General Dynamics
Northrop Grumman
L-3 Communications Holdings, Inc.
Textron Inc.
Curtiss-Wright Corporation
Ball Corporation
Bombardier Inc.
FLIR Systems
ON Semiconductor
Oshkosh Corporation
Rockwell Collins
Teledyne Technologies
General Dynamics
28 Oct 15. General Dynamics (NYSE: GD) reported third-quarter 2015 earnings from continuing operations of $733m, a 5.6 percent increase over third-quarter 2014, on revenue of $7.99bn. Diluted earnings per share from continuing operations were $2.28 compared to $2.05 in the year-ago quarter, an 11.2 percent increase.
“General Dynamics had another solid quarter,” said Phebe Novakovic, chairman and chief executive officer. “This is our fourth consecutive quarter with more than $1bn in operating earnings, and we expect to maintain this momentum as we see the results of our focus on operating discipline, lower cost structure and execution on our strong backlog.”
Margin
Company-wide operating margin for the third quarter of 2015 was 12.9 percent, with margin expansion in the Aerospace and Information Systems and Technology groups when compared to third-quarter 2014.
Cash
Net cash provided by operating activities in the quarter totaled $822m. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $652m.
Capital Deployment
The company repurchased 7.15m of its outstanding shares in the third quarter. Year-to-date, the company has repurchased 19.28m outstanding shares.
Backlog
General Dynamics’ total backlog at the end of third-quarter 2015 was $68.7bn. The Aerospace group continued to experience steady demand in the quarter with order activity for each of the products in the Gulfstream portfolio. Also, each of the defense businesses had significant orders in the quarter. The estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $25.5bn. Total potential contract value, the sum of all backlog components, was $94.3bn at the end of the quarter.
L-3 Communications Holdings, Inc.
29 Oct 15. L-3 Communications Holdings, Inc. (LLL) reported adjusted diluted earnings per share (EPS) of $2.09 and diluted loss per share of $3.74 for the quarter ended September 25, 2015 (2015 third quarter), compared to diluted EPS of $1.78 for the quarter ended September 26, 2014 (2014 third quarter). Adjusted diluted EPS excludes: (i) a non-cash goodwill impairment charge for the National Security Solutions (NSS) segment of $5.79 per diluted share and (ii) a loss related to a business divestiture of $0.08 per diluted share. Net sales of $2.8bn for the 2015 third quarter decreased by 4% compared to the 2014 third quarter. Excluding sales from divestitures and acquisitions, net sales (organic sales) decreased 1%.
“Our results for the third quarter reflect continued execution of our strategy, including the ongoing repositioning of our portfolio to focus on structurally stronger, higher-yielding businesses where we maintain leading positions,” said Michael T. Strianese, chairman and chief executive officer. “While we had improved operating results, demonstrated by higher segment operating margins, we recorded a non-cash goodwill impairment charge for National Security Solutions. We continue to evaluate strategic alternatives for National Security Solutions and the process is proceeding as expected. We expect to undertake other significant portfolio actions in addition to National Security Solutions, and we have begun to evaluate strategic alternatives for our other service and hardware businesses with lower returns. By transforming our portfolio, we expect to enhance L-3’s growth prospects, margin profile and overall competitive positioning.” Mr. Strianese added, “We are confident that our strategy and healthy cash flow coupled with our disciplined capital allocation will enhance shareholder value.”
Funded orders of $2.4bn for the quarter included the following key wins:
- a contract to missionize two C-130J aircraft with options to missionize ten additional C-130J aircraft and provide ground/flight test support to the U.S. Coast Guard,
- a subcontract from Science and Engineering Services, LLC to provide broadband communication systems to the U.S. Army in support of the Apache helicopter program,
- a prime contractor position to compete on the U.S. Air Force’s (USAF) Training Systems Acquisition III multi-award indefinite-delivery/indefinite-quantity (ID/IQ) contract to provide analysis, design, development, production, installation, test and sustainment for USAF training configurations encompassing complex aircrew, maintenance and system-specific training systems, and
- a prime contractor position to compete on the USAF Agile Acquisition multi-award ID/IQ contract to provide pre-program activities, technology development activities, engineering and manufacturing activities, and production activities for the development of new systems or modification of existing systems for the USAF.
Adjusted diluted EPS for the 2015 third quarter excludes: (1) a goodwill impairment charge of $491m ($463m after income taxes), or $5.79 per diluted share, due to a decline in the estimated fair value of the NSS segment and (2) a pre-tax loss of $9 m ($6 m after income taxes), or $0.08 per diluted share, related to business divestitures, primarily the divestiture of the Tinsley Product Line, which was completed on July 27, 2015 for a sales price of $4m. The goodwill impairment charge was a result of a decline in the projected future cash flows of NSS caused by NSS’s inability to achieve its planned 2015 orders, sales and operating income, primarily due to lower than expected new commercial and international business awards, and a reduced outlook for operating margin and international sales.
Adjusted diluted EPS for the year-to-date period ended September 25, 2015 (2015 year-to-date period) excludes: (1) a goodwill impairment charge of $491m ($463m after income taxes), or $5.68 per diluted share, related to the NSS segment and (2) a pre-tax loss of $29m ($18m after income taxes), or $0.22 per diluted share, related to business divestitures, of which $17m relates to the divestiture of Marine Systems International (MSI), completed on May 29, 2015, $8m relates to the Tinsley Product Line divestiture, and $4m relates to the Broadcast Sports, Inc. (BSI) divestiture, completed on April 24, 2015.
The goodwill impairment charge and pre-tax losses related to business divestitures are included in consolidated operating (loss) income, but excluded from segment operating income, because they are excluded by management for purposes of assessing segment operating performance.
L-3 Consolidated Results
Third Quarter Results of Operations: For the 2015 third quarter, consolidated net sales of $2.8bn decreased $123m, or 4%, compared to the 2014 third quarter. Sales to the U.S. Government declined 3%, or $58m, to $2,040 m in the 2015 third quarter, compared to $2,098m in the 2014 third quarter, driven primarily by U.S. defense budget constraints and reductions caused by sequestration, and by the U.S. military drawdown in Afghanistan. Sales to international and commercial customers declined 8%, or $65m, to $777m in the 2015 third quarter, compared to $842m in the 2014 third quarter driven by a $125m decline related to business divestitures, primarily MSI, partially offset by $32m of sales from the Miteq, Inc. and CTC business acquisitions. This decrease was partially offset by an increase of $28m primarily due to a new contract for satellite communication systems to the Australian Defence Force (ADF). Organic sales for the 2015 third quarter declined 1%. Organic sales to the U.S. Government declined 3%, while organic sales grew 3% for international and commercial customers.
Consolidated operating income for the 2015 third quarter decreased by $471m, compared to the 2014 third quarter, to an operating loss of $214m. Segment operating income for the 2015 third quarter increased $29m, or 11%, compared to the 2014 third quarter. Segment operating income as a percentage of sales (segment operating margin) increased by 150 basis points to 10.2% for the 2015 third quarter compared to 8.7% for the 2014 third quarter. Segment operating margin increased by: (1) 90 basis points due to $24m of outside accounting and legal advisory expenses incurred in the 2014 third quarter for the internal review of the Aerospace Systems segment (Internal Review) completed in October 2014, (2) 70 basis points due to favorable contract performance adjustments for the Intelligence, Surveillance and Reconnaissance (ISR) Systems sector in the Aerospace Systems segment, (3) 40 basis points due to the divestitures of MSI, BSI and the Tinsley Product Line and (4) 10 basis points due to sales mix changes. These increases were partially offset by a decrease of 60 basis points due to a higher pension expense of $18m. See the reportable segment results below for additional discussion of sales and operating margin trends.
The effective income tax rate for the 2015 third quarter is not meaningful because the company reported a pre-tax loss and income tax expense during the period due to the goodwill impairment charge. The marginal effective income tax rate on the goodwill impairment charge relating to the NSS segment was 6% because a significant portion of the NSS goodwill is not deductible for tax. Excluding the goodwill impairment charge and related income tax benefit, the effective income tax rate for the 2015 third quarter would have increased to 28.3% compared to 27.0%, primarily due to higher pre-tax income and state income tax expense.
Net (loss) income attributable to L-3 in the 2015 third quarter decreased by $453m to a loss of $299m, compared to income of $154m in the 2014 third quarter. Diluted EPS decreased by $5.52 to a loss of $3.74 from $1.78 in the 2014 third quarter. Adjusted net income attributable to L-3 increased 10% to $170 m compared to the 2014 third quarter, and adjusted diluted EPS increased 17% to $2.09. Diluted weighted average common shares outstanding for the 2015 third quarter declined by 8% compared to the 2014 third quarter primarily due to repurchases of L-3 common stock.
