Esterline Reports Fiscal 2016 Third Quarter Financial Results
/EINPresswire.com/ -- BELLEVUE, WA -- (Marketwired) -- 08/04/16 -- Esterline Corporation (NYSE: ESL)
- Sales up 6.7% to $517.1 million in the fiscal third quarter; strong book-to-bill of 1.1
- Earnings from continuing operations of $38.0 million; adjusted earnings from continuing operations of $40.9 million
- GAAP earnings per diluted share from continuing operations of $1.28; adjusted earnings per diluted share of $1.38
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 July 1, 2016. During the third quarter of fiscal 2016, the company grew consolidated revenue to $517.1 million, an increase of 6.7% compared with the year-ago period results of $484.7 million. This revenue growth was driven by strength in various end markets for the company's Avionics & Controls and Sensors & Systems business segments. In order to provide meaningful comparisons to prior-year periods, the results for our 2015 fiscal year have been recast to the twelve months ended October 2, 2015.
Curtis Reusser, Esterline's Chief Executive Officer, said, "We are pleased to report a strong third quarter, delivering on commitments to our stakeholders despite market fluctuations. Our teams are executing well and making good progress against our objectives for growth, backlog, and profitability, while also continuing to drive a range of operational improvement initiatives."
Earnings from continuing operations in the third quarter of fiscal 2016 increased to $38.0 million, or $1.28 per diluted share, compared with prior-year earnings from continuing operations of $28.2 million, or $0.90 per diluted share. Adjusted earnings from continuing operations for the third fiscal quarter of 2016 were $40.9 million, or $1.38 per diluted share. In the comparable period of the prior year, adjusted earnings from continuing operations were $36.0 million, or $1.15 per diluted share. For the third fiscal quarter of 2016, adjusted earnings exclude $0.19 per diluted share of costs related to previously identified integration, restructuring and compliance activities partially offset by $0.09 per diluted share of a one-time benefit related to long-term contract adjustments (see Table 1).
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Table 1: Effect of Certain Items on 3rd Fiscal Quarter 2016
Earnings from Continuing Operations
$ Millions EPS
----------- -----------
Earnings (GAAP) $ 38.0 $ 1.28
Accelerated Integration Costs 1.2 0.04
Compliance Costs 2.1 0.08
DAT Integration Costs 2.1 0.07
Long-term Contract Adjustments (2.5) (0.09)
----------- -----------
Adjusted Earnings (non-GAAP) $ 40.9 $ 1.38
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Including discontinued operations, net earnings for the third fiscal quarter of 2016 were $29.4 million, or $0.99 per diluted share, compared with $27.7 million, or $0.88 per diluted share, in the comparable fiscal period in 2015. Net earnings in the third fiscal quarter of 2016 included an $8.7 million loss from discontinued operations, while the prior year included a $0.6 million loss from discontinued operations.
New orders in the third fiscal quarter of 2016 were $552.1 million, compared with $467.4 million in the comparable prior-year period; the company's book-to-bill ratio for the third quarter and first nine months of fiscal 2016 was 1.1. The Avionics & Controls segment accounted for most of the increase in fiscal 2016 third quarter orders. Backlog at the end of the third quarter of 2016 was $1.4 billion, compared with $1.2 billion at the end of the third fiscal quarter of 2015.
Gross profit in the third fiscal quarter of 2016 was $173.6 million, compared with $165.3 million in the prior-year period. Reported gross margin as a percentage of sales in the third fiscal quarter of 2016 was 33.6% compared with 34.1% in the prior-year period. On an adjusted basis, excluding the discrete items consistent with adjusted earnings, the company reported gross margin of $173.0 million, or 33.5% of sales, in the third fiscal quarter of 2016, compared with adjusted gross margin of $169.3 million, or 34.9% of sales, in the prior-year period.
Selling, general and administrative (SG&A) expenses during the third fiscal quarter of 2016 were $96.8 million, or 18.7% of sales, compared with $92.0 million, or 19.0% of sales, in the prior-year period.
