Curtiss-wright reports third quarter 2022 financial results and updates full-year 2022 guidance
Davidson, n.c.--(business wire)--curtiss-wright corporation (nyse: cw) reports financial results for the third quarter ended september 30, 2022. third quarter 2022 highlights: reported sales of $631 million, operating income of $108 million, operating margin of 17.1%, and diluted earnings per share (eps) of $1.91; adjusted operating income of $114 million, up 6%; adjusted operating margin of 18.2%, up 70 basis points; adjusted diluted eps of $2.07, up 10%; reported free cash flow (fcf) of $86 million; new orders of $818 million, up 32%, reflecting strong aerospace & defense (a&d) and commercial market demand, and book-to-bill of 1.30; and backlog of $2.6 billion, up 19% year-to-date. "curtiss-wright delivered solid third quarter results, despite continued supply chain challenges, as the strength of our combined portfolio, coupled with the benefits of our company-wide operational excellence initiatives, enabled us to generate stronger than expected profitability with 70 basis points in operating margin expansion and double-digit eps growth," said lynn m. bamford, chair and ceo of curtiss-wright corporation. "sales in our commercial markets increased 9% during the quarter, led by double-digit growth in our general industrial and process markets, while sales for aerospace & defense markets were relatively flat. we once again experienced robust order activity, as bookings increased 32% year over year, and both bookings and backlog grew 19% on a year-to-date basis. this was driven by strong demand across the majority of our defense and commercial markets, including record level quarterly orders within our defense electronics segment." full-year 2022 financial outlook: sales revised to new range of 2% to 4% growth (previously 4% to 6%), including 1% to 3% growth in our a&d markets and 6% to 8% growth in our commercial markets; adjusted operating income revised to new range of 3% to 6% growth (previously 5% to 7%), reflecting the timing of revenues within our defense electronics segment, partially offset by stronger profitability within our aerospace & industrial segment; maintained adjusted operating margin range of 17.1% to 17.3%, up 10 to 30 basis points compared with the prior year; adjusted diluted eps revised to new range of $8.05 to $8.20 (previously $8.10 to $8.30), which continues to reflect double-digit growth; and adjusted free cash flow revised to a new range of $275 to $315 million (previously $345 to $365 million), reflecting the timing of defense revenues, as well as the expected delay in receipt of a significant cash payment upon the final delivery of our cap1000 reactor coolant pumps to china, which has likely pushed to 2023, to align with our customer’s project schedule. "although underlying demand across the portfolio remains strong, we are revising our full-year 2022 guidance to reflect the ongoing global supply chain disruption which continues to impact the timing of production, deliveries and free cash flow within our defense electronics segment. we have taken numerous actions, including consistent engagement with our supply base that supported our prior expectations of a strong second half, however, conditions are not easing as quickly as anticipated. while we are confident these dynamics will get resolved over time, the challenges are delaying the recognition of our strong order book." "looking forward, the business fundamentals in the defense electronics segment remain quite strong, driven by record bookings, strong profitability and favorable long-term secular tailwinds. in addition, we remain focused on mitigating the impact of other macro-level headwinds through our ongoing operational excellence initiatives. as a result, we are able to maintain our previous operating margin guidance despite the topline reset." "overall, curtiss-wright remains in a strong position to deliver significant long-term value for our shareholders and on track to achieve the financial targets that we set out at our 2021 investor day." curtiss-wright and x-energy sign preferred strategic supplier agreement: on september 15, 2022, the company signed a preferred strategic supplier agreement to advance the design and deployment of x-energy’s xe-100 advanced small modular reactor (smr); under the