Curtiss-Wright Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

There are 9 speakers on the call.

Operator

Welcome everyone to the Curtiss Wright First Quarter 2024 Earnings Conference Call. At this time, all participants have been placed on a listen only mode and the floor will be open for your questions following the presentation. Now at this time, I will turn the call over to Jim Ryan, Vice President of Investor Relations. Mr. Ryan, please go ahead.

Speaker 1

Thank you, Bill, and good morning, everyone. Welcome to Curtiss Wright's Q1 2024 earnings conference call. Joining me on the call today are Chair and Chief Executive Officer, Lynn Bamford and Vice President and Chief Financial Officer, Chris Hargis. Our call today is being webcast and the press release as well as a copy of today's financial presentation is available for download through the Investor Relations section of our company website curtiswright.com. A replay of this webcast also can be found on the website.

Speaker 1

Please note today's discussion will include certain projections and statements that are forward looking as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are not guarantees of future performance. We detail those risks and uncertainties associated with our forward looking statements in our public filings with the SEC. As a reminder, the company's results include an adjusted non GAAP view that excludes certain costs in order to provide greater transparency into Curtiss Wright's ongoing operating and financial performance. Any references to organic growth are on an adjusted basis and exclude foreign currency translation, acquisitions and divestitures unless otherwise noted.

Speaker 1

GAAP to non GAAP reconciliations for current and prior year periods are available in the earnings release and on our website. Now I'd like to turn the call over to Lynn to get things started.

Speaker 2

Thank you, Jim, and good morning, everyone. I'll begin by covering the highlights of our Q1 performance and a few comments about our updated 2024 financial outlook. Then I'll turn the call over to Chris to provide a more in-depth review of our financials. Finally, I'll wrap up with a focus on our recent commercial nuclear acquisition and some closing remarks before we move to Q and A. Starting with our Q1 2024 highlights, we are off to a great start as we delivered strong overall results that exceeded our expectations.

Speaker 2

Sales of $713,000,000 increased 13% year over year, driven by better than expected performance in the Defense Electronics segment, which continues to benefit from strong conversion on its healthy and growing backlog. Our performance was led by growth in all of our aerospace and defense markets, highlighted by more than 30% sales growth in both Aerospace and Ground Defense, along with strong growth in Commercial Aerospace. Operating income increased 23% year over year, exceeding our strong sales growth and resulted in 110 basis points of overall operating margin margin expansion. Diluted earnings per share of $1.99 increased 30% year over year and exceeded our expectations, primarily due to the higher sales. Adjusted free cash flow, while typically a first quarter outflow, reflected a year over year improvement of 37%.

Speaker 2

Chris will provide some additional color on the key drivers of these metrics later in our prepared remarks. New orders also demonstrated tremendous growth in the Q1, up 26% year over year to more than $900,000,000 and resulted in an overall book to bill of 1.26 times. Within our A and D market, we experienced strong demand globally for defense electronics, including our embedded computing and tactical communications equipment. Of note, the breadth of our tactical communications product portfolio continues to expand beyond its historically served U. S.

Speaker 2

Army and Marine Corps customers. During the Q1, this business was awarded their first win with the U. S. Air Force, an exciting development which we look forward to discussing in greater detail at our upcoming Investor Day. We also experienced strong order growth in naval defense supporting current and next generation submarine programs.

Speaker 2

In our commercial markets, we continue to experience increasing demand for our commercial nuclear products. Overall, we reached a record backlog in excess of $3,000,000,000 which provides us with great visibility and confidence in achieving our updated 2024 financial guidance. Wrapping up my thoughts on the quarter, though our operational performance exceeded our overall expectations, we did face some challenges. This included an approximately $10,000,000 headwind based on a change in estimate on a single naval contract within the Naval and Power segment. We encountered some technical challenges at a key milestone in the contract.

Speaker 2

We now have a path to resolution and are working closely with our customer while dedicating the proper resources towards the success. Finally, regarding our 2024 guidance, despite the impact of the naval contract adjustment, we were encouraged by the strong start to the year and confidence to increase our overall guidance for sales, operating income and earnings per share. We now expect overall sales to increase 5% 7% driven by increases in all of our major end markets. This outlook includes the contribution from our newest commercial nuclear acquisition of WSE Inc, which I'll discuss in greater detail later in our remarks. We expect continued operating margin expansion in 2024, while making incremental investments in both internally and externally funded research and development.

