Technology

Curtiss-Wright (CW) Down 9.5% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Curtiss-Wright (CW). Shares have lost about 9.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Curtiss-Wright due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Curtiss-Wright Q4 Earnings Beat Estimates, Sales Up Y/Y

Curtiss-Wrightreported fourth-quarter 2018 adjusted earnings of $1.90 per share, which surpassed the Zacks Consensus Estimate of $1.75by 8.6%.

Excluding one-time items, the company reported GAAP earnings of $1.89 per share, up 25% from $1.52 registered in the year-ago quarter.

The year-over-year upside in the bottom line can be attributed to higher operating income, lower interest expenses and a lower tax rate as well as a lower share count.

For 2018, the company generated adjusted earnings of $6.37 per share, which outpaced the Zacks Consensus Estimate of $6.23 by 2.2%.

Operational Performance

In the quarter under review, the company’s total salesof $648.6 million increased 6% year over year. The top line, however, missed the Zacks Consensus Estimate of $689 million by 5.8%.

Gross profit increased 4% year over year to $241.1million. Operating income of $110 million improved 4% from $105.3 million a year ago.

For 2018, the company generated sales of $2.41 billion, which increased 6% from the year-ago figure. The reported figure, however, lagged the Zacks Consensus Estimate of $2.45 billion by 1.6%.

Curtiss-Wright’s total backlog at the end of 2018 was $2 billion, up 1% from the year-ago tally. Moreover, new orders increased 6% to $2.4 billion.

Segmental Performance

Commercial/Industrial: Salesat this segment rose 2% year over year to$304.8million. Higher sales of valves on the Virginia class submarine program, increased OEM sales of sensors and controls products as well as surface treatment services along with solid demand for industrial valves contributed to this upside.

While operating income fell 1% to $51.7 million, operating margin declined40 basis points (bps) to 15.4%. The margin contraction was on account of tariff impacts and restructuring charges.

Defense: Sales at this segment declined 13% year over year to $150.9 million. This downturn can be attributed to lower sales of flight test equipment on fighter jet and bomber programs, embedded computing equipment on unmanned aerial vehicle (UAV) platforms, embedded computing and aircraft handling equipment on various naval defense platforms as well as avionics and electronics equipment on various domestic and international platforms.

Operating income declined 16% to $36.5 million, while operating margin contracted 100 bps to 24.2%. The downside can be attributed to lower sales, and higher research and development expenses.

Power: Sales at this segment surged 37% year over year to $192.9 million on account of solid CVN-80 aircraft carrier and DRG service center revenues. Moreover, higher revenues generated from the China Direct AP1000 program and robust growth in domestic aftermarket sales supporting currently operating nuclear reactors led to this upside.

Operating income increased 51% to $36.1 million, while operating margin expanded 170 bps to 18.7%. Both the upsides can be attributed to higher naval defense and power generation revenues, favorable overhead absorption and increased profitability on the China Direct AP1000 program.

Financial Update

Curtiss-Wright ended 2018 with cash and cash equivalents of $276.1 million, down 42% from $475.1 million as of Dec 31, 2018. Long-term debt summed $762.3 million compared with $814 million as of Dec 31, 2017.

Operating cash inflow from continuing operations totaled $336.3 million at the end of the 2018 compared with $388.7 million in the prior year.

Adjusted free cash flow at the end of 2018 was $332.9 million compared with the year-ago figure of $336 million. During 2018, the company repurchased 1.7 million shares worth $199 million.

Guidance

Curtiss-Wright issued its financial guidance for 2019. The company expects to generate adjusted earnings per share of $6.80-$6.95 on sales of $2,490-$2,535million.Currently, the Zacks Consensus Estimate for the company’s 2019 earnings is pegged at $6.81 on sales of $2.61 billion. While the consensus mark for the bottom line lies just above the lower end of the company’s guided range, the top-line estimate lies above the company’s projected view.

Free cash flow is anticipated in the range of $300-$310 million, while adjusted free cash flow is expected in the $320-$330 million band for 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Curtiss-Wright has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Curtiss-Wright has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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