Press release·03/03/2025 19:03:16

Financial Performance Overview

The company has reported its financial results for the first quarter of fiscal year 2025. Overall, the company saw solid revenue growth, with net sales increasing 6% compared to the same period last year. This was driven by strong demand in the Commercial Aircraft and Military Aircraft segments, which offset a decline in the Industrial segment.

However, gross margin declined slightly to 26.6% from 27.2% in the prior year quarter. This was due to an unfavorable sales mix in Military Aircraft and an out-of-period warranty expense in Commercial Aircraft. Research and development expenses also decreased, while restructuring charges increased as the company continues to simplify its operations.

Net earnings increased 11% to $53 million, or $1.64 per diluted share, compared to $48 million, or $1.48 per diluted share, in the prior year quarter. The twelve-month backlog remained relatively flat at $2.5 billion.

Segment Performance

Space and Defense The Space and Defense segment saw an 8% increase in net sales, driven by higher demand across both the defense and space markets. Operating profit increased 13% to $29 million, with the operating margin improving to 11.5% from 11.0% in the prior year quarter. The improved performance was due to the sales growth, partially offset by sales mix changes and investments for upcoming major programs.

Military Aircraft The Military Aircraft segment reported a 15% increase in net sales, with a $25 million increase in military OEM programs due to the ramp-up of activity on the FLRAA program and new production work. Military aftermarket sales also grew by $2 million. Operating profit increased 17% to $23 million, and the operating margin improved to 10.7% from 10.5% in the prior year quarter. This was driven by the increased FLRAA program activity and lower research and development expenses, partially offset by an unfavorable sales mix.

Commercial Aircraft The Commercial Aircraft segment saw a 14% increase in net sales, with a $15 million increase in commercial aftermarket sales driven by strong repair activity and initial provisioning of spares. OEM sales also grew by $11 million due to the timing of orders on certain programs. Operating profit increased 17% to $24 million, and the operating margin improved to 11.0% from 10.6% in the prior year quarter. This was driven by the aftermarket sales growth, partially offset by an $8 million out-of-period warranty expense.

Industrial The Industrial segment reported a 7% decrease in net sales, driven by the lost sales associated with the company’s portfolio shaping activities. Sales declined $20 million in industrial automation, $4 million in energy, and $2 million in simulation and test, partially offset by a $9 million increase in medical market sales. Operating profit decreased 12% to $25 million, and the operating margin declined to 11.2% from 11.8% in the prior year quarter. Excluding the impact of restructuring and other charges, the adjusted operating margin improved to 13.2% from 12.6%, primarily due to the company’s simplification initiatives.

Liquidity and Capital Resources

Cash flows from operating activities decreased in the first quarter of 2025 compared to the prior year, primarily due to higher use of cash for accounts receivable and customer advances. Investing activities used $19 million of cash, including $33 million of capital expenditures and $13 million of proceeds from business divestitures.

Financing activities provided $163 million of cash, including $230 million of net borrowings on credit facilities, partially offset by $39 million for share repurchases and $9 million of dividend payments. The company’s cash balance at the end of the quarter was $74 million, with $64 million held outside the U.S.

The company has access to various financing arrangements, including a $1.1 billion U.S. revolving credit facility, a $25 million SECT revolving credit facility, and a $500 million senior notes offering. At the end of the quarter, the company had $515 million of unused capacity across these facilities. The company remains in compliance with all covenants under its financing arrangements.

Economic Conditions and Market Trends

The company operates in the aerospace and defense and industrial markets. Aerospace and defense, which represented 73% of 2024 sales, has seen increased demand in the defense market due to higher military spending, while the commercial aircraft market is aligning with customer production plans.

Within the industrial markets, which represented 27% of 2024 sales, the company has seen increased order demand in industrial automation, simulation and test, and energy markets. A common factor across the company’s markets is the continuing demand for technologically advanced products.

The defense market is dependent on military spending, and the company has a growing order book for future generation aircraft and turret programs. The commercial aircraft market is dependent on factors like air travel demand and fuel prices, which have led to large production backlogs for Boeing and Airbus. The space market is driven by investment in civil, defense, and commercial space activities.

The industrial automation market is influenced by capital investment levels and economic conditions, while the simulation and test market has seen stronger order demand as the airline training market recovers. The energy market is driven by oil and gas prices and global urbanization, while the medical market is influenced by economic conditions, regulatory environments, and advances in medical technology.

The company is also affected by foreign currency movements, with about one-sixth of 2024 sales denominated in foreign currencies. During the first quarter of 2025, foreign currency rates were generally flat compared to the prior year period.

Outlook and Risks

The company’s fundamental long-term strategies center around pricing and simplification initiatives, including shaping its product and business portfolio, rationalizing its footprint, focusing its factories, and investing in automation and technologies. The company is also focused on improving shareholder value through strategic revenue growth, both organic and acquired, improving operating efficiencies and manufacturing initiatives, and utilizing low-cost manufacturing facilities.

The company continues to face risks and uncertainties, including:

• Operating in highly competitive markets with competitors who may have greater resources
• Operating in cyclical markets that are sensitive to domestic and foreign economic conditions
• Heavy dependence on government contracts that may not be fully funded or may be terminated
• Supply chain constraints and inflationary impacts on prices for raw materials and components
• Failure of subcontractors or suppliers to perform their contractual obligations
• Accounting estimations for over-time contracts and any changes needed

The company remains committed to its dividend policy and share repurchase program, and believes it can create long-term value for shareholders through continued investment in the business, strategic acquisitions, and returning capital to shareholders.

Overall, the company has delivered a solid financial performance in the first quarter of fiscal year 2025, with growth in key segments offsetting declines in the Industrial segment. The company continues to navigate economic and market challenges while executing on its long-term strategies to drive shareholder value.