Speaker 2

We remain on track to deliver solid growth in diluted EPS, which we now expect to range from 8% to 11% and also generate strong free cash flow. In summary, our strategy to grow the business continues to build momentum and Curtiss Wright remains well positioned to deliver another exceptional performance in 2024. Now I would like to turn the call over to Chris to continue with our prepared remarks.

Operator

Thank you, Len. On Slide 4, I'll review the key drivers of our Q1 2024 performance by segment. At the end of Aerospace and Industrial, where our overall sales growth of 8% was in line with our expectations. Within the segment's Commercial Aerospace market, we experienced strong OEM sales growth in excess of 25%, supporting the continued ramp up in production across narrow body and wide body platforms. In the segment's aerospace defense market, we benefited from both higher development program revenues and sales of actuation products on U.

Operator

S. Fighter jets. For the general industrial market, improved demand for our new power management electronics supporting the on highway market was more than offset by reduced off highway sales to construction markets. And turning to the segment's profitability, favorable absorption on higher sales was offset by unfavorable mix and timing on lower margin development programs. Next in the Defense Electronics segment, sales growth of 31% exceeded our expectations as we continue to benefit from our strong increases in global demand for our products.

Operator

The sales performance was principally driven by better than expected growth in our ground defense market where we experienced record high sales for tactical communications equipment, which included growth for both domestic and direct form military customers. Within aerospace defense, we experienced strong growth in embedded computing sales across a number of C5ISR programs, including the Seahawk helicopter, F-thirty 5 and Global Hawk UAV programs to name a few. Regarding the segment's operating performance, we delivered a strong 22.7% operating margin, up 8 30 basis points year over year, reflecting favorable absorption on higher revenues and a shift in mix towards higher margin C5ISR programs and tactical communications equipment. Turning to the Naval and Power segment, overall sales growth of 6% was essentially in line with our expectations. Starting in the segment's Aerospace Defense market, our results reflected continued strong global demand for our aircraft arresting systems.

Operator

Within the naval defense market, our results reflected higher revenues supporting the Columbia Class submarine program as well as higher fleet service center revenue supporting the U. S. Naval aftermarket. However, our results were partially offset by the timing of production revenues on the CVN-eighty aircraft carrier and Virginia class submarine programs. In the power and process market, our performance was mainly driven by higher growth in the commercial nuclear market supporting existing operating reactors across North America.

Operator

And turning to the segment's operating performance despite favorable absorption on solid revenue growth, our results were negatively impacted by enable contract adjustment as Lynn mentioned earlier in her prepared remarks. To sum up Curtiss Wright's Q1, overall, we generated solid absorption on the stronger than expected top line performance resulting in 110 basis points in operating margin expansion as we continue to leverage the consolidated portfolio to deliver profitable growth. Next, turning to our full year 2024 guidance, I'll begin on Slide 5 of our end market sales outlook. We now expect total sales to grow 5% to 7%, reflecting strengthening demand in Defense Electronics and the added contribution from the WSC acquisition. Starting in Aerospace Defense, we now expect full year sales growth of 6% to 8% based on a strong and growing order book for our embedded computing equipment on various C5ISR programs.

Operator

Within Ground Defense, we now expect full year sales growth of 10% to 12%, reflecting continued strong demand for our tactical communications equipment. In Naval Defense, our outlook for 3% to 5% sales growth remains unchanged and is mainly driven by the ramp up in production on both the CVN-eighty one aircraft carrier and Columbia class submarine programs. Looking more broadly across our defense markets, our updated guidance also reflects expectations for increased direct foreign military sales, where we now expect an improvement from mid up to high single digit growth driven by the alignment of our technologies to support global defense priorities. Turning to Commercial Aerospace, our outlook for 10% to 12% sales growth remains unchanged driven by higher OEM production rates on narrow body and wide body aircraft, while maintaining a conservative view as it relates to the 737 MAX program. Wrapping up our aerospace and defense markets, we now expect total sales to increase 6% to 8% in 2024.

Operator

Moving on to our commercial markets. In the power and process market, we now expect full year sales growth of 4% to 6%, which principally reflects the contribution from WSE. Within our commercial nuclear market, we've raised our outlook to a high single digit full year growth rate, principally reflecting the contribution of WSE sales in support of both the existing and small modular reactors. Elsewhere and partially offsetting the nuclear market improvement, we now market improvement, we now expect process valve sales to decline modestly in 2024 mainly due to the timing of large capital projects. As a result, we revised the overall process market down slightly to a low single digit full year growth rate.

