Curtiss-Wright Corporation (NYSE: CW) reports financial results for the second quarter ended June 30, 2023.

Second Quarter 2023 Highlights:

• Reported sales of $704 million, up 16%;
• Reported operating income of $113 million, operating margin of 16.0%, and diluted earnings per share (EPS) of $2.10;
• Adjusted operating income of $115 million, up 18%;
• Adjusted operating margin of 16.4%, up 30 basis points;
• Adjusted diluted EPS of $2.15, up 18%;
• New orders of $842 million, up 8%, reflecting strong Aerospace & Defense (A&D) market demand, and book-to-bill of 1.2;
• Backlog of $2.8 billion, up 9% year-to-date; and
• Free cash flow (FCF) of $99 million, generating 119% Adjusted FCF conversion.

Raised Full-Year 2023 Adjusted Financial Guidance:

• Sales increased to new range of 7% to 9% growth (previously 4% to 6%), now reflecting growth in all A&D and Commercial end markets;
• Operating income increased to new range of 8% to 11% growth (previously 5% to 8%);
• Maintained operating margin range of 17.4% to 17.6%, up 10 to 30 basis points compared with the prior year;
• Diluted EPS increased to new range of $8.90 to $9.15, up 10% to 13% (previously $8.65 to $8.90); and
• Free cash flow increased to new range of $370 to $400 million (previously $360 to $400 million) and continues to reflect greater than 110% FCF conversion.

"Curtiss-Wright delivered stronger-than-expected second quarter results, highlighted by top-line growth in all of our A&D and Commercial end markets and continued operating margin expansion, as we successfully execute on our Pivot to Growth strategy," said Lynn M. Bamford, Chair and CEO of Curtiss-Wright Corporation. "We also experienced solid order activity, yielding a book-to-bill of 1.2, and continued to grow our backlog driven by strong demand across all three segments."

"Based on the strong first half results and our expectations for continued easing in the defense electronics supply chain, we have increased our full-year sales, operating income, diluted EPS and free cash flow guidance. We now expect growth in all of our A&D and Commercial markets, as we maintain strong alignment with the favorable secular growth trends influencing our business. We remain committed to delivering on our investor day targets through a strong focus on operational excellence and continued investment in Curtiss-Wright's future growth to drive long-term shareholder value.”

Second Quarter 2023 Operating Results

• Sales of $704 million increased 16% compared with the prior year;
• Total A&D market sales increased 23%, while total Commercial market sales increased 4%;
• In our A&D markets, our results reflected strong organic sales growth driven by the continued easing of defense electronics supply chain headwinds in our defense markets and higher sales in the commercial aerospace market, as well as the contribution from the acquisition of our engineered arresting systems business;
• In our Commercial markets, we experienced solid growth in the power & process markets, despite the wind down on the China Direct AP1000 program, and higher sales in the general industrial market; and
• Adjusted operating income of $115 million increased 18%, while Adjusted operating margin increased 30 basis points to 16.4%, principally driven by favorable overhead absorption on higher revenues in all three segments; Those increases were partially offset by unfavorable mix in the Aerospace & Industrial and Naval & Power segments.

Second Quarter 2023 Segment Performance

Aerospace & Industrial

• Sales of $226 million, up $18 million, or 8%;
• Commercial aerospace market revenue increases reflected strong demand and higher OEM sales of sensors products and surface treatment services on narrowbody and widebody platforms;
• Higher general industrial market revenue was principally driven by increased sales of industrial automation products and surface treatment services;
• Higher revenue in the aerospace and naval defense markets reflected the timing of sales for our actuation equipment supporting various programs; and
• Adjusted operating income was $36 million, up 10% from the prior year, while Adjusted operating margin increased 20 basis points to 15.8%, mainly due to solid absorption on higher sales, partially offset by unfavorable mix in actuation and sensors products.

Defense Electronics

• Sales of $198 million, up $48 million, or 32%;
• Higher revenue in the aerospace defense market was primarily driven by increased sales of our embedded computing and flight test instrumentation equipment on various fighter jet programs;
• Strong revenue growth in the ground defense market reflected higher sales of tactical battlefield communications equipment;
• Higher commercial aerospace market revenue reflected increased sales of avionics and flight test equipment on various domestic and international platforms; and
• Adjusted operating income was $43 million, up 77% from the prior year, while adjusted operating margin increased 540 basis points to 21.8%, primarily due to favorable absorption on higher A&D revenues.

