Why Is Curtiss-Wright (CW) Down 20.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Curtiss-Wright (CW). Shares have lost about 20.1% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Curtiss-Wright Q4 Earnings Top Estimates, Revenues Miss

Curtiss-Wright Corporation reported fourth-quarter 2019 adjusted earnings of $2.12 per share, which surpassed the Zacks Consensus Estimate of $2.07 by 2.4%. The bottom line also improved 11.6% from the prior-year quarter earnings of $1.90.

Including one-time items, GAAP earnings came in at $2.08 per share, up 10% from $1.89 recorded in the year-ago quarter. This year-over-year upside can be attributed to continued strong sales growth in defense markets and the benefits of the company’s ongoing margin improvement initiatives.

For 2019, the company reported adjusted earnings of $7.27 per share, which surpassed the Zacks Consensus Estimate of $7.22 by 0.7%. The full-year bottom line also improved 15% from the prior-year figure.

Operational Performance

In the quarter under review, the company’s total sales of $655.8 million inched up 1% year over year. The top line, however, missed the Zacks Consensus Estimate of $686 million by 4.4%.

In 2019, the company’s total sales of $2.49 billion rose 3% from the year-ago figure. The top line, however, missed the Zacks Consensus Estimate of $2.52 billion by 1.2%.

Gross profit rose 2% year over year to $410 million in the reported quarter. Operating income of $120.7 million improved 10% from $110 million a year ago.

Curtiss-Wright’s total backlog at the end of 2019 was $2.2 billion, flat sequentially but up 7%. New orders rose 6% from 2018 to $2.6 billion in 2019, courtesy of strong organic growth in naval defense and commercial aerospace orders.

Segmental Performance

Commercial/Industrial: Sales at this segment rose 6% year over year to $323.2 million. Higher sales of actuation systems on the F-35 program and valves on the Virginia class submarine program were the primary catalysts behind this unit’s top-line growth in the reported quarter.

While operating income increased 12% to $52.7 million, operating margin expanded 90 basis points (bps) to 16.3%. The improvement in operating income reflects favorable overhead absorption on higher defense revenues and a one-time gain on sale of a product line,

Defense: Sales at this segment grew 8% year over year to $163.5 million. This can be attributed to higher sales of increased sales of embedded computing and avionics equipment on various unmanned aerial vehicles (UAVs) and helicopter platforms. Also, contributions from the TCG acquisition boosted this unit’s sales.

Meanwhile, adjusted operating income improved 22% to $44.6 million and adjusted operating margin expanded 300 bps to 27.2%. The upside in operating income can be attributed to favorable mix on higher defense revenues.

Power: Sales at this segment declined 12% year over year to $169.1 million on account of lower domestic aftermarket revenues. The timing of production on the China Direct AP1000 program also hampered sales performance of this segment.

While adjusted operating income dropped 6% to $3.3 million, operating margin expanded 140 bps to 20.3%.

Financial Update

Curtiss-Wright ended 2019 with cash and cash equivalents of 391 million, up 42% from $276.1 million as of Dec 31, 2018. Long-term debt was $760.6 million compared with $687.3 million as of Dec 31, 2018.

Operating cash outflow from continuing operations totaled $421.4 million at the end of 2019 compared with $336.3 million at the end of 2018.

Adjusted free cash flow at the end of 2019 was $370.9 million compared with the year-ago figure of $332.9 million. During 2019, the company repurchased 0.4 million shares worth $50 million.

Guidance

Curtiss-Wright issued its financial guidance for 2020. The company currently expects adjusted earnings in the range of $7.50-$7.70 per share.

The Zacks Consensus Estimate for the company’s full-year earnings is pegged at $7.66, higher than the mid-point of the company’s guided range.

The company currently expects to generate sales in the range of $2,590-$2,630 million. The Zacks Consensus Estimate for the company’s full-year sales is pegged at $2.62 billion, above the mid-point of the company’s guided range.

These apart, Curtiss-Wright currently expects its adjusted free cash flow in the range of $370-$390 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -10.33% due to these changes.

VGM Scores

At this time, Curtiss-Wright has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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