Operator

And lastly, in the general industrial market, our expectations of 1% to 3% growth remain unchanged and are driven by increased sales of our power management electronics and industrial vehicles and increased sales of surface treatment services. Wrapping up our total commercial markets, we continue to target full year sales growth of 2% to 4%. Moving on to our full year outlook by segment on Slide 6. I'll begin in Aerospace and Industrial where we continue to expect sales to grow 3% to 5%, principally driven by the strength in Commercial Aerospace. Regarding the segment's profitability, we continue to expect operating income of 5 percent to 8% and operating margin expansion of 20 to 40 basis points to a range of 16.6% to 16.8%.

Operator

Next in Defense Electronics, we now expect sales to grow 8% to 10%, driven by the strong first quarter performance and continued growth in the order book, which increased more than 20% in the Q1, reflecting a book to bill of nearly 1.4 times. Regarding the segment's profitability and based on the improved top line guide, operating income is now projected to grow 11% to 13%, while operating margin is expected to increase 50 to 70 basis points and range from 24% to 24.2%. As a reminder, this segment's profitability also includes an incremental $5,000,000 or 50 basis point headwind from internally funded R and D investments. And lastly, Enable and Power, we continue to expect sales to grow 4% to 6% driven by solid growth in our Naval Defense and Commercial Nuclear markets. Regarding the segment's profitability, while we anticipate favorable absorption on the overall increase in sales, our updated guidance reflects the impact of the Q1 naval contract adjustment.

Operator

As a result, operating income is now projected to decrease 1% to 3%, while adjusted operating margin is expected to range from 16.1% to 16.3%. Of note, and as discussed on February earnings call, our full year outlook also reflects margin pressures associated with the notable ramp up in development programs across Naval and Power. For your quarterly modeling purposes, we anticipate this segment's 2nd quarter sales to grow modestly year over year. In addition, in this segment, we expect sequential quarterly improvement in operating margin over the remainder of the year with slightly more pressure in the Q2 based upon the timing of development programs. So to summarize our outlook, overall, we now expect total Curtiss Wright operating income to grow 5% to 8% and operating margin to range from 17.4 percent to 17.6 percent, including a year over year increase of more than $20,000,000 in total engineering spending.

Operator

Continuing with our financial outlook on Slide 7 and starting with our EPS guidance. We expect full year 2024 diluted EPS to now range from $10.10 to 10.40 improved sales and profitability within Defense Electronics. Building upon our solid first quarter performance, we expect sequential quarterly EPS improvement throughout 2024 and we expect to generate approximately 40% of our full year earnings per share in the first half. And lastly, turning to free cash flow. In Q1, we experienced a solid year over year improvement reflecting growth of 37% on an adjusted basis.

Operator

As a reminder and included in the comparison, we also overcame the $20,000,000 cash headwind associated with the collection of the final Capital 1,000 payment in Q1 of 2023. Overall, we had a good start to the year and that provides us with increased confidence in our full year free cash flow guidance ranging from $415,000,000 to $435,000,000 and our ability to deliver a free cash flow conversion rate well in excess of 100%. Now I'd like to turn the call back over to Lynn.

Speaker 2

Thank you, Chris. And turning to Slide 8. Today, we have discussed how the strength of our backlog and our alignment to the industry growth drivers will accelerate organic growth in all of our major markets in 2024. Adding to that, we have remained extremely disciplined in our approach to capital allocation and have strategically pursued acquisitions as an accelerator of our top line growth. In April, we announced the acquisition of WSE, which is a leading supplier of state of the art power plant control room simulation technology.

Speaker 2

Established nearly 30 years ago, WSC's product lines range from plant simulators, as you see pictured on the slide, to simulation assisted engineering, which is the starting point in major plant upgrades and new plant designs. Today, the business enjoys a strong installed base of over 2 25 plant simulators and provides support to both existing commercial nuclear operating reactors and other power generation plants across the globe. Further, as nuclear operators conduct maintenance and plant life extensions, simulation assisted engineering is used in major upgrades, providing an additional opportunity for Curtiss Wright's broad suite of products to help solve our customers' needs. The acquisition advances Curtiss Wright's position as a strategic partner, providing us with early visibility and influence into the design of leading small modular reactors, including WSC's established positions with TerraPower, GE Hitachi and Holtec. Beyond that, the acquisition closely aligns with our strategic and financial filters and our focus on expanding our commercial nuclear presence.

