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Curtiss-Wright (CW) Up 16.7% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Curtiss-Wright (CW - Free Report) . Shares have added about 16.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Curtiss-Wright due for a pullback? 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 drivers.

Curtiss-Wright Beats on Q1 Earnings, Suspends 2020 View

Curtiss-Wright reported first-quarter 2020 adjusted earnings of $1.34 per share, which surpassed the Zacks Consensus Estimate of $1.29 by 3.9%. Moreover, the bottom line grew 3% from $1.30 per share reported a year ago, led by strong sales growth in its defense markets.

Excluding one-time items, the company reported GAAP earnings of $1.21 per share, down 6% from $1.29 reported in the year-ago quarter.

Operational Performance

In the quarter under review, the company’s total sales of $601.2 million increased 4% year over year. The top line, moreover, exceeded the Zacks Consensus Estimate of $582 million by 3.3%.

Gross profit increased 92% year over year to $200.6 million. Operating income of $72.4 million improved 1% from $72 million a year ago.

Curtiss-Wright’s total backlog at the end of the first quarter of 2020 was $2.1 billion, down 2% from the figure reported at 2019-end. New orders also declined 24% to $570 million, principally due to the timing of strong naval defense orders in the prior-year period.

Segmental Performance

Commercial/Industrial: Sales at this segment slipped 2% year over year to $264.4 million. This is primarily attributable to lower general industrial market sales, which reflect reduced demand for industrial vehicle products and surface treatment services.

While adjusted operating income improved 2% to $36 million, operating margin contracted 60 basis points (bps) to 13%. The improvement in the operating income was driven by a favorable mix for actuation products and the benefits of its cost-containment initiatives.

Defense: Sales at this segment grew 24% year over year to $166.1 million. This uptick can be attributed to higher sales of embedded computing equipment on unmanned aerial vehicles (UAVs), helicopter platforms and various Intelligence, Surveillance and Reconnaissance (ISR) programs.

Meanwhile, adjusted operating income surged 49% to $31.6 million and adjusted operating margin expanded 320 bps to 19%. The upside can be attributable to favorable overhead absorption on higher defense revenues and gains from the sale of a product line.

Power: Sales at this segment declined 2% year over year to $170.8 million on account of reduced power generation market sales.

While operating income declined 4% to $24.4 million, operating margin contracted 20 bps to 14.3%. Both downsides were driven by unfavorable overhead absorption on lower power generation revenues.

Financial Update

Curtiss-Wright ended the first quarter of 2020 with cash and cash equivalents of $157.8 million, down 60% from $391 million as of Dec 31, 2019. Long-term debt summed $906.2 million compared with $760.6 million, as of Dec 31, 2019.

Operating cash outflow from continuing operations totaled $192.6 million at the end of first-quarter 2020 compared with $51.9 million in the prior year quarter.

Adjusted free cash flow at the end of the reported quarter was $52.9 million compared with the year-ago figure of $63.8 million. During the first quarter of 2020, the company repurchased 1.1 million shares worth $112 million.

Guidance

Due to the ongoing uncertainty concerning the COVID-19 situation and its potential impact on the company’s operations and financial results, Curtiss-Wright’s previously communicated guidance for 2020 has been suspended.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -10.38% due to these changes.

VGM Scores

Currently, Curtiss-Wright has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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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