Press release·08/09/2024 08:56:44

Financial Performance Overview

Leveraging its engineering heritage and customer intimacy, the company has expanded its control product franchise across multiple markets, growing from a high-performance components manufacturer to a systems designer, manufacturer and integrator. The company continues to focus on pricing and simplification initiatives to drive shareholder value through strategic revenue growth, operational efficiency improvements, and capital deployment.

In the third quarter and first nine months of fiscal year 2024, the company reported strong financial results. Net sales increased 6% and 10% respectively compared to the same periods in 2023, driven by growth across the company’s aerospace and defense segments. Gross margin also improved, rising to 27.8% in the third quarter and 27.9% year-to-date, aided by the company’s pricing initiatives, improved performance on space programs, and a one-time benefit from the Employee Retention Credit.

Segment Performance

Space and Defense This segment saw net sales increase 7% in both the third quarter and first nine months, fueled by higher demand for defense applications and the production ramp of a launch vehicle program. Operating margin expanded to 12.6% in the third quarter and 13.3% year-to-date, as the segment benefited from improved performance on space vehicle development programs.

Military Aircraft Net sales for this segment grew 18% in the third quarter and 11% year-to-date, driven by increased activity on development and production aircraft programs. Operating margin improved to 11.6% in the third quarter and 10.1% year-to-date, aided by better cost absorption and reduced R&D expenses, partially offset by asset impairments and restructuring charges.

Commercial Aircraft This segment reported a 6% sales increase in the third quarter and 24% growth in the first nine months, reflecting production ramps on widebody and other programs. Operating margin expanded to 12.9% in the third quarter and 11.8% year-to-date, benefiting from pricing initiatives, higher volumes, and a favorable sales mix.

Industrial Net sales for this segment decreased slightly in the third quarter but increased 3% year-to-date, as growth in the simulation/test and energy markets offset declines in industrial automation. Operating margin declined to 9.8% in the third quarter and 10.9% year-to-date, impacted by restructuring charges, an inventory write-down, and lower industrial automation sales, partially offset by pricing benefits.

Outlook for 2024

The company provided its outlook for fiscal year 2024, expecting:

• Higher sales across all segments, driving an 8% increase in total net sales to $3.575 billion
• Operating margin to expand to 11.8%, up from 10.3% in 2023, due to pricing/simplification initiatives and the Employee Retention Credit
• Net earnings of $222 million and diluted EPS of $6.85, up from $171 million and $5.34 in 2023

Excluding the impact of impairments, inventory write-downs, and restructuring charges, the company expects adjusted operating margin of 12.4% and adjusted diluted EPS between $7.30 and $7.50.

Liquidity and Capital Resources

The company’s cash flows from operations, along with its financing arrangements, are expected to be sufficient to fund ongoing activities, debt service, organic growth, acquisitions, and shareholder returns.

Net cash provided by operating activities increased in the first nine months of 2024 compared to the prior year period, driven by higher net earnings. Investing activities used $115 million of cash, primarily for capital expenditures and an acquisition. Financing activities provided $51 million, including $94 million of net borrowings, partially offset by dividend payments.

The company has a $1.1 billion U.S. revolving credit facility, $500 million of 4.25% senior notes, and a $125 million receivables financing program to fund its capital needs. It remains in compliance with all debt covenants.

Shareholder Returns

The company continues to pay quarterly cash dividends on its common stock and has an active share repurchase program, with approximately 2.2 million shares remaining under the current authorization. Management believes it can create long-term value for shareholders by investing in the business through capital expenditures and strategic acquisitions, while also returning capital through dividends and share repurchases.

Analysis and Outlook

The company’s diverse portfolio of aerospace, defense, and industrial products has enabled it to deliver strong financial results in the face of a dynamic market environment. The aerospace and defense segments, which account for 70% of sales, have benefited from increased defense spending, commercial aircraft production ramps, and robust demand for space programs. Meanwhile, the industrial segment has seen mixed performance, with growth in simulation/test and energy markets offsetting weakness in industrial automation.

The company’s focus on pricing and simplification initiatives appears to be paying dividends, as evidenced by the expansion in gross and operating margins. The one-time benefit from the Employee Retention Credit also provided a boost, though the company will need to sustain its operational improvements to maintain margin expansion going forward.

Looking ahead, the company’s 2024 outlook calls for broad-based sales growth and further margin improvement, driven by continued execution of its strategic priorities. The aerospace and defense markets are expected to remain strong, with the company well-positioned on key programs. However, the industrial automation market may continue to present headwinds that the company will need to navigate.

From a liquidity standpoint, the company’s solid cash flow generation and access to diverse financing sources provide ample flexibility to fund its growth initiatives and return capital to shareholders. The company’s balanced approach to capital deployment, including strategic acquisitions, dividends, and share repurchases, should help create long-term value for investors.

Overall, the company’s diversified business model, focus on operational excellence, and prudent capital management position it well to capitalize on the opportunities in its end markets and deliver sustainable financial performance in the years ahead.