Speaker 2

In terms of key financials, WSC aligns with our long term acquisition criteria and financial objectives of top line growth, margin expansion and free cash flow generation. WSE generated about $15,000,000 in revenue in 2023, and we are projecting that it will grow at high single digit annualized pace for the foreseeable future. This is an exciting business with a long legacy, experienced management team and strong customer relationships, and it is a great fit for Curtiss Wright. In closing, Curtiss Wright is well positioned to demonstrate strong profitable growth and we're building momentum on our Pivot to Growth strategy. We are confident on our ability to generate 5% to 7% sales growth this year and to deliver incremental operating margin expansion, while making strategic investments in our research and development to accelerate our long term organic growth.

Speaker 2

This performance puts us on path to reach double digit EPS growth yet again, while steadily achieving in excess of 100% free cash flow conversion. Curtiss Wright maintains a very healthy balance sheet allowing for continued investment as we position the company for future organic growth and drive tremendous long term value for our stakeholders. Looking ahead, our upcoming May 21 Investor Day is only a few weeks away. We look forward to connecting in person in New York City or via webcast to recap the successful execution of our Pivot to Growth strategy throughout the past 3 years and to share the many exciting avenues for growth across Curtiss Wright's portfolio. We'll focus on how we have the right people, systems and infrastructure in place to enable organic growth and how we're investing in critical technologies across our end markets to ensure Curtiss Wright remains well positioned to meet the needs of our customers, both today and well into the future.

Speaker 2

We'll also introduce new financial targets demonstrating our continued drive for long term profitable growth. As a reminder, we'll be hosting a commercial nuclear panel comprised of leading industry experts from the Nuclear Energy Institute, Westinghouse and Energy Northwest to share their perspectives on the industry at large and the tremendous global support for the advancement of clean energy. We hope that you will join us. Thank you. And at this time, I would like to open up today's conference call for questions.

Operator

Thank you, Ms. Bamford. Ladies and gentlemen, the floor is now open for questions. We'll take our first question this morning from Nathan Jones of Stifel.

Speaker 3

Good morning, everyone.

Speaker 2

Good morning. Good morning.

Speaker 3

Just wanted to start off on Naval and Power and this $10,000,000 I don't know what to call it, charge penalty. I mean, you took the Naval and Power operating income forecast down by $10,000,000 and you said there's $10,000,000 attached to this one single contract. Firstly, do you have a path to recovering that you're just not baking into the guidance at the moment? And secondly, should we really be thinking about this as a one time item and the core underlying run rate for margins here is in that 17% to 17% range rather than just over 16% range?

Speaker 2

So thank you for the question, Nathan. And I do want to just take a second and put this charge in perspective of our business overall. As you know, we make complex equipment that is must not fail and work across a wide range of naval platforms. And our content is on the current fleet and the technologies we're providing that current fleet continue to evolve and are not static. And we're also working, as I mentioned in the prepared remarks, to ramp orders on next generation platforms.

Speaker 2

So with all that said, we do work on a wide variety of platforms. Now you did not ask, we can't say the specifics of what this program is, but it was a technical challenge at a key stage in the contract. And we work we have a lot of things we do as a company to avoid being in this situation and those range from the ways we manage technical risk to the way we financially oversee contracts. And with that, I do not see this as a regularly occurring event. As to recovering, we absolutely will work to do that, but we felt it was prudent at this time to take the charge across the Naval and Power segment in our guidance.

Speaker 2

But that doesn't mean we've taken our eye off the ball of trying to recover some of the costs.

Operator

And maybe I'll just

Speaker 3

That makes sense.

Operator

Maybe I'll just pick up from there, Nathan. I think when you think about the charge, I mean, certainly a one time catch up on the contract. We expect to complete this contract closer to year end. And as you look at that, the Enable and Power margin into the future, I think you've got the right mindset that this is something that will be maybe a tailwind for us or will return to more normalized margins as we enter into 2025.

Speaker 3

Makes sense. Thanks. I guess a follow-up question for me is going to be on the defense electronics market. Obviously, very strong growth there and the improvement in the outlook. Can you just comment on the differences between supply chain improvement, your ability to deliver on some backlog that was already hitting there versus core improvement in demand and the key drivers to the core improvement on demand?

Speaker 3

Thanks.

