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Esterline Reports Fiscal 2017 Third Quarter Results

  • Sales of $503.8 million in the third fiscal quarter; $1.47 billion year-to-date
  • Third fiscal quarter earnings from continuing operations of $31.3 million; adjusted earnings from continuing operations of $32.5 million
  • Third fiscal quarter GAAP earnings from continuing operations of $1.04 per diluted share; adjusted earnings per diluted share of $1.08
  • Free cash flow of $96.7 million year-to-date
  • Company updates full-year guidance

BELLEVUE, Wash., Aug. 03, 2017 (GLOBE NEWSWIRE) -- Esterline Corporation (NYSE:ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace and defense markets, today reported results for the third fiscal quarter ended June 30, 2017. The company reported consolidated revenue of $503.8 million during the quarter compared with $517.1 million in the year-ago period. Lower sales volume in the company’s Avionics & Controls segment primarily contributed to the lower year-over-year quarterly revenue result. The company reported year-to-date (YTD) fiscal 2017 revenues of $1.47 billion, slightly ahead of the prior-year result of $1.45 billion.

Earnings from continuing operations in the third fiscal quarter of 2017 were $31.3 million, or $1.04 per diluted share, compared with prior-year earnings from continuing operations of $38.0 million, or $1.28 per diluted share. Earnings from continuing operations in the third fiscal quarter of 2017 were affected by higher research, development and engineering (R&D) spending and a higher effective tax rate. U.S. GAAP earnings from continuing operations YTD in fiscal 2017 were $88.0 million, or $2.94 per diluted share, compared with $64.9 million, or $2.18 per diluted share, in the 2016 period.

Adjusted earnings from continuing operations for the third fiscal quarter of 2017 were $32.5 million, or $1.08 per diluted share (see Table 1 below). In the comparable period of the prior year, adjusted earnings from continuing operations were $40.9 million, or $1.38 per diluted share. Adjusted earnings from continuing operations YTD in fiscal 2017 were $93.0 million, or $3.11 per diluted share, compared with $86.6 million, or $2.91 per diluted share, in the prior year (see Table 2 below). 

Curtis Reusser, Esterline’s Chief Executive Officer, said, “We delivered modest year-to-date revenue growth over last year and improved operating profit across our business through the third quarter of fiscal 2017. The cadence of our earnings has evolved from our original expectation and we expect to achieve results within our original full-year guidance. Our global facilities are focused on execution as our integration and compliance enhancement efforts near completion, and we are generating strong cash returns.”

       
Table 1:  Effect of Certain Items on Third Fiscal Quarter 2017  
  Earnings from Continuing Operations   
       
  $ Millions EPS  
Earnings (U.S. GAAP) $ 31.3  $ 1.04  
Advanced Displays Integration Costs 0.1 0.01  
Compliance Costs 1.1 0.03  
Adjusted Earnings $ 32.5  $ 1.08  
       
   

/EIN News/ -- Full-Year Outlook

The company noted that its fiscal 2017 full-year expectation for sales is approximately $2.0 billion. For GAAP earnings from continuing operations, the company narrowed its guidance range to $4.30 to $4.50 per diluted share, from $4.30 to $4.70 per diluted share. The expectation for full-year adjusted earnings from continuing operations, which exclude certain compliance and integration costs, was adjusted similarly to a range of $4.50 to $4.70 per diluted share, from the prior range of $4.50 to $4.90 per diluted share. The company also updated its guidance for fiscal 2017 full-year EBITDA to a range of $300 million to $310 million. Full-year free cash flow is expected to be in excess of 100% of net income and in a range of $130 million to $150 million.  

Results of Operations

Including discontinued operations, net earnings for the third fiscal quarter of 2017 were $30.5 million, or $1.01 per diluted share, compared with $29.4 million, or $0.99 per diluted share, in the comparable period in fiscal 2016. Net earnings in the third fiscal quarter of 2017 and 2016 included losses from discontinued operations of $0.8 million and $8.7 million, respectively.

New orders in the third fiscal quarter of 2017 were $532.0 million, compared with $569.7 million in the comparable prior-year period. Fiscal 2016 benefited from large defense orders booked in the Avionics & Controls segment in the third quarter. Backlog at the end of the third fiscal quarter of 2017 was $1.24 billion, compared with $1.36 billion at the end of the third fiscal quarter of 2016.

Gross profit in the third fiscal quarter of 2017 was $170.6 million, compared with $173.6 million in the prior-year period. Gross margin as a percentage of sales in the third fiscal quarter of 2017 was 33.9% compared with 33.6% in the prior-year period. Improved gross margin performance on lower sales is the result of favorable product mix in Avionics & Controls and recovery of defense countermeasure volumes in Advanced Materials.

Selling, general and administrative (SG&A) expenses during the third fiscal quarter of 2017 were $93.6 million, compared with $96.8 million in the prior year. Fiscal 2017 third quarter SG&A expenses as a percentage of sales were 18.6%, compared with the prior-year level of 18.7%.

