Slide 1: 4Q and FY 2018 Earnings Conference Call
4Q and FY 2018 Earnings Conference Call February 27, 2019 NYSE: CW 1 | February 27, 2019 | © 2019 Curtiss-Wright
Slide 2: Safe Harbor Statement
Safe Harbor Statement Please note that the information provided in this presentation is accurate as of the date of the original presentation. The presentation will remain posted on this website from one to twelve months following the initial presentation, but content will not be updated to reflect n
Slide 3: Agenda
Agenda Review of 4Q and Full-Year 2018 Performance Delivering Top Quartile Performance Full-Year 2019 Business Outlook China Direct AP1000 Program Update DRG Acquisition Integration and Capital Investment Capital Allocation Strategy Update New 3-Year Targets 3 | February 27, 2019 | © 2
Slide 4: Fourth Quarter 2018 Highlights
Fourth Quarter 2018 Highlights Net Sales up 6% overall (3% organic) – Driven by solid organic growth in all commercial markets – Benefit of DRG acquisition in Power segment (+$23M) Adjusted Operating Income up 5%; Adjusted Operating Margin of 17.0% – Driven by higher sales and strong profitabili
Slide 5: Full-Year 2018 Highlights
Full-Year 2018 Highlights Net Sales up 6% overall (3% organic) – Higher sales in all end markets, led by strong naval defense and general industrial demand – Benefit of DRG acquisition Adjusted Operating Income up 14%; Adjusted Operating Margin of 15.8%, up 110 bps – Exceeded expectations due to
Slide 6: We Are Delivering Top Quartile Performance
We Are Delivering Top Quartile Performance (1) Target Metric 2013 Reported Original 5-Year Target* 2018 Results OP. MARGIN 9.3% > 12.5% 15.8% Double-Digit EPS $2.88 CAGR: 17% Growth (2) ROIC 7.4% > 12% 14.9% (3) W. CAPITAL 32% of Sales 20% of Sales 19.4% CAPEX 4% of Sales 2% of Sales Avg: 2% (4) FCF
Slide 7: One Curtiss-Wright Vision Driving Strong Returns (1) Operating Margin
One Curtiss-Wright Vision Driving Strong Returns (1) OPERATING MARGIN Ongoing benefits of Operating 17.0% Margin improvement initiatives: 15.8% 16.0% – Consolidations (segment structure and 14.6% 14.7% overhead; facilities) 15.0% 14.1% – Portfolio rationalization (including 14.0% divesting majorit
Slide 8: One Curtiss-Wright Vision Driving Strong Returns (2) Free Cash Flow
One Curtiss-Wright Vision Driving Strong Returns (2) Free cash flow ($M) FREE CASH FLOW $450 Generated more than $1.5B in FCF $400 $376 over the past 5 years, driven by: 199% $336 $350 $333 156% 121% – Strong operational performance $300 $265 $272 141% – Rigorous working capital management $250 15
Slide 9: 2019E End Market Sales Growth
2019E End Market Sales Growth (Guidance as of February 26, 2019) 2019E 2018 2019E % of Total Sales Aero Defense 1% 6 - 8% 16% Ground Defense 1% 5 - 7% 4% Naval Defense 19% 6 - 8% 21% Total Defense 10% 6 - 8% 41% Commercial Aero 1% 4 - 6% 17% Power Generation 2% 1 - 3% 17% General Industrial 8% 1 - 3
Slide 10: 2019E Financial Outlook
2019E Financial Outlook (Guidance as of February 26, 2019) 2018 2019E Change vs ($ in millions) Adjusted (1) 2019E 2018 Adjusted (1) 2019E OI / Margin Impacts Commercial / Industrial $1,209 $1,245 - 1,270 3 - 5% Defense $554 $565 - 575 2 - 4% Power $648 $680 - 690 5 - 7% Total Sales $2,412 $2,490 -
Slide 11: 2019E Financial Outlook