Year-to-Date Results of Operations: For the 2015 year-to-date period, consolidated net sales of $8.3bn decreased $593m, or 7%, compared to the year-to-date period ended September 26, 2014 (2014 year-to-date period). Sales to the U.S. Government, including $5m of sales from acquired businesses, declined 6%, or $395m, to $5,981m in the 2015 year-to-date period compared to $6,376m in the 2014 year-to-date period, driven primarily by U.S. defense budget constraints and reductions caused by sequestration, and by the U.S. military drawdown in Afghanistan. Sales to international and commercial customers declined 8%, or $198 m, to $2,342m in the 2015 year-to-date period, compared to $2,540m in the 2014 year-to-date period driven by: (1) a $187 m decline relating to business divestitures, partially offset by $66m of sales from the Miteq, Inc. and CTC business acquisitions, (2) a $82m decline due to foreign currency exchange rate changes and (3) a $59m decline on international head-of-state aircraft modification contracts primarily due to unfavorable contract performance adjustments. These decreases were partially offset by an increase of $64m primarily due to higher volume for small ISR aircraft systems to a foreign government and a new contract for satellite communication systems to the ADF. Organic consolidated sales for the 2015 year-to-date period declined 5%. Organic sales to the U.S. Government declined 6% and organic sales to international and commercial customers declined 3%.
Consolidated operating income for the 2015 year-to-date period decreased $630m, or 81%, compared to the 2014 year-to-date period. Segment operating income for the 2015 year-to-date period decreased by $110m, or 14%, compared to the 2014 year-to-date period. Segment operating margin decreased by 70 basis points to 8.1% for the 2015 year-to-date period compared to 8.8% for the 2014 year-to-date period. Segment operating margin decreased by: (1) 60 basis points due to unfavorable contract performance adjustments at the Aerospace Systems segment, (2) 60 basis points due to higher pension expense of $46m, (3) 10 basis points due to lower sales and mix changes and (4) 10 basis points related to a product specification matter in the Electronic Systems segment. Improved contract performance in Communication Systems and Electronic Systems increased segment operating margin by 40 basis points. Operating margin increased by 30 basis points due to $24m of outside accounting and legal advisory expenses incurred in 2014 for the Internal Review completed in October 2014. See the reportable segment results below for additional discussion of sales and operating margin trends.
Interest expense in the 2015 year-to-date period increased by $10 m compared to the 2014 year-to-date period due to the issuance of $1bn in new debt on May 28, 2014, partially offset by the redemption of our convertible contingent debt securities (CODES) in June 2014.
The effective income tax rate for the 2015 year-to-date period is not meaningful because the company reported income tax expense greater than pre-tax income during the period due to the goodwill impairment charge. Excluding the goodwill impairment charge and related income tax benefit, the effective income tax rate for the 2015 year-to-date period would have decreased to 22.3%, compared to 29.5% for the same period last year primarily due to $36m of tax benefits recorded in the second quarter of 2015, including: (1) $17m of foreign tax benefits related to a legal restructuring of our foreign entities, (2) a $10m benefit related to the resolution of various outstanding income tax matters with U.S. and foreign tax authorities and (3) $9m related to deferred tax benefits.
Net (loss) income attributable to L-3 in the 2015 year-to-date period decreased by $535m to a loss of $74m, compared to income of $461m in the 2014 year-to-date period. Diluted EPS decreased by $6.12 to a loss of $0.91 from $5.21 in the 2014 year-to-date period. Adjusted net income attributable to L-3 decreased 12% to $407m compared to the 2014 year-to-date period, and adjusted diluted EPS decreased 6% to $4.92. Diluted weighted average common shares outstanding for the 2015 year-to-date period declined by 8% compared to the 2014 year-to-date period primarily due to repurchases of L-3 common stock.
Orders: Funded orders for the 2015 third quarter were $2.4bn, a decrease of 0.5% compared to the 2014 third quarter. Funded orders for the 2015 year-to-date period were $8.1bn compared to $8.7bn for the 2014 year-to-date period. The book-to-bill ratio was 0.86x for the 2015 third quarter and 0.98x for the 2015 year-to-date period. Funded backlog declined 8% to $9.4bn at September 25, 2015, compared to $10.2bn at December 31, 2014, primarily due to the divestiture of MSI.
Cash flow and cash returned to shareholders: Net cash from operating activities decreased by $73m, or 19%, to $317m for the 2015 third quarter, compared to $390m for the 2014 third quarter. Net cash from operating activities increased by $26m, or 4%, to $631m for the 2015 year-to-date period, compared to $605m for the 2014 year-to-date period. The increase in net cash from operating activities in the 2015 year-to-date period was due to a lower increase in net working capital in the 2015 year-to-date period compared to the 2014 year-to-date period.
Reportable Segment Results
Electronic Systems
Third Quarter: Electronic Systems net sales for the 2015 third quarter decreased by $124m, or 11%, compared to the 2014 third quarter. The divestitures of MSI, BSI and the Tinsley Product Line reduced sales by $125m and the CTC acquisition increased sales by $19m. Organic sales declined 2%, or $18m, primarily for Precision Engagement and Training due to the completion of contracts for commercial flight simulators to international customers.
Electronic Systems operating income for the 2015 third quarter decreased by $2m, or 2%, compared to the 2014 third quarter. Operating margin increased by 120 basis points to 12.5%. Operating margin increased by: (1) 100 basis points due to the divestitures of MSI, BSI and the Tinsley Product Line, which generated lower operating margins than the remainder of the Electronic Systems segment and (2) 50 basis points primarily for favorable contract performance adjustments. These increases were partially offset by 30 basis points due to higher pension expense of $3m. Severance expense for the 2015 third quarter was $2m, compared to $1m for the 2014 third quarter.
Year-to-Date: Electronic Systems net sales for the 2015 year-to-date period decreased by $259m, or 8%, compared to the 2014 year-to-date period. The divestitures of MSI, BSI, and the Tinsley Product Line reduced sales by $187m, and the CTC acquisition increased sales by $25m. Organic sales declined 3%, or $97m, including: (1) $74m due to foreign currency exchange rate changes and (2) $23m primarily related to reduced sales at Warrior Systems due to temporarily suspended shipments of holographic weapon sights for most of the 2015 second quarter in connection with a product specification matter, and lower volume for night vision goggles and precision targeting equipment.
Electronic Systems operating income for the 2015 year-to-date period decreased by $27m, or 7%, compared to the 2014 year-to-date period. Operating margin increased by 10 basis points to 11.8%. Operating margin increased by: (1) 50 basis points due to the divestitures of MSI, BSI and the Tinsley Product Line, which generated lower operating margins than the remainder of the Electronic Systems segment, (2) 40 basis points for favorable contract performance adjustments and (3) 30 basis points due to lower severance expense of $10m. Severance expense for the 2015 year-to-date period was $4m, compared to $14m for the 2014 year-to-date period. These increases were partially offset by decreases of: (1) 30 basis points due to higher pension expense of $9m, (2) 30 basis points due to an increased provision of $8m during the second quarter of 2015 in anticipation of a settlement with the U.S. Government related to a product specification matter, (3) 30 basis points for sales mix changes and (4) 20 basis points due to a $6m charge during the second quarter of 2015 related to an adverse arbitration ruling to resolve a dispute for the termination of a supply arrangement in the Aviation Products & Security business.
Aerospace Systems
Third Quarter: Aerospace Systems net sales for the 2015 third quarter increased by $31m, or 3%, compared to the 2014 third quarter. Sales increased $35m for ISR Systems and $8m for Aircraft Systems. Sales for Logistics Solutions decreased by $12m. Sales increased for ISR Systems due to higher volume of $45m for large ISR aircraft systems for U.S. Government customers and small ISR aircraft systems to the Department of Defense (DoD), partially offset by $10m of lower sales for small ISR aircraft fleet management services primarily to the DoD due to the U.S. military drawdown in Afghanistan. Sales increased for Aircraft Systems by $20m due to higher volume for foreign military aircraft modification contracts, including $16m for the Australian C-27J aircraft, partially offset by $12m of lower sales primarily to the USAF from the DoD’s planned reduction of the Compass Call aircraft fleet and the DoD’s retirement of the Joint Cargo Aircraft (JCA). The decrease in sales for Logistics Solutions was due to lower volume for field maintenance and sustainment services, primarily for U.S. Navy aircraft due to the completion of contracts and lower demand and lower prices due to competitive pressures.
Aerospace Systems operating income for the 2015 third quarter increased by $39m, or 61%, compared to the 2014 third quarter. Operating margin increased by 350 basis points to 9.7%. Operating margin increased by: (1) 160 basis points due to favorable contract performance adjustments at ISR Systems and (2) 140 basis points for improved performance on the Army C-12 contract, due to better terms on the new contract which began August 1, 2015, and $8m due to a partial recovery of cost overruns recognized in prior periods on the previous contract that ended on July 31, 2015. These increases were partially offset by 110 basis points primarily for reduced flight hours and lower pricing due to competitive pressures on logistics and maintenance contracts, including the U.S Navy T-45 contract and 70 basis points due to higher pension expense of $7m. Operating margin also increased by 230 basis points, due to $24m of outside accounting and legal advisory expenses incurred during the 2014 third quarter for the Internal Review completed in October 2014.
Year-to-Date: Aerospace Systems net sales for the 2015 year-to-date period decreased by $82 m, or 3%, compared to the 2014 year-to-date period. Sales decreased $99m for Aircraft Systems and $43m for Logistic Solutions. Sales for ISR Systems increased by $60m. Sales decreased for Aircraft Systems due to lower volume of: (1) $60m primarily to the USAF from the DoD’s planned reduction of the Compass Call aircraft fleet and the DoD’s retirement of the JCA and (2) $59m on international head-of-state aircraft modification contracts primarily due to unfavorable contract performance adjustments. These decreases were partially offset by an increase of $20m primarily due to higher volume for foreign military aircraft modification contracts. The decrease in sales for Logistics Solutions was due to lower volume for field maintenance and sustainment services, primarily for U.S. Navy aircraft due to the completion of contracts and lower demand and lower prices due to competitive pressures. The increase in ISR Systems was due to an increase in sales of $152m primarily from higher volume for large ISR aircraft systems for U.S. Government customers and small ISR aircraft systems to the DoD and a foreign government, partially offset by $92m of lower sales for small ISR aircraft fleet management services to the DoD due to the U.S. military drawdown in Afghanistan.