Speaker 2

Thank you for that. So we're really honestly quite pleased with the growth in this business. And we really start seeing the supply chain had stabilized back in really in the beginning of 2023. We were it doesn't mean it's the same as it was in 2019, but at a stable position. So at this point, we've put different systems in place and things you've heard us talk about in the past that we are performing well with how our supply chain is be very observant of trends within the supply chain.

Speaker 2

So it's not something we've taken our eye off of, but it is not driving the business today in any negative way. The demand across this business is just really healthy and great. We talked about our order book last year being $936,000,000 or up 12% and we're off to a strong start this year. We're seeing really strong orders across the business. The tactical communications equipment, it still stays in very steady demand both here in the U.

Speaker 2

S. And across foreign allies. And as mentioned in the prepared remarks, we have now entered into our first order to supply equipment into the Air Force, which is really exciting to open up another branch of the military. Foreign military sales remain strong across the board. They're up 20%.

Speaker 2

We're anticipating in the year from year over year, so that continues to be a real tailwind as maybe U. S. Defense budgets are expected to slow. The budget this year is up 3%, so it's still up and that's always on the back of 10% last year. We can never take our eye off of that.

Speaker 2

But is that maybe slows a bit going forward, 2025 and beyond that our foreign military sales just continue to afford us an opportunity for really outgrowing the DoD budget, which we are proud that we've done for 20 years at this point has really been able to outgrow the DoD budget by bringing new technologies to market and winning new content within the DoD and then growing the foreign military sales.

Operator

And Mr. Jones, did you have anything further, sir?

Speaker 3

No. Thanks for taking my questions.

Speaker 2

Thank you, Nathan.

Operator

We'll go next now to Myles Walton with Wolfe Research.

Speaker 4

Hi, good morning, Lynn and Chris. This is Greg Dahlberg on for Myles Walton. I was hoping to start with the ground defense guidance. So I saw that got increased. Although I think it would imply that 1Q is the high point or maybe some declines from here, although commentary seems pretty positive on comms equipment and enduring shields.

Speaker 4

So I was just wondering, is there any reason or perhaps kind of dig into the cadence from here?

Speaker 1

Yes.

Speaker 2

So our Q1

Operator

performance is mainly driven by the higher tactical communications equipment and it's a most of that is ship and bill, and it's nearly 100% ship and bill. Most of that is ship and build, it's nearly 100% ship and build. So you're going to definitely see in ground defense periodic spikes or movements down just based upon the timing of deliveries and where we are. So it's not smoothed out POC accounting. But then I think as you look forward, we're going to expect a sequential ramp in tactical communications as we get deeper into the year.

Operator

So there's no slowing down as far as that's concerned. But if you take a look back to where we were in 2023, we had a very strong sequential ramp in both international turret drive servo systems and then also U. S. Ground vehicles, Stryker in particularly. So I think as you're comparing kind of a year over year first half to second half, you're going to see that maybe the growth rates aren't as strong in the first in the back half of this year for that reason.

Operator

But I think we're still expecting a bigger second half of the year and ground defense as it is, but it will be a little bit lumpy.

Speaker 4

Great. And then one quick one on commercial aero with the guidance reiterated at 12%. I know you mentioned conservatism on the Boeing MAX side. I guess are there any platforms calling out for positive, I guess, puts and takes there?

Operator

I think our expectations are really moving in line with Boeing and Airbus production rates largely. Right now, I think when you look at the 737 MAX and we provide a number of products across that platform, Now I'd put us at about 35 per month. So I think we're kind of in line with what Boeing's expectations are for production. Now that's not always the because we are Tier 2 and we're usually like 6 to 12 months ahead on the cycle. But yes, we're seeing some positives certainly across Airbus and wide body platforms.

Speaker 4

Great. Thank you so much.

Operator

Thank you. We go next to Louie DiPalma of William Blair.

Speaker 5

Lynn, Chris and Jim, good morning.

Speaker 2

Good morning.

Operator

Hey,

Speaker 5

tactical communications unit and the expansion to the Air Force. Tactical communication seems to be a central focus for the DoD's JAD C2 program to connect sensors and shooters across the military into a unified network. And in April, they announced that JAD C2 was deployed in the Middle East. Is PACCAR playing a role in that program? And is the ramp associated with JADC2?

