Esterline Reports Fiscal 2018 Fourth Quarter and Full Year Financial Results

  • Fiscal 2018 Fourth Quarter Results
    • Sales of $535.3 million
    • GAAP income from continuing operations of $49.9 million, or $1.69 per diluted share
    • Adjusted income from continuing operations of $55.3 million, or $1.87 per diluted share, excludes $5.3 million, or $0.18 per diluted share, of expenses comprised of discrete tax expenses resulting from enactment of U.S. tax reforms and expenses related to the company’s proposed transaction with TransDigm
       
  • Fiscal 2018 Full Year Results
    • Sales of $2.035 billion
    • GAAP income from continuing operations of $68.8 million, or $2.32 per diluted share
    • Adjusted income from continuing operations of $124.0 million, or $4.17 per diluted share, excludes $55.3 million, or $1.85 per diluted share, of discrete tax expenses resulting from enactment of U.S. tax reforms and expenses related to the company’s proposed transaction with TransDigm
    • Free cash flow of $160.8 million

BELLEVUE, Wash., Nov. 20, 2018 (GLOBE NEWSWIRE) — Esterline Corporation (NYSE:ESL) (www.esterline.com), a leading specialty manufacturer serving global aerospace and defense markets, today reported results for the fiscal 2018 fourth quarter ended September 28, 2018. 

On October 9, 2018, the company entered into a definitive agreement and plan of merger pursuant to which TransDigm Group Incorporated (TransDigm) will purchase all of the outstanding shares of Esterline common stock for $122.50 per share in cash. The transaction is expected to close in 2019.

Consolidated GAAP fourth quarter revenue of $535.3 million compared favorably with the prior-year result of $528.7 million.

Consolidated GAAP earnings from continuing operations in the fourth quarter of fiscal 2018 were $49.9 million, or $1.69 per diluted share. The comparable results for the fourth quarter of fiscal 2017 were $31.5 million, or $1.05 per diluted share.

Adjusted earnings from continuing operations for the fourth fiscal quarter of 2018 were $55.3 million, or $1.87 per diluted share, and exclude the following items:

  • $1.4 million, or $0.05 per diluted share, of tax expense arising from additional provisional expenses related to U.S. tax reforms, namely the 2017 Tax Cuts and Jobs Act (TCJA); and
  • $4.0 million, or $0.13 per diluted share, of after-tax expenses directly related to the proposed transaction with TransDigm.

Adjusted earnings from continuing operations for the fourth fiscal quarter of 2017 were $33.0 million, or $1.10 per diluted share, which excluded discrete compliance costs.

Consolidated fiscal-year 2018 revenue was $2.035 billion compared with the fiscal 2017 revenue result of $2.000 billion.

Consolidated GAAP earnings from continuing operations in fiscal-year 2018 were $68.8 million, or $2.32 per diluted share, compared with $118.9 million, or $3.96 per diluted share, in fiscal 2017. 

The company reported fiscal 2018 adjusted earnings from continuing operations of $124.0 million, or $4.17 per diluted share. The adjusted results exclude the following items:

  • provisional discrete tax expenses of $49.9 million, or $1.68 per diluted share, related to the U.S. TCJA; and 
  • $5.3 million, or $0.17 per diluted share, of after-tax expenses directly related to the company’s strategic planning activities, including the proposed transaction with TransDigm.

Adjusted earnings from continuing operations for fiscal 2017 were $125.4 million, or $4.18 per diluted share, and excluded discrete compliance and advanced displays integration costs. 

Fourth Quarter Results of Operations

The company reported consolidated operating earnings before interest and tax in the fourth quarter of fiscal 2018 of $73.7 million, or 13.8% of sales, compared with $49.1 million, or 9.3% of sales, reported in the prior year.

The Avionics & Controls segment reported fiscal 2018 fourth quarter operating earnings of $36.0 million, or 15.3% of sales, on sales of $235.2 million. This compares with operating earnings of $29.9 million, or 13.2% of sales, on sales of $225.6 million in the same period of fiscal 2017. The earnings improvement resulted from higher sales volume and lower R&D expense as certain programs moved into production during 2018.

The Sensors & Systems segment reported fiscal fourth quarter operating earnings of $32.1 million, or 15.9% of sales, on sales of $201.5 million. The segment’s operating earnings in the same period of 2017 were $16.8 million, or 8.9% of sales, on sales of $189.1 million. Sensors & Systems segment operating profit and margins have expanded significantly over the course of the year. Both Advanced Sensors and Connection Technologies delivered solid performance during the fourth quarter of fiscal 2018. The Power Systems business within the segment implemented a workforce restructuring in the first half of 2018 following its completion of a high-margin GFI retrofit program. The restructuring helped expand gross margins and combined with lower 2018 R&D expenses to produce a 15.9% segment operating margin in the fourth quarter of fiscal 2018.