Naval & Power

• Sales of $280 million, up $29 million, or 12%;
• Higher aerospace defense market revenues reflected a solid contribution from the arresting systems acquisition and strong demand from international customers;
• Naval defense market revenue increases principally reflected higher revenues on Columbia-class and Virginia-class submarines, partially offset by the timing of revenues on aircraft carrier programs;
• Higher power & process market revenues reflected strong growth in industrial valve sales in the process market as well as solid growth in commercial nuclear aftermarket revenues supporting the maintenance of existing operating reactors; Those increases were partially offset by lower China Direct AP1000 program revenues; and
• Adjusted operating income was $49 million, down 1% from the prior year, while adjusted operating margin decreased 230 basis points to 17.6%, as favorable absorption on higher organic revenues and the contribution from the arresting systems acquisition were offset by an unfavorable mix of products.

Free Cash Flow

• Reported free cash flow of $99 million increased $77 million year over year, primarily due to improvements in working capital;
• Adjusted free cash flow of $99 million; and
• Capital expenditures increased $3 million compared with the prior year.

New Orders and Backlog

• New orders of $842 million increased 8% compared with the prior year and generated an overall book-to-bill of approximately 1.2x, principally driven by strong demand for defense electronics and naval defense products within our A&D markets, and for nuclear aftermarket products within our Commercial markets; and
• Backlog of $2.8 billion, up 9% from December 31, 2022, reflects higher demand in both our A&D and Commercial markets.

Share Repurchase and Dividends

• During the second quarter, the Company repurchased 72,703 shares of its common stock for approximately $12 million; and
• The Company also declared a quarterly dividend of $0.20 a share, an increase of 5% from the previous quarter.

Full-Year 2023 Guidance

The Company is updating its full-year 2023 Adjusted financial guidance⁽¹⁾ as follows:

A more detailed breakdown of the Company’s 2023 financial guidance by segment and by market, as well as all reconciliations of Reported GAAP amounts to Adjusted Non-GAAP amounts, can be found in the accompanying schedules. Historical financial results are available in the Investor Relations section of Curtiss-Wright’s website.

Conference Call & Webcast Information

The Company will host a conference call to discuss its second quarter 2023 financial results and updates to 2023 guidance at 10:00 a.m. ET on Thursday, August 3, 2023. A live webcast of the call and the accompanying financial presentation, as well as a webcast replay of the call, will be made available on the internet by visiting the Investor Relations section of the Company’s website at www.curtisswright.com.

(Tables to Follow)

Use and Definitions of Non-GAAP Financial Information (Unaudited)

The Corporation supplements its financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial information. Curtiss-Wright believes that these Adjusted (non-GAAP) measures provide investors with improved transparency in order to better measure Curtiss-Wright’s ongoing operating and financial performance and better comparisons of our key financial metrics to our peers. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. Curtiss-Wright encourages investors to review its financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. Reconciliations of “Reported” GAAP amounts to “Adjusted” non-GAAP amounts are furnished within this release.

The following definitions are provided:

Adjusted Sales, Operating Income, Operating Margin, Net Earnings and Diluted EPS

These Adjusted financials are defined as Reported Sales, Operating Income, Operating Margin, Net Earnings and Diluted Earnings per Share under GAAP excluding: (i) the impact of first year purchase accounting costs associated with acquisitions, specifically one-time inventory step-up, backlog amortization, deferred revenue adjustments and transaction costs; (ii) the sale or divestiture of a business or product line; (iii) pension settlement charges; and (iv) significant legal settlements, impairment costs, and costs associated with shareholder activism, as applicable.

Organic Sales and Organic Operating Income

The Corporation discloses organic sales and organic operating income because the Corporation believes it provides investors with insight as to the Company’s ongoing business performance. Organic sales and organic operating income are defined as sales and operating income, excluding contributions from acquisitions and results of operations from divested businesses or product lines during the last twelve months, loss from sale of our industrial valves business in Germany, and foreign currency fluctuations.

Free Cash Flow and Free Cash Flow Conversion

The Corporation discloses free cash flow because it measures cash flow available for investing and financing activities. Free cash flow represents cash available to repay outstanding debt, invest in the business, acquire businesses, return capital to shareholders and make other strategic investments. Free cash flow is defined as net cash provided by operating activities less capital expenditures. Adjusted free cash flow excludes: (i) payments associated with the Westinghouse legal settlement in both the current and prior year periods and (ii) executive pension payments in the prior year period. The Corporation discloses adjusted free cash flow conversion because it measures the proportion of net earnings converted into free cash flow and is defined as adjusted free cash flow divided by adjusted net earnings.