Q3 2024 Earnings Summary
- Strong demand and record orders in the Defense Electronics segment, with a record order book in Q3 and over 1x book-to-bill consistently over the past 2 years, indicating robust future growth.
- Growing opportunities in the commercial nuclear sector, with 80% of existing reactors indicating plans to apply for plant life extensions, potentially leading to higher growth and increased revenue.
- Positive outlook for defense spending and nuclear initiatives, with strong bipartisan support reducing political risk, ensuring stable or growing demand in core markets despite potential political changes.
- The Defense Electronics segment expects a sequential decline in revenues and margins in the fourth quarter due to restructuring activities and timing of revenues, which is unusual and may signal potential challenges in future growth or profitability.
- Prolonged government Continuing Resolutions (CRs) could negatively impact Curtiss-Wright's government-funded programs; the company has experienced negative impacts in the past during extended CRs lasting 4-6 months.
- Delays in closing the Ultra Energy acquisition due to administrative changes in the UK may affect Curtiss-Wright's growth plans and introduce uncertainties in executing its strategic initiatives.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total sales growth | FY 2024 | 6% to 8% | 7% to 9% | raised |
Aerospace & Defense markets | FY 2024 | 8% to 10% | 10% to 12% | raised |
Commercial markets | FY 2024 | 1% to 3% | 1% to 3% | no change |
Aerospace & Industrial segment sales growth | FY 2024 | 4% to 6% | 4% to 6% | no change |
Defense Electronics segment sales growth | FY 2024 | 8% to 10% | 9% to 11% | raised |
Naval & Power segment sales growth | FY 2024 | 5% to 7% | 8% to 9% | raised |
Aerospace & Industrial operating income | FY 2024 | 8% to 11% | 8% to 11% | no change |
Defense Electronics operating income | FY 2024 | 11% to 13% | 13% to 15% | raised |
Naval & Power operating income | FY 2024 | Flat to down 2% | Flat to up 2% | raised |
Total operating income growth | FY 2024 | 6% to 9% | 7% to 10% | raised |
Operating margin | FY 2024 | 17.4% to 17.6% | 17.4% to 17.6% | no change |
Aerospace & Industrial operating margin | FY 2024 | 16.9% to 17.1% | 16.9% to 17.1% | no change |
Defense Electronics operating margin | FY 2024 | 24.0% to 24.2% | 24.2% to 24.4% | raised |
Diluted EPS | FY 2024 | $10.40 to $10.65 | $10.55 to $10.75 | raised |
Free cash flow | FY 2024 | $425M to $445M | $430M to $450M | raised |
Aerospace defense | FY 2024 | no prior guidance | 9% to 11% | no prior guidance |
Ground defense | FY 2024 | no prior guidance | 10% to 12% | no prior guidance |
Naval defense | FY 2024 | no prior guidance | 9% to 11% | no prior guidance |
Commercial aerospace | FY 2024 | no prior guidance | 16% to 18% | no prior guidance |
Power and process | FY 2024 | no prior guidance | 5% to 7% | no prior guidance |
Commercial nuclear | FY 2024 | no prior guidance | Low double-digit | no prior guidance |
Process market | FY 2024 | no prior guidance | Flat | no prior guidance |
General industrial | FY 2024 | no prior guidance | Decline of 2% to 4% | no prior guidance |
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A&I Margin Uplift
Q: What's driving A&I's margin uplift, and is it sustainable?
A: The primary driver of margin improvement in the Aerospace & Industrial segment is restructuring efforts, where we're spending $15 million to achieve $10 million in annualized savings. This will significantly impact Q4, contributing about $3 million to the segment. Additionally, standard volume absorption and a small $1 million year-over-year IR&D headwind factor into the results. -
Defense Electronics Q4 Decline
Q: Why is Defense Electronics expected to decline in Q4, and will reduced seasonality continue?
A: We are leveling the workload across the business to avoid the traditional Q4 spike. Pulling forward work from Q4 to Q3 helps us meet customer expectations during restructuring aimed at supporting future growth. Despite an unusual sequential decline in Q4 revenues and margins, demand remains strong. We aim to continue this balanced approach into 2025. -
SMR Opportunities and Amazon
Q: How does the Amazon announcement impact SMR revenue potential?
A: Amazon's commitment to bring 5 gigawatts of power online, equating to 15 reactors, and their $500 million investment in X-energy accelerates the SMR market. With potential content of $120 million per reactor for us, this could significantly boost future revenues. Additionally, Amazon's MOU with Dominion indicates further market growth in SMRs. -
Election Risks to Defense and Nuclear
Q: Are there election risks to defense and nuclear outlook?
A: We anticipate broad bipartisan support for defense spending and nuclear leadership to continue, maintaining stability regardless of election outcomes. Programs like ARDP began under previous administrations, and recent legislation has shown strong bipartisan backing. Therefore, we expect minimal impact on our business from upcoming elections. -
M&A Pipeline and Capital Deployment
Q: What's the status of M&A pipeline and capital deployment?
A: The M&A pipeline is robust, and we're focused on closing the Ultra Energy acquisition in Q4. With $440 million in cash at the end of Q3 and planned generation of another $200 million, we'll have around $400 million available by year-end for strategic opportunities. We're well-positioned to seize prospects as they arise. -
Plant Life Extensions and Revenue
Q: Can you quantify revenues from plant life extensions and restarts?
A: While the reopening of plants like Three Mile Island Unit 1 presents meaningful business, we've estimated a $7 billion market through 2050. Revenues per plant can vary widely, from $10 million upwards, depending on the scope of upgrades. We consider these developments as supporting our existing targets rather than additional. -
Restructuring and Capacity Growth
Q: How does restructuring impact capacity and growth in Defense Electronics?
A: We are preparing for future growth by reshaping our global footprint, including moving to larger sites within Curtiss-Wright. This proactive restructuring enhances our ability to deliver on anticipated growth in 2025 and 2026, while also improving operational efficiency. -
Market Share in Defense Electronics
Q: How are you measuring market share gains in Defense Electronics?
A: We're pleased with our organic growth, evidenced by a record order book in Q3 and consistent over 1x book-to-bill ratios over the past two years. While we're pursuing market share gains, current success stems from our investments in leading product offerings and focus on customer satisfaction, which drive new business wins.
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