BELLEVUE, WA--(Marketwired - August 29, 2013) - Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving global aerospace/defense markets, today reported third fiscal quarter (ended July 26, 2013) earnings from continuing operations of $39.2 million, or $1.23 per diluted share, on sales of $478.1 million. Excluding certain discrete charges detailed below, earnings from continuing operations in the third quarter were $52.7 million, or $1.65 per diluted share. This compares with adjusted earnings from continuing operations in the third quarter of fiscal 2012 of $35.1 million, or $1.14 per diluted share, which excluded a $1.69 per diluted share charge detailed below. Sales in the year-ago third quarter were $485.9 million.
Esterline Chief Executive Officer Brad Lawrence said the company's third quarter operating results "...came in about where we expected, reflecting strength in commercial aerospace markets, offset by continued and anticipated softness in certain defense programs." Lawrence said the third quarter's solid operating results "…combine with a laser focus on executing against existing backlog to provide further confidence in the company's view of a strong finish for the year." He said that Esterline operations have "...responded quite well to the tough defense environment and are leveraging the positive trends in commercial markets to push profitability improvement, both through careful cost control and the advantages of scale that accompany growth," adding, "…you can see Esterline's underlying strength in the drop-through to free cash flow -- a record $159 million through nine months -- and our ability to maintain a rock-solid balance sheet, two keys to continuing our long-term growth strategy."
Lawrence went on to note that specific positive factors influencing the company's performance included "...the continuation of strong single-aisle build rates for new aircraft, stability in the commercial aircraft aftermarket, a good mix for our engineered materials in defense applications, and favorable tax items."
Lawrence said the company is "...intensely focused on execution in the fourth quarter" and is maintaining its full-year guidance for adjusted earnings per share from continuing operations in the range of $5.30 to $5.50, excluding certain discrete charges detailed in Table 1 below, on sales of approximately $2.0 billion. Lawrence noted that the company's view of the fourth quarter incorporates an expectation of "…robust sales and strong operating results tempered by customer approvals on shipments and unexpected push-outs, such as those that prompted our Racal Acoustics business to take an estimated, non-cash, $3.5 million charge for goodwill impairment in the third quarter." Lawrence noted that the reiterated full-year guidance excludes the goodwill impairment charge, as well as a third quarter estimated charge related to certain compliance errors, discussed in our second quarter 10-Q filing, of $10 million. The final charge amount will be subject to the outcome of discussions with and approval by the Directorate of Defense Trade Controls (DDTC).
The company's third quarter gross margin of 37.4% was up significantly compared with the 2012 third quarter level of 35.4%. The increase was primarily due to cost efficiency efforts and better product mix in some areas. Selling, general and administrative (SG&A) expense, excluding the $10 million DDTC estimated charge, was 19.2% of sales in the quarter, compared with the prior-year level of 18.9% of sales. Including the charge, SG&A expense was 21.3% of sales in the third quarter of fiscal 2013.
R&D expense, at 5.0% of sales in the third quarter of fiscal 2013, remained consistent with our expectations. Last year, R&D expense was 5.6% of sales in the third quarter.
As expected and previously disclosed, the company's income tax rate for the third quarter included $8.7 million in discrete tax benefits principally due to a release of tax reserves and a reduction in the U.K. corporate tax rates, resulting in a tax rate for the quarter of 2.8%.
Third quarter net earnings (including discontinued operations) for fiscal 2013 were $38.2 million, or $1.20 per diluted share, compared with a net loss of $17.1 million, or $(0.55) per diluted share, in the third quarter of fiscal 2012, which included a $52.2 million charge against goodwill for the Racal Acoustics business. Excluding the identified goodwill impairments in both periods and the DDTC charge in 2013, net earnings in the third quarter of fiscal 2013 were $51.7 million, or $1.62 per diluted share, compared with $35.1 million, or $1.14 per diluted share, in the prior-year period.
For the first nine months of fiscal 2013, the company reported earnings from continuing operations of $99.8 million, or $3.15 per diluted share. Excluding the goodwill impairment and DDTC charges noted earlier, earnings from continuing operations in the first nine months were $113.3 million, or $3.58 per diluted share. This compares with the prior-year period adjusted earnings of $103.0 million, or $3.30 per diluted share. Net earnings (including discontinued operations) for the first nine months of fiscal 2013 were $98.9 million, or $3.12 per diluted share. Net sales in the first nine months of fiscal 2013 and 2012 were $1.44 billion and $1.46 billion, respectively.
New orders in the third quarter of fiscal 2013 were $463.1 million compared with $415.4 million for the same period last year, primarily reflecting increased order volumes in commercial and adjacent markets, partially offset by the decrease in order volumes for certain defense products.
New orders for the first nine months of fiscal 2013 were $1.43 billion compared with $1.45 billion for the same period last year. Total backlog grew to $1.31 billion compared with $1.24 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 866-515-2907; outside the U.S., use 617-399-5121. The pass code for the call is: 19075152.
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.