Aerospace Systems operating income for the 2015 year-to-date period decreased by $48m, or 25%, compared to the 2014 year-to-date period. Operating margin decreased by 140 basis points to 4.8%. Operating margin decreased by: (1) 310 basis points due to contract performance adjustments at Aircraft Systems, which includes $101m of cost growth on international head-of-state aircraft modification contracts, compared to $15m of cost growth on the same contracts in the 2014 year-to-date period, (2) 70 basis points due to higher pension expense of $20m and (3) 60 basis points primarily due to reduced flight hours and lower pricing due to competitive pressures on logistics and maintenance contracts, including the U.S. Navy T-45 contract. These decreases were partially offset by: (1) 160 basis points due to favorable contract performance adjustments at ISR Systems, (2) 80 basis points due to $24m of outside accounting and legal advisory expenses incurred for the Internal Review completed in October 2014 and (3) 60 basis points due to a $17m increase in reserves for excess and obsolete inventory at Logistics Solutions recorded during the 2014 year-to-date period, which did not recur.
Communication Systems
Third Quarter: Communication Systems net sales for the 2015 third quarter increased by $12m, or 2%, compared to the 2014 third quarter. The Miteq, Inc. acquisition increased sales by $13m. Organic sales declined by $1m for the 2015 third quarter due to reduced sales to the U.S. DoD, partially offset by an increase of $31m on a new contract for satellite communication systems to the ADF.
Communication Systems operating income for the 2015 third quarter increased by $4m, or 8%, compared to the 2014 third quarter. Operating margin increased by 60 basis points to 10.5%. Sales mix changes increased operating margin by 140 basis points. A $3m settlement relating to the resolution of a dispute with a supplier increased operating margin by 60 basis points. Higher pension expense of $7m decreased operating margin by 140 basis points.
Year-to-Date: Communication Systems net sales for the 2015 year-to-date period decreased by $75m, or 5%, compared to the 2014 year-to-date period due to lower volume and reduced deliveries on lower demand. The Miteq, Inc. acquisition increased sales by $41m. Organic sales declined by $116m, or 8%, including: (1) $52m for Space & Power Systems, primarily satellite command and control software for U.S. Government agencies, power devices for commercial satellites and high frequency radios for a foreign government, (2) $40m for Advanced Communications products, primarily data recorders and secure communications equipment for the U.S. military as contracts near completion and (3) $24m primarily for Tactical Satellite Communications products, primarily mobile and ground-based satellite communication systems for the U.S. military, partially offset by sales on a new contract for satellite communication systems to the ADF.
Communication Systems operating income for the 2015 year-to-date period decreased by $7m, or 5%, compared to the 2014 year-to-date period. Operating margin remained at 9.7% compared to the 2014 year-to-date-period. Operating margin decreased by 110 basis points due to higher pension expense of $16m. Improved contract performance, partially offset by lower sales and mix changes, increased operating margin by 110 basis points.
NSS
NSS net sales for the 2015 third quarter decreased by $42m, or 14%, compared to the 2014 third quarter. Sales decreased due to lower volume of: (1) $29m for Defense Solutions primarily due to lower material requirements on a systems and software sustainment contract with the U.S. Army, and lower demand driven by the U.S. military drawdown in Afghanistan and completed contracts, (2) $8m for Global Solutions primarily due to completed contracts and (3) $5 m primarily for Data Tactics Corporation due to lower demand on U.S. Government contracts for software and systems support.
NSS operating income for the 2015 third quarter decreased by $12m, or 63%, compared to the 2014 third quarter. Operating margin decreased by 350 basis points to 2.7%. Operating margin decreased by: (1) 140 basis points due to a $4m charge related to a write-down of excess inventory, (2) 130 basis points primarily due to lower margins on new business and recompetitions caused by competitive pricing pressures, (3) 50 basis points primarily due to lower sales and higher overhead rates caused by delayed contract awards for commercial contracts and (4) 40 basis points due to higher pension expense of $1m. These decreases were partially offset by 10 basis points due to higher award fees for intelligence contracts.
Year-to-Date: NSS net sales for the 2015 year-to-date period decreased by $177m, or 19%, compared to the 2014 year-to-date period. Sales decreased due to trends similar to the 2015 third quarter and due to lower sales for Intelligence Solutions related to reduced tasking for technical support services for a U.S. Government Agency because of defense budget reductions. The decrease in sales at NSS was partially offset by $5 m of sales related to the Data Tactics Corporation acquisition.
NSS operating income for the 2015 year-to-date period decreased by $28m, or 50%, compared to the 2014 year-to-date period. Operating margin decreased by 230 basis points to 3.6% due to: (1) 120 basis points due to lower sales and higher overhead expense rates caused by delayed contract awards for international and commercial contracts, (2) 100 basis points primarily due to lower margins on new business and recompetitions caused by competitive pricing pressures, (3) 50 basis points due to a $4m charge related to a write-down of excess inventory and (4) 10 basis points due to higher pension expense of $1m. These decreases were partially offset by 50 basis points due to higher award fees for intelligence and defense contracts. (Source: Yahoo!/BUSINESS WIRE)
Northrop Grumman
28 Oct 15. Northrop Grumman Corporation (NYSE: NOC) reported third quarter 2015 net earnings increased 9 percent to $516m, or $2.75 per diluted share, from $473m, or $2.26 per diluted share in the third quarter of 2014. Third quarter 2015 diluted earnings per share are based on 187.9m weighted average shares outstanding compared with 209.2m shares in the prior year period. The company repurchased 5.6m shares of its common stock for $944m in the third quarter of 2015. The company has now completed the 60m share repurchase goal announced in May 2013. As of Sept. 30, 2015, $4.6bn remained on the company’s share repurchase authorizations.
“We continue to position Northrop Grumman for innovation and affordability and remain focused on creating value through our strong performance, outstanding portfolio and value-creating cash deployment. Our opportunity set offers the potential for long-term profitable growth and value creation for our shareholders, customers and employees,” said Wes Bush, chairman, chief executive officer and president.
Third quarter 2015 segment operating income declined to $726m, and segment operating margin rate decreased 190 basis points to 12.1 percent. Last year’s third quarter results included the benefit of $75m realized for settlements of certain legal claims and $37m of additional margin resulting from
lower CAS pension cost due to passage of the Highway and Transportation Funding Act of 2014
(HATFA). Operating income increased 3 percent and operating margin rate increased 40 basis points to 13.3 percent due to higher net FAS/CAS pension adjustment and lower unallocated corporate expenses. Last year’s third quarter net FAS/CAS pension adjustment was an expense of $20m due to a $132m cumulative reduction in 2014 CAS pension expense resulting from the HATFA legislation.
Total backlog as of Sept. 30, 2015, was $35.9bn compared with $38.2bn as of Dec. 31, 2014. Third quarter 2015 new awards totaled $4.8bn, and new awards for the first nine months totaled $15.5bn.
Third quarter 2015 cash provided by operating activities before after-tax discretionary pension contributions totaled $557m and free cash flow totaled $455m. The declines in cash from operations and free cash flow from the prior year period are principally due to changes in trade working capital.
Changes in cash and cash equivalents include the following for cash from operating, investing and financing activities through Sept. 30, 2015:
Operating
- $529m provided by operations after $500m discretionary pension contribution
Investing
- $334m used for capital expenditures
Financing
- $2.9bn used for repurchase of common stock
- $600m net proceeds from issuance of long-term debt
- $458m used for dividends
2015 Guidance
The company’s 2015 financial guidance is based on the spending levels provided for in the Bipartisan Budget Act of 2013 and the Consolidated and Further Appropriations Act of 2015. The guidance assumes no disruption or cancellation of any of our significant programs and no disruption or shutdown of government operations resulting from expiration of a continuing resolution. Guidance for 2015 also assumes adequate appropriations, funding and payments for the company’s programs in the first quarter of the U.S. government’s fiscal year 2016 and no breach of the federal government’s debt ceiling.
Guidance for 2015 incorporates year-to-date results and the outlook for the remainder of the year, including the effects of an anticipated change in tax methods. The company previously anticipated a tax methods change would impact third quarter 2015 results. The change was accepted by the Internal Revenue Service this month. This and other state tax items will increase fourth quarter 2015 unallocated corporate expense and effective federal tax rate. The company expects 2015 unallocated corporate expense of approximately $200 m and a 2015 effective tax rate of approximately 31.5 percent.
Consolidated Sales & Segment Operating Income
Third quarter 2015 operating income increased 3 percent due to a $117m increase in net FAS/ CAS pension adjustment and a $21m decrease in unallocated corporate expense, which more than offset lower segment operating income. Last year’s third quarter net FAS/CAS pension adjustment was an expense of $20m due to a $132m cumulative reduction in 2014 CAS pension expense resulting from the HATFA legislation.
