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Why Is Curtiss-Wright (CW) Down 0.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Curtiss-Wright (CW - Free Report) . Shares have lost about 0.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Curtiss-Wright due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Curtiss-Wright Beats on Q3 Earnings, Lifts '18 EPS View

Curtiss-Wright reported third-quarter 2018 adjusted earnings of $1.70 per share, which surpassed the Zacks Consensus Estimate of $1.58 by 7.6%.

Excluding one-time items, the company reported GAAP earnings of $1.68 per share, which came in 17% higher than $1.43 registered in the year-ago quarter.

The year-over-year upside in bottom line was driven by higher operating income, lower interest expenses and a lower tax rate as well as a slightly lower share count.

Operational Performance

In the quarter under review, the company’s revenues of $595.4 million increased 5% year over year. The top-line figure, however, missed the Zacks Consensus Estimate of $626.9 million by 5%.

Curtiss-Wright’s total backlog at the end of third-quarter 2018 was $2 billion compared with backlog of $2.2 billion in the previous quarter.

Gross profit increased 7% to $222.5 million. Operating income of $97 million improved 5% from $92.4 million a year ago.

Segmental Performance

Commercial/Industrial: Revenues at this segment remained flat year over year at $295 million. Higher sales of sensors and controls products were offset by lower revenues resulting from FAA directives.

While operating income fell 4% to $51.7 million, operating margin contracted 70 basis points (bps) to 16.6%. The margin downside was on account of unfavorable mix and lower profitability for sensors and controls products,

Defense: Revenues at this segment declined 3% year over year to $138.4 million due to lower sales of embedded computing equipment on helicopter and unmanned aerial vehicle (UAV) platforms.

Operating income were flat at $33.6 million, while operating margin expanded 60 bps to 24.3%. The upside was primarily backed by favorable foreign currency translation.

Power: Revenues at this segment rose 23% year over year to $161.8 million on account of strong naval defense market sales that were driven by higher CVN-80 aircraft carrier revenues, solid DRG service center revenues along with higher revenues from the China Direct AP1000 program.
 

Adjusted operating income increased 66% to $29.5 million, while operating margin expanded 470 bps to 18.2%. Both the upsides can be attributed to higher sales and improved profitability on the China Direct AP1000 program.

Financial Update

Curtiss-Wright ended the third quarter with cash and cash equivalents of $245.9 million, down from $475.1 million as of Dec 31, 2017. Long-term debt summed $812.7 million compared with $814 million as of Dec 31, 2017.

Operating cash inflow from continuing operations totaled $72.3 million at the end of the third quarter compared with $101.4 million in the year-ago quarter.

Adjusted free cash flow at the end of the third quarter was $61.9 million compared with the year-ago quarter’s $89.8 million. During the quarter under review, the company repurchased 0.25 million shares worth $33 million.

Guidance

Curtiss-Wright updated its financial guidance for 2018. It expects to generate adjusted earnings per share in the range of $6.10-$6.25, higher than $6.00-$6.15 anticipated earlier. However, the company lowered its sales guidance to the band of $2,430-$2,470 million from $2,445-$2,485 million projected previously.

Free cash flow is anticipated in the range of $260-$280 million, up from $250-$270 million guided earlier.  Adjusted free cash flow is expected in the range of $310-$330 million compared with prior guidance of $300-$320 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Curtiss-Wright has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Curtiss-Wright has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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