Speaker 2

Well, your question is very insightful and the framing of sensor to shooter broadly is a big focus across the DoD broadly. And I'm cautious to say whether specifically we're involved with JADC2. I don't think we've had any release to say specifically which programs and we talked broadly that we're in the across various modernization, taxable communications programs and we do play in most of the major programs, but I'll leave without comment specifically on that program. But that trend that you're talking about is a very real driver of where the DoD is spending money and we are super well positioned to be able to provide content to solve those problems. And very the thing I think that shout out to the PACCAR team if anybody is on listening to the call, because they have an unbelievable relationship with their customers and are so in tune to the needs and the direction the DoD wants to take the technology and add features and enhance capabilities and is always continuously rapidly turning the capabilities that we deliver to the warfighter and we are really excited to expand that out from the Army and the Marines and to now be able to work with the Air Force as a customer.

Speaker 2

And I think it's early days what we'll realize in that area.

Speaker 5

Great. Thanks, Glenn. That's it for me.

Speaker 2

Thank you.

Operator

We'll go next now to Sam Streisicker at Truist.

Speaker 6

35 on the MAX and you said you're seeing some positive trends within wide body. Could you maybe give any more color kind of where you're at more specifically with like the 787?

Operator

Yes. So I would put us at about 5 per month in ramping. I mean, we're excited that that program is going to be moving towards 10 per month and that 'twenty six timeframe. But yes, it's been a good pickup for us.

Speaker 6

Great. And then, I was you guys raised your margin guide for Defense Electronics, but it looks like for the second half, margins are still going to be down a

Speaker 1

little bit year over year. I was curious

Speaker 6

if there's any detail you could provide around that.

Operator

Well, so margins are definitely going to be stronger in the second half of the year and they'll be up 150 basis points compared to the first half of the year. And a lot of what we experienced here in the Q1, I mean, it's very, very strong margins, but a lot of it has to do with timing and mix. I mean, so our shorter cycle C5ISR products and tactical communications equipments are very it's very profitable product and you're going to see some movement quarter to quarter based upon timing of deliveries and where we are in those programs. So on the back half of the year, I think we're encouraged and we're going to see a strong surge in narrow defense. C5ISR is going to be a healthy contributor to that and also ground defense as well.

Speaker 6

Great. And then if I could just sneak one more in. Looking at overall revenue growth for the year, how should we think about that between kind of organic versus acquisition

Speaker 1

in terms of driving

Speaker 6

for the full year? Well,

Operator

acquisition is really only about $10,000,000 to $15,000,000 So it's not a significant portion of the overall 5% to 7% growth rate that we put

Speaker 6

forward. Got it. Great. Thank you very much.

Speaker 2

Thank you. Thank you.

Operator

We'll go next now to Tony Bancroft with Gabelli Funds.

Speaker 7

Thanks for taking my question. Lynn, Chris and team, you guys have done a great job since we met a few years ago. I just want to think longer term sort of maybe like a sort of 5 year plus timeframe, how do you see the company growing? You have a couple of types of businesses or maybe evolving. Is there something that you could do transformational, obviously, with all that's going on right now and with M and A?

Speaker 7

Or is it does it make sense to do something more like financial engineering like spinning off a business to unlock value? And if you could just sort of maybe a reminder on it, I know you'll talk about it in a couple of weeks, but if you could

Speaker 1

give us a taste of it?

Speaker 2

Yes. So I do actually really appreciate that question because we think about how we plan for the future. We do think of the kind of the near term, the mid term, maybe five to 7 years. And then beyond that, and really work hard to do to assure we're making investments and setting the stage for the company to continue to grow through this time frame. And you're right, Mitchell, you'll hear a lot about that at our Investor Day here in a couple of weeks on May 21.

Speaker 2

And so I hope you'll be able to join us either live or via webcast and you'll have a lot more time to lay out our strategies for that. But broadly speaking, we remain open to consider a lot of different avenues around the company. And I remember at our Investor Day 3 years ago, we were asked whether we would consider a transformational acquisition and we said yes. And we are still open to that. Those things don't I mean that's a rarity that it would be something that could really be accretive to Curtiss Wright And you remain open to it, but you don't look to it to drive your success.

Speaker 2

And the thing is that's great is vision the ability to drive great growth and great profitability out of Curtiss Wright through the back of this decade and into the 2030s. And that's where you set your management attention units as making sure we're doing those things to drive that growth. And commercial nuclear is one that you obviously it's our panel at our Investor Day. So it is a big focus for us and has some pretty explosive growth potentials for Curtiss Wright. But really we want to make sure we present a balanced approach to the company that we're not all riding the commercial nuclear option.