For the third quarter of 2015, federal and foreign income tax expense declined to $213m from $221m in 2014, and the company’s effective tax rate decreased to 29.2 percent from 31.8 percent in 2014. This quarter’s lower effective tax rate reflects a $21m benefit for additional research credits claimed on the company’s prior year tax return.
Aerospace Systems
Aerospace Systems third quarter 2015 sales increased 1 percent due to higher volume for manned military aircraft and unmanned programs, which more than offset declines in other programs. Higher manned military aircraft sales include higher production volume for the F-35 and E-2D programs, partially offset by fewer F/A-18 deliveries. Higher unmanned sales reflect increased volume for a number of programs, including Triton and Global Hawk. Last year’s third quarter also included the benefit of $75m in settlements.
Aerospace Systems third quarter 2015 operating income decreased 25 percent and operating margin rate decreased to 11.8 percent. Last year’s third quarter operating income benefited from $75m in settlements and lower CAS pension cost due to the HATFA legislation.
Electronic Systems
Electronic Systems third quarter 2015 sales increased 2 percent, primarily due to higher volume for navigation and maritime systems and space programs, partially offset by lower volume for land and self protection and airborne tactical sensor programs.
Electronic Systems third quarter 2015 operating income was comparable to the prior year period. Operating margin rate declined slightly due to lower CAS pension cost in 2014 resulting from the HATFA legislation, which more than offset improved performance in 2015.
Information Systems
Information Systems third quarter 2015 sales decreased 3 percent, primarily due to lower volume for command and control (C2) programs, including the Consolidated Afloat Network and Enterprise Services program and the impact of in-theater force reductions.
Information Systems third quarter 2015 operating income decreased 3 percent, and operating margin rate was unchanged. The decline in operating income was driven by lower sales volume.
Technical Services
Technical Services third quarter 2015 sales increased 1 percent primarily due to higher volume for mission solutions and readiness programs, partially offset by lower volume for integrated logistics and modernization programs, including the ICBM program.
Technical Services third quarter 2015 operating income declined 3 percent and operating margin rate declined to 9.2 percent, due in part to lower income from an unconsolidated joint venture than in the prior year period.
(Source: Yahoo!/BUSINESS WIRE)
Textron Inc.
27 Oct 15. Textron Inc. (TXT) reported third quarter 2015 income from continuing operations of $0.63 per share, up 10.5 percent from $0.57 per share in the third quarter of 2014.
Revenues in the quarter were $3.2bn, down 7.3 percent compared to $3.4bn in the third quarter of 2014. Textron segment profit in the quarter was $312m, up $19m from the third quarter of 2014. Third quarter manufacturing cash flow before pension contributions was $116m compared to $144m during last year’s third quarter.
“Revenues were down in the quarter, primarily driven by lower deliveries of V-22s at Bell, but we had solid revenue growth at Textron Aviation, Textron Systems and Industrial, reflecting our investments in new products and sales capabilities,” said Textron Chairman and CEO Scott C. Donnelly. “Furthermore, good margin results across our segments contributed to solid overall financial performance in the quarter, despite the decrease in revenues.”
Outlook
Textron revised its 2015 earnings per share from continuing operations guidance to a range of $2.40 to $2.50 from $2.30 to $2.50 and confirmed its expectation for cash flow from continuing operations of the manufacturing group before pension contributions of $550 to $650m with planned pension contributions of about $70m.
Third Quarter Segment Results
Textron Aviation
Revenues at Textron Aviation were up $79m, primarily reflecting higher jet and military volumes. Textron Aviation delivered 37 new Citation jets and 29 King Air turboprops in the quarter, compared to 33 Citations and 30 King Airs in last year’s third quarter.
Textron Aviation recorded a segment profit of $107m in the third quarter compared to $62m a year ago. The increase is primarily due to the higher volumes and mix and improved performance, which included lower amortization of $9m related to fair value step-up adjustments.
Textron Aviation backlog at the end of the third quarter was $1.4bn, approximately flat with the end of the second quarter.
Bell
Bell revenues decreased $426m, primarily the result of lower V-22 aircraft deliveries, lower commercial aftermarket volume and a change in mix of commercial aircraft. Bell delivered 4 V-22’s and 5 H-1’s in the quarter, compared to 12 V-22’s and 4 H-1’s in last year’s third quarter and 45 commercial helicopters, compared to 41 units last year.
Segment profit decreased $47m primarily due to the lower volumes partially offset by favorable performance.
Bell backlog at the end of the third quarter was $5.1bn, up $338m from the end of the second quarter.
Textron Systems
Revenues at Textron Systems increased $62m, primarily due to higher Weapons and Sensors and Unmanned Systems volumes.
Segment profit was up $12m, reflecting the impact of the higher volumes.
Textron Systems’ backlog at the end of the third quarter was $2.6bn, down $142m from the end of the second quarter.
Industrial
Industrial revenues increased $43m due to higher overall volumes, partially offset by a $59m unfavorable impact from foreign exchange.
Segment profit increased $8m reflecting the impact of the higher volumes.
Finance
Finance segment revenues decreased $8m and segment profit increased $1m.
(Source: Yahoo!/BUSINESS WIRE)
Ball Corporation
29 Oct 15. Ball Corporation (BLL) reported third quarter 2015 net earnings attributable to the corporation of $44.5m, or 32 cents per diluted share (including net after-tax expense of $110.4m, or 78 cents per diluted share for business consolidation costs, including economic hedging losses, in addition to debt refinancing and other costs) on sales of $2.1bn, compared to $147.4m, or $1.04 per diluted share, on sales of $2.2bn in the third quarter of 2014. Results for the first nine months of 2015 were net earnings attributable to the corporation of $225.6m, or $1.60 per diluted share, on sales of $6.2bn, compared to $394.0m, or $2.76 per diluted share, on sales of $6.5bn in the first nine months of 2014.
Comparable earnings per diluted share for the third quarter and year-to-date 2015 were $1.10 and $2.67, respectively, versus third quarter and year-to-date 2014 comparable earnings per diluted share of $1.10 and $3.04, respectively.
Details of comparable segment earnings, business consolidation activities, historical segment reporting, Rexam transaction-related hedging and costs can be found in the notes to the unaudited condensed consolidated financial statements that accompany this news release.
“Results from operations and global metal packaging volumes were in line with our expectations for the quarter. Foreign currency translation headwinds and project start-up costs both continued, the impact of which totaled 11 cents in the third quarter and 45 cents year-to-date, including net aluminum premium impacts and director retirement costs,” said John A. Hayes, chairman, president and chief executive officer. “We continue to work on our proposed offer for Rexam PLC, including reaching agreement with our Brazilian joint venture partners for an exchange of Ball shares for the partners’ remaining interest in the joint venture. Conversations with regulators in Europe, Brazil and the U.S. continue, with a goal of securing necessary approvals to enable the acquisition to close in the first half of 2016, which is consistent with our prior communications.”
Metal Beverage Packaging, Americas & Asia
Metal beverage packaging, Americas and Asia, comparable segment operating earnings in the third quarter 2015 were $131.9m on sales of $1.1bn, compared to $133.7m on sales of $1.1bn in third quarter 2014. For the first nine months, comparable segment operating earnings were $383.4m on sales of $3.2bn, compared to $400.8m on sales of $3.2bn during the same period in 2014.
High single-digit growth for specialty beverage packaging in the segment was unable to offset single-digit volume declines and continuing price pressure in China, despite significant cost-out initiatives executed in the region. In Brazil, year-over-year volume comparisons turned favorable and the beverage can continues to gain strength in the packaging mix for beer and energy drinks.
Metal Beverage Packaging, Europe
Metal beverage packaging, Europe, comparable segment operating earnings in the third quarter 2015 were $61.1m on sales of $450.1m, compared to $63.8m on sales of $489.2m in the third quarter 2014. Results for the first nine months were comparable segment operating earnings of $149.6m on sales of $1.3bn, compared to $193.0m on sales of $1.5bn in 2014.
Mid-single-digit volume growth for beverage cans across Europe and a small aluminum premium tailwind in the quarter were not enough to offset unfavorable currency translation. On a euro basis, comparable segment earnings were up in the quarter. Our European plant footprint navigated a tight supply situation and absorbed out-of-pattern freight to ensure our customers’ needs were met.
Metal Food & Household Products Packaging
Metal food and household products packaging comparable segment operating earnings in the third quarter 2015 of $30.6m on sales of $372.0m, compared to $43.0m on sales of $450.6m in the third quarter 2014. Year-to-date results were comparable segment operating earnings of $89.5m on sales of $1.0bn, compared to $119.1m on sales of $1.2bn in 2014.
Third quarter segment results and volumes were influenced by the previously disclosed U.S. food container customer shift, unfavorable currency effects and project start-up costs. Global aluminum aerosol volume grew mid-single digits in the quarter and our new aluminum aerosol plant in India celebrated its grand opening earlier this month.
Aerospace and Technologies
Aerospace and technologies comparable segment operating earnings in the third quarter 2015 were $21.4m on sales of $203.4m, compared to $21.2m on sales of $221.7m in the third quarter 2014. For the first nine months, comparable segment operating earnings were $60.9m on sales of $648.4m compared to $70.1m on sales of $683.5m during the same period last year. Backlog at the end of the quarter was $638.4m.
During the quarter, the segment successfully integrated the propulsion subsystem for NASA’s Green Propellant Infusion Mission (GPIM) onto the spacecraft bus and began system performance and environmental testing. GPIM is scheduled for a 2016 launch.