Research, development and engineering (R&D) spending in the third fiscal quarter of 2016 was $22.2 million, or 4.3% of sales, compared with $26.4 million, or 5.4% of sales, in the prior-year period. This change was primarily attributable to a change in mix of engineering expenses with greater customer funded and sustaining projects than in the prior-year period. The company continues to expect full-year R&D spending to be approximately 5% of sales.
The company's income tax rate in the third fiscal quarter of 2016 was 17.2% compared with 19.2% in the prior-year period. The higher tax rate in the prior-year period was primarily due to non-deductible compliance expenses. For the full year, the company expects a tax rate in the range of 15% to 17%.
For the nine months of fiscal 2016 ended July 1, year-to-date (YTD) sales were $1.45 billion, roughly even with the same period in the prior year. Fiscal 2016 YTD GAAP earnings from continuing operations were $64.9 million, or $2.18 per diluted share, compared with the prior-year period results of $87.6 million, or $2.76 per diluted share. Excluding the discrete costs described in Table 2 below, adjusted earnings from continuing operations in the first nine months of fiscal 2016 were $86.6 million, or $2.91 per diluted share, compared with the prior-year period results of $113.1 million, or $3.57 per diluted share.
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Table 2: Effect of Certain Items on YTD Fiscal 2016
Earnings from Continuing Operations
$ Millions EPS
----------- -----------
Earnings (GAAP) $ 64.9 $ 2.18
Accelerated Integration Costs 4.2 0.14
Compliance Costs 7.0 0.23
DAT Integration Costs 8.9 0.30
Long-term Contract Adjustments 1.6 0.06
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Adjusted Earnings (non-GAAP) $ 86.6 $ 2.91
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Cash flow from operations for the nine months ended July 1, 2016, was $114.7 million, compared with $117.2 million in the prior-year period. After capital expenditures of $58.5 million, free cash flow was $56.2 million in the first nine months of fiscal 2016. In the prior-year period, free cash flow was $80.9 million. Capital expenditures in fiscal 2016 are higher than the prior year due to approximately $15 million used to purchase and improve the primary facility of the DAT business. Additionally, during the third fiscal quarter of 2016, the company repurchased 102,267 of its shares for approximately $6.7 million. This brings the total number of shares repurchased since the inception of the company's share repurchase program in the third fiscal quarter of 2014 to 3.1 million shares for a total purchase amount of $308.5 million. A total of $91.5 million remains under the $400 million share repurchase authorization.
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: 49084439. 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 fiscal 2016 third quarter and YTD 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, adjustments to reserves on long-term contracts incurred in the periods presented and unique amounts related to pension expense, 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 excludes the same costs excluded from adjusted earnings from continuing operations set forth in the table below. Third fiscal quarter 2016 adjusted gross margin excludes the cost of certain integration activities and adjustments to long-term contract reserves that have a total net impact of reducing GAAP gross margin by $(0.6) million. Fiscal third quarter 2015 adjusted gross margin excludes certain integration costs and purchase accounting charges totaling $4.0 million. 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 and additional relevant reconciliations are included in the presentation providing supplemental financial information.