2019E Financial Outlook (Guidance as of February 26, 2019) 2018 2019E Change vs (1) (1) ($ in millions, except EPS) Adjusted 2019E 2018 Adjusted Total Operating Income $382 $396 - 405 4 - 6% Other Income/(Expense) $17 $19 Interest Expense ($34) ($33) Provision for Income Taxes ($83) ($88 - 90) Effec
Slide 12: 2019E Financial Outlook
2019E Financial Outlook (Guidance as of February 26, 2019) 2018 2019E 2019E (3) (3) ($ in millions) Adjusted (2) Reported Adjustments Adjusted (1) Free Cash Flow $333 $300 - 310 $20 $320 - 330 (1) Free Cash Flow Conversion 121% ~103% ~110% Capital Expenditures $53 $75 - 85 $75 - 85 Depreciation & Am
Slide 13: China Direct AP1000 Revenue Projection (1)
China Direct AP1000 Revenue Projection (1) Total production revenue: $448M (16 reactor coolant pumps @ $28M apiece) Contract production revenue (RCPs) Revenue and margin recognition $ in millions based on percentage of $150 completion (POC) accounting $139 $130 method $105 $108 Revenue recogniti
Slide 14: China Direct AP1000 Revenue Projection (2)
China Direct AP1000 Revenue Projection (2) $ in millions Contract production revenue (RCPs) $150 $100 Expect to fill gap through increased defense revenues (i.e. fighter jet, submarine and peak $50 CVN-80 aircraft carrier) $0 2019E 2020E 2021E+ Revised Forecast (Feb 2019) Increased Defense Revenues
Slide 15: China Direct AP1000 Free Cash Flow Projection
China Direct AP1000 Free Cash Flow Projection $ in millions Cumulative Free Cash Flow (FCF) $140 $130 Expect to generate ~$110M $120 $113 $116 $110 in cumulative FCF $100 $95 $96 – Well above previous estimate of $65M $81 $80 $67 $67 $65 Higher than expected $60 contract profitability driving $4
Slide 16: DRG Acquisition Integration & Capital Investment
DRG Acquisition Integration & Capital Investment Benefits of DRG acquisition – Expanded CW shipset content and increased footprint on naval vessels Ex: Aircraft carrier content increased from $300M to $380M per ship – Enabled CW to expand its Navy shipyard presence and capture more revenue – Str
Slide 17: Capital Allocation Strategy Update
Capital Allocation Strategy Update Major accomplishments since 2013: Capital Allocation 2014 - 2018 Returned ~$850 million to shareholders Operational – ~$715M via share repurchase (8.7M shares) Investments 27% – ~$135M via dividends Completed two major acquisitions for ~$500 Return of Capital m
Slide 18: Three Year Targets (2019 - 2021)
Three Year Targets (2019 - 2021) 5 - 7% Total Sales CAGR 17% Adjusted Operating Margin(1) – Maintain top-quartile status vs. peer group – Continue to invest in CW’s future growth 10% Adjusted diluted EPS Growth CAGR(1) – Expect to deliver $8.50 in diluted EPS $1B Cumulative Free Cash Flow Ge
Slide 19: Appendix: Non-GAAP Financial Results
Appendix Non-GAAP Financial Results The company reports its financial performance in accordance with accounting principles generally accepted in the United States of America ("GAAP"). This press release refers to "Adjusted" amounts, which are Non-GAAP financial measures described below. We utilize a
Slide 20: FY2019E End Market Sales Waterfall
FY2019E End Market Sales Waterfall (Guidance as of February 26, 2019) ($ Millions) Total CW End Markets Guidance: $2,490 - 2,535 UP 3 - 5% Defense Markets up 6-8% Comm’l Markets up 1-3% Defense Markets Commercial Markets 41% 59% Naval Commercial Aerospace Power Generation General Industrial 21% 17%