Year-to-date 2015 segment earnings continue to reflect the greater number of program completions that occurred in the first nine months of 2014. Effective cost management continues across the segment and contracted backlog has stabilized ahead of various programs expected to be awarded in late 2015 or early 2016, including several recently submitted proposals.
Outlook
“The businesses are effectively managing working capital and, including approximately $500m of capital expenditures, we now expect 2015 free cash flow to be in the range of $550m, excluding cash costs for the proposed Rexam acquisition. Though the purchase price and interest rate hedges we executed to mitigate risk related to the proposed transaction’s purchase price economics impacted our quarterly GAAP results, we are financially well positioned at this stage in the acquisition timeline,” said Scott C. Morrison, senior vice president and chief financial officer.
“Our third quarter was largely consistent with our expectations given anticipated currency translation and start-up cost headwinds. The difficult year-over-year volume comparisons and aluminum premiums headwinds are behind us and existing growth capital projects will provide momentum as we move into 2016,” Hayes said. (Source: Yahoo!/PRNewswire)
Barnes Group Inc.
27 Oct 15. Barnes Group Inc. (NYSE:B), an international industrial and aerospace manufacturer and service provider, reported financial results for the third quarter of 2015. Net sales of $291m were down 8% from $318m in the third quarter of 2014. Negative organic growth of approximately 5%, coupled with unfavorable foreign exchange of 5%, was only partially offset by acquisition revenues of 1%. Income from continuing operations for the third quarter was $33.7m, or $0.61 per diluted share, compared to $34.3m, or $0.62 per diluted share in the prior year period. On an adjusted basis, income from continuing operations was $0.61 per diluted share, down 5% from $0.64 a year ago. Third quarter 2015 adjusted income from continuing operations excludes a $2.8m pre-tax charge, or $0.03 per diluted share, related to a contract termination dispute in our Aerospace Segment, $1.9m pre-tax, or $0.02 per diluted share, of Thermoplay short-term purchase accounting adjustments and transaction costs in our Industrial Segment, and a $3.0m benefit, or $0.05 per diluted share, from a tax refund in the quarter. Last year’s third quarter adjusted income from continuing operations excludes $0.9m pre-tax of Männer short-term purchase accounting adjustments and $0.5m pre-tax costs related to the closure of production operations at Associated Spring’s Saline, Michigan facility, collectively worth $0.02 per diluted share.
A table reconciling third quarter 2015 and 2014 non-GAAP adjusted results presented in this release to our GAAP results is included at the end of this press release.
“Barnes Group experienced a challenging quarter as overall macro-economic conditions weighed on the industrial end markets we serve tempering our outlook for the remainder of the year,” said Patrick J. Dempsey, President and Chief Executive Officer of Barnes Group Inc. “In addition, lower than expected deliveries and a contract termination dispute in our Aerospace business impacted the quarter’s performance. Accordingly, we are taking deliberate and decisive actions to manage our business in this lower organic growth environment; leveraging the Barnes Enterprise System to further increase productivity while executing our strategy by adding intellectual property based businesses, like Thermoplay and Priamus, to strengthen our position and create superior value for our customers,” added Dempsey.
Industrial
- Third quarter 2015 sales were $189.1m, down 9% from $207.2m in the same period last year. Unfavorable foreign exchange reduced sales by approximately $16.4m, or 8%. Organic sales decreased by 3% in the quarter, primarily driven by softer industrial end-markets in North America and transportation end-markets in China. For the quarter, the recently acquired Thermoplay business contributed $4.6m in sales.
- Operating profit in the third quarter was $27.3m, compared to $33.2m in the prior year period. The decline in operating profit was driven by lower sales volumes, unfavorable foreign exchange, lower productivity, and $1.9 m of short-term purchase accounting and acquisition costs related to the Thermoplay acquisition. These items were offset in part by lower employee related costs this year, and the absence of $0.9m in Männer short-term purchase accounting adjustments and $0.5m of Saline restructuring charges taken last year. Excluding the Thermoplay related charges this year, and the Männer and Saline charges last year, adjusted operating profit of $29.2m was down 16% from $34.6m a year ago. Adjusted operating margin was 15.4%, down 130 bps from last year’s adjusted operating margin of 16.7%.
Aerospace
- Third quarter 2015 sales were $102.3m, down 7% from $110.4m in the same period last year. Growth in Aerospace Aftermarket sales, primarily driven by a significant increase in spare parts, was offset by lower Aerospace original equipment manufacturing (“OEM”) sales.
- Operating profit was $16.4m for the third quarter of 2015, down 7% from $17.7m in the prior year period. The operating profit decrease was primarily due to a $2.8m charge related to a contract termination dispute and the lower profit on reduced sales volume in the OEM business. Partially offsetting these items were higher profit contributions from increased sales in Aftermarket spare parts and Component Repair Programs, and lower employee related costs. Operating margin was 16.1% in the quarter, a 10 bps increase from last year. Excluding the contract termination charge, operating margin in the quarter would have been 18.8% or 280 basis points higher than a year ago driven by the favorable Aftermarket mix.
- Aerospace backlog was $560 m at the end of the third quarter of 2015, up 10% year-over-year, and up 5% sequentially from the second quarter of 2015 primarily due to orders received in support of the Trent XWB engine program for the Airbus A350.
Additional Information
- Interest expense increased $0.2m to $2.6m in the third quarter primarily as a result of a higher average interest rate, partially offset by lower average borrowings.
- The Company’s effective tax rate from continuing operations for the third quarter of 2015 was 19.2% compared with 28.1% in the third quarter of 2014 and 27.6% for the full year 2014. The effective tax rate decrease in the third quarter 2015 over the full year 2014 rate is primarily due to the recognition of a tax benefit related to a refund of withholding taxes that were previously paid and included in tax expense in prior years, partially offset by the expiration of certain tax holidays.
2015 Outlook
Barnes Group now expects 2015 organic revenue growth of approximately 1%, down from our previous expectation of 4% to 6%, with total revenue down 3% to 4% after consideration of unfavorable foreign exchange of 5%. Operating margins are forecasted to be about 16.5%. GAAP earnings from continuing operations are now expected to be in the range of $2.40 to $2.45 per diluted share. Excluding the Männer and Thermoplay purchase adjustments, the Aerospace charge related to a contract termination dispute, and the tax refund benefit recorded in the third quarter, adjusted diluted earnings per share from continuing operations is expected to be in the range of $2.42 to $2.47, up 3% to 5% from 2014’s adjusted diluted earnings per share of $2.34. Further, the Company now anticipates capital expenditures of approximately $50m and cash conversion to be greater than 100% of net income. (Source: Yahoo!/BUSINESS WIRE)
Curtiss-Wright Corporation
28 Oct 15. Curtiss-Wright Corporation (NYSE:CW) reported financial results for the third quarter and nine months ended September 30, 2015.
Third Quarter 2015 Highlights
- The Company increases full-year 2015 expectations for operating margin to 13.5% to 13.6%, despite lowered sales expectations, while maintaining its outlook for diluted earnings per share (EPS) of $3.80 to $3.90 and adjusted free cash flow of $245m to $265m;
- Third quarter diluted EPS of $0.80 includes a one-time pension settlement charge of $7.3m ($0.10 impact) and a shift in timing of the receipt of the new AP1000 order to the fourth quarter ($0.05 impact), otherwise pro forma EPS would have been $0.95 in the quarter;
- Net sales decreased 6% to $526m, from $558m in 2014; Organic (excluding effects of foreign currency translation, acquisitions and divestitures) sales down 4%;
- Operating income decreased 14% to $64m, from $74m in 2014;
- Operating margin decreased 120 basis points to 12.1% from 13.3% in 2014; Excluding the one-time pension settlement charge, pro forma operating margin increased 20 basis points to 13.5%;
- Net earnings from continuing operations decreased 14% to $38 m, or $0.80 per diluted share, from $44m, or $0.90 per diluted share, in 2014; and
- Invested $88m in share repurchases in the third quarter, increasing year-to-date share repurchases to $185m.
“Our third quarter results include a one-time pension settlement charge and a reflection of the current market conditions,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation. “Further, the receipt of a new China AP1000 order, originally expected in the third quarter, is now expected to be received in the fourth quarter. Despite those impacts, we produced solid profitability improvement in the Power segment driven by lower AP1000 program costs and in the Defense segment due to strong sales in aerospace defense.”
“Looking at the remainder of 2015, despite lowering our full year sales outlook based on weaker third quarter demand in some of our industrial businesses, particularly those with exposure to the energy markets, we are maintaining our full-year diluted EPS guidance of $3.80 to $3.90. Additionally we are increasing our full-year 2015 operating margin guidance by 20 basis points to a range of 13.5% to 13.6%, a 90 to 100 basis point improvement year over year, as we continue our drive to top-quartile financial performance.
“Regarding the AP1000 program, we successfully concluded the required design modifications, final testing and post-test inspections on our first-of-a-kind reactor coolant pump (RCP) in October. We now have a fully qualified design that meets all necessary specifications. As a result, we are making preparations to commence shipping production RCPs in the fourth quarter. While the new China AP1000 RCP order is currently in our fourth quarter expectations, the timing of receipt of the order will ultimately be dictated by our customer’s needs for nuclear energy.