The Advanced Materials segment reported fiscal fourth quarter operating earnings of $26.0 million, or 26.4% of sales, on sales of $98.5 million. During the same period of fiscal 2017, the segment reported operating earnings of $17.9 million, or 15.7% of sales, on sales of $113.9 million. The fiscal 2017 fourth quarter performance includes operating results from the Kirkhill business, which Esterline divested in the second quarter of fiscal 2018. Excluding Kirkhill’s $21.8 million of sales and its operating loss of $4.5 million in the fiscal 2017 fourth quarter, adjusted segment sales were $92.1 million and adjusted operating earnings were $22.4 million in the fiscal 2017 period. Higher adjusted sales volumes in fiscal 2018 for the Engineered Materials business and a higher-value product mix overall drove the year-over-year segment profit improvement. 

Fiscal 2018 Results and Cash Flow from Operations

As discussed above, Esterline generated adjusted earnings from continuing operations during fiscal 2018 of $124.0 million, or $4.17 per diluted share. This compares with adjusted earnings from continuing operations for fiscal 2017 of $125.4 million, or $4.18 per diluted share. See further details on these differences in the Non-GAAP Financial Information section below.

Cash flow from operations for fiscal 2018 was $214.1 million, up 10.7% from $193.4 million in fiscal 2017. Capital expenditures during fiscal 2018 were $53.3 million, resulting in free cash flow of $160.8 million for the fiscal 2018 period. This compares with $135.4 million in free cash flow reported in fiscal 2017, after $58.0 million in capital expenditures.

Capital Allocation

During fiscal 2018 the company reduced debt by $97.6 million, repurchased $43.4 million of common stock at an average price of $72.25 per share, and grew its cash balance by $64.6 million. As of September 28, 2018, the company held cash and cash equivalents of $372.4 million and had total debt of $672.5 million.

Booking Activity

The company booked more than $2.3 billion of new orders in fiscal 2018, resulting in a book-to-bill ratio of 1.12. The company’s backlog has increased over the past twelve months, and stood at a record $1.5 billion at the end of fiscal 2018, compared with a $1.3 billion backlog at the end of fiscal 2017. Every business segment contributed to the order and backlog growth.

Conference Call Information

In light of the announced agreement with TransDigm, the company will not hold a conference call or provide financial guidance for fiscal 2019.

Non-GAAP Financial Information

This press release may include non-GAAP financial measures—adjusted earnings from continuing operations, adjusted earnings from continuing operations per diluted share, adjusted segment sales, adjusted segment operating earnings (before income taxes) and free cash flow—that have not been calculated in accordance with generally accepted accounting principles (GAAP) in the U.S. Adjusted earnings from continuing operations consist of earnings from continuing operations attributable to Esterline less the costs associated with incremental compliance costs (described further below), discrete items associated with our acquisition of the Advanced Displays business in January 2015, one-time expenses associated with the TCJA, and expenses related to the proposed transaction with TransDigm. Adjusted earnings from continuing operations per diluted share divides each element of adjusted earnings from continuing operations by the weighted average number of shares outstanding, diluted for the periods presented. Adjusted segment sales consist of net sales of our Advanced Materials segment reduced by the sales from our Kirkhill business. Adjusted segment operating earnings consist of operating earnings (before income taxes) of our Advanced Materials segment reduced by the operating earnings from our Kirkhill business. Free cash flow is defined as cash flow from operations less capital expenditures. The reconciliations for adjusted segment sales, adjusted segment operating earnings, and free cash flow are contained in the body of the press release above. In accordance with the SEC’s requirements, below is the reconciliation of the non-GAAP adjusted earnings from continuing operations to the comparable GAAP earnings from continuing operations in the applicable periods.