Speaker 2

There is great potential across all of our end markets and we make sure we keep an eye on all of them and are doing the right things to assure we're positioning ourselves for the future in that. There's nothing transformative planned with the portfolio of product lines and companies that we have today that we really see great potential out of each one of them. But we do also just as we remain open to a transformational acquisition, we remain open to continuing to evaluate the portfolio as it is. And don't take anything off of the table, but there's nothing planned currently.

Speaker 7

Great answer. Thank you. Really great job on everything, Michelle.

Speaker 2

Well, thank you.

Operator

Thanks, We'll go next now to Jan Engelbrecht of Baird.

Speaker 8

Hi, good morning, Lynn, Chris and Jim. I'll start with just on the commercial nuclear aftermarket piece. Could you just give us a sense on your content on the different plant designs in the U. S? I think there's about 94 reactors.

Speaker 8

Are there specific designs like the GE boiling water reactor or Westinghouse or Babcock and Wilcox, any of those planned designs that you have more content as opposed to some of the other ones, just given all the life extensions that are sort of kind of under review and coming down the pipeline?

Speaker 2

There's not any great variability. I would say we have content on all 94 of those reactors and actively work with all 94 of those reactors as they do move through regular maintenance and many of them are early in the days of this plant life extension and our products are relevant across all 94 of those reactors and reactors in Canada and reactors in South Korea. So it's a big market for us. It's a stable market, which is great to see. And we said last year was the 1st year that a reactor was not shut down.

Speaker 2

I think turning to our WSC acquisition, one of the things that's really exciting as they the plant life extension across those plants to really understand how our products, plant life extension across those plants to really understand how our products can serve those upgrade activities. So it may be relatively small in revenue. The doors it opens for Curtiss Wright to really deepen our relationships across those 94 reactors is something that we think is going to be pretty dramatic is we already are well on the journey in just a month of integrating them into Curtiss Wright and it's figuring out how we take that capability to point us to where we can win work across those 94 reactors.

Speaker 8

Perfect. Great. That's really helpful. And just a quick follow-up. On the naval front, I mean, we saw the 45 day review the navy performs and some of the delays that they're seeing across the platforms.

Speaker 8

But is there an opportunity for Curtiss Wright to take sort of additional content out of the shipyards to just alleviate some of the capacity constraints that these shipyards are seeing sort of with the longer term view?

Speaker 2

It's definitely a focus for us. And you may know we have 3 service centers, 2 on the East Coast, 1 on the West Coast, and a great capability. And for sure, we can do work that is critical to having more of our fleet of broadly subsea and sea based be up and maintenance free and ready to perform their mission. And so yes, that is definitely an area we are focused on growing.

Operator

And ladies and gentlemen, it appears we have no further questions. Ms. Bamford, I'd like to turn things back to you for any closing comments.

Speaker 2

I simply want to say thank you for joining us today and we look forward to speaking with you and possibly seeing you at our upcoming Investor Day on May 21. Have a great day.

Operator

Thank you. Thank you, Ms. Stanford. Ladies and gentlemen, this does conclude today's Curtiss Wright earnings conference call. Please disconnect your line at this time and have a wonderful day.

Powered by Quartr

Key Takeaways

  • In Q1, sales rose 13% to $713 M, operating income climbed 23% with 110 bps margin expansion, diluted EPS reached $1.99 (up 30%), and adjusted free cash flow improved 37% year over year.
  • New orders jumped 26% to over $900 M (book-to-bill 1.26×), driven by strong demand for defense electronics (embedded computing, tactical communications) and a record commercial nuclear backlog exceeding $3 B, including the first U.S. Air Force tactical communications win.
  • Results included a one-time $10 M headwind from a change-in-estimate on a single naval contract due to a technical challenge at a key milestone, with management working closely with the customer on a resolution.
  • Management raised full-year 2024 guidance, now expecting 5%–7% sales growth, 8%–11% EPS growth, ongoing margin expansion, and $415 M–$435 M in free cash flow conversion above 100%, partly reflecting the WSE Inc. acquisition.
  • The April acquisition of WSE Inc., a leading power plant simulation specialist with $15 M revenue in 2023, strengthens Curtiss-Wright’s commercial nuclear offerings and positions it for growth in small modular reactor projects.
A.I. generated. May contain errors.
Earnings Conference Call
Curtiss-Wright Q1 2024
00:00 / 00:00