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    Curtiss-Wright Corp (CW)

    Q4 2023 Summary

    Published Jan 27, 2025, 7:30 PM UTC
    Initial Price$195.22October 1, 2023
    Final Price$222.79December 31, 2023
    Price Change$27.57
    % Change+14.12%

    What went well

    • Curtiss-Wright is aggressively broadening its defense electronics offerings, capitalizing on competitors' challenges, with significant new products hitting the market this calendar year, positioning the company for market share gains in a market estimated to be over $40 billion.
    • The company's tactical communications equipment business is expected to continue its strong performance, with mid-teens growth in 2024, driven by a strong order book and continued stability in the supply chain, indicating robust positioning in the ground defense market.
    • The Enduring Shield program is moving from development to production, representing a significant growth opportunity for Curtiss-Wright in advanced ground defense applications, and the company is excited about its future and the potential for deployment around the globe.

    What went wrong

    • High R&D expenses, particularly in Naval and Power tied to commercial nuclear projects like Small Modular Reactors (SMRs), are expected to continue into 2025 and beyond, potentially acting as a headwind and impacting margins and profitability.
    • The company's content on defense platforms remains relatively stable, with limited scope for significant increases, which could limit future growth opportunities from expanding platform content.
    • Benefits from certain "lumpy" ground defense items that boosted 2023 growth, such as modernization programs on ground combat vehicles like the Stryker program, are not expected to recur in 2024, which may negatively impact growth rates in the Defense Electronics segment.

    Q&A Summary

    1. M&A Pipeline
      Q: Can you comment on the M&A pipeline?
      A: The acquisition pipeline is the healthiest it's been in years, with potential deals that could significantly boost revenue and profitability. They're in due diligence on a small property expected to close soon, and other opportunities could be accretive to margins over the next few years.

    2. Margin Expansion Outlook
      Q: Should we expect margin pressure from development programs?
      A: They're projecting modest margin expansion in 2024 but expect meaningful margin growth in the long term as current low-margin development work, like SMRs, transitions to high-margin production later this decade. Defense electronics continues to deliver accretive margins.

    3. R&D Investments
      Q: Where are increased R&D investments being made?
      A: They increased engineering spend by $20 million in '23 and plan another $20 million increase in '24, focusing on defense electronics, power electronics, electromechanical actuation, and SMR technologies, which are expected to drive profitable organic growth.

    4. Defense Electronics Margins
      Q: Are defense electronics margins around 18% in Q1 '24?
      A: While no exact number was provided, defense electronics margins are expected to be very strong in Q1 2024, and the analyst's estimate of around 18% is in the right direction.

    5. Defense Strategy Shift
      Q: Are you expanding into new defense markets?
      A: They are protecting core areas but are making strategic investments in encryption, cybersecurity, and anti-tamper technologies to grow market share in critical defense markets.

    6. SMR Bookings Outlook
      Q: How is the bookings environment for SMRs?
      A: SMR bookings are steady; they saw a surge in 2023 but don't expect a big surge in 2024. Order book remains strong, especially in aftermarket work for next-gen reactors.

    7. AP1000 Poland Timeline
      Q: Any updates on the AP1000 order in Poland?
      A: Despite reports of potential delays, progress in Poland is steady, and they don't see any change in timing expectations for the AP1000 order.

    8. Bookings Weakness
      Q: Any concerns about weak Q4 bookings?
      A: Q4 showed softness due to timing of large orders and continuing resolutions, but January orders were strong, with the order book up $70 million, including $40 million in defense electronics over the prior year.

    9. Enduring Shield Growth
      Q: Is there significant growth for Enduring Shield in 2024?
      A: Transitioning from development to production, Enduring Shield will contribute about $5 million to the A&I segment in 2024, with significant long-term potential globally.

    10. Submarine Supply Chain
      Q: Can you add content on submarines due to supply issues?
      A: While the navy prefers stable suppliers on established platforms, Curtiss-Wright is well-positioned to explore opportunities if they arise, though such chances are rare.

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