“In addition, we have held true to our commitment to return capital to shareholders, and thus far in 2015, we have returned more than $200m through consistent share repurchases and dividend distributions. Share repurchases in the third quarter approximated $88m and included both planned and opportunistic repurchases. In the fourth quarter, we expect to complete the balance of our $300m share repurchase program authorized for 2015. Overall, we remain focused on consistently enhancing shareholder value by expanding operating margins, generating strong free cash flow and maintaining a balanced capital allocation strategy.”
Sales
Sales of $526m in the third quarter decreased $33m, or 6%, compared to the prior year, reflecting a 4% decline in organic sales and unfavorable foreign currency translation.
From an end market perspective, sales to the commercial markets decreased 11%, while sales to the defense markets increased 3%, compared to the prior year.
Please refer to the accompanying tables for a breakdown of sales by end market.
Operating Income
Operating income in the third quarter was $64m, a decrease of $10m, or 14%, compared to the prior year. This performance was primarily driven by reduced operating income resulting from lower sales in the Commercial/Industrial segment and a one-time $7.3m pension settlement charge related to the retirement of the Company’s former Chairman. Those decreases were partially offset by solid organic growth in the Power segment and the benefit of favorable foreign currency translation in the Defense segment.
Operating margin was 12.1%, a decrease of 120 basis points over the prior year, primarily reflecting lower segment operating income and the aforementioned pension charge, partially offset by the benefits of our ongoing margin improvement initiatives. Excluding the impact of the one-time pension settlement charge, operating margin was 13.5%, an increase of 20 basis points over the prior year.
Non-segment expense
Non-segment expenses increased 48% compared with the prior year, primarily due to the aforementioned pension charge. Excluding those costs, non-segment expenses decreased 22% primarily due to lower foreign currency exchange losses in the current period.
Net Earnings
Third quarter net earnings decreased 14% from the comparable prior year period, reflecting reduced operating income. Interest expense of $9m was in-line with the prior year period.
Our effective tax rate for the current quarter was 30.7%, a decrease from 31.8% in the prior year, principally driven by an increased manufacturing deduction and foreign rate differential.
Free Cash Flow
Free cash flow, defined as cash flow from operations less capital expenditures, was $98m for the third quarter of 2015, compared to $50m in the prior year period, or an increase of $48m. Net cash generated from operating activities increased $38m to $107m, primarily due to improved cash collections and the receipt of a large income tax refund. Capital expenditures decreased $10m to $8m, as the prior year period included investments in a facility expansion that did not recur.
New Orders and Backlog
New orders of $494m in the third quarter decreased 15%, primarily due to reduced orders within the Commercial/Industrial and Defense segments.
Backlog of $1.59bn decreased 5% from December 31, 2014, primarily due to reduced naval defense orders within the Power segment.
Other Items – Share Repurchase
During the third quarter, the Company repurchased approximately 1.3 m shares of its common stock for approximately $88m. Year-to-date through September 30, 2015, the Company repurchased approximately 2.7m shares of its common stock for approximately $185m.
Full-Year 2015 Guidance
Effective January 30, 2015, Curtiss-Wright elected to make a $145m contribution to its corporate defined benefit pension plan, which is expected to significantly reduce annual pension expense and annual cash contributions going forward.
*Adjusted free cash flow guidance excludes the aforementioned pension contribution of $145m.
Third Quarter 2015 Segment Performance
Sales for the third quarter were $293m, a decrease of $20m, or 6%, over the comparable prior year period. Organic sales decreased 4% over the prior year period, excluding $8m in unfavorable foreign currency translation, primarily within the general industrial market, and a $2m benefit from acquisitions. Within the commercial aerospace market, we experienced lower sales of surface technology services, most notably to Airbus, while OEM production sales to Boeing remained essentially in-line with prior year levels, as expected. In the general industrial market, our results reflect continued lower sales of severe-service valves serving the energy markets, particularly for international projects, along with a modest reduction in sales for industrial vehicle products. Those reductions were partially offset by higher valve sales supporting the Virginia-class submarine program in the naval defense market.
Operating income in the third quarter was $40m, down 21% from the comparable prior year period, while operating margin decreased 250 basis points to 13.8%. Our results principally reflect lower profitability for industrial valves products and surface treatment services, based on lower sales volumes. Those reductions were partially offset by improved profitability for industrial vehicles products, despite lower sales volumes, due to ongoing cost reduction initiatives.
Defense
Sales for the third quarter were $117m, a decrease of $10m, or 8%, over the comparable prior year period. Organic sales decreased 5% over the prior year period, excluding $3m in unfavorable foreign currency translation. In aerospace defense, we experienced higher sales of embedded computing products serving various fighter jet, helicopter and Intelligence, Surveillance and Reconnaissance (ISR) programs, most notably on the F-16, F-35 and Seahawk helicopter programs. In the ground defense market, lower demand for ground combat and communications programs domestically more than offset continued strong demand for turret drive stabilization systems internationally, while we also experienced lower embedded computing product sales in the naval defense market. Within the commercial aerospace market, our results reflect lower revenues related to avionics and flight test equipment, which led to reduced rotorcraft and regional jet sales.
Operating income in the third quarter was $25m, an increase of $3m, or 13%, compared to the prior year period, while operating margin improved 400 basis points to 21.7%. On an organic basis, operating income was flat while operating margin increased 80 basis points as compared to the prior year, excluding $3m in favorable foreign currency translation. This improvement in operating margin was driven primarily by higher sales of turret drive stabilization systems and embedded computing products, as well as the benefits of our ongoing margin improvement initiatives.
Power
Sales for the third quarter were $116m, a decrease of $3m, or 3%, over the comparable prior year period. Within the power generation market, we experienced lower aftermarket sales supporting domestic nuclear operating reactors, as a result of ongoing deferred maintenance spending, which more than offset higher sales supporting international reactors. In the naval defense market, our performance was driven by higher sales of pumps and generators supporting the Virginia-class submarine program as well as higher production on the Ford-class aircraft carrier program.
Operating income in the third quarter was $14m, an increase of $2m, or 22%, compared to the prior year period, while operating margin improved 230 basis points to 11.7%. This improvement in operating income and margin was primarily driven by lower costs on the AP1000 program, as we have concluded the required testing and modifications to our reactor coolant pumps, along with the benefits of our ongoing margin improvement initiatives. We also experienced higher profitability in our aftermarket power generation business, despite lower sales volumes, reflecting our ongoing operational and margin improvement initiatives.
FLIR Systems
28 Oct 15. FLIR Systems, Inc. (NASDAQ: FLIR) announced financial results for the third quarter ended September 30, 2015. Revenue was $381.9m, up 2% compared to third quarter 2014 revenue of $375.4m. On a constant-currency basis, revenue for the third quarter was up 6% compared to the prior year, as foreign currency exchange fluctuations negatively impacted revenue by approximately $14m. Operating income in the third quarter was $76m, compared to $70m in the third quarter of 2014. Operating income was impacted by pretax charges related to previously-announced restructuring initiatives of $0.3m in the third quarter of 2015 and $4.1m in the third quarter of 2014.
Third quarter 2015 net income was $73.1m, or $0.52 per diluted share, compared with net income of $52.9m, or $0.37 per diluted share in the third quarter a year ago. Net income for the third quarter of 2015 included a discrete tax benefit of $17.4m, or approximately $0.12 per diluted share, related to the release of a previously recorded tax reserve. Cash provided by operations in the third quarter of 2015 was $73.6m, an increase of 123% compared to the prior year.
The Surveillance segment contributed $131.6m of revenue during the third quarter, increasing 5% over the prior year. The Instruments segment had $74.8m of revenue, down 9% from the prior year, and was negatively impacted by foreign currency exchange fluctuations by approximately $6m, resulting in a 3% decline on a constant currency basis. FLIR’s OEM & Emerging Markets segment recorded revenue of $51.4m in the third quarter, up 3% over the prior year. Revenue from the Maritime segment was $38.9m, down 13% from the third quarter of 2014, and was negatively impacted by foreign currency exchange fluctuations by approximately $4m, resulting in a 4% decline on a constant currency basis. Security segment revenue was $59.3m, an increase of 22% over the third quarter results last year. The Detection segment contributed $25.8m of revenue, an increase of 7% from the prior year.
FLIR’s backlog of firm orders for delivery within the next twelve months was approximately $568m as of September 30, 2015, an increase of $31m, or 6%, during the quarter and a decrease of $12m, or 2%, from the third quarter of 2014.
“In the third quarter we saw constant currency revenue growth of 6%, improved our operating profitability, significantly improved our cash flow, and introduced several new market-defining products, however, the global economic environment created a headwind for our overall performance,” said Andy Teich, President and CEO of FLIR. “Our proven ability to advance our sensing technologies, rapidly develop new products, and address new market opportunities enables our mission of being the ‘World’s Sixth Sense.’ We have confidence in our ability to create long-term shareholder value given our focus on innovation, product differentiation, and market positioning.”
ON Semiconductor
Third quarter 2015 non-GAAP net income was $95.5m, or $0.23 per diluted share, compared to $95.4m, or $0.22 per diluted share, for the second quarter of 2015. A reconciliation of these non-GAAP financial measures (and other non-GAAP measures used elsewhere in this release) to the company’s most directly comparable measures prepared in accordance with U.S. GAAP are set forth in the attached schedules and on our website at http://www.onsemi.com. Additional information on revenue by end market, region, distribution channel, business units and share count can be found on the “Investors” section of our website.
