BELLEVUE, Wash., February 28, 2013 - Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace/defense markets, today reported fiscal 2013 first quarter (ended January 25) net income of $25.1 million, or $0.80 per diluted share, on sales of $458.0 million. Earnings in the quarter included about $0.11 per diluted share of income tax benefits due to the extension of U.S. federal research & development tax credits and the settlement of uncertain tax positions related to U.S. and global tax examinations. Year-ago first quarter net income was $22.8 million, or $0.73 per diluted share, on $470.9 million in sales.
Brad Lawrence, Esterline's Chief Executive Officer, said the company posted, "…a solid quarter-somewhat better than expected." Looking forward, Lawrence said he would expect the current uncertainty surrounding U.S. defense spending to "…dampen our second quarter a bit," but reiterated the company's fiscal 2013 earnings per diluted share guidance of $5.45 ‑ $5.80, saying, "…there is still a lot of the year left to cover and our full-year revenues in the $2.1 billion range continue to look solid." He said, "…at this point we believe we are right where we need to be."
The current strength of commercial aerospace underscores Esterline's long-term strategy of a balanced global approach to commercial and defense markets. Lawrence said that the company's current view of fiscal 2013 includes "…strengthening commercial aerospace and our best analysis of the impact of anticipated U.S. defense spending reductions."
He emphasized that Esterline's diversification efforts over the years have reduced the company's percentage of total revenues from U.S. defense customers to approximately 25%. He said, "Esterline is strategically designed to perform through the cyclicality in our markets."
Lawrence highlighted healthy year-over-year backlog growth as a positive sign for continued business strength through the year. He said that fiscal 2013 is "…shaping up much like last year, with a slow start ramping up to a very strong fourth quarter, thanks in part to improvement in build rates for several programs late in the year."
The company saw increased order activity in the first quarter of fiscal 2013 compared with the same period last year for the Avionics & Controls and Sensors & Systems segments, mainly as a result of the ongoing strong commercial aerospace cycle.
In the company's technology-driven adjacent industrial markets, Lawrence noted there are several significant opportunities for growth, including high-speed rail projects in China, nuclear power initiatives in the U.K., and casino gaming console installations worldwide. The last opportunity mentioned is enhanced by a promising new gaming acquisition that closed in early February. Lawrence said that "…we believe these adjacent market segments, while small relative to our aerospace and defense business, will experience the fastest rate of growth in 2013."
Gross margin in the first quarter of fiscal 2013 was 35.0%, up 1.4% compared with 33.6% in the same period last year, though the prior-year margins were compressed by approximately $12 million in Souriau purchase accounting adjustments.
Selling, general and administrative (SG&A) expenses as a percent of sales were 21.5% in the first quarter of fiscal 2013, compared with 20.1% a year ago. Lawrence said the spending was at the level expected and the percent of sales increase "…is more a reflection of lower first quarter sales."
Research, development and engineering (R&D) expenses were 5.0% of sales in the first quarter compared with 5.6% in the same period of 2012. Lawrence said the reduction in the year-over-year R&D level "…came from significant program progress in certain business lines within our Control Systems platform." Full-year R&D expense as a percent of sales is expected to settle at about 5%.
The income tax rate for the first quarter of fiscal 2013 was 8.5% compared with 10.1% in the same period last year.
Lawrence noted that the company's cash flow was exceptional. Cash flow from operations in the quarter was $86.5 million, compared with last year's $46.6 million.
New orders for the first quarter of 2013 were $473.6 million, compared with $467.8 million in the same period last year. Backlog was $1.3 billion at the end of the first quarter of fiscal 2013, compared with $1.2 billion at the end of the prior-year period and $1.3 billion at the end of fiscal 2012.
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 866-804-6927; outside the U.S., use 857-350-1673. The pass code for the call is: 96814855.
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.
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Statement of Operations (unaudited)
In thousands, except per share amounts
Three Months Ended
Avionics & Controls
Sensors & Systems
Cost of Sales
Selling, general and administrative
Research, development and engineering
Income Before Income Taxes
Income Tax Expense
Income Including Noncontrolling Interests
Income Attributable to Noncontrolling Interests
Earnings per Share - Basic
Earnings per Share - Diluted
Weighted Average Number of Shares Outstanding - Basic
Weighted Average Number of Shares Outstanding - Diluted