BELLEVUE, Wash., May 31, 2012 – Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace/defense markets, today reported fiscal 2012 second quarter (ended April 27) net income of $45.2 million, or $1.44 per diluted share. Sales in the quarter were $504.8 million. For the quarter, the company noted that results include the discrete items described in Table 1 below. These items total $0.15 per share, net of tax. Year-ago net income was $45.9 million, or $1.47 per diluted share, including a $5.5 million settlement related to 787 program scope changes. Sales in the year-ago quarter were $435.3 million.
Table 1: Effects of Discrete Items on 2nd Quarter 2012 EPS
(Estimated tax rate 20%; 31.3 million shares)
Earnings Per Share $ 1.44
Litigation Settlement 0.30
Customer Bankruptcy (0.07)
Contract Assertions (0.08)
Total Discrete Items $ 0.15
Brad Lawrence, Esterline’s Chief Executive Officer, said that excluding the discrete items, Esterline’s second quarter “…came in right about where we thought it would. We had solid performance by our Sensors & Systems and Advanced Materials segments, offset by anticipated timing issues in our Avionics & Controls segment. We’re still expecting a strong finish to the year, weighted heavily to the fourth quarter.” Lawrence noted that steadily growing commercial aircraft build rates will benefit the company as it moves into next fiscal year. “Our order book is growing and our backlog is solid,” he said.
Lawrence noted that Souriau, Esterline’s France-based connector company acquired in July 2011, is performing well, reflecting strong demand across its product lines and markets, including heavy industrial, oil and gas, and nuclear. He said the integration is going well. “I can say with confidence that the combination of Souriau and Esterline has strengthened relationships with both Airbus and Boeing. Given the early stage of the commercial build cycle, we believe the timing for growing these relationships is very good.” He added that Esterline’s “…strong cash flow has enabled us to pay down $115 million of debt in the nine months since the acquisition.”
Lawrence said that although the company’s defense-related businesses will not perform to last year’s levels, “…we are seeing some unexpected pockets of strength. Our U.S. countermeasure business is looking to have a solid year, and we’re seeing strong sales of embedded communication intercept receivers for signal intelligence applications.”
He called the company’s updated full-year guidance of $5.10 to $5.25 “…realistic given how the timing of key shipments—including foreign countermeasures, military headsets, and avionics programs—remains difficult to call.”
One of these timing issues relates to the Hawker Beechcraft bankruptcy. Lawrence emphasized that there remains significant demand for Hawker’s T-6B trainer aircraft with its Esterline glass cockpit. He said, “…we’re encouraged to have received preferred supplier status during what appears to be an orderly reorganization.” He noted, however, that the process is in the hands of the courts and “…until we have better visibility, it’s only prudent to be cautious regarding our shorter term outlook.”
Lawrence said that the company’s 36.6% gross margin performance in the quarter was especially encouraging given the slowdown in the Avionics & Controls segment. Gross margin as a percent of sales in last year’s second quarter was 37.0% and included exceptionally strong spare parts and retrofit program sales, and the retroactive price settlement related to the 787 program mentioned above. Selling, general and administrative (SG&A) expenses as a percent of sales were 19.6% in the second quarter of 2012, compared with 16.6% a year ago. Lawrence said that, similar to last quarter, the increase was anticipated and “…also is primarily a result of our Avionics segment’s performance.” The increase in research, development and engineering (R&D) expenses in the quarter to 5.9% of sales from 4.9% last year primarily reflects investments in new avionics programs. The income tax rate for the second quarter of 2012 was 19.7% compared with 20.5% last year. Lawrence pointed to the company’s strong cash flow and reiterated his commitment to de-levering the balance sheet to the historic levels achieved prior to the Souriau acquisition.
New orders for the second quarter of 2012 were $566.0 million compared with $462.9 million for the same period last year. Backlog was $1.31 billion compared with $1.16 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 866-202-0886; outside the U.S., use 617-213-8841. The pass code for the call is: 71749026.
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