Total company GAAP and non-GAAP gross margin in the third quarter was 34.1 percent. For the third quarter of 2015, GAAP operating margin was 7.7 percent, and non-GAAP operating margin was 11.8 percent.
Adjusted EBITDA for the third quarter of 2015 was $163.1m. Adjusted EBITDA for the second quarter of 2015 was $163.5m. During the third quarter, the company repurchased approximately 9.4m shares of common stock for approximately $100m.
“The current macroeconomic environment has been challenging, but we continue to outpace the industry,” said Keith Jackson, president and CEO of ON Semiconductor. “Order trends for most end-markets have been sub-seasonal due to realignment of supply chain, but recent trends have been encouraging and point to an improving industry environment early next year.
“We remain optimistic about the strength of our product portfolio and design win pipeline. Our momentum in industrial, automotive and smartphone markets should continue to accelerate as new design wins ramp into production and the breadth of our customer engagement grows.”
FOURTH QUARTER 2015 OUTLOOK
“Based on product booking trends, backlog levels, and estimated turns levels, we anticipate that total ON Semiconductor revenue will be approximately $830 to $870m in the fourth quarter of 2015,” Jackson said. “Backlog levels for the fourth quarter of 2015 represent approximately 80 to 85 percent of our anticipated fourth quarter 2015 revenue. The outlook for the fourth quarter of 2015 includes stock-based compensation expense of approximately $11m to $13m.”
(Source: Yahoo!/BUSINESS WIRE)
Oshkosh Corporation
Results for the fourth quarter of fiscal 2015 were adversely impacted by a combined $2.4m after-tax workforce reduction charge in the access equipment segment and corporate. Results for the fourth quarter of fiscal 2014 were adversely impacted by a combined $2.4m after-tax pension curtailment and pension settlement charge in the defense segment. Excluding these items, fiscal 2015 fourth quarter adjusted net income was $52.7m, or $0.67 per diluted share, compared to $80.2m, or $0.96 per diluted share, in the fourth quarter of fiscal 2014.
Consolidated net sales in the fourth quarter of fiscal 2015 were $1.58bn, a decrease of 5.4 percent compared to the prior year fourth quarter. Higher sales in the defense, fire & emergency and commercial segments were not sufficient to offset a decline in access equipment segment sales resulting from lower demand in North America. On a constant currency basis, sales decreased 3.6 percent compared to the fourth quarter of fiscal 2014.
Consolidated operating income in the fourth quarter of fiscal 2015 was $86.6m, or 5.5 percent of sales, compared to $113.1m, or 6.8 percent of sales, in the prior year fourth quarter. Fiscal 2015 fourth quarter adjusted consolidated operating income was $89.5m, or 5.7 percent of sales, excluding workforce reduction charges of $2.9m. Fiscal 2014 fourth quarter adjusted1consolidated operating income was $116.9m, or 7.0 percent of sales, excluding pension curtailment and pension settlement charges that netted to $3.8m. The decline in consolidated operating income was driven by lower access equipment segment sales.
“Fourth quarter earnings were in line with our revised expectations,” stated Charles L. Szews, Oshkosh Corporation Chief Executive Officer. “As we expected, our access equipment and concrete mixer businesses experienced soft demand in the fourth quarter, but construction activity in North America and Europe remains on the upswing which we believe will lead to stronger demand for these products in coming months.
“Our Defense business is rebounding and experiencing increased interest in our expanding portfolio of tactical wheeled vehicles. More countries are engaging with Oshkosh to explore the purchase of Mine Resistant Ambush Protected All Terrain Vehicles (“M-ATVs”). In the fourth quarter, Oshkosh signed a contract with an international customer for 273 M-ATVs and we expect to secure a contract for more than 1,000 additional M-ATVs in our first quarter, the majority of which we expect to be sold in fiscal 2016. We continue to pursue opportunities to sell thousands of additional M-ATVs. Also, with the recent historic award of the Joint Light Tactical Vehicle contract (“JLTV”), our Defense business is well-positioned to serve growing global demand for protected tactical wheeled vehicles well into the next decade. We are prepared to resume work on the JLTV contract immediately following an expected favorable resolution to a competitor protest of the contract award.
“Today, we announced our expectations for fiscal 2016 earnings per share of $3.00 to $3.40. This range is lower than the range implied by our comments during our third quarter earnings conference call due largely to a more cautious outlook for our access equipment and concrete mixer businesses. We believe these markets will be soft during the first half of fiscal 2016 before improving as the 2016 construction season gets underway. We also believe our defense business will strengthen as fiscal 2016 unfolds due to urgent international requirements for M-ATVs and aftermarket support,” stated Szews.
“We expect to generate approximately $350m of free cash flow in fiscal 2016 as we reduce access equipment inventory, while also investing in Defense working capital to fulfill international sales contracts. We expect to utilize about half of the free cash flow for share repurchases and dividends, including the increase to our quarterly dividend rate that we are announcing today,” concluded Szews.
Factors affecting fourth quarter results for the Company’s business segments included:
Access Equipment – Access equipment segment sales declined 17.5 percent to $769.5m for the fourth quarter of fiscal 2015. A slowdown in the order rate in North America was the primary driver of lower shipments in the fourth quarter and was partially offset by improved shipments in Europe. A stronger U.S. dollar also negatively impacted access equipment segment sales by $26.2m. On a constant currency basis, access equipment segment sales decreased 14.7 percent.
Access equipment segment operating income decreased 55.7 percent to $56.5m, or 7.3 percent of sales, for the fourth quarter of fiscal 2015 compared to $127.4m, or 13.7 percent of sales, in the fourth quarter of fiscal 2014. Access equipment segment results for the fourth quarter of fiscal 2015 included $2.5m in workforce reduction charges. Excluding these costs, adjusted operating income was $59.0m, or 7.7 percent of sales, in the fourth quarter of fiscal 2015. The decrease in operating income was primarily the result of lower sales volume and weaker product mix, adverse manufacturing absorption and provisions for valuation reserves on used equipment as a result of the access equipment market slowdown, offset in part by lower incentive compensation expense.
Defense – Defense segment sales for the fourth quarter of fiscal 2015 increased 10.3 percent to $317.6m. The increase in sales was primarily due to higher M-ATV reset sales and the sale of international M-ATVs, offset in part by lower sales of legacy heavy and medium tactical wheeled vehicles to the U.S. government.
The defense segment recorded operating income of $18.5m, or 5.8 percent of sales, for the fourth quarter of fiscal 2015 compared to an operating loss of $2.0m, or (0.7) percent of sales, in the fourth quarter of fiscal 2014. Defense segment results for the fourth quarter of fiscal 2014 included $3.8m of pension curtailment and pension settlement charges. Excluding these items, adjusted operating income was $1.8m, or 0.6 percent of sales, in the fourth quarter of fiscal 2014. The increase in operating income was largely due to higher sales volume, favorable overhead absorption and lower spending.
Fire & Emergency – Fire & emergency segment sales for the fourth quarter of fiscal 2015 increased 14.2 percent to $245.4m. Sales in the fourth quarter of fiscal 2015 benefitted from higher fire apparatus deliveries as a result of improved production rates.
Fire & emergency segment operating income increased 89.2 percent to $23.7m, or 9.6 percent of sales, for the fourth quarter of fiscal 2015 compared to $12.5m, or 5.8 percent of sales, in the fourth quarter of fiscal 2014. Higher sales volume combined with favorable overhead absorption were the largest contributors to the increase in operating income.
Commercial – Commercial segment sales increased 3.8 percent to $252.9m in the fourth quarter of fiscal 2015. The increase in sales was primarily attributable to higher refuse collection vehicle unit volume, offset in part by lower concrete mixer sales.
Commercial segment operating income increased 14.6 percent to $21.1m, or 8.4 percent of sales, for the fourth quarter of fiscal 2015 compared to $18.4m, or 7.6 percent of sales, in the fourth quarter of fiscal 2014. The increase in operating income was primarily a result of a favorable product mix and higher sales volume, offset in part by investments in MOVE initiatives.
Corporate – Corporate operating expenses decreased $10.1m in the fourth quarter of fiscal 2015 to $33.2m. Corporate results for the fourth quarter of fiscal 2015 included $0.4m of workforce reduction charges. Excluding these charges, adjusted corporate operating expenses were $32.8m in the fourth quarter of fiscal 2015. The decrease in corporate operating expenses in the fourth quarter of fiscal 2015 was primarily due to lower information technology and stock based compensation expense, partially offset by costs to support the start-up of a shared production facility.
Interest Expense Net of Interest Income – Interest expense net of interest income decreased $0.3m to $13.2m in the fourth quarter of fiscal 2015. The benefit of lower interest rates on the Company’s senior notes refinanced in the second quarter of fiscal 2015 was largely offset by increased borrowings to support increased working capital.
Provision for Income Taxes – The Company recorded income tax expense of $18.7m in the fourth quarter of fiscal 2015, or 27.3 percent of pre-tax income. This compares to $21.4m, or 21.9 percent of pre-tax income, in the fourth quarter of fiscal 2014. The Company recorded $3.5m of discrete tax benefits in the fourth quarter of fiscal 2015 and $12.3m of discrete tax benefits in the fourth quarter of fiscal 2014, generally related to reductions of income tax reserves related to the settlement of tax audits and expiration of statutes of limitations.
