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Esterline Technologies (ESL)
Q2 2013 Earnings Call
May 30, 2013 5:00 pm ET
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
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
Julie Yates - Crédit Suisse AG, Research Division
Noah Poponak - Goldman Sachs Group Inc., Research Division
J. B. Groh - D.A. Davidson & Co., Research Division
Previous Statements by ESL
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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 fiscal year-to-date and second quarter 2013 performance. In addition to the number Jason just gave you, 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 risk and uncertainty, which we detail in our public filings with the SEC.
I'll now turn the call over to Brad.
Richard Bradley Lawrence
Good afternoon, and thank you all for joining us. Looking in our results at the midpoint of our year, I believe we're making good progress. We're seeing solid margins, controlled costs and performance in a variety of businesses and programs despite some difficult market conditions. Sales were approximately $500 million and earnings of $1.12 per share were in line with last year's second quarter operating results.
At the outset of this year, I said, much like our fiscal '12, we will build to a strong finish. This still holds. And there are a number of favorable trends that we expect to continue to a strong back half of the year, including continuing strength in our commercial aerospace OEM business, particularly for single-aisle platforms, steady margin performance, a solid $1.3 billion backlog, continued strong cash flow and, throughout the business, an effective focus on cost controls.
Of course, we have to balance this optimism with a dose of caution. Although there remains a good source of strength in defense markets, we have seen a number of important programs slide to the right not only impacting the quarter but colors our full year outlook.
For example, JPATS, or the U.S. military's Joint Primary Aircraft Training System, is the Beechcraft T-6B. Esterline provides the integrated glass cockpits for this aircraft. A few months ago, in conjunction with its emergence from bankruptcy, Beechcraft implemented a program of rolling furloughs. As a result, full year build rate for the T-6B has been lowered from the earlier scheduled 49-per-year rate to 42 aircraft this year, essentially a 15% reduction.
Also there's ongoing uncertainty surrounding the fate of the Global Hawk UAV program and its future role in the U.S. Air Force's intelligence gathering mission. This is delaying orders for our signal intelligence receivers. That said, we're confident that whether it's Global Hawk or some other platform, there'll be a continuing need for signals intelligence technologies that our receivers provide. So we view this only as a delay.
More broadly speaking, there are some balances to these issues. Programs such as the European A400M military transport aircraft, the F-35 Joint Strike Fighter and the P-8 maritime surveillance aircraft are performing to expectations, have improving visibility and are now becoming meaningful to results. In general, however, defense customers, both in the U.S. and abroad, are responding to market uncertainty by slowing funded programs and keeping their options open.
Meanwhile, global economic conditions, particularly in Europe, have industrial markets stuck in neutral. Though our rail business continues to grow, other markets are under some pressure, slowing the pace of growth we anticipated at the beginning of the year.
With these market factors as a background, we decided it's prudent at this point to moderate our expectations. We continue to believe our business will strengthen as we move to the second half but not to the extent we previously thought.
For that reason, we have recalibrated our full year earnings guidance to a range of $5.30 to $5.50 per share, a range that we believe absorbs the potential impact of the market uncertainties I just described.
Now with that said, there are certainly numerous aspects of our business that give us cause for confidence. In Avionics & Controls, for example, our cockpit solutions are well positioned in the market. Esterline's modern avionics provide exceptional value and competitive pricing with very strong opportunities in the sales funnel for retrofitting the aging fleet of both military and civilian aircraft.