In millions, except per share
amounts
Three Recast Three
Months Ended Months Ended
July 1, 2016 June 26, 2015
-------------------- --------------------
Diluted Diluted
EPS EPS
Earnings from Continuing
Operations Attributable to
Esterline (GAAP), Net of Tax $ 38.0 $ 1.28 $ 28.2 $ 0.90
Accelerated Integration Costs,
Net of Tax of $0.3 and $0.4 1.2 0.04 2.0 0.07
Compliance Costs, Net of Tax of
$0.6 and $0.8 2.1 0.08 3.3 0.10
DAT Integration and Purchase
Acctg Adjustments, Net of Tax
of $0.7 and $0.9 2.1 0.07 2.5 0.08
Long-term Contract Adjustments,
Net of Tax of $0.2 (2.5) (0.09) -- --
--------- --------- --------- ---------
Adjusted Earnings from Continuing
Operations (non-GAAP), Net of
Tax $ 40.9 $ 1.38 $ 36.0 $ 1.15
========= ========= ========= =========
In millions, except per share
amounts
Nine Recast Nine
Months Ended Months Ended
July 1, 2016 June 26, 2015
-------------------- --------------------
Diluted Diluted
EPS EPS
Earnings from Continuing
Operations Attributable to
Esterline (GAAP), Net of Tax $ 64.9 $ 2.18 $ 87.6 $ 2.76
Accelerated Integration Costs,
Net of Tax of $0.7 and $2.5 4.2 0.14 9.4 0.29
Compliance Costs, Net of Tax of
$1.2 and $2.4 7.0 0.23 8.9 0.29
DAT Integration and Purchase
Acctg Adjustments, Net of Tax
of $1.5 and $1.7 8.9 0.30 6.2 0.20
DAT Closing Expenses, Net of
Tax of $1.3 -- -- 4.7 0.14
Long-term Contract Adjustments,
Net of Tax of $0.3 and $2.2 1.6 0.06 7.7 0.25
Pension Expense, Net of Tax of
$0.7 -- -- 2.3 0.07
Non-Income Tax Gain, Net of Tax
of $4.4 -- -- (13.7) (0.43)
--------- --------- --------- ---------
Adjusted Earnings from Continuing
Operations (non-GAAP), Net of
Tax $ 86.6 $ 2.91 $ 113.1 $ 3.57
========= ========= ========= =========
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 including these non-GAAP financial measures enhances investors' and financial analysts' understanding of the company's performance as well as their ability to assess and compare 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 Nine Months Ended
-------------------- ----------------------
July 1, June 26, July 1, June 26,
2016 2015 2016 2015
--------- --------- ---------- ----------
(Recast) (Recast)
Segment Sales
Avionics & Controls $ 222,583 $ 200,078 $ 607,493 $ 594,025
Sensors & Systems 186,337 175,544 514,836 529,976
Advanced Materials 108,172 109,101 326,550 333,543
--------- --------- ---------- ----------
Net Sales 517,092 484,723 1,448,879 1,457,544
Cost of Sales 343,508 319,433 981,403 963,996
--------- --------- ---------- ----------
173,584 165,290 467,476 493,548
Expenses
Selling, general and
administrative 96,769 92,028 293,283 289,549
Research, development and
engineering 22,211 26,401 72,760 75,075
Restructuring charges 559 1,135 2,430 6,062
Other income -- -- -- (12,744)
--------- --------- ---------- ----------
Total Expenses 119,539 119,564 368,473 357,942
--------- --------- ---------- ----------
Operating Earnings from
Continuing Operations 54,045 45,726 99,003 135,606
Interest Income (30) (87) (211) (406)
Interest Expense 7,659 10,393 22,169 24,409
Loss on Extinguishment of
Debt -- 329 -- 329
--------- --------- ---------- ----------
Earnings from Continuing
Operations Before Income Taxes 46,416 35,091 77,045 111,274
Income Tax Expense 7,975 6,744 11,358 23,430
--------- --------- ---------- ----------
Earnings from Continuing
Operations
Including Noncontrolling
Interests 38,441 28,347 65,687 87,844
Earnings Attributable to
Noncontrolling Interests (395) (125) (781) (216)
--------- --------- ---------- ----------
Earnings from Continuing
Operations Attributable to
Esterline, Net of Tax 38,046 28,222 64,906 87,628
Loss from Discontinued
Operations, Attributable to
Esterline, Net of Tax (8,690) (558) (15,493) (21,034)
--------- --------- ---------- ----------
Net Earnings Attributable to
