Q2 2024 Summary
Published Jan 27, 2025, 7:30 PM UTC- Strong growth in Defense Electronics due to the adoption of MOSA (Modular Open Systems Approach), leading to market share gains. The company believes it is well-positioned and has taken market share over the past 12-24 months. MOSA is becoming a requirement in the industry, and CW is winning business based on its MOSA-compliant product offerings.
- Sustained and increasing Foreign Military Sales (FMS), with strong demand for tactical communications equipment and aircraft handling equipment, particularly in Europe. The company notes that the demand is in the early stages and expects significant tailwinds supporting future growth.
- Significant growth opportunity in the subsea pumps market, with potential orders of $250 million by the end of this decade, expected to double to over $500 million by the middle of next decade. The company is on track to deliver its first subsea pumping system by the end of this year and has engagements with major customers like Petrobras and Shell.
- Curtiss-Wright expects a slowdown in revenue growth in the second half of 2024, projecting overall growth in aerospace and defense markets to be relatively flat compared to the strong first half performance. Management noted that this is somewhat unusual, attributing the first half strength to timing and supply chain recovery, particularly in ground defense markets. This may indicate potential challenges in sustaining growth momentum.
- The company is implementing restructuring actions across all three segments, including a $15 million restructuring cost in 2024 with expected annualized savings of $10 million in 2025. While aimed at improving operational efficiency, these actions may suggest underlying operational challenges or pressures on margins, and could result in disruptions or execution risks.
- In the Naval & Power segment, despite increasing revenue growth expectations to 5% to 7%, the company maintained its prior margin outlook due to unfavorable mix and margin pressures from an accelerated ramp-up in development programs. This could impact profitability in the segment despite higher sales.
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Record Margins and Restructuring
Q: Why implement restructuring when margins are at record levels?
A: Management is committed to growing operating income faster than sales and believes there's more room for improvement. Restructuring aims to support volume increases and align for long-term profitable growth. The majority of the restructuring spend of $12–13 million cash expense ($2–3 million non-cash) is across the Aerospace & Industrial segment, focusing on growth and efficiency. -
Guidance and Growth Outlook
Q: Is anything unusual affecting second-half revenue guidance?
A: Despite a strong first half with 12% revenue growth, the company projects only a slight increase in the back half of the year across aerospace and defense. This flattening is due to timing shifts, supply chain improvements, and a cautious approach in markets like commercial aerospace. Management remains confident but is taking a conservative view. -
Order Strength and Sustainability
Q: How sustainable is the strong order rate, especially in defense?
A: The second-quarter book-to-bill was about 1.3x, with 1.4x across aerospace and defense, heavily weighted towards defense. Management believes the growth is sustainable, supported by metrics and early-stage foreign military sales, particularly in Europe. They do not view it as a temporary surge. -
Supply Chain Improvements
Q: How have supply chain constraints changed recently?
A: Major disruptions are behind them, with good stability across the supply chain. Lead times have decreased, though older components remain at around 40 weeks. Prices have stabilized since the end of '22, with only minor incremental increases. This has supported increased sales in Defense Electronics. -
Subsea Pump Opportunity
Q: What is the outlook for the subsea pump business?
A: The subsea pump represents a significant opportunity, with potential orders of $250 million by the end of the decade, doubling to over $500 million by the mid-2030s. Projects with Petrobras, Shell, and others are progressing well, and there is strong demand for reliable solutions in this market. -
Market Share Gains with MOSA
Q: Do you see more market share gains with MOSA migration?
A: The company is well-positioned with its product portfolio and has gained market share over the past 12–24 months. The transition to MOSA is now a requirement, and they are winning business based on this, though specific wins often can't be disclosed. -
Nuclear Aftermarket Growth
Q: How does the ADVANCE Act impact the nuclear business?
A: The ADVANCE Act supports new builds, particularly Gen 4 advanced reactors. Additionally, the DOE has issued a notice to fund $900 million for Gen 3+ small modular reactors. Over three-quarters of the 94 operating U.S. reactors intend to pursue life extensions, supporting low double-digit growth in the nuclear segment. -
Acquisition Strategy
Q: Where will growth through acquisitions focus next?
A: While recent nuclear acquisitions were intentional, Defense Electronics remains a top priority for acquisitions. The company is open to larger transactions but is primarily focused on preparing for growth with its current portfolio and market tailwinds. -
Pricing and LTAs
Q: What are you seeing for pricing on new orders and LTAs?
A: Pricing remains a constant focus. The company continues to negotiate long-term agreements (LTAs) and sees opportunities in this area. Overall, there are no signs of weakness in the order book or concerns from the second quarter.