Esterline Technologies Corporation (ESL)

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Esterline Technologies Corporation (ESL)

F4Q09 Earnings Call

December 10, 2009 5:00 pm ET


Brian Keogh – Investor Relations

Richard Bradley Lawrence – President and Chief Executive Officer

Robert George – Vice President and Chief Financial Officer


Tyler Hojo - Sidoti & Co.

[Unidentified Analyst] for Robert Spingarn - Credit Suisse

Eric Hugel - Stephens Inc.

J. B. Groh - D. A. Davidson & Co.

Matt Vittorioso for [Young Quan] – Barclays Capital



Good afternoon and welcome, ladies and gentlemen, to the Esterline Technologies fourth quarter 2009 financial results conference call. (Operator Instructions)

I will now turn the conference over to Mr. Brian Keogh. Please go ahead sir.

Brian Keogh

Thanks, Michael, and welcome everybody and thanks for joining us today. Brad Lawrence, Esterline’s President and CEO, and Bob George, Vice President and CFO are with me today to discuss Esterline’s fiscal 2009 fourth quarter and full year performance.

A replay of the call will be available by calling this toll free number, 1-888-286-8010, and you’ll need this access code, 51717255 or you can visit In the Investor Relations section you’ll find a replay permission there. You’ll also find a copy of today’s earnings release. 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. Forward-looking statements always involve risks and uncertainties and we detail those risks in our public filings with the SEC.

We have some prepared remarks, then we’ll get into the Q&A. As is our practice we’ll put a two question limit on the first round, then we’ll circle back for any follow up as time allows.

Now I’ll turn the call over to Brad. Brad?

Richard Bradley Lawrence

Thanks Brian, and welcome everyone to our year end conference call.

To begin with, I’m pleased to report that we had a strong first quarter that exceeded our expectations. There were several key factors that led to that performance. First and foremost was the outstanding performance of our Avionics Control segment, specifically continued strength from our Control Systems group; a strong finish by our latest acquisition, Racal Acoustics; and an excellent performance at CMC, where R&D investments are paying off, especially on the Hawker Beechcraft T-6B trainer and the C-130 cockpit retrofit programs.

The success in our Avionics and Control segment was able to overcome the weakness we saw in the quarter from the Sensors and Systems and Advance Material segments. As usual, I’ll ask Bob to get into the numbers, but first let me give you my take on the year. All in all, I feel Esterline performed solidly in our fiscal 2009. We are all aware of the hardships in the general economy that impacted demand for our industrial and commercial businesses. The Boeing strike hit us pretty hard early in the year, then business jet demand disappeared followed by the after market destocking. And we were particularly disappointed in the delay of the 787 and A400M programs as well as the delay in the Department of Defense multi-year contract award for flares which, by the way, is now in hand.

But enough of the bad news. I’m proud of the way Esterline responded to these adverse headwinds. Our guys know the drill in our cyclical environment. They took tough actions to tighten down expenses and reduce costs. You know, lowering costs to respond to reduced market demand is never easy, certainly not pleasant. But our team faced the issue head on as fairly and humanely as possible. They used every tool at their disposal to shed excess hours, shut downs, extended holidays, work share, shorter work weeks and where absolutely required layoffs for both direct and indirect personnel.

All the while we capitalize on the lean efficiency improvements that we work on continuously. We also made great progress this year in implementing synergies that we are gaining by combining our business capabilities. Some of the benefits from these actions came in fiscal 2009, but perhaps more importantly we expect many of these improvements to stick and provide a lower cost base for our businesses going forward.

These are not just empty words. With the reduction in revenues we’ve seen credible performance and sustaining record level gross margins achieved in 2008. These improvements are also demonstrated by our ability to hold SG&A expenses level for the year, despite adding two additional businesses through acquisition.

To make this list complete, I need to mention the significant impact of R&D reductions, as several major development projects moved into the production phase during the year. As I hope you know by now, financial results are not the only thing we focus on at Esterline. Operational excellence and resulting customer satisfaction are an obsession at our company. In a year of weakening demand, workplace disruptions caused by shutdowns, layoffs and reduced work hours, union negotiations, factory expansions and even a relocation of one of our larger businesses, on time delivery actually improved and quality performance continues to strengthen.

I can’t think of a better way for us to increase our value to customers and prepare for the return of the market demand. During this period of reduced activity, we’ve continued to make progress in major facility improvements in all of our segments. We have maintained our critical research and development programs, we continue to focus on employee development and stay true to our strategy of making good fit acquisitions, having acquired two companies in fiscal 2009.

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