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Esterline Technologies Corporation (ESL)
F1Q09 (Qtr End 01/30/09) Earnings Call Transcript
February 26, 2009 5:00 pm ET
Brian Keogh – IR
Robert Cremin – Chairman, President and CEO
Robert George – VP, CFO, Secretary and Treasurer
Troy Lahr – Stifel Nicolaus
Howard Rubel – Jefferies & Co.
Robert Spingarn – Credit Suisse
Tyler Hojo – Sidoti & Company
Eric Hugel – Stephens Inc.
J.B. Groh – D.A. Davidson
Vinit Bhatt – Snyder Capital
Alan Robinson – RBC
Previous Statements by ESL
» Esterline Technologies Corporation F4Q09 (Qtr End 10/30/09) Earnings Call Transcript
» Esterline Technologies Corporation F3Q09 (Qtr End 7/31/09) Earnings Call Transcript
» Esterline Technologies Corporation F4Q 2008 (Qtr End 10/31/2008) Earnings Call Transcript
Thanks Joshua. Good afternoon everybody. Bob Cremin, Esterline’s Chairman, President and CEO; and Bob George, Vice President and CFO are with me today to discuss Esterline’s fiscal 2009 first quarter performance. A replay of the call will be available at the following number, 1-866-245-6755. The pass code is 812230, or you can visit Esterline.com, in the Investor Relations section, where you’ll also find a copy of the earnings release from today.
In the release there’s a paragraph regarding forward-looking statements. This paragraph covers this call as well. Essentially it says that forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 are based on management’s current expectations and are not guarantees of future performance. Of course, forward-looking statements always involve risk and uncertainty and we detail those risks in our public filings with the SEC.
As is our practice, when we get to the Q&A, we want to put a two question limit on the first round, then we’ll circle back for follow-up as time allows. I like to turn the call over to Bob Cremin. Bob.
Thanks Brian and thanks everybody for joining us today. Let us jump in. It turned out to be an interesting quarter. We knew going in that the year would start slow and then ramp up as we move forward, and we said as much in our December call. It was the anticipated aftermath of the Boeing strike and our normal extended holiday plant closures.
In addition, we also anticipated some foreign exchange issues and a slowdown in airlines spare sales for some of our operations. It was no secret that air traffic was slowing, and there was indications of airlines destocking inventories and putting of retro-fits.
One thing no one predicted was the precipitous drop in the British pound during the quarter. This resulted in a foreign currency loss related to the funding of our Racal acquisition in the UK, and Bob will cover that issue in a moment. Despite it all, we performed somewhat ahead of our internal plans for quarter one. You know, it goes without saying that Esterline is not immune to the market dynamics that everybody in this industry is currently experiencing, however, in this changed environment our strategy, capabilities and culture are working well.
The breadth of our market coverage, our growing library of proprietary engineered solutions and our dominant positions in key market niches continue to help insulate us in these uncertain times. One key element of our long-term strategy is our ability to seek out and acquire best in class complementary businesses that expand our technological competency, our market reach and substantially elevate our competitive strengths.
During the quarter, we completed two such acquisitions, and yet we kept our balance sheet healthy. NMC, Nylon Molding, expands our Advanced Materials product offering to include specialized, lightweight plastic and composite, adhesive bonded fasteners. NMC has a solid position on the 787. And Racal leverages our expertise in secure communications by adding high-technology, ruggedized, personal communications equipment and those range from lightweight noise reducing headsets to advanced battlefield secured telephone networks.
Racal is in an excellent position to benefit from expenditures to increase the effectiveness of the foot soldier. We also added a small product line during the quarter, Duraswitch, and that was bolted directly onto an operating unit.
We expect all of these additions to be profitable this year, providing a little extra lift and to help us maintain our full-year guidance of $3.70 to $3.90 per share. Supporting our outlook was our ability to improve our gross margins in the quarter, and this was particularly encouraging in the face of the slowdown in spares business. Again, this goes right to our basic strategy, reflecting the inherent value of our specialized niche businesses.
On the R&D front, you will notice that expenses continue to ratchet down from the mid-2008 peak. The surge in R&D spending that is in [ph] 2007 and 2008 allowed us to obtain tier one designations on several significant new platforms, including such important military programs as the T-6B trainer, and the Joint Strike Fighter, and over on the commercial side of things, Boeing’s innovative 787 and it’s Airbus counterpart A-350.
These wins not only raise our profile within the industry but significantly expand our business base. With our R&D investments on these programs largely expensed, we will begin to see significant benefits in the coming years as we move into production. On that point, in December we received the production order for the first 35 chipsets for the T-6B integrated cockpits. Remember there are two cockpits for planes. The first delivery is scheduled for later this year.
Our persistent focus on R&D investment also enables us to realize embedded value by leveraging the core technologies developed for aerospace and defense, and then applying them to other markets where we continue to see good growth. And these include specialized medical input technologies, high-speed rail, industrial power generation, and even the gaming industry.
So Bob, how about you jump in and go over the numbers now.
Sure, thanks Bob. Good afternoon everyone. As I am sure you can imagine, we have had a lot of conversations regarding today’s prepared remarks, nothing unusual there, we always try to prepare extensively for these calls. However, the number of discussion points that this quarter presented is clearly unique.
Now in preparing for this meeting one of my individual practices is to review the transcripts from the prior year’s calls, as well as the transcripts from the preceding quarter’s calls. And occasionally, we are all stunned with magnitude and the speed of change and this was one of those times for me. While reviewing last year’s first quarter comments, I couldn’t help but reflect on the differences in the global economic outlook last February, and those today just a short 12 months later. And in a few months, we will be discussing some of those year-over-year comparisons with respect to Esterline’s results.
And then as my attention turned to last December’s call, I was again struck by changes. But also by the way that those changes were incorporated into our forward-looking statements. For example, and here is a quote from our December remarks, “Comparatively, we are likely going to be slower out of the gate in the first quarter for a few reasons. And then the listed those reasons. And I’m quoting again, “One, last year we benefited from an extra week in the fiscal calendar. Another is the residual effect of the Boeing strike and just getting moving again. The third is simply a result the powerful fourth-quarter results we just recorded, and as a wild card, we will have the effects of significant currency movement.”