Esterline Technologies Corporation (ESL)

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Esterline Technologies Corporation (ESL)

F3Q09 Earnings Call

September 3, 2009 5:00 pm ET


Brian Keogh – IR

Robert Cremin – Chairman, CEO

Robert George – VP, CFO, Secretary and Treasurer

Richard Bradley Lawrence - President, COO


Robert Spingam - Credit Suisse

John Croke - Jefferies & Co.

Troy Lahr - Stifel Nicolaus & Company, Inc.

Eric Hugel - Stephens, Inc.

Peter Jacobs - Ragen MacKenzie

Chris Denny - D. A. Davidson & Co.

Thomas Lewis - High Road Value Research

Byron Callan - Perella Weinberg Partners



Good day and welcome to the Esterline Technologies third quarter earnings conference call. (Operator Instructions)

It is now my pleasure to introduce your host, Brian Keogh. Please go ahead, sir.

Brian Keogh

Thanks, [Stacy]. Good afternoon, everybody.

Bob Cremin, Esterline's Chairman and CEO, Brad Lawrence, President and COO, and Bob George, Vice President and CFO, are with me today to discuss Esterline's fiscal 2009 third quarter performance.

A replay of this call will be available for seven days by calling the following toll-free number: 1-888-286-8010. And you'll need this passcode: 43505970. Or you can hear a replay at in the Investor Relations section.

You'll also find a copy of this quarter's earnings release on our website in the News & Press Center. 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 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 risks 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're going to put a two-question limit on the first round, then we'll circle back for any follow up questions if time allows.

I'd like to turn the call over to Bob Cremin now. Bob?

Robert Cremin

Great. Thanks, Brian, and thanks to everybody for joining us today.

To start I think it's fair to say this was a solid quarter. Like most that have preceded it, there are a lot of moving parts. In a few minutes we'll drill down and give you some insight into the details. I'll want Bob George to go through the quarter numbers, and I'd like Brad in his role as President and Chief Operating Officer to expand on our cost controls and how we're investing in the future.

First let me give you a 30,000-foot view of how we run Esterline through the inevitable cycles we face. We've never changed our long-term focus. All cycles turn, and we've not lost sight of positioning Esterline for the long run. We continue to make significant investments for Esterline's future. We've won serious positions on all of the major new platforms. We're actively adding capacity to handle future volumes, and we continue to make selective acquisitions to broaden our capabilities.

Some comments on these items. First, on programs, the Joint Strike Fighter will be a game-changer for Esterline. Our chipset content will exceed $1 million per plane.

The T-6B, the military trainer for the U.S. Navy, that was a prime attraction in acquiring CMC. Our chipset content is now over $600,000. We're responsible for both cockpits that go into each plane. First shipments begin later this year.

On the 787, our content is about $450,000 per chipset. It's another layer of work that will come.

We're Tier 1 on the two newest international regional jets. We're sole source for all elastomer products on the Chinese ARJ21, and we're the lead for work on power distribution systems on the Sukhoi Superjet.

On the A400, over 190 planes have been sold. Our $1.1 million in chipset content will be a good return for our investment. We expect this plane to fly.

And now we're getting started on the A350, the Airbus response to the 787, by designing the engine sensors for Rolls-Royce.

We have to be ready for future volumes that we anticipate, and we're putting the pieces in place to make that happen. If you're going to add capacity, there's no better time than now to do it. We have three actions taking place in Mexico - our power systems operation is expanding its existing large plant that's already there, and we have started two smaller operations for our elastomer and our sensor businesses, and they're taking advantage of the power systems experiences.

We're coming down the home stretch on our new high-performance countermeasures factory being built in the U.K. We expect to ship product out of that facility in early 2010.

Our new site in Everett, Washington for our Avionics operation just had a ribbon-cutting a couple of days ago. With this new operation we can show customers an Esterline plant that's been lean from day one.

And we like the outlook for our Idaho medical devices company. We've initiated an expansion that will be complete there in early 2010.

One last point: We've taken aggressive action to group individual companies together over the past year into what we call growth platforms and they're going to drive real synergies. We're encouraged by the results and the spirit of entrepreneurship that is evident.

Now let's get into the quarter. Bob, how about diving down into the numbers?

Robert George

Sure, Bob. Thanks, and good afternoon, everyone.

As we indicated in our earnings release today, third quarter results were solid. Year-to-date consolidated sales continue to be reasonably strong. Gross margins are holding. Operating profit is healthy and so is cash flow.

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