In millions, except per share amounts                
    Three Months Ended
September 28, 2018
  Three Months Ended
September 29, 2017
        Diluted
EPS
      Diluted
EPS
Earnings from Continuing Operations Attributable                
to Esterline (GAAP), Net of Tax   $ 49.9   $ 1.69   $ 31.5   $ 1.05
Compliance Costs¹,                
Net of Tax of $0.4       1.5   0.05
Provisional Tax Expense Due to TCJA   1.4   0.05    
Expenses Related to Proposed Transaction,                
Net of Tax of $1.4   4.0   0.13    
Adjusted Earnings from Continuing Operations                
(non-GAAP), Net of Tax   $ 55.3   $ 1.87   $ 33.0   $ 1.10
                 

In millions, except per share amounts                
    Twelve
Months Ended
September 28, 2018
  Twelve
Months Ended
September 29, 2017
        Diluted
EPS
      Diluted
EPS
Earnings from Continuing Operations Attributable                
to Esterline (GAAP), Net of Tax   $ 68.8   $ 2.32   $ 118.9   $ 3.96
Advanced Displays Integration Costs,       1.0   0.03
Net of Tax of $0.3                
Compliance Costs¹,       5.5   0.19
Net of Tax of $1.5                
Provisional Tax Expense Due to TCJA   49.9   1.68    
Expenses Related to Proposed Transaction,                
Net of Tax of $1.9   5.3   0.17    
Adjusted Earnings from Continuing Operations                
(non-GAAP), Net of Tax   $ 124.0   $ 4.17   $ 125.4   $ 4.18
                 

¹Compliance Costs refer to discrete, non-recurring expenses associated with retention of a Special Compliance Official, external audits, remedial actions and new program implementation as required by the terms of a Consent Agreement with the U.S. State Department. These Consent Agreement costs are not normal, ongoing cash expenditures necessary to operate our business.

The company provides these non-GAAP financial measures as supplemental information to the GAAP financial measures. Management uses these non-GAAP financial measures to (a) evaluate the company’s historical and prospective financial performance and its performance relative to its competitors, (b) allocate resources, and (c) measure the operational performance of the company’s business units.

In addition, management believes including these non-GAAP financial measures enhances investors’ and financial analysts’ understanding of the company’s performance as well as their ability to assess and compare the company’s historical results of operations.

These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measures, and free cash flow is not necessarily indicative of amounts available for discretionary use. There are limitations to these non-GAAP financial measures because they are not prepared in accordance with GAAP and may not be comparable to similarly titled measures of other companies due to potential differences in methods of calculation and items that comprise the calculation. The company compensates for these limitations by using these non-GAAP financial measures as a supplement to the GAAP measures and by providing reconciliations of the non-GAAP and comparable GAAP financial measures. The non-GAAP financial measures should be read only in conjunction with the company’s consolidated financial statements prepared in accordance with GAAP.

This press release contains “forward-looking statements,” including statements regarding the proposed acquisition of Esterline by TransDigm, within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or the company’s future financial performance. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should” or “will,” or the negative of such terms or other comparable terminology. These forward-looking statements are only predictions based on the current intent and expectations of the management of Esterline, are not guarantees of future performance or actions, and involve risks and uncertainties that are difficult to predict and may cause Esterline’s or its industry’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Esterline’s actual results and the timing and outcome of events, including the proposed transaction with TransDigm, may differ materially from those expressed in or implied by the forward-looking statements due to risks detailed in Esterline’s public filings with the Securities and Exchange Commission including the definitive proxy statement that will be filed with the SEC in connection with the proposed transaction with TransDigm and Esterline’s most recent Report on Form 10-K/A.

 
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Statement of Operations (unaudited)
In thousands, except per share amounts
 
    Three Months Ended   Twelve Months Ended
    September 28,   September 29,   September 28,   September 29,
      2018       2017       2018       2017  
Segment Sales                
Avionics & Controls   $    235,239     $   225,634     $    861,543     $   840,777  
Sensors & Systems     201,549       189,086       766,065       724,373  
Advanced Materials     98,506       113,930       407,231       435,154  
Net Sales     535,294       528,650       2,034,839       2,000,304  
                 
Cost of Sales     350,969       362,422       1,368,531       1,340,259  
      184,325       166,228       666,308       660,045  
Expenses                
Selling, general and administrative     89,225       88,332       387,231       374,981  
Research, development and engineering     17,472       28,841       90,869       109,778  
License fee income                 (5,293 )      
Transaction costs     5,381             7,192        
Loss on sale of business     (1,483 )           3,730        
Insurance recovery                       (7,789 )
Total Expenses     110,595       117,173       483,729       476,970  
Operating Earnings from Continuing Operations     73,730       49,055       182,579       183,075  
                 