Esterline $ 29,356 $ 27,664 $ 49,413 $ 66,594
========= ========= ========== ==========
Earnings (Loss) Per Share--
Basic:
Continuing Operations $ 1.30 $ .92 $ 2.19 $ 2.81
Discontinued Operations (.30) (.02) (.52) (.67)
--------- --------- ---------- ----------
Earnings (Loss) Per Share--
Basic $ 1.00 $ .90 $ 1.67 $ 2.14
========= ========= ========== ==========
Earnings (Loss) Per Share--
Diluted:
Continuing Operations $ 1.28 $ .90 $ 2.18 $ 2.76
Discontinued Operations (.29) (.02) (.52) (.66)
--------- --------- ---------- ----------
Earnings (Loss) Per Share--
Diluted $ .99 $ .88 $ 1.66 $ 2.10
========= ========= ========== ==========
Weighted Average Number of
Shares Outstanding--Basic 29,381 30,831 29,517 31,183
Weighted Average Number of
Shares Outstanding--Diluted 29,601 31,322 29,788 31,702
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Sales and Earnings From Continuing Operations by
Segment (unaudited)
In thousands
Three Months Ended Nine Months Ended
-------------------- ----------------------
July 1, June 26, July 1, June 26,
2016 2015 2016 2015
--------- --------- ---------- ----------
(Recast) (Recast)
Segment Sales
Avionics & Controls $ 222,583 $ 200,078 $ 607,493 $ 594,025
Sensors & Systems 186,337 175,544 514,836 529,976
Advanced Materials 108,172 109,101 326,550 333,543
--------- --------- ---------- ----------
Net Sales $ 517,092 $ 484,723 $1,448,879 $1,457,544
========= ========= ========== ==========
Earnings from Continuing
Operations Before Income Taxes
Avionics & Controls $ 28,517 $ 16,836 $ 40,579 $ 62,096
Sensors & Systems 27,942 22,968 61,670 56,682
Advanced Materials 15,512 24,514 51,710 65,538
--------- --------- ---------- ----------
Segment Earnings 71,971 64,318 153,959 184,316
Corporate expense (17,926) (18,592) (54,956) (61,454)
Other income -- -- -- 12,744
Interest income 30 87 211 406
Interest expense (7,659) (10,393) (22,169) (24,409)
Loss on extinguishment of
debt -- (329) -- (329)
--------- --------- ---------- ----------
Earnings from Continuing
Operations Before Income Taxes$ 46,416 $ 35,091 $ 77,045 $ 111,274
========= ========= ========== ==========
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Balance Sheet (unaudited)
In thousands
July 1, October 2,
2016 2015
----------- -----------
Assets
Current Assets
Cash and cash equivalents $ 237,845 $ 191,355
Escrow cash 1,125 --
Accounts receivable, net 393,632 380,748
Inventories 466,975 446,768
Income tax refundable 4,957 12,575
Deferred income tax benefits -- 41,082
Prepaid expenses 20,611 23,008
Other current assets 5,370 5,427
Current assets of businesses held for sale 18,034 27,851
----------- -----------
Total Current Assets 1,148,549 1,128,814
Property, Plant and Equipment, Net 326,775 309,399
Other Non-Current Assets
Goodwill 1,027,873 1,041,991
Intangibles, net 405,531 452,040
Deferred income tax benefits 69,259 28,979
Other assets 15,395 14,348
Non-current assets of businesses held for sale 10,735 24,917
----------- -----------
$ 3,004,117 $ 3,000,488
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 128,635 $ 117,976
Accrued liabilities 246,967 259,734
Current maturities of long-term debt 16,340 13,376
Federal and foreign income taxes 6,322 2,404
Current liabilities of businesses held for sale 12,283 17,106
----------- -----------
Total Current Liabilities 410,547 410,596
Long-Term Liabilities
Credit facilities 170,000 160,000
Long-term debt, net of current maturities 688,753 701,457
Deferred income tax liabilities 57,690 73,849
Pension and post-retirement obligations 73,653 75,019
Other liabilities 24,868 29,367
Non-current liabilities of businesses held for
sale 1,222 2,409
Total Shareholders' Equity 1,577,384 1,547,791
----------- -----------
$ 3,004,117 $ 3,000,488
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