Esterline Technologies Corporation (ESL)

ESL 
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Esterline Technologies (ESL)

Q1 2013 Earnings Call

February 28, 2013 5:00 pm ET

Executives

Brian Keogh

Richard Bradley Lawrence - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Robert D. George - Chief Financial Officer, Vice President of Corporate Development and Secretary

Analysts

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Tyler Hojo - Sidoti & Company, LLC

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Michael Callahan - Topeka Capital Markets Inc., Research Division

J. B. Groh - D.A. Davidson & Co., Research Division

Presentation

Operator

Good afternoon, and welcome, ladies and gentlemen, to the Esterline Technologies First Quarter 2013 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded. [Operator Instructions] Also, a replay of today's call will be available for 1 week by calling this toll-free number: 1 (888) 286-8010. You'll need the following PIN: 70296032. At the request of the company, we will now open the conference -- we will open the conference up for questions and answers after the presentation. [Operator Instructions] I will now turn the conference over to Mr. Brian Keogh. Please proceed, sir.

Brian Keogh

Thank you, and good afternoon, everyone. Brad Lawrence, Esterline's Chairman, President and CEO; and Bob George, our Chief Financial Officer, are here today to discuss Esterline's first quarter 2013.

In addition to the number that Severly gave you a minute ago, you can also visit esterline.com in the Investor Relations section to access a webcast replay of this call. As always, I need to remind you that our call today contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are not guarantees of future performance. As you know, forward-looking statements always involve risks and uncertainty, which we detail on our public filings with the SEC. [Operator Instructions]

Thank you again for joining us today.

And now I'll turn the call over to Brad.

Richard Bradley Lawrence

Good afternoon, and thank you for joining us. First, I would like to apologize in advance for my scratchy voice and a likely occasional cough. I'm in the process of recovering from a pretty tough winter cold. That said, I'm pleased to report a solid first quarter. Operationally, we produced earnings per share of about $0.70. On top of that, we benefited about $0.11 from tax credits. Bob will get into those details in a few moments.

At this point though, I think it's fair to say, when looking at the full year, we are right about where we need to be. We continue to believe that our fiscal 2013 will follow our recent pattern, by starting the year slowly and finishing strong. Our second quarter should show some progress over Q1 and then we really begin ramping up to a very strong fourth quarter.

I'm pleased to note that our order book grew 6.5% compared with last year. Our backlog now stands at $1.3 billion and we see some good opportunities to build on that number, adding to the confidence level for the back half of the year. We have good visibility on a number of discrete growth opportunities, again, particularly in our second half. These include commercial programs, increases in a couple of key defense programs even in this constrained environment and strong positions in adjacent industrial markets like high-speed rail, nuclear power, where our technology is increasingly important.

There also continues to be potential wins outside of our forecast that could either make up for variances on our budget or if the stars line up, give us opportunity to outperform. As a result, we continue to be comfortable with our previous view of the full year, which I want to be clear, includes our best analysis of the impact of anticipated defense spending reduction.

Consistent with my comments about a slow start and a strong finish, our first quarter sales were $458 million, down about 3% versus last year. On a segment basis, as expected, Avionics & Controls performance was down compared to last year, but turned in a respectable first quarter and we're pleased with their steady performance. Although we've yet to see any significant new orders developed for our large transport category cockpit retrofit offering, we continue to be patient and well positioned. In the meantime, we're back to hitting solid singles in the turbo-prop and jet trainer category. As you might have seen today, we announced a contract awarded by KAI, that's Korea Aerospace Industries, to supply our Cockpit 4000 for 20 new turbo-prop aircraft for the Peruvian Air Force. We're encouraged by our relationship with KAI, their KT-1 basic trainer is an excellent aircraft and they see a market in South America alone for about 200 basic trainer.

To date, our integrated glass Cockpit 4000 is installed on over 250 aircraft, including turbo-prop and jet trainers, as well as light attack aircraft for customers in 8 countries. This number includes Beechcraft's ongoing contract with the U.S. Navy for the T-6B, and a recently completed contract with KAI for 40 aircraft for the Turkish Air Force.

Shifting back to segment performance. Avionics & Controls margins also benefited from lower R&D expense this quarter. Our Sensors & Systems segment matched last year's revenue performance, with a full quarter contribution from Souriau in both periods, and profitability in this segment moved up. Regarding Souriau, we're pleased with the integration progress. This business is now firmly embedded within the Esterline structure and intercompany activities are well underway.

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