Interest Income     (586 )     (181 )     (1,912 )     (527 )
Interest Expense     7,242       7,563       30,915       30,208  
Earnings from Continuing Operations Before Income Taxes     67,074       41,673       153,576       153,394  
Income Tax Expense     16,865       9,705       83,827       33,025  
Earnings from Continuing Operations Including Noncontrolling Interests     50,209       31,968       69,749       120,369  
Earnings Attributable to Noncontrolling Interests     (272 )     (435 )     (956 )     (1,504 )
Earnings from Continuing Operations Attributable to Esterline, Net of Tax     49,937       31,533       68,793       118,865  
Gain (Loss) from Discontinued Operations, Attributable to Esterline, Net of Tax     2,802       (1,126 )     665       (7,311 )
Net Earnings Attributable to Esterline   $ 52,739     $   30,407     $   69,458     $   111,554  
                 
Earnings (Loss) Per Share — Basic:                
Continuing Operations   $    1.69     $   1.05     $   2.33     $  4.00  
Discontinued Operations     .10       (0.04 )     .02        (0.25 )
Earnings (Loss) Per Share — Basic   $    1.79     $   1.01     $  2.35     $  3.75  
                 
Earnings (Loss) Per Share — Diluted:                
Continuing Operations   $    1.69     $   1.05     $   2.32     $   3.96  
Discontinued Operations     .09       (0.04 )     .02       (0.24 )
Earnings (Loss) Per Share — Diluted   $    1.78     $   1.01     $    2.34     $    3.72  
                 
Weighted Average Number of Shares Outstanding — Basic     29,445       29,973       29,598       29,767  
                 
Weighted Average Number of Shares Outstanding — Diluted     29,609       30,152       29,734       30,003  
                                 

 
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Sales and Earnings From Continuing Operations by Segment (unaudited)
In thousands
 
    Three Months Ended   Twelve Months Ended
    September 28,   September 29,   September 28,   September 29,
      2018       2017       2018       2017  
Segment Sales                
Avionics & Controls   $    235,239     $    225,634     $    861,543     $    840,777  
Sensors & Systems     201,549       189,086       766,065       724,373  
Advanced Materials     98,506       113,930       407,231       435,154  
Net Sales   $   535,294     $    528,650     $    2,034,839     $    2,000,304  
                 
Earnings from Continuing Operations Before Income Taxes            
Avionics & Controls   $    36,044     $    29,855     $    103,883     $  91,040  
Sensors & Systems     32,095       16,815       85,214       86,902  
Advanced Materials     26,010       17,909       71,298       73,891  
Segment Earnings     94,149       64,579       260,395       251,833  
                 
Corporate expense     (20,419 )     (15,524 )     (77,816 )     (68,758 )
Interest income     586       181       1,912       527  
Interest expense     (7,242 )     (7,563 )     (30,915 )     (30,208 )
                 
Earnings from Continuing Operations Before Income Taxes   $    67,074     $    41,673     $    153,576     $    153,394  
                                 

 
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Balance Sheet (unaudited)
In thousands
 
    September 28,   September 29,
      2018     2017
Assets        
Current Assets        
Cash and cash equivalents   $   372,406   $   307,826
Accounts receivable, net     441,696     430,524
Inventories     457,226     477,969
Income tax refundable     9,077     12,814
Prepaid expenses     19,975     19,239
Other current assets     3,497     13,836
Current assets of businesses held for sale         6,501
Total Current Assets     1,303,877     1,268,709
         
Property, Plant and Equipment, Net     314,806     348,634
         
Other Non-Current Assets        
Goodwill     1,030,667     1,053,573
Intangibles, net     306,085     359,166
Deferred income tax benefits     44,008     56,793
Other assets     33,249     19,804
Non-current assets of businesses held for sale     4,225     13,334
    $   3,036,917   $   3,120,013
Liabilities and Shareholders’ Equity        
Current Liabilities        
Accounts payable   $   147,438   $   138,595
Accrued liabilities     232,730     230,007
Current maturities of long-term debt     17,546     17,424
U.S. and foreign income taxes     5,160     582
Current liabilities of businesses held for sale     144     7,184
Total Current Liabilities     403,018     393,792
         
Long-Term Liabilities        
Credit facilities         50,000
Long-term debt, net of current maturities     654,922     709,424
Deferred income tax liabilities     28,899     43,978
Pension and post-retirement obligations     57,755     66,981
Long-term U.S. income taxes payable     32,902    
Other liabilities     16,294     18,838
Non-current liabilities of businesses held for sale         1,724
         
Total Shareholders’ Equity     1,843,127     1,835,276
    $   3,036,917   $   3,120,013
         

Contact:
Investor Relations – John Hobbs
Media – Michelle DeGrand  
+1 425-453-9400