Curtiss-Wright(CW) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - First quarter 2022 sales were below the prior year but in line with expectations, primarily due to timing of revenues in defense markets [6][7] - Diluted earnings per share (EPS) of $1.31 exceeded expectations due to better-than-expected profitability [9] - New orders increased by 12% year-over-year, achieving a book-to-bill ratio of more than 1.1x [9][10] - Full year 2022 guidance remains intact, expecting organic sales growth of 3% to 5% [11][25] Business Line Data and Key Metrics Changes - Aerospace & Industrial segment saw sales and operating income increase by 8% and 34% respectively, with operating margin up 260 basis points [19] - Defense Electronics segment experienced reduced sales due to supply chain challenges and delayed DoD budget signing, but operating margin was better than anticipated at 16.3% [21][22] - Naval & Power segment reflected lower naval defense revenues but was offset by double-digit growth in nuclear aftermarket and process markets [23][30] Market Data and Key Metrics Changes - The FY '22 Defense Appropriations bill passed with a 5.5% increase over FY '21, benefiting Curtiss-Wright [14] - The Biden administration's FY '23 budget request includes $773 billion for the Defense Department, a 4% increase over FY '22 [15] - Increased global defense spending due to the war in Ukraine is expected to enhance long-term growth outlook across defense markets [18] Company Strategy and Development Direction - The company is focused on operational excellence initiatives to mitigate supply chain challenges and expects continued operating margin expansion [13][35] - The acquisition of Safran's arresting systems business is part of the strategic pivot to growth, expected to close by the end of Q2 [36] - The company remains committed to a disciplined capital allocation strategy, prioritizing acquisitions and share repurchase [36] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding supply chain constraints easing in Q3, particularly for semiconductors [12] - The ongoing discussions with suppliers indicate improved confidence in delivery timelines [41] - Management remains confident in achieving double-digit EPS growth and strong free cash flow conversion in 2022 [35][32] Other Important Information - The company has ceased all business activities in Russia and supports global sanctions, focusing on aiding Ukraine's defense and energy independence [38] - The first quarter results reflected a legal settlement payment of $15 million, excluded from adjusted results [33] Q&A Session Summary Question: Impact of chip shortages and supply chain - Management acknowledged the impact of chip shortages on Q1 revenues and discussed efforts to manage supply chain challenges [40] Question: Defense budgets and long-term growth targets - Management expressed optimism about the defense budgets and potential upward bias to long-term growth targets due to strong funding in naval programs [46] Question: Effects of the Ukraine conflict on business - Management noted increased European defense spending as a positive outcome for the business, while immediate impacts from weaponry shipments were not relevant [52] Question: Cost pressures and pricing strategies - Management discussed the challenges of inflation and the strategies in place to pass on cost increases to customers [74] Question: Sales cadence for the rest of the year - Management indicated expectations for sequential sales improvement in the second half of the year, driven by Defense Electronics [82]