations (unaudited)
In thousands, except per share amounts
Three Months Ended
----------------------------
December 30, January 1,
2016 2016
------------- -------------
Segment Sales
Avionics & Controls $ 192,682 $ 186,245
Sensors & Systems 167,073 152,430
Advanced Materials 97,978 102,802
------------- -------------
Net Sales 457,733 441,477
Cost of Sales 313,686 303,758
------------- -------------
144,047 137,719
Expenses
Selling, general and administrative 95,633 94,091
Research, development and engineering 21,038 25,575
Restructuring charges -- 931
Insurance recovery (2,600) --
------------- -------------
Total Expenses 114,071 120,597
------------- -------------
Operating Earnings From Continuing Operations 29,976 17,122
Interest Income (96) (87)
Interest Expense 7,888 7,216
------------- -------------
Earnings From Continuing Operations
Before Income Taxes 22,184 9,993
Income Tax Expense (Benefit) 420 (33)
------------- -------------
Earnings From Continuing Operations
Including Noncontrolling Interests 21,764 10,026
Earnings Attributable to Noncontrolling
Interests (239) (162)
------------- -------------
Earnings From Continuing Operations
Attributable to Esterline, Net of Tax 21,525 9,864
Loss From Discontinued Operations,
Attributable to Esterline, Net of Tax (5,336) (4,780)
------------- -------------
Net Earnings Attributable to Esterline $ 16,189 $ 5,084
============= =============
Earnings (Loss) Per Share--Basic:
Continuing Operations $ .73 $ .33
Discontinued Operations (.18) (.16)
------------- -------------
Earnings (Loss) Per Share--Basic $ .55 $ .17
============= =============
Earnings (Loss) Per Share--Diluted:
Continuing Operations $ .72 $ .33
Discontinued Operations (.18) (.16)
------------- -------------
Earnings (Loss) Per Share--Diluted $ .54 $ .17
============= =============
Weighted Average Number
of Shares Outstanding--Basic 29,547 29,582
Weighted Average Number
of Shares Outstanding--Diluted 29,831 29,939
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Sales and Earnings from Continuing Operations by Segment
(unaudited)
In thousands
Three Months Ended
----------------------------
December 30, January 1,
2016 2016
------------- -------------
Segment Sales
Avionics & Controls $ 192,682 $ 186,245
Sensors & Systems 167,073 152,430
Advanced Materials 97,978 102,802
------------- -------------
Net Sales $ 457,733 $ 441,477
============= =============
Earnings From Continuing Operations Before
Income Taxes
Avionics & Controls $ 17,917 $ 9,413
Sensors & Systems 19,946 12,784
Advanced Materials 9,880 12,990
------------- -------------
Segment Earnings 47,743 35,187
Corporate Expense (17,767) (18,065)
Interest Income 96 87
Interest Expense (7,888) (7,216)
------------- -------------
Earnings From Continuing Operations
Before Income Taxes $ 22,184 $ 9,993
============= =============
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Balance Sheet (unaudited)
In thousands
December 30, September 30,
2016 2016
-------------- --------------
Assets
Current Assets
Cash and cash equivalents $ 278,024 $ 258,520
Escrow cash -- 1,125
Accounts receivable, net 363,825 422,073
Inventories 454,233 450,206
Income tax refundable 10,097 5,183
Prepaid expenses 19,481 17,909
Other current assets 5,130 5,322
Current assets of businesses held for sale 9,618 15,450
-------------- --------------
Total Current Assets 1,140,408 1,175,788
Property, Plant and Equipment, Net 330,565 338,034
Other Non-Current Assets
Goodwill 992,810 1,024,667
Intangibles, net 366,706 393,035
Deferred income tax benefits 74,133 75,409
Other assets 12,166 13,698
Non-current assets of businesses held for
sale 11,012 11,400
-------------- --------------
$ 2,927,800 $ 3,032,031
============== ==============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 108,129 $ 121,816
Accrued liabilities 223,561 238,163
Current maturities of long-term debt 16,717 16,774
Federal and foreign income taxes 9,257 10,932
Current liabilities of businesses held for
sale 9,535 10,813
-------------- --------------
Total Current Liabilities 367,199 398,498
Long-Term Liabilities
Credit facilities 150,000 155,000
Long-term debt, net of current maturities 671,441 698,796
Deferred income tax liabilities 40,524 53,798
Pension and post-retirement obligations 90,726 92,520
Other liabilities 22,157 21,968
Non-current liabilities of businesses held
for sale 154 320
Total Shareholders' Equity 1,585,599 1,611,131
-------------- --------------
$ 2,927,800 $ 3,032,031
============== ==============
Source: Esterline Technologies
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