Curtiss-Wright Reports First Quarter 2019 Financial Results; Raises Full-Year 2019 Guidance for Sales, Operating Income & Margin, EPS and Free Cash Flow

Curtiss-Wright Corporation (NYSE: CW) reports financial results for the
first quarter ended March 31, 2019.

On March 18, 2019, Curtiss-Wright announced the acquisition of Tactical
Communications Group, LLC (TCG), a leading supplier of tactical data
link software solutions for critical military communication systems. In
addition to our Reported results, we have included an Adjusted view
(defined below) that excludes first year purchase accounting costs
associated with this acquisition, as well as one-time transition and IT
security costs associated with the relocation of the DRG business.

First Quarter 2019 Highlights:

• Reported diluted earnings per share (EPS) of $1.29, with Adjusted
  diluted EPS of $1.30 (defined below), up 32% and 33%, respectively,
  compared with the prior year;
• Net sales of $578 million, up 6%;
• Reported and Adjusted operating income of $72 million, up 12%;
• Reported and Adjusted operating margin of 12.5%, up 70 basis points;
• New orders of $747 million increased 23%, led by strong naval defense
  orders, while Backlog of $2.2 billion increased 7% from December 31,
  2018; and
• Share repurchases of approximately $12 million.

Full-Year 2019 Business Outlook (compared with Adjusted
full-year 2018):

• Increased Adjusted diluted EPS guidance by $0.20 to new range of $7.00
  to $7.15, up 10-12%, due to expectations for higher sales and
  profitability in the Commercial/Industrial segment, contribution from
  the TCG acquisition (as Adjusted), exclusion of one-time costs
  associated with the relocation of the DRG business, and a slight
  reduction to share count;
• Increased sales guidance to new range of 4-6% growth (previously up
  3-5%) and Adjusted operating income guidance to new range of 6-9%
  growth (previously up 4-6%);
• Increased Adjusted operating margin guidance to new range of 16.2% to
  16.3%, up 40-50 basis points (previously 15.9% to 16.0%, up 10-20
  basis points); and
• Increased Reported free cash flow by $10 million to new range of $310
  to $320 million and Adjusted free cash flow range to new range of $330
  to $340 million, excluding a $20 million capital investment in the
  Power segment related to construction of and move to a new,
  state-of-the-art naval facility for the DRG business, generating a
  free cash flow conversion rate of approximately 110%.

“We delivered a strong start to the year, allowing us to increase our
full-year guidance for sales, operating income, operating margin,
diluted EPS and free cash flow,” said David C. Adams, Chairman and CEO
of Curtiss-Wright Corporation. “First quarter Adjusted diluted EPS was
$1.30, as we delivered solid 6% top-line growth driven by strong defense
market sales, as well as improved profitability led by a strong
performance in the Power segment. Our results also reflected solid new
order growth of 23%, primarily based on the timing of naval defense
orders, which provides increased confidence in achieving our overall
sales expectations.”

“Looking ahead to the remainder of 2019, we anticipate steady,
sequential improvement in operating margin, diluted EPS and free cash
flow. Further, the recently completed acquisition of TCG supports our
objectives for long-term profitable growth and strong free cash flow
generation. Overall, we continue to execute on our long-term strategy to
deliver top-quartile financial performance, which will enable us to
deliver significant value for our shareholders.”

First Quarter 2019 Operating Results

• Sales of $578 million, up $31 million, or 6%, compared with the prior
  year (2% organic, 5% acquisitions, 1% unfavorable foreign currency
  translation);
• From an end market perspective, total sales to the defense markets
  increased 12%, or 3% organically, led by a 27% surge in naval defense
  revenues, while total sales to the commercial markets increased 2%,
  led by improved commercial aerospace and general industrial sales,
  compared with the prior year. Please refer to the accompanying tables
  for a breakdown of sales by end market;
• Reported and Adjusted operating income of $72 million, up $8 million,
  or 12%, compared with the prior year, principally reflects higher
  organic revenues and the contribution from our DRG acquisition in the
  Power segment, partially offset by reduced operating income in the
  Defense segment;
• Reported and Adjusted operating margin of 12.5%, up 70 basis points
  compared with the prior year, reflects favorable overhead absorption
  on higher naval defense revenues and increased profitability on the
  China Direct AP1000 program in the Power segment, as well as the
  benefits of our ongoing margin improvement initiatives, partially
  offset by unfavorable mix for our defense electronics products in the
  Defense segment, as expected; and
• Non-segment expenses of $9 million were slightly lower compared with
  the prior year, principally due to lower environmental costs.

Net Earnings and Diluted EPS

• Reported net earnings of $56 million and Reported diluted EPS of $1.29;
• Adjusted net earnings of $56 million, up $12 million, or 28%, compared
  with the prior year, reflecting higher operating income, lower
  interest expense and a lower tax rate;
• Adjusted diluted EPS of $1.30, up $0.32, or 33%, compared with the
  prior year, reflecting higher operating income, lower interest expense
  and a lower tax rate, as well as a lower share count; and
• The effective tax rate (ETR) was 20.9%, a decrease from 28.4% in the
  prior year quarter, primarily due to additional tax expense associated
  with the 2017 Tax Cuts and Jobs Act (the Tax Act) for foreign
  withholding taxes recognized in the prior year period.

Free Cash Flow

• Reported free cash flow of ($69) million, defined as cash flow from
  operations less capital expenditures, increased $11 million, or 14%,
  compared with the prior year, primarily driven by higher cash earnings;
• Capital expenditures increased by $8 million to $17 million compared
  with the prior year, primarily due to higher capital investments
  within the Power segment, including a $5 million investment related to
  the construction of a new, state-of-the-art naval facility for the DRG
  business; and
• Adjusted free cash flow, which excludes the facility investment in the
  current period and the pension payment in the prior period, decreased
  $34 million to ($64) million, principally due to the timing of
  supplier payments, partially offset by higher cash earnings.

New Orders and Backlog

• During the first quarter, new orders of $747 million increased 23%
  compared with the prior year, led by strong organic growth in naval
  defense orders, as well as a 3% contribution from the DRG acquisition;
  and
• Backlog of $2.2 billion increased 7% from December 31, 2018.

Other Items – Share Repurchase

• During the first quarter, the Company repurchased 107,272 shares of
  its common stock for approximately $12 million.

First Quarter 2019 Segment Performance

Commercial/Industrial

• Sales of $294 million, down $3 million, or 1%, compared with the prior
  year (1% organic, 2% unfavorable foreign currency translation);
• Lower naval defense market revenues principally reflects lower sales
  of valves on the CVN-80 aircraft carrier program, based on timing of
  production;
• Commercial aerospace market sales were essentially flat, as higher OEM
  sales of sensors products were mainly offset by lower actuation
  revenues due to the delayed signing of a new supply agreement and
  lower FAA directives;
• General industrial market sales growth was principally driven by solid
  demand for industrial valve and vehicle products; and
• Reported operating income was $39 million, up 1% compared with the
  prior year, while reported operating margin increased 20 basis points
  to 13.4%, reflecting higher sales and favorable overhead absorption
  for industrial valve and sensors products, offset by lower sales and
  unfavorable overhead absorption for actuation products, while the
  benefits of our ongoing margin improvement initiatives were offset by
  the impact from tariffs.

Defense

• Sales of $121 million, up $2 million, or 2%, compared with the prior
  year (3% organic, 1% unfavorable foreign currency translation);
• Aerospace defense market sales were essentially flat, as higher sales
  on various helicopter programs, including the Apache platform, were
  offset by reduced sales on unmanned aerial vehicle (UAV) programs;
• Ground defense market revenue declines were principally driven by
  reduced sales on the G/ATOR program and various international tank
  programs, partially offset by higher sales on the Abrams tank platform;
• Higher naval defense market revenues principally reflect higher sales
  of embedded computing equipment on the Virginia class submarine
  program;
• Higher commercial aerospace market revenues principally reflect higher
  sales of avionics and electronics equipment on various domestic and
  international platforms;
• Reported operating income was $18 million, with Reported operating
  margin of 14.6%; and
• Adjusted operating income of $18 million, down $2 million, or 8%,
  compared with the prior year, while Adjusted operating margin
  decreased 170 basis points to 14.9%, driven by unfavorable mix for our
  defense electronics products, despite higher sales.

Power

• Sales of $164 million, up $32 million, or 24%, compared with the prior
  year (6% organic, 18% acquisition);
• Strong naval defense market sales were driven by higher Virginia class
  submarine and CVN-80 aircraft carrier revenues, as well as solid DRG
  service center revenues;
• Power generation market sales were essentially flat, as increased
  domestic aftermarket sales were offset by lower international
  aftermarket sales; and
• Reported operating income was $24 million, up $9 million, or 58%,
  compared with the prior year, while Reported operating margin
  increased 320 basis points to 14.8%, reflecting favorable overhead
  absorption on higher naval defense revenues and increased
  profitability on the China Direct AP1000 program.

Full-Year 2019 Guidance

The Company is updating its full-year 2019 financial guidance as follows:

Full-year 2019 guidance notes (compared with Adjusted full-year 2018):

• Increased Adjusted diluted EPS guidance by $0.20 to new range of $7.00
  to $7.15, up 10-12%, due to expectations for higher sales and
  profitability in the Commercial/Industrial segment, contribution from
  the TCG acquisition (as Adjusted), exclusion of one-time costs
  associated with the relocation of the DRG business, and a slight
  reduction to share count;
• TCG acquisition expected to contribute $10 million to sales, $2
  million to Adjusted operating income and $0.04 to Adjusted diluted EPS
  guidance;
• Increased sales guidance to new range of 4-6% growth (previously up
  3-5%) and Adjusted operating income guidance to new range of 6-9%
  growth (previously up 4-6%);
• Increased Adjusted operating margin guidance to new range of 16.2% to
  16.3%, up 40-50 basis points (previously 15.9% to 16.0%, up 10-20
  basis points);
• Increased Reported free cash flow by $10 million to new range of $310
  to $320 million and Adjusted free cash flow range to new range of $330
  to $340 million, excluding a $20 million capital investment in the
  Power segment related to construction of and move to a new,
  state-of-the-art naval facility for the DRG business; and
• A more detailed breakdown of the Company’s 2019 guidance by segment
  and by market can be found in the accompanying schedules.

