BELLEVUE, Wash., March 1, 2012 – Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace/defense markets, today reported fiscal 2012 first quarter (ended January 27) income from continuing operations of $22.8 million, or $0.73 per diluted share, including about $0.25 per share of acquisition-related accounting charges to recognize the fair value of the Souriau acquired inventory as expense. Sales in the quarter were $470.9 million. Year-ago income from continuing operations was $30 million, or $0.97 per diluted share, on sales of $370.8 million.
Brad Lawrence, Esterline’s Chief Executive Officer, said he was “…pleased with the solid first quarter performance and the relatively fast start to the year.” Lawrence said that Esterline saw good growth in its commercial aerospace business, particularly from its Engineered Materials platform, and “…saw pockets of strength in certain defense-oriented businesses, despite the tough environment.” Lawrence noted that Esterline’s July 2011 acquisition—its largest to date—of French connector company, Souriau, is performing as expected and “…we’re pushing ahead toward full integration, right on schedule.” He pointed out that the tax benefit in the quarter was a direct result of the acquisition, and driven in part by “…how we structured the transaction, and partly by a recent change in French tax law.”
Esterline raised its earnings guidance by $0.10, estimating full-year earnings to be in the range of $5.10 to $5.40 per share. Lawrence said that although he was pleased with the quarter’s solid operational performance, the new guidance principally reflects the tax benefit. He said, “It’s still early in the year and the defense budget process remains in front of us, so I think it’s only prudent not to get ahead of ourselves.” He emphasized, however, that the quarter’s results “…certainly give us confidence that we remain in a position to report record sales and earnings at year-end.”
As Esterline’s December guidance to investors anticipated, gross margins in the first quarter were impacted by acquisition-related accounting and were 33.6%, down from last year’s 35.6%. “Without the acquisition,” Lawrence said, “…gross margin improved to 36.3%.”
Selling, general and administrative (SG&A) expenses as a percent of sales were 20.1% in the first quarter of 2012, compared with 17.8% a year ago. Lawrence said that the increase was anticipated and “…is primarily a result of the expected sales dip in our Avionics & Controls segment due to a delay in foreign military retrofit work, and the somewhat higher than the Esterline average SG&A rate at Souriau.”
Research, development and engineering (R&D) expenses were in line with our expectations at 5.6% of sales. This compares to 5.3% last year. Lawrence said “…the increase over last year reflects investments in new avionics programs, as well as the addition of Souriau.”
The income tax rate for the first quarter of 2012 was 10.1% compared with 20.3% last year. The decrease primarily reflects the acquisition-related tax benefit described above. It is expected that the tax rate will return to the 20% level in future quarters.
New orders for the first quarter of 2012 were $467.8 million compared with $399.3 million for the same period last year. Backlog was $1.25 billion compared with $1.13 billion at the end of the prior-year period and $1.25 billion at the end of fiscal 2011.
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 866-277-1181; outside the U.S., use 617-597-5358. The pass code for the call is: 66554025.
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