Share Repurchases – Earnings per share in the fourth quarter of fiscal 2015 improved $0.04 compared to the prior year fourth quarter as a result of share repurchases completed during the previous twelve months. The Company deployed cash of $112.3m to repurchase 2.9m shares in the fourth quarter of fiscal 2015 and $200.4m to repurchase 4.9m shares during fiscal 2015.
Full-Year Results
The Company reported net sales for fiscal 2015 of $6.10bn and net income of $229.5m, or $2.90 per diluted share. This compares with net sales of $6.81bn and net income of $309.3m, or $3.61 per diluted share, in fiscal 2014. Adjusted net income for fiscal 2015 was $239.1m, or $3.02 per diluted share, compared to $309.8m, or $3.62 per diluted share, in fiscal 2014. The decrease in adjusted results in fiscal 2015 was largely attributable to lower sales and operating income in the Company’s access equipment and defense segments, offset in part by the impact of higher sales and improved performance in the Company’s fire & emergency and commercial segments and lower corporate expenses. Earnings per share in fiscal 2015 improved $0.22 compared to fiscal 2014 as a result of lower average diluted shares outstanding.
Fiscal 2016 Expectations
The Company announced its fiscal 2016 earnings per share expectations of $3.00 to $3.40, on projected net sales of $6.2 to $6.5bn. The Company believes fiscal 2016 sales will increase in each of its segments, with the exception of its access equipment segment, where the Company expects sales to decline approximately 10 to 15 percent from fiscal 2015 sales levels. The Company projects a corporate income tax rate of 34 percent, up from fiscal 2015 on expected lower earnings outside of the United States, generally as a result of the strong U.S. dollar. The Company is assuming a full year average share count of approximately 75 m shares. The Company anticipates that first quarter earnings will be slightly profitable, reflecting cautious spending on access equipment by rental companies in the U.S.
Dividend Announcement
The Company’s Board of Directors declared a quarterly cash dividend of $0.19 per share of Common Stock. The dividend, increased by approximately 12 percent from the previous dividend, will be payable on November 30, 2015 to shareholders of record as of November 16, 2015. (Source: Yahoo!/BUSINESS WIRE)
Rockwell Collins
Rockwell Collins, Inc. (COL) reported fiscal year 2015 sales were $5.24bn, a 5% increase from fiscal year 2014. Fiscal year 2015 earnings per share from continuing operations was $5.19 compared to $4.52 in the prior year. Cash provided by operating activities from continuing operations totaled $749m in 2015, an increase of $89m, or 13%, compared to the $660m in fiscal year 2014.
Fourth quarter fiscal year 2015 earnings per share from continuing operations increased 9% to $1.38, compared to $1.27 in the prior year. Total sales for the fourth quarter of fiscal year 2015 were $1.38bn, a 1% decrease from the same period in fiscal year 2014. Total segment operating margin for the fourth quarter was 22.0% compared to 21.3% in the prior year and total segment operating earnings increased 2% to $304m, compared to the same period in fiscal year 2014.
“I’m pleased with our overall performance for the year, highlighted by double-digit earnings per share and cash flow growth. We were able to perform to our expectations for the year in spite of a weaker than expected commercial aftermarket and the negative impact of foreign currency rates,” said Rockwell Collins Chief Executive Officer and President, Kelly Ortberg. “Our team did a great job of delivering strong operating performance, allowing us to continue investing in long-term growth. During the year we invested almost $1bn in R&D and made two acquisitions that strengthen our portfolio of connectivity-related offerings.” Ortberg continued, “As we enter fiscal year 2016, we are sharply focused on meeting our commitments to our customers, including executing on a number of important development programs that are expected to drive growth over the balance of the decade. While growth in 2016 will be muted particularly in the first half of the fiscal year, I remain confident our strategies will drive long-term double-digit growth in earnings and cash flow.”
Following is a discussion of fiscal year 2015 fourth quarter sales and earnings for each business segment.
Commercial Systems
Commercial Systems, which provides aviation electronics systems, products and services to air transport, business and regional aircraft manufacturers and airlines worldwide.
- Original equipment sales decreased due to lower sales for Chinese regional aircraft OEM programs partially offset by higher deliveries in support of the A350 and Legacy 500 entries into service.
- Aftermarket sales increased due to higher regulatory mandate sales, partially offset by lower spares provisioning for the Boeing 787 program.
- Operating earnings and operating margin increased primarily due to lower company-funded research and development expense and cost savings initiatives, partially offset by higher employee incentive compensation expense.
Government Systems
Government Systems provides a broad range of electronic products, systems and services to customers including the U.S. Department of Defense, other government agencies, civil agencies, defense contractors and ministries of defense around the world. Avionics sales increased due to higher tanker/transport hardware deliveries partially offset by lower rotary wing hardware sales.
- Communication products sales decreased due to lower Joint Tactical Radio System Manpack sales.
- Navigation products sales increased primarily due to development effort on modernized GPS products.
- Changes in foreign currency rates, primarily the strengthening of the U.S. dollar, resulted in a $12 m reduction to Government Systems sales for the fourth quarter of fiscal year 2015 when compared to the same quarter in the prior year. The $12 m reduction is included within the Government Systems sales categories above.
- Operating earnings and operating margin decreased due to lower sales, higher investment in company-funded research and development expense, and higher employee incentive compensation expense, partially offset by favorable hardware product mix and cost savings initiatives.
Information Management Services
Information Management Services (IMS) provides communication services, systems integration and security solutions across the aviation, airport, rail, transit and nuclear security markets.
IMS sales increased primarily due to low double-digit growth in aviation related businesses including GLOBALinkSM and ARINCDirectSM, partially offset by lower sales from the non-aviation related businesses due to the timing of certain airport programs and the exit of a government program.
- IMS operating earnings and operating margin increased primarily due to the higher sales volume, a more favorable mix of higher margin aviation related sales, and the absence of certain licensing costs incurred in the prior year.
Cash Flow
Cash provided by operating activities from continuing operations was $749m in fiscal year 2015, compared to $660 m in fiscal year 2014. The $89 m increase was primarily due to converting the higher earnings in 2015 to cash flow within the year.
The company paid a dividend on its common stock of 33 cents per share, or $44m, in the fourth quarter of 2015. (Source: Yahoo!/BUSINESS WIRE)
Teledyne Technologies
29 Oct 15. Teledyne reported third quarter 2015 sales of $555.4m, compared with sales of $601.1m for the third quarter of 2014, a decrease of 7.6%. Net income attributable to Teledyne was $48.3m ($1.34 per diluted share) for the third quarter of 2015, compared with $55.6m ($1.47 per diluted share) for the third quarter of 2014, a decrease of 13.1%. The third quarter of 2015 included pretax severance charges of $3.1m, as well as net discrete tax benefits of $7.4m, partially offset by increased tax expense of $3.3m due to a higher tax rate, excluding discrete items. The third quarter of 2014 included pretax severance charges of $1.7m, offset by net discrete tax benefits of $6.1m.
“Teledyne continues to benefit from our balanced business portfolio and ongoing emphasis on cost control and strong operating discipline. While sales declined from last year, GAAP operating margin improved and was at the highest level so far in 2015,” said Robert Mehrabian, Chairman, President and Chief Executive Officer. “Weakness in energy markets and the challenging capital spending environment, especially overseas, impacted sales of marine and electronic test and measurement instrumentation. However, this was partially offset by increased sales of environmental instrumentation and commercial digital imaging systems. Furthermore, sales of aerospace and defense electronics increased sequentially as expected. Finally, given our strong cash flow and balance sheet, we will not only continue to pursue acquisitions, but also repurchase shares opportunistically.”
Review of Operations
Instrumentation
The Instrumentation segment’s third quarter 2015 sales were $243.2m, compared with $280.4m, a decrease of 13.3%. Third quarter 2015 operating income was $38.6m, compared with $46.9m, a decrease of 17.7%.
The third quarter 2015 sales decrease resulted from lower sales of marine instrumentation and electronic test and measurement instrumentation, partially offset by higher sales of environmental instrumentation. Sales for marine instrumentation decreased by $30.9m and primarily reflected lower sales of geophysical sensors for offshore oil exploration, interconnect systems for land-based energy applications, and other marine sensors and systems, especially for international markets, partially offset by $10.8m in incremental sales from recent acquisitions. Sales of electronic test and measurement instrumentation decreased $7.6m and sales of environmental instrumentation increased $1.3m. The decrease in operating income primarily reflected the impact of lower sales. The third quarter of 2015 reflected $0.6m in higher severance costs compared with 2014.
Digital Imaging
The Digital Imaging segment’s third quarter 2015 sales were $95.7m, compared with $95.6m, an increase of 0.1%. Operating income was $10.4m for the third quarter of 2015, compared with $7.9m, an increase of 31.6%.
The third quarter 2015 sales included $2.7m in incremental sales from a recent acquisition. The third quarter 2015 sales also reflected increased sales of commercial digital imaging systems, including machine vision cameras, X-ray sensors and laser-based mapping systems, offset by lower sales of infrared imaging systems and from U.S. Government research and development contracts. The increase in operating income in 2015 reflected improved margins across a number of product categories as a result of ongoing cost reductions.
Aerospace and Defense Electronics
The Aