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    Curtiss-Wright Corp (CW)

    Q1 2024 Summary

    Published Jan 27, 2025, 7:30 PM UTC
    Initial Price$222.79January 1, 2024
    Final Price$256.94April 1, 2024
    Price Change$34.15
    % Change+15.33%

    What went well

    • Defense Electronics segment is experiencing strong demand and expects margin expansion in the second half of the year, driven by favorable mix and timing on high-margin products like tactical communications equipment. The segment's order book is strong, with a book-to-bill ratio of nearly 1.4x in the first quarter.
    • Commercial Aerospace segment is benefiting from increased production rates, particularly in the Boeing 787 program, which is ramping from 5 per month and expected to move to 10 per month by 2026. This presents growth opportunities for Curtiss-Wright's products on these platforms.
    • Curtiss-Wright is positioned to capitalize on opportunities in Naval Defense, with potential to take on additional work from shipyards facing capacity constraints. The company operates three service centers and is focused on supporting the fleet, which could lead to increased revenues in this segment.

    What went wrong

    • $10 million charge on a naval contract due to technical challenges negatively impacts the Naval and Power segment's profitability for 2024, with uncertainty over cost recovery.
    • Despite strong first-quarter margins, the Defense Electronics segment may face margin pressures in the second half of the year due to timing and mix of deliveries, potentially leading to a decline in margins compared to prior periods.
    • The company's revenue growth is primarily organic, with limited contribution from acquisitions like WSC, which may limit overall growth potential.

    Q&A Summary

    1. $10 Million Naval Charge
      Q: Is the $10M Naval charge recoverable and a one-time item?
      A: Management explained that the $10 million charge in the Naval and Power segment was due to a technical challenge on a key contract and was prudent to take now. They are working to recover some costs but do not see this as a regular recurring event. Margins are expected to return to normal levels in 2025.

    2. Defense Electronics Growth
      Q: What's driving growth in Defense Electronics market?
      A: Demand in the Defense Electronics business is strong, with orders up 12% last year and a strong start this year. Supply chain has stabilized since early 2023. Growth is driven by tactical communications equipment in demand both in the U.S. and among foreign allies, including a first order from the Air Force. Foreign military sales are expected to be up 20% year-over-year, providing a tailwind despite potential slowing in U.S. defense budgets.

    3. Margins in Defense & Electronics
      Q: Why is Defense & Electronics margin down in second half?
      A: Margins will be stronger in the second half, up 150 basis points compared to the first half. Timing and mix affect margins due to the profitable but short-cycle tactical communications equipment deliveries. A surge in aerospace defense, C5ISR, and ground defense will contribute to margins.

    4. Commercial Aero Guidance
      Q: Any positive trends in Commercial Aero guidance?
      A: Expectations align with Boeing and Airbus production rates. For the 737 MAX, they are at about 35 per month, in line with Boeing's expectations. The 787 program is ramping, currently at about 5 per month, with excitement to reach 10 per month by 2026.

    5. Revenue Growth Drivers
      Q: How to think about organic vs acquisition in growth?
      A: The WSC acquisition contributes about $10 million to $15 million to guidance and is not a significant portion of the overall 5% to 7% growth rate. Organic growth remains the primary driver.

    6. Long-Term Growth Strategy
      Q: Plans for transformational M&A or spin-offs?
      A: Management remains open to transformational acquisitions but doesn't rely on them for success. They see great potential across all end markets and focus on internal capabilities to drive growth into the back of the decade and into the 2030s. No current plans for spin-offs, but they remain open to evaluating the portfolio.

    7. Ground Defense Guidance
      Q: Why is Q1 Ground Defense high point?
      A: Q1 performance was driven by higher tactical communications equipment, which is a short-cycle business causing periodic spikes. Timing of deliveries leads to fluctuations. A sequential ramp in tactical communications is expected deeper into the year.

    8. PacStar and JADC2 Program
      Q: Is PacStar involved in DoD's JADC2 program?
      A: Management is cautious to comment specifically on JADC2. They confirm involvement across various modernization tactical communications programs and participate in most major programs. The sensor-to-shooter trend is driving DoD spending, and PacStar is well-positioned to provide content.

    9. Nuclear Aftermarket Content
      Q: Content on different nuclear plant designs?
      A: Curtiss-Wright has content on all 94 U.S. reactors and actively works with all of them on maintenance and life extension. Their products are relevant across all reactors, including those in Canada and South Korea. The WSC acquisition enhances their ability to support reactor upgrades.

    10. Naval Opportunities
      Q: Can you alleviate shipyard capacity constraints?
      A: Curtiss-Wright is focused on growing their service centers to support the naval fleet's maintenance needs. They can perform critical work to keep ships mission-ready, helping to alleviate shipyard capacity constraints.

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