BELLEVUE, Wash., Nov. 20, 2018 (GLOBE NEWSWIRE) -- Esterline Corporation (NYSE:ESL) (www.esterline.com), a leading specialty manufacturer serving global aerospace and defense markets, today reported results for the fiscal 2018 fourth quarter ended September 28, 2018.
On October 9, 2018, the company entered into a definitive agreement and plan of merger pursuant to which TransDigm Group Incorporated (TransDigm) will purchase all of the outstanding shares of Esterline common stock for $122.50 per share in cash. The transaction is expected to close in 2019.
Consolidated GAAP fourth quarter revenue of $535.3 million compared favorably with the prior-year result of $528.7 million.
Consolidated GAAP earnings from continuing operations in the fourth quarter of fiscal 2018 were $49.9 million, or $1.69 per diluted share. The comparable results for the fourth quarter of fiscal 2017 were $31.5 million, or $1.05 per diluted share.
Adjusted earnings from continuing operations for the fourth fiscal quarter of 2018 were $55.3 million, or $1.87 per diluted share, and exclude the following items:
Adjusted earnings from continuing operations for the fourth fiscal quarter of 2017 were $33.0 million, or $1.10 per diluted share, which excluded discrete compliance costs.
Consolidated fiscal-year 2018 revenue was $2.035 billion compared with the fiscal 2017 revenue result of $2.000 billion.
Consolidated GAAP earnings from continuing operations in fiscal-year 2018 were $68.8 million, or $2.32 per diluted share, compared with $118.9 million, or $3.96 per diluted share, in fiscal 2017.
The company reported fiscal 2018 adjusted earnings from continuing operations of $124.0 million, or $4.17 per diluted share. The adjusted results exclude the following items:
Adjusted earnings from continuing operations for fiscal 2017 were $125.4 million, or $4.18 per diluted share, and excluded discrete compliance and advanced displays integration costs.
Fourth Quarter Results of Operations
The company reported consolidated operating earnings before interest and tax in the fourth quarter of fiscal 2018 of $73.7 million, or 13.8% of sales, compared with $49.1 million, or 9.3% of sales, reported in the prior year.
The Avionics & Controls segment reported fiscal 2018 fourth quarter operating earnings of $36.0 million, or 15.3% of sales, on sales of $235.2 million. This compares with operating earnings of $29.9 million, or 13.2% of sales, on sales of $225.6 million in the same period of fiscal 2017. The earnings improvement resulted from higher sales volume and lower R&D expense as certain programs moved into production during 2018.
The Sensors & Systems segment reported fiscal fourth quarter operating earnings of $32.1 million, or 15.9% of sales, on sales of $201.5 million. The segment’s operating earnings in the same period of 2017 were $16.8 million, or 8.9% of sales, on sales of $189.1 million. Sensors & Systems segment operating profit and margins have expanded significantly over the course of the year. Both Advanced Sensors and Connection Technologies delivered solid performance during the fourth quarter of fiscal 2018. The Power Systems business within the segment implemented a workforce restructuring in the first half of 2018 following its completion of a high-margin GFI retrofit program. The restructuring helped expand gross margins and combined with lower 2018 R&D expenses to produce a 15.9% segment operating margin in the fourth quarter of fiscal 2018.
The Advanced Materials segment reported fiscal fourth quarter operating earnings of $26.0 million, or 26.4% of sales, on sales of $98.5 million. During the same period of fiscal 2017, the segment reported operating earnings of $17.9 million, or 15.7% of sales, on sales of $113.9 million. The fiscal 2017 fourth quarter performance includes operating results from the Kirkhill business, which Esterline divested in the second quarter of fiscal 2018. Excluding Kirkhill’s $21.8 million of sales and its operating loss of $4.5 million in the fiscal 2017 fourth quarter, adjusted segment sales were $92.1 million and adjusted operating earnings were $22.4 million in the fiscal 2017 period. Higher adjusted sales volumes in fiscal 2018 for the Engineered Materials business and a higher-value product mix overall drove the year-over-year segment profit improvement.
Fiscal 2018 Results and Cash Flow from Operations
As discussed above, Esterline generated adjusted earnings from continuing operations during fiscal 2018 of $124.0 million, or $4.17 per diluted share. This compares with adjusted earnings from continuing operations for fiscal 2017 of $125.4 million, or $4.18 per diluted share. See further details on these differences in the Non-GAAP Financial Information section below.
Cash flow from operations for fiscal 2018 was $214.1 million, up 10.7% from $193.4 million in fiscal 2017. Capital expenditures during fiscal 2018 were $53.3 million, resulting in free cash flow of $160.8 million for the fiscal 2018 period. This compares with $135.4 million in free cash flow reported in fiscal 2017, after $58.0 million in capital expenditures.
During fiscal 2018 the company reduced debt by $97.6 million, repurchased $43.4 million of common stock at an average price of $72.25 per share, and grew its cash balance by $64.6 million. As of September 28, 2018, the company held cash and cash equivalents of $372.4 million and had total debt of $672.5 million.
The company booked more than $2.3 billion of new orders in fiscal 2018, resulting in a book-to-bill ratio of 1.12. The company’s backlog has increased over the past twelve months, and stood at a record $1.5 billion at the end of fiscal 2018, compared with a $1.3 billion backlog at the end of fiscal 2017. Every business segment contributed to the order and backlog growth.
Conference Call Information
In light of the announced agreement with TransDigm, the company will not hold a conference call or provide financial guidance for fiscal 2019.
Non-GAAP Financial Information
This press release may include non-GAAP financial measures—adjusted earnings from continuing operations, adjusted earnings from continuing operations per diluted share, adjusted segment sales, adjusted segment operating earnings (before income taxes) and free cash flow—that have not been calculated in accordance with generally accepted accounting principles (GAAP) in the U.S. Adjusted earnings from continuing operations consist of earnings from continuing operations attributable to Esterline less the costs associated with incremental compliance costs (described further below), discrete items associated with our acquisition of the Advanced Displays business in January 2015, one-time expenses associated with the TCJA, and expenses related to the proposed transaction with TransDigm. 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. Adjusted segment sales consist of net sales of our Advanced Materials segment reduced by the sales from our Kirkhill business. Adjusted segment operating earnings consist of operating earnings (before income taxes) of our Advanced Materials segment reduced by the operating earnings from our Kirkhill business. Free cash flow is defined as cash flow from operations less capital expenditures. The reconciliations for adjusted segment sales, adjusted segment operating earnings, and free cash flow are contained in the body of the press release above. 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 in the applicable periods.
¹Compliance Costs refer to discrete, non-recurring expenses associated with retention of a Special Compliance Official, external audits, remedial actions and new program implementation as required by the terms of a Consent Agreement with the U.S. State Department. These Consent Agreement costs are not normal, ongoing cash expenditures necessary to operate our business.
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.
Investor Relations – John Hobbs
Media – Michelle DeGrand