BELLEVUE, Wash., August 30, 2012 – Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace/defense markets, today reported third quarter 2012 (ended July 27) earnings from continuing operations of $35.1 million, or $1.12 per diluted share (EPS), on sales of $485.9 million, prior to a previously announced $52.2 million, or $1.69 per diluted share, non-cash charge against goodwill for its U.K.-based Racal Acoustics defense business. This compared with year-ago income from continuing operations of $37.7 million, or $1.21 per diluted share, on sales of $409.5 million. Including the goodwill charge, third quarter net loss from continuing operations was $17.1 million, or $0.55 per diluted share.
Brad Lawrence, Esterline’s Chief Executive Officer, said, “…we expect a rebound to finish the year as discrete events that impacted the third quarter are abating and improvements at our Avionics Systems, Control Systems, and Engineered Materials operations will contribute to a strong fourth quarter performance.” Lawrence added that “…our solid backlog positions the company to drive growth and capture additional profitability in fiscal 2013.”
As stated in the company’s preliminary third quarter announcement, full-year revenue is anticipated to range between $1.95 billion and $2.00 billion, representing growth of approximately 15% over fiscal 2011. Including anticipated fourth quarter diluted EPS of $1.60 to $1.70, the company expects full-year EPS (excluding the goodwill charge) to be in the range of $4.90 to $5.00 per diluted share, compared with $4.27 a year ago.
Lawrence commented that, with respect to the company’s broader business, “…we’re well positioned to benefit from further strengthening in the commercial aerospace cycle and continue to increase our content on a number of key aircraft programs.” He added that stronger customer relationships and revenue synergies are continuing to develop following the integration of the Souriau acquisition into the company’s Sensors & Systems segment, saying “…increasingly, we are able to find ways to develop valuable, multi-pronged solutions for our customers using our complementary range of products.”
Lawrence reiterated his remarks from early August regarding the discrete issues currently affecting the company—including Lockheed’s F-35 Joint Strike Fighter inventory rebalancing initiative, and a slowdown in both Airbus A380 and T-6B production. He emphasized that all of these programs are expected to be back on track in the first part of the coming year.
With regard to Esterline’s overall defense business, Lawrence noted, “…our mix of new and retrofit programs with significant Esterline content, especially in international markets, should minimize the impact of the defense budget environment in the next fiscal year and beyond.” He added, "...just in the last few weeks we have received instructions to begin shipping product in early fiscal 2013 for two large and long-delayed international countermeasure orders.”
Gross margin as a percentage of sales was 35.4% in the third quarter compared with 35.1% in the prior-year period. Selling, general and administrative expenses were 18.9% of sales in the quarter compared with 18.7% last year. Lawrence said that the company’s focus on operational excellence and determination to be its customers’ best supplier, combined with the resumption of cockpit retrofit sales, will enable Esterline to continue to improve “…our operating margins and reach our goal of 15%.”
Research, development and engineering expense in the quarter was $27.2 million, or 5.6% of sales, compared with $23.1 million, or 5.6% of sales, a year ago. The company is continuing to hold R&D spending at a level that will support new programs as previously expensed programs begin to ramp into production.
The company’s quarterly income tax rate before the goodwill charge was 16.5% compared with 6.9% for the third fiscal quarter of 2011, including a four percentage point tax benefit in the third quarter mainly due to a reduction in the U.K. corporate tax rates.
For the first nine months of fiscal 2012, excluding the goodwill charge, net income was $103.0 million, or $3.30 per diluted share, compared with $113.6 million, or $3.65 per diluted share last year. Including the charge, net income for the first nine months of fiscal 2012 was $50.9 million, or $1.63 per diluted share. Sales for the first nine months of fiscal 2012 were $1.46 billion, compared with $1.22 billion in the same period a year ago.
New orders for the first nine months of fiscal 2012 were $1.45 billion compared with $1.38 billion for the same period in 2011, a 5% year-over-year increase. Backlog was $1.24 billion at July 27, 2012, compared with $1.26 billion at the end of the prior-year period.
Conference Call Information
The company will hold a conference call to discuss this announcement today, August 30, at 5:00 pm EDT. The call can be accessed by dialing 800-901-5247 from within the United States or 617-786-4501 outside of the U.S. and using this participant passcode: 55640693. A replay of the call will be available for one week by dialing 888-286-8010 or 617-801-6888 and using this passcode: 38299814.
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 our 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.
Contact: Brian Keogh (425) 453-9400