Slide 21: 4Q 2018 Adjusted Operating Income / Margin Drivers
4Q 2018 Adjusted Operating Income / Margin Drivers Change 4Q’18 4Q’17 vs. 2017 ($ in millions) Adjusted(1) Adjusted(1) Adjusted(1) Key Drivers Commercial / Industrial $46.9 $47.3 (1%) Impact from tariffs and restructuring actions Partially offset by higher sales and improved Margin 15.4% 15.8% (
Slide 22: Full-Year 2018 End Market Sales Growth
Full-Year 2018 End Market Sales Growth Key Drivers FY’18 % of Total Defense Markets (10% sales growth, 3% organic) Change Sales Aerospace Defense: Higher sales of flight test and Aero Defense 1% 16% embedded computing equipment on fighter jet programs, partially offset by lower UAV sales Ground De
Slide 23: FY2018 End Market Sales Waterfall
FY2018 End Market Sales Waterfall ($ Millions) Total CW End Markets Defense Markets up 10% (up 3% org) $2,412 UP 6% Comm’l Markets up 4% Defense Markets Commercial Markets 40% 60% Naval Commercial Aerospace Power Generation General Industrial 20% 17% 18% 25% Aerospace Aircraft Equipment Aftermarket
Slide 24: 2018 Sales by Segment vs. End Market (1)
2018 Sales by Segment vs. End Market (1) Commercial / Industrial Segment Power Segment General Power Commercial Generation Naval Industrial Aerospace 58% Defense 47% 30% 42% Aerospace Defense 10% Defense Segment Naval Power Defense Aerospace Generation 7% Defense 6% 48% Naval Defense 23% Ground Defe
Slide 25: 2018 Sales by Segment vs. End Market (2)
2018 Sales by Segment vs. End Market (2) General Industrial (47%): Commercial / Industrial Segment Industrial vehicles (on-highway, off-highway, medical mobility) Commercial Industrial valves (O&G, chemical, petrochemical) General Aerospace Surface Tech services (peening, coatings, Industrial
Slide 26: 2018 Sales by Segment vs. End Market (3)
2018 Sales by Segment vs. End Market (3) Defense Segment Aerospace Defense (48%): Commercial Off-the-Shelf (COTS) embedded Aerospace Defense computing products 48% Avionics and electronics; flight test equipment Naval Aircraft data management solutions Defense 23% Naval Defense (23%): COTS e
Slide 27: 2018 Sales by Segment vs. End Market (4)
2018 Sales by Segment vs. End Market (4) Power Segment Power Generation (58%): Commercial nuclear aftermarket products Power and services Generation Naval AP1000 reactor coolant pumps (RCPs) and 58% Defense 42% other new build equipment Small modular reactors (SMRs) components Fossil power g
Slide 28: Non-GAAP Reconciliation – Organic Results
Non-GAAP Reconciliation – Organic Results Three Months Ended December 31, 2018 vs. 2017 Commercial/Industrial Defense Power Total Curtiss-Wright Operating Operating Operating Operating Sales income Sales income Sales income Sales income Organic 3% (2%) (12%) (18%) 21% 37% 3% 0% Acquisitions 0% 0% 0%
Slide 29: Non-GAAP Reconciliations – 4Q 2018 Results
Non-GAAP Reconciliations – 4Q 2018 Results (In millions, except EPS) 4Q-2018 4Q-2017 Change Sales $ 648.6 $ 611.9 6% Reported operating income (GAAP) $ 110.0 $ 105.3 4% Adjustments (1) 0.4 0.0 - Adjusted operating income (Non-GAAP) $ 110.4 $ 105.3 5% Adjusted operating margin (Non-GAAP) 17.0% 17.2%
Slide 30: Non-GAAP Reconciliation – 2019 vs. 2018 Adjusted
Non-GAAP Reconciliation – 2019 vs. 2018 Adjusted 30 | February 27, 2019 | © 2019 Curtiss-Wright