R&D spending in the third fiscal quarter of 2017 was $27.9 million, or 5.5% of sales, compared with $22.2 million, or 4.3% of sales, in the prior-year period. Year-to-date fiscal 2017 R&D spending was $75.7 million, or 5.1% of sales. Full-year R&D expense for fiscal 2017 is expected to be 5.1%.  

The company’s income tax rate in the third fiscal quarter of 2017 was 24.8% compared with 17.2% in the prior-year period. The company expects a tax rate in the fourth fiscal quarter of 2017 of approximately 27% to 28% and a full-year tax rate in a range of 24% to 25%. This will move to a normalized rate of 27% to 28% in fiscal 2018 and beyond. U.K. tax law changes implemented in 2017 are driving the tax rate increase from prior years.

Year-to-Date Results of Operations

For the nine months of fiscal 2017 ended June 30, 2017, sales were $1.47 billion, compared with $1.45 billion in the prior-year period. Fiscal 2017 YTD GAAP earnings from continuing operations were $88.0 million, or $2.94 per diluted share, compared with the prior-year period results of $64.9 million, or $2.18 per diluted share. Excluding the discrete costs described in Table 2 below, adjusted earnings from continuing operations in the first nine months of fiscal 2017 were $93.0 million, or $3.11 per diluted share. Adjusted earnings from continuing operations for the first nine months of 2016 were $86.6 million, or $2.91 per diluted share.

       
Table 2:  Effect of Certain Items on YTD Fiscal 2017   
  Earnings from Continuing Operations  
       
  $ Millions EPS  
Earnings (U.S. GAAP) $ 88.0  $ 2.94  
Advanced Displays Integration Costs 0.9 0.03  
Compliance Costs 4.1 0.14  
Adjusted Earnings $ 93.0  $ 3.11  
       

Cash flow from operations through the nine months ended June 30, 2017, was $138.9 million, compared with $118.6 million through the nine months ended July 1, 2016. Free cash flow was $96.7 million in the first nine months of fiscal 2017 and capital expenditures were $42.2 million. Free cash flow was $60.1 million in the first nine months of fiscal 2016 and capital expenditures were $58.5 million.

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: 51662751. 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 third 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 Advanced Displays 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 consists of EBIT plus depreciation and amortization of $25.5 million in the third quarter and $76.0 million in the first nine months of fiscal 2017, and $24.2 million in the third quarter and $72.2 million in the first nine months 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. Additional relevant reconciliations are included in the presentation providing supplemental financial information.

           
In millions, except per share amounts  
  Three Months Ended Three Months Ended  
  June 30, 2017 July 1, 2016  
    Diluted   Diluted  
    EPS   EPS  
Earnings from Continuing Operations Attributable           
to Esterline (GAAP), Net of Tax $ 31.3  $ 1.04  $ 38.0  $ 1.28  
Advanced Displays Integration Costs,           
Net of Tax of $0.1 and $0.7 0.1 0.01 2.1 0.07  
Compliance Costs,           
Net of Tax of $0.4 and $0.6 1.1 0.03 2.1 0.08  
Accelerated Integration Costs,           
Net of Tax of $0.3 -- -- 1.2 0.04  
Long-term Contract Adjustments,          
Net of Tax of $0.2 -- -- (2.5) (0.09)  
Adjusted Earnings from Continuing Operations          
(non-GAAP), Net of Tax $ 32.5  $ 1.08  $ 40.9  $ 1.38  
           
     
In millions, except per share amounts    
  Nine Months Ended Nine Months Ended  
  June 30, 2017 July 1, 2016  
    Diluted   Diluted  
    EPS   EPS  
Earnings from Continuing Operations Attributable          
to Esterline (GAAP), Net of Tax $ 88.0  $ 2.94  $ 64.9  $ 2.18  
Advanced Displays Integration Costs,          
Net of Tax of $0.3 and $1.5 0.9 0.03 8.9 0.30  
Compliance Costs,          
Net of Tax of $1.1 and $1.2 4.1 0.14 7.0 0.23  
Accelerated Integration Costs,          
Net of Tax of $0.7 -- -- 4.2 0.14  
Long-term Contract Adjustments,          
Net of Tax of $0.3 -- -- 1.6 0.06  
Adjusted Earnings from Continuing Operations          
(non-GAAP), Net of Tax $ 93.0  $ 3.11  $ 86.6  $ 2.91  
     

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 the performance of 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 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     
  June 30,   July 1,   June 30,   July 1,    
  2017   2016   2017   2016    
                   
Segment Sales $ 209,168   $ 222,583   $ 615,443   $ 607,493    
Avionics & Controls 184,450   186,337   534,001   514,836    
Sensors & Systems 110,135   108,172   321,224   326,550    
Advanced Materials                  
 Net Sales 503,753   517,092   1,470,668   1,448,879    
                   
 Cost of Sales 333,124   343,508   980,073   981,403    
  170,629   173,584   490,595   467,476    
Expenses                  
Selling, general and administrative 93,615   96,769   286,331   293,283    
Research, development and                   
engineering 27,866   22,211   75,712   72,760    
Insurance recovery     (7,789)      
Restructuring charges   559     2,430    
Total Expenses 121,481   119,539   354,254   368,473    
                   