Conference Call & Webcast Information

The Company will host a conference call to discuss its first quarter
financial results and business outlook at 9:00 a.m. EDT on Thursday, May
9, 2019. A live webcast of the call and the accompanying financial
presentation, as well as a replay of the call, will be made available on
the internet by visiting the Investor Relations section of the Company’s
website at www.curtisswright.com.

(Tables to Follow)

Use of Non-GAAP Financial Information (Unaudited)

The Corporation supplements its financial information determined under
U.S. generally accepted accounting principles (GAAP) with certain
non-GAAP financial information. Curtiss-Wright believes that these
non-GAAP measures provide investors with additional insight into the
Company’s ongoing business performance. These non-GAAP measures should
not be considered in isolation or as a substitute for the related GAAP
measures, and other companies may define such measures differently.
Curtiss-Wright encourages investors to review its financial statements
and publicly-filed reports in their entirety and not to rely on any
single financial measure.

The Company has elected to change the presentation of its financials and
guidance to include an Adjusted (non-GAAP) view that excludes first year
purchase accounting costs associated with its acquisitions, as well as
one-time transition and IT security costs specifically associated with
the relocation of the DRG business in the Power segment. Transition
costs include relocation of employees and equipment as well as
overlapping facility and labor costs associated with the relocation. We
believe this Adjusted view will provide improved transparency to the
investment community in order to better measure Curtiss-Wright’s ongoing
operating and financial performance and better comparisons of our key
financial metrics to our peers. Reconciliations of “Reported” GAAP
amounts to “Adjusted” non-GAAP amounts are furnished within this release.

The following definitions are provided:

Adjusted Operating Income, Operating Margin, Net
Income and Diluted EPS

These Adjusted financials are defined as Reported Operating Income,
Operating Margin, Net Income and Diluted EPS under GAAP excluding the
impact of first year purchase accounting costs associated with
acquisitions for current and prior year periods, specifically one-time
inventory step-up, backlog amortization and transaction costs, as well
as one-time transition and IT security costs associated with the
relocation of a business in the current year period.

Organic Revenue and Organic Operating Income

The Corporation discloses organic revenue and organic operating income
because the Corporation believes it provides investors with insight as
to the Company’s ongoing business performance. Organic revenue and
organic operating income are defined as revenue and operating income
excluding the impact of foreign currency fluctuations and contributions
from acquisitions made during the last twelve months.

Free Cash Flow and Free Cash Flow Conversion

The Corporation discloses free cash flow because it measures cash flow
available for investing and financing activities. Free cash flow
represents cash available to repay outstanding debt, invest in the
business, acquire businesses, return capital to shareholders and make
other strategic investments. Free cash flow is defined as cash flow
provided by operating activities less capital expenditures. The
Corporation discloses free cash flow conversion because it measures the
proportion of net earnings converted into free cash flow and is defined
as free cash flow divided by net earnings from continuing operations.

About Curtiss-Wright Corporation

Curtiss-Wright Corporation (NYSE: CW) is a global innovative company
that delivers highly engineered, critical function products and services
to the commercial, industrial, defense and energy markets. Building on
the heritage of Glenn Curtiss and the Wright brothers, Curtiss-Wright
has a long tradition of providing reliable solutions through trusted
customer relationships. The company employs approximately 9,000 people
worldwide. For more information, visit www.curtisswright.com.

Certain statements made in this press release, including statements
about future revenue, financial performance guidance, quarterly and
annual revenue, net income, operating income growth, future business
opportunities, cost saving initiatives, the successful integration of
the Company’s acquisitions, and future cash flow from operations, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements present management’s
expectations, beliefs, plans and objectives regarding future financial
performance, and assumptions or judgments concerning such performance.
Any discussions contained in this press release, except to the extent
that they contain historical facts, are forward-looking and accordingly
involve estimates, assumptions, judgments and uncertainties. Such
forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
those expressed or implied. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the
date hereof. Such risks and uncertainties include, but are not limited
to: a reduction in anticipated orders; an economic downturn; changes in
the competitive marketplace and/or customer requirements; a change in
government spending; an inability to perform customer contracts at
anticipated cost levels; and other factors that generally affect the
business of aerospace, defense contracting, electronics, marine, and
industrial companies. Such factors are detailed in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2018, and
subsequent reports filed with the Securities and Exchange Commission.

This press release and additional information are available at www.curtisswright.com.

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