agreement, curtiss-wright has been selected as a preferred supplier to develop and provide three of the most critical systems for the nuclear steam supply system; and curtiss-wright estimates that its content for these three systems will be in excess of $100 million in revenue per four-unit (320 mw) plant. poland selects westinghouse ap1000 technology for its first nuclear power plant: earlier in 2022, curtiss-wright secured westinghouse’s commitment to our reactor coolant pump (rcp) technology in future ap1000 power plants, including eastern europe; westinghouse's initial partnership with poland covers the first three of potentially six ap1000 reactors, which are expected to begin producing electricity in 2033; and the agreement provides an opportunity for curtiss-wright to receive new rcp orders within the next three to five years. third quarter 2022 operating results (in millions) q3-2022 q3-2021 change reported sales $ 631 $ 621 2 % operating income $ 108 $ 98 10 % operating margin 17.1 % 15.7 % 140 bps adjusted (1) sales $ 631 $ 614 3 % operating income $ 114 $ 108 6 % operating margin 18.2 % 17.5 % 70 bps reconciliations of reported to adjusted operating results are available in the appendix. adjusted sales of $631 million increased 3% compared with the prior year, and included a 1% headwind from unfavorable foreign currency translation; total a&d market sales were flat, while total commercial market sales increased 9%; in our a&d markets, our results reflected the contribution from the acquisition of our new engineered arresting systems business in the aerospace defense market and mid-single digit sales growth in commercial aerospace; those increases were principally offset by the timing of defense electronics revenues due to ongoing supply chain headwinds; in our commercial markets, we experienced double-digit sales growth in the general industrial market and mid-single digit sales growth within the power & process market, despite the wind down on the china direct ap1000 program as it nears completion; and adjusted operating income of $114 million increased 6%, while adjusted operating margin increased 70 basis points to 18.2%, principally driven by the benefits of our ongoing company-wide operational excellence initiatives and favorable overhead absorption on higher revenues in the aerospace & industrial and naval & power segments, partially offset by unfavorable overhead absorption on lower revenues in our defense electronics segment. third quarter 2022 segment performance aerospace & industrial (in millions) q3-2022 q3-2021 change reported sales $ 213 $ 196 9 % operating income $ 39 $ 31 27 % operating margin 18.3 % 15.7 % 260 bps adjusted (1) sales $ 213 $ 196 9 % operating income $ 39 $ 31 27 % operating margin 18.3 % 15.7 % 260 bps (1) reconciliations of reported to adjusted operating results are available in the appendix. adjusted sales of $213 million, up $17 million, or 9% overall, and included a 3% headwind from unfavorable foreign currency translation; higher commercial aerospace market revenue reflected continued strong demand for sensors products and surface treatment services on numerous narrowbody and widebody platforms; strong double-digit revenue growth in the general industrial market was driven by increased sales of industrial vehicle products, principally serving on-highway and specialty platforms, and higher sales of surface treatment services; and adjusted operating income was $39 million, up 27% from the prior year, while adjusted operating margin increased 260 basis points to 18.3%, reflecting favorable absorption on strong sales and the benefits of our ongoing operational excellence and pricing initiatives. defense electronics (in millions) q3-2022 q3-2021 change reported sales $ 161 $ 182 (11 %) operating income $ 37 $ 41 (10 %) operating margin 22.7 % 22.5 % 20 bps adjusted (1) sales $ 161 $ 183 (12 %) operating income $ 37 $ 42 (14 %) operating margin 22.7 % 23.2 % (50 bps) (1) reconciliations of reported to adjusted operating results are available in the appendix. adjusted sales of $161 million, down $21 million, or 12%, principally reflected the timing of defense market sales due to ongoing supply chain headwinds related to the availability of electronic components; lower aerospace defense market revenue reflected decreased sales of our embedded computing and flight test equipment; ground defense market revenue declines reflected reduced sales of our tactical communications equipment; and adjusted operating income was $37 million, down 14% from the prior year, while adjusted operating margin decreased 50 basis points to 22.7%, primarily reflecting unfavorable absorption and mix on lower a&d revenues, partially offset by the benefits of our ongoing operational excellence initiatives. naval & power (in millions) q3-2022 q3-2021 change reported sales $ 256 $ 243 6 % operating income $ 42 $ 35 17 % operating margin 16.2 % 14.6 % 160 bps adjusted (1) sales $ 256 $ 235 9 % operating income $ 48 $ 44 11 % operating margin 18.9 % 18.6 % 30 bps (1) reconciliations of reported to adjusted operating results are available in the appendix. adjusted sales of $256 million, up $21 million, or 9%, principally driven by the contribution from the arresting systems acquisition for arresting systems equipment within the aerospace defense market; naval defense market revenues increased slightly as higher revenues on the columbia-class submarine and cvn-81 aircraft carrier programs were mainly offset by timing of revenues on the virginia-class submarine and cvn-80 aircraft carrier programs; higher power & process market revenues reflected continued strong growth in industrial valve sales in the process market, as well as higher nuclear aftermarket revenues supporting existing operating reactors; those increases were partially offset by the wind down of production on the china direct ap1000 program; and adjusted operating income was $48 million, up 11% from the prior year, while adjusted operating margin increased 30 basis points to 18.9%, as favorable absorption on higher organic revenues, as well as the benefits of our restructuring and ongoing operational excellence initiatives, were partially offset by unfavorable mix in the power & process market. free cash flow (in millions) q3-2022 q3-2021 change net cash provided by operating activities $ 96 $ 107 (11 %) capital expenditures (9 ) (10 ) (8 %) reported free cash flow $ 86 $ 97 (11 %) adjusted free cash flow (1) $ 86 $ 97 (11 %) a reconciliation of reported to adjusted free cash flow is available in the appendix. reported free cash flow of $86 million decreased $11 million, primarily due to the timing of defense revenues and higher inventory levels as we continue to work through the challenging supply chain environment; adjusted free cash flow of $86 million; and capital expenditures decreased $1 million compared with the prior year. new orders and backlog new orders of $818 million increased 32% in the third quarter and generated a book-to-bill of 1.30, principally driven by strong demand for defense and commercial aerospace products within our a&d markets, and for nuclear aftermarket and process products within our commercial markets; and backlog of $2.6 billion, up 19% from december 31, 2021, reflects strong demand in both our a&d and commercial markets. share repurchase and dividends during the third quarter, the company repurchased 90,307 shares of its common stock for approximately $13 million; and the company also declared a quarterly dividend of $0.19 a share. other items – completion of financing of $300 million in senior notes on october 27, 2022, the company announced the successful completion of a private placement debt offering of $300 million for senior notes (the "notes"), consisting of $200 million 4.49% notes due 2032 and $100 million 4.64% notes due 2034. full-year 2022 guidance the company is updating its full-year 2022 adjusted financial guidance(1) as follows: ($ in millions, except eps) 2022 adjusted non-gaap guidance (prior) 2022 adjusted non-gaap guidance (current) % chg vs 2021 total sales $2,570 - $2,620 $2,525 - $2,575 up 2% - 4% operating income $439 - $452 $433 - $444 up 3% - 6% operating margin 17.1% - 17.3% 17.1% - 17.3% up 10 - 30 bps diluted eps $8.10 - $8.30 $8.05 - $8.20 up 10% - 12% free cash flow $345 - $365 $275 - $315 down 9% - 21% reconciliations of reported to adjusted 2021 operating results and 2022 financial guidance are available in the appendix. adjusted guidance includes the contribution from the arresting systems acquisition to the company's second half 2022 performance. revised adjusted free cash flow reflects the timing of defense revenues, as well as the expected delay in receipt of a significant cash payment upon the final delivery of our cap1000 reactor coolant pumps to china, which has likely pushed to 2023, to align with our customer’s project schedule. ********** a more detailed breakdown of the company’s 2022 financial guidance by segment and by market, as well as all reconciliations of reported gaap amounts to adjusted non-gaap amounts, can be found in the accompanying schedules. historical financial results are available in the investor relations section of curtiss-wright’s website. conference call & webcast information the company will host a conference call to discuss third quarter 2022 financial results and updates to 2022 guidance at 10:00 a.m. et on thursday, november 3, 2022. a live webcast of the call and the accompanying financial presentation, as well as a webcast replay of the call, will be made available on the internet by visiting the investor relations section of the company’s website at www.curtisswright.com. (tables to follow) curtiss-wright corporation and subsidiaries condensed consolidated statements of earnings (unaudited) ($'s in thousands, except per share data) three months ended nine months ended september 30, september 30, 2022 2021 2022 2021 product sales $ 530,782 $ 528,339 $ 1,489,619 $ 1,552,706 service sales 99,760 92,280 309,741 286,467 total net sales 630,542 620,619 1,799,360 1,839,173 cost of product sales 338,264 328,424 949,180 989,759 cost of service sales 60,069 55,187 188,055 177,930 total cost of sales 398,333 383,611 1,137,235 1,167,689 gross profit 232,209 237,008 662,125 671,484 research and development expenses 17,387 21,618 61,804 66,675 selling expenses 31,888 30,067 90,387 89,227 general and administrative expenses 75,351 78,998 239,085 229,608 loss on divestiture — — 4,651 — impairment of assets held for sale — 8,656 — 8,656 operating income 107,583 97,669 266,198 277,318 interest expense 13,997 9,955 33,315 30,094 other income, net 3,746 3,627 11,298 8,910 earnings before income taxes 97,332 91,341 244,181 256,134 provision for income taxes (23,564 ) (21,638 ) (58,856 ) (65,554 ) net earnings $ 73,768 $ 69,703 $ 185,325 $ 190,580 net earnings per share: basic earnings per share $ 1.92 $ 1.71 $ 4.82 $ 4.66 diluted earnings per share $ 1.91 $ 1.70 $ 4.79 $ 4.64 dividends per share $ 0.19 $ 0.18 $ 0.56 $ 0.53 weighted-average shares outstanding: basic 38,368 40,769 38,416 40,865 diluted 38,647 40,950 38,655 41,040 curtiss-wright corporation and subsidiaries condensed consolidated balance sheets (unaudited) ($'s in thousands, except par value) september 30, december 31, 2022 2021 assets current assets: cash and cash equivalents $ 113,552 $ 171,004 receivables, net 713,592 647,148 inventories, net 503,064 411,567 assets held for sale — 10,988 other current assets 84,468 67,101 total current assets 1,414,676 1,307,808 property, plant, and equipment, net 338,549 360,031 goodwill 1,512,231 1,463,026 other intangible assets, net 618,563 538,077 operating lease right-of-use assets, net 145,252 143,613 prepaid pension asset 267,262 256,422 other assets 45,629 34,568 total assets $ 4,342,162 $ 4,103,545 liabilities current liabilities: current portion of long-term debt $ 202,500 $ — accounts payable 182,621 211,640 accrued expenses 139,982 147,701 deferred revenue 220,259 260,157 liabilities held for sale — 12,655 other current liabilities 95,002 102,714 total current liabilities 840,364 734,867 long-term debt 1,141,211 1,050,610 deferred tax liabilities, net 150,721 147,349 accrued pension and other postretirement benefit costs 85,865 91,329 long-term operating lease liability 125,493 127,152 long-term portion of environmental reserves 13,186 13,656 other liabilities 101,079 112,092 total liabilities 2,457,919 2,277,055 stockholders' equity common stock, $1 par value $ 49,187 $ 49,187 additional paid in capital 131,230 127,104 retained earnings 3,072,639 2,908,827 accumulated other comprehensive loss (274,114 ) (190,465 ) less: cost of treasury stock (1,094,699 ) (1,068,163 ) total stockholders' equity 1,884,243 1,826,490 total liabilities and stockholders' equity $ 4,342,162 $ 4,103,545 use and definitions of non-gaap financial information (unaudited) the corporation supplements its financial information determined under u.s. generally accepted accounting principles (gaap) with certain non-gaap financial information. curtiss-wright believes that these adjusted (non-gaap) measures provide investors with improved transparency in order to better measure curtiss-wright’s ongoing operating and financial performance and better comparisons of our key financial metrics to our peers. these non-gaap measures should not be considered in isolation or as a substitute for the related gaap measures, and other companies may define such measures differently. curtiss-wright encourages investors to review its financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. reconciliations of “reported” gaap amounts to “adjusted” non-gaap amounts are furnished within this release. the following definitions are provided: adjusted sales, operating income, operating margin, net earnings and diluted eps these adjusted financials are defined as reported sales, operating income, operating margin, net earnings and diluted earnings per share under gaap excluding: (i) the impact of first year purchase accounting costs associated with acquisitions, specifically one-time inventory step-up, backlog amortization, deferred revenue adjustments and transaction costs; (ii) the sale or divestiture of a business or product line; (iii) pension settlement charges; and (iv) significant legal settlements, impairment costs, and costs associated with shareholder activism, as applicable. curtiss-wright corporation and subsidiaries reconciliation of as reported to adjusted (unaudited) ($'s in thousands) three months ended three months ended september 30, 2022 september 30, 2021 % change as reported adjustments adjusted as reported adjustments adjusted as reported adjusted sales: aerospace & industrial (1) $ 213,093 $ — $ 213,093 $ 196,296 $ (381 ) $ 195,915 9 % 9 % defense electronics (2) 161,188 — 161,188 181,504 1,080 182,584 (11 )% (12 )% naval & power (4) 256,261 — 256,261 242,819 (7,471 ) 235,348 6 % 9 % total sales $ 630,542 $ — $ 630,542 $ 620,619 $ (6,772 ) $ 613,847 2 % 3 % operating income (expense): aerospace & industrial (1) $ 39,080 $ — $ 39,080 $ 30,872 $ (97 ) $ 30,775 27 % 27 % defense electronics (2) 36,588 — 36,588 40,762 1,561 42,323 (10 )% (14 )% naval & power (3)(4) 41,576 6,905 48,481 35,483 8,381 43,864 17 % 11 % total segments $ 117,244 $ 6,905 $ 124,149 $ 107,117 $ 9,845 $ 116,962 9 % 6 % corporate and other (9,661 ) — (9,661 ) (9,448 ) 9 (9,439 ) (2 )% (2 )% total operating income $ 107,583 $ 6,905 $ 114,488 $ 97,669 $ 9,854 $ 107,523 10 % 6 % operating margins: as reported adjusted as reported adjusted as reported adjusted aerospace & industrial 18.3 % 18.3 % 15.7 % 15.7 % 260 bps 260 bps defense electronics 22.7 % 22.7 % 22.5 % 23.2 % 20 bps (50 bps) naval & power 16.2 % 18.9 % 14.6 % 18.6 % 160 bps 30 bps total curtiss-wright 17.1 % 18.2 % 15.7 % 17.5 % 140 bps 70 bps segment margins 18.6 % 19.7 % 17.3 % 19.1 % 130 bps 60 bps (1) excludes our build-to-print actuation product line supporting the boeing 737 max program, which we substantially exited in the fourth quarter of 2020. (2) excludes first year purchase accounting adjustments in the prior period. (3) excludes first year purchase accounting adjustments in the current period. (4) excludes the results of operations from our german valves business, which was sold in january 2022, including an impairment loss in the prior period. curtiss-wright corporation and subsidiaries reconciliation of as reported to adjusted (unaudited) ($'s in thousands) nine months ended nine months ended september 30, 2022 september 30, 2021 % change as reported adjustments adjusted as reported adjustments adjusted as reported adjusted sales: aerospace & industrial (1) $ 612,777 $ — $ 612,777 $ 576,340 $ (8,764 ) $ 567,576 6 % 8 % defense electronics (2) 453,806 — 453,806 525,067 3,240 528,307 (14 )% (14 )% naval & power (4) 732,777 — 732,777 737,766 (20,468 ) 717,298 (1 )% 2 % total sales $ 1,799,360 $ — $ 1,799,360 $ 1,839,173 $ (25,992 ) $ 1,813,181 (2 )% (1 )% operating income (expense): aerospace & industrial (1) $ 96,397 $ — $ 96,397 $ 81,874 $ (2,079 ) $ 79,795 18 % 21 % defense electronics (2) 84,338 — 84,338 106,656 4,692 111,348 (21 )% (24 )% naval & power (3)(4) 118,865 12,332 131,197 116,635 11,337 127,972 2 % 3 % total segments $ 299,600 $ 12,332 $ 311,932 $ 305,165 $ 13,950 $ 319,115 (2 )% (2 )% corporate and other (5) (33,402 ) 4,876 (28,526 ) (27,847 ) 75 (27,772 ) (20 )% (3 )% total operating income $ 266,198 $ 17,208 $ 283,406 $ 277,318 $ 14,025 $ 291,343 (4 )% (3 )% operating margins: as reported adjusted as reported adjusted as reported adjusted aerospace & industrial 15.7 % 15.7 % 14.2 % 14.1 % 150 bps 160 bps defense electronics 18.6 % 18.6 % 20.3 % 21.1 % (170 bps) (250 bps) naval & power 16.2 % 17.9 % 15.8 % 17.8 % 40 bps 10 bps total curtiss-wright 14.8 % 15.8 % 15.1 % 16.1 % (30 bps) (30 bps) segment margins 16.7 % 17.3 % 16.6 % 17.6 % 10 bps (30 bps) (1) excludes our build-to-print actuation product line supporting the boeing 737 max program, which we substantially exited in the fourth quarter of 2020. (2) excludes first year purchase accounting adjustments in the prior period. (3) excludes first year purchase accounting adjustments in the current period. (4) excludes the results of operations from our german valves business, which was sold in january 2022, including a loss on divestiture in the current period and an impairment loss in the prior period. (5) excludes costs associated with shareholder activism in the current period. curtiss-wright corporation and subsidiaries reconciliation of as reported sales to adjusted sales by end market (unaudited) ($'s in thousands) three months ended three months ended september 30, 2022 september 30, 2021 % change as reported adjustments adjusted sales as reported adjustments adjusted sales change in as reported sales change in adjusted sales aerospace & defense markets: aerospace defense $ 114,431 $ — $ 114,431 $ 116,853 $ — $ 116,853 (2 %) (2 %) ground defense (1) 54,890 — 54,890 55,124 1,080 56,204 0 % (2 %) naval defense 174,844 — 174,844 175,800 — 175,800 (1 %) (1 %) commercial aerospace (2) 70,257 — 70,257 67,461 (381 ) 67,080 4 % 5 % total aerospace & defense $ 414,422 $ — $ 414,422 $ 415,238 $ 699 $ 415,937 0 % 0 % commercial markets: power & process (3) 110,559 — 110,559 112,736 (7,472 ) 105,264 (2 %) 5 % general industrial 105,561 — 105,561 92,645 — 92,645 14 % 14 % total commercial $ 216,120 $ — $ 216,120 $ 205,381 $ (7,472 ) $ 197,909 5 % 9 % total curtiss-wright $ 630,542 $ — $ 630,542 $ 620,619 $ (6,773 ) $ 613,846 2 % 3 % nine months ended nine months ended september 30, 2022 september 30, 2021 % change as reported adjustments adjusted sales as reported adjustments adjusted sales change in as reported sales change in adjusted sales aerospace & defense markets: aerospace defense $ 306,980 $ — $ 306,980 $ 327,847 $ — $ 327,847 (6 %) (6 %) ground defense (1) 138,391 — 138,391 159,090 3,240 162,330 (13 %) (15 %) naval defense 510,597 — 510,597 531,429 — 531,429 (4 %) (4 %) commercial aerospace (2) 199,341 — 199,341 196,285 (8,764 ) 187,521 2 % 6 % total aerospace & defense $ 1,155,309 $ — $ 1,155,309 $ 1,214,651 $ (5,524 ) $ 1,209,127 (5 %) (4 %) commercial markets: power & process (3) 340,702 — 340,702 343,573 (20,468 ) 323,105 (1 %) 5 % general industrial 303,349 — 303,349 280,949 — 280,949 8 % 8 % total commercial $ 644,051 $ — $ 644,051 $ 624,522 $ (20,468 ) $ 604,054 3 % 7 % total curtiss-wright $ 1,799,360 $ — $ 1,799,360 $ 1,839,173 $ (25,992 ) $ 1,813,181 (2 %) (1 %) (1) excludes first year purchase accounting adjustments in the prior period. (2) excludes our build-to-print actuation product line supporting the boeing 737 max program, which we substantially exited in the fourth quarter of 2020. (3) excludes the prior period results of our german valves business, which was sold in january 2022. curtiss-wright corporation and subsidiaries reconciliation of as reported to adjusted diluted earnings per share (unaudited) three months ended nine months ended september 30, september 30, 2022 2021 2022 2021 diluted earnings per share - as reported $ 1.91 $ 1.70 $ 4.79 $ 4.64 divested german valves business — 0.15 0.11 0.19 costs associated with shareholder activism — — 0.10 — former executive pension settlement expense — — 0.04 0.06 first year purchase accounting adjustments 0.16 0.03 0.17 0.09 exit of build-to-print actuation product line — — — (0.03 ) diluted earnings per share - adjusted (1) $ 2.07 $ 1.88 $ 5.21 $ 4.95 (1) all adjustments are presented net of income taxes. organic sales and organic operating income the corporation discloses organic sales and organic operating income because the corporation believes it provides investors with insight as to the company’s ongoing business performance. organic sales and organic operating income are defined as sales and operating income, excluding contributions from acquisitions made during the last twelve months, loss on divestiture of the german valves business, and foreign currency fluctuations. three months ended september 30, 2022 vs. 2021 aerospace & industrial defense electronics naval & power total curtiss-wright sales operating income sales operating income sales operating income sales operating income as reported 9% 27% (11%) (10%) 6% 17% 2% 10% less: acquisitions 0% 0% 0% 0% (6%) 20% (2%) 7% impairment of assets held for sale 0% 0% 0% 0% 0% (24%) 0% (9%) foreign currency 3% 1% 1% (1%) 0% (1%) 1% 0% organic 12% 28% (10%) (11%) 0% 12% 1% 8% nine months ended september 30, 2022 vs. 2021 aerospace & industrial defense electronics naval & power total curtiss-wright sales operating income sales operating income sales operating income sales operating income as reported 6% 18% (14%) (21%) (1%) 2% (2%) (4%) less: acquisitions 0% 0% 0% 0% (1%) 6% (1%) 3% loss on divestiture/impairment of assets held for sale 0% 0% 0% 0% 0% (3%) 0% (2%) foreign currency 3% 1% 1% (1%) 0% 0% 1% 0% organic 9% 19% (13%) (22%) (2%) 5% (2%) (3%) free cash flow and free cash flow conversion the corporation discloses free cash flow because it measures cash flow available for investing and financing activities. free cash flow represents cash available to repay outstanding debt, invest in the business, acquire businesses, return capital to shareholders and make other strategic investments. free cash flow is defined as net cash provided by operating activities less capital expenditures. adjusted free cash flow for 2022 excludes: (i) payments associated with the westinghouse legal settlement and (ii) executive pension payments. the corporation discloses adjusted free cash flow conversion because it measures the proportion of net earnings converted into free cash flow and is defined as adjusted free cash flow divided by adjusted net earnings. curtiss-wright corporation and subsidiaries non-gaap financial data (unaudited) ($'s in thousands) three months ended nine months ended september 30, september 30, 2022 2021 2022 2021 net cash provided by operating activities $ 95,658 $ 107,285 $ 2,387 $ 155,761 capital expenditures (9,297 ) (10,087 ) (28,789 ) (27,858 ) free cash flow $ 86,361 $ 97,198 $ (26,402 ) $ 127,903 westinghouse legal settlement — — 15,000 — pension payment to former executive — — 8,214 — adjusted free cash flow $ 86,361 $ 97,198 $ (3,188 ) $ 127,903 adjusted free cash flow conversion 108 % 127 % (2 %) 63 % curtiss-wright corporation 2022 guidance as of november 2, 2022 ($'s in millions, except per share data) 2021 reported (gaap) 2021 adjustments (non- gaap)(1) 2021 adjusted (non- gaap)(1) 2022 reported guidance (gaap) 2022 adjustments (non- gaap)(2,3) 2022 adjusted guidance (non-gaap)(1,2,3) low high low high 2022 chg vs 2021 adjusted sales: aerospace & industrial $ 786 $ (11 ) $ 775 $ 820 $ 840 $ — $ 820 $ 840 6 - 8% defense electronics 724 4 728 675 690 — 675 690 (7) - (5)% naval & power 995 (30 ) 965 1,030 1,045 — 1,030 1,045 7 - 8% total sales $ 2,506 $ (37 ) $ 2,468 $ 2,525 $ 2,575 $ — $ 2,525 $ 2,575 2 to 4% operating income: aerospace & industrial $ 122 $ (2 ) $ 120 $ 135 $ 139 $ — $ 135 $ 139 12 - 16% defense electronics 159 5 164 150 155 — 150 155 (9) - (6)% naval & power 142 34 176 171 175 15 186 190 6 - 8% total segments 423 38 460 456 469 15 471 484 corporate and other (40 ) — (40 ) (43 ) (44 ) 5 (38 ) (39 ) total operating income $ 383 $ 38 $ 420 $ 413 $ 425 $ 20 $ 433 $ 444 3 to 6% interest expense $ (40 ) $ — $ (40 ) $ (46 ) $ (47 ) $ — $ (46 ) $ (47 ) other income, net 12 3 15 10 11 7 17 18 earnings before income taxes 355 41 395 378 389 27 405 416 provision for income taxes (87 ) (10 ) (97 ) (89 ) (93 ) (6 ) (96 ) (100 ) net earnings $ 267 $ 31 $ 298 $ 290 $ 296 $ 20 $ 310 $ 316 diluted earnings per share $ 6.58 $ 0.76 $ 7.34 $ 7.52 $ 7.67 $ 0.53 $ 8.05 $ 8.20 10 to 12% diluted shares outstanding 40.6 40.6 38.6 38.6 38.6 38.6 effective tax rate 24.6 % 24.6 % 24.0 % 24.0 % 24.0 % 24.0 % operating margins: aerospace & industrial 15.5 % 15.5 % 16.4 % 16.6 % 16.4 % 16.6 % 90 to 110 bps defense electronics 22.0 % 22.6 % 22.2 % 22.4 % 22.2 % 22.4 % (20 to 40 bps) naval & power 14.2 % 18.2 % 16.6 % 16.7 % 18.0 % 18.2 % (20) to 0 bps total operating margin 15.3 % 17.0 % 16.4 % 16.5 % 17.1 % 17.3 % 10 to 30 bps free cash flow $ 347 $ 347 $ 236 $ 276 $ 39 $ 275 $ 315 notes: full year amounts may not add due to rounding. (1) 2021 adjusted financials excludes the impact of first year purchase accounting adjustments; our build-to-print actuation product line supporting the boeing 737 max program; the results of operations and related impairments from our german valves business; pension settlement charges related to the retirement of two former executives (within non-operating income); and one-time legal settlement costs. (2) 2022 adjusted financials exclude the impact of first year purchase accounting adjustments, the loss on sale of our german valves business, costs associated with shareholder activism and pension settlement charges related to the retirement of two former executives. (3) free cash flow is defined as cash flow from operations less capital expenditures. 2022 adjusted free cash flow guidance excludes executive pension settlement payments of $24 million and a legal settlement payment of $15 million. curtiss-wright corporation 2022 sales growth guidance by end market as of november 2, 2022 2022 % change vs. 2021 adjusted(1)(2) prior current % total sales aerospace & defense markets aerospace defense 9 - 11% 3 - 5% 19% ground defense (1 - 3%) (7 - 9%) 8% naval defense 1 - 3% flat 28% commercial aerospace 9 - 11% 9 - 11% 11% total aerospace & defense 4 - 6% 1 - 3% 66% commercial markets power & process 4 - 6% 5 - 7% 18% general industrial 6 - 8% 6 - 8% 16% total commercial 5 - 7% 6 - 8% 34% total curtiss-wright sales 4 - 6% 2 - 4% 100% (1) 2021 adjusted sales exclude the impact of first year purchase accounting adjustments; our build-to-print actuation product line supporting the boeing 737 max programs; and the results of operations from our german valves business. (2) 2022 sales include the contribution from the arresting systems acquisition to the company's second half 2022 performance. about curtiss-wright corporation curtiss-wright corporation (nyse:cw) is a global integrated business that provides highly engineered products, solutions and services mainly to aerospace & defense markets, as well as critical technologies in demanding commercial power, process and industrial markets. we leverage a workforce of approximately 8,000 highly skilled employees who develop, design and build what we believe are the best engineered solutions to the markets we serve. building on the heritage of glenn curtiss and the wright brothers, curtiss-wright has a long tradition of providing innovative solutions through trusted customer relationships. for more information, visit www.curtisswright.com. certain statements made in this press release, including statements about future revenue, financial performance guidance, quarterly and annual revenue, net income, operating income growth, future business opportunities, cost saving initiatives, the successful integration of the company’s acquisitions, and future cash flow from operations, are forward-looking statements within the meaning of the private securities litigation reform act of 1995. these statements present management's expectations, beliefs, plans and objectives regarding future financial performance, and assumptions or judgments concerning such performance. any discussions contained in this press release, except to the extent that they contain historical facts, are forward-looking and accordingly involve estimates, assumptions, judgments and uncertainties. such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied. readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. such risks and uncertainties include, but are not limited to: a reduction in anticipated orders; an economic downturn; changes in the competitive marketplace and/or customer requirements; a change in government spending; an inability to perform customer contracts at anticipated cost levels; and other factors that generally affect the business of aerospace, defense contracting, electronics, marine, and industrial companies. such factors are detailed in the company's annual report on form 10-k for the fiscal year ended december 31, 2021, and subsequent reports filed with the securities and exchange commission. this press release and additional information are available at www.curtisswright.com.