Operating Earnings from Continuing                  
Operations 49,148   54,045   136,341   99,003    
                   
Interest Income (150)   (30)   (346)   (211)    
Interest Expense 7,299   7,659   22,645   22,169    
                   
Earnings from Continuing Operations                  
Before Income Taxes 41,999   46,416   114,042   77,045    
Income Tax Expense 10,433   7,975   25,013   11,358    
Earnings from Continuing Operations                  
Including Noncontrolling Interests 31,566   38,441   89,029   65,687    
Earnings Attributable to Noncontrolling                  
Interests (278)   (395)   (1,069)   (781)    
Earnings from Continuing Operations                  
Attributable to Esterline, Net of Tax 31,288   38,046   87,960   64,906    
Gain (Loss) from Discontinued Operations,                  
Attributable to Esterline, Net of Tax (815)   (8,690)   (6,185)   (15,493)    
                   
Net Earnings Attributable to Esterline $ 30,473   $ 29,356   $ 81,775   $ 49,413    
                   
Earnings (Loss) Per Share—Basic:                  
Continuing Operations $ 1.05   $ 1.30   $ 2.96   $ 2.19    
Discontinued Operations (.03)   (.30)   (.21)   (.52)    
                   
Earnings (Loss) Per Share—Basic $   1.02   $ 1.00   $ 2.75   $ 1.67    
                   
Earnings (Loss) Per Share—Diluted:                  
Continuing Operations $ 1.04   $ 1.28   $ 2.94   $ 2.18    
Discontinued Operations   (.03 )   (.29 )   (.21 )   (.52 )  
                   
Earnings (Loss) Per Share—Diluted $ 1.01   $ .99   $ 2.73   $ 1.66    
                   
Weighted Average Number                  
of Shares Outstanding—Basic 29,830   29,381   29,698   29,517    
                   
Weighted Average Number                  
of Shares Outstanding—Diluted 30,068   29,601   29,953   29,788    


           
ESTERLINE TECHNOLOGIES CORPORATION  
Consolidated Sales and Earnings From Continuing Operations by Segment (unaudited)  
In thousands  
           
  Three Months Ended Nine Months Ended  
  June 30, July 1, June 30, July 1,  
  2017 2016 2017 2016  
           
Segment Sales $ 209,168 $ 222,583 $ 615,443 $ 607,493  
Avionics & Controls 184,450 186,337 534,001 514,836  
Sensors & Systems 110,135 108,172 321,224 326,550  
Advanced Materials          
  $ 503,753 $ 517,092  1,470,668 $ 1,448,879  
Net Sales          
           
Earnings from Continuing Operations           
Before Income Taxes $ 22,495 $ 28,517 $ 62,173 $ 40,579  
Avionics & Controls 24,842 27,942 71,944 61,670  
Sensors & Systems 17,780 15,512 55,982 51,710  
Advanced Materials  65,117 71,971 190,099 153,959  
Segment Earnings          
  (15,969) (17,926) (53,758) (54,956)  
Corporate expense 150 30 346 211  
Interest income (7,299) (7,659) (22,645) (22,169)  
Interest expense          
           
Earnings from Continuing Operations    
Before Income Taxes $ 41,999 $ 46,416 $ 114,042 $ 77,045  
   


       
ESTERLINE TECHNOLOGIES CORPORATION  
Consolidated Balance Sheet (unaudited)  
In thousands   
       
  June 30,   September 30,   
  2017 2016  
Assets      
Current Assets      
Cash and cash equivalents $ 279,398 $ 258,520  
Cash in escrow 1,125  
Accounts receivable, net 401,479 422,073  
Inventories 487,700 450,206  
Income tax refundable 5,569 5,183  
Prepaid expenses 22,371 17,909  
Other current assets 9,689 5,322  
Current assets of businesses held for sale 3,868 15,450  
Total Current Assets 1,210,074 1,175,788  
       
Property, Plant and Equipment, Net 343,082 338,034  
       
Other Non-Current Assets      
Goodwill  1,032,034 1,024,667  
Intangibles, net  361,927 393,035  
Deferred income tax benefits 75,387 75,409  
Other assets 16,870 13,698  
Non-current assets of businesses held for sale 10,257 11,400  
  $ 3,049,631 $ 3,032,031  
       
Liabilities and Shareholders' Equity      
Current Liabilities      
Accounts payable $ 128,293 $ 121,816  
Accrued liabilities 228,742 238,163  
Current maturities of long-term debt 14,215 16,774  
Federal and foreign income taxes 4,561 10,932  
Current liabilities of businesses held for sale 471 10,813  
Total Current Liabilities 376,282 398,498  
   
Long-Term Liabilities      
Credit facilities 65,000 155,000  
Long-term debt, net of current maturities 701,024 698,796  
Deferred income tax liabilities 45,357 53,798  
Pension and post-retirement obligations 93,347 92,520  
Other liabilities 19,388 21,968  
Non-current liabilities of businesses held for sale 1,685 320  
   
       
Total Shareholders' Equity 1,747,548 1,611,131  
  $ 3,049,631 $ 3,032,031  
Contact:
                    John Hobbs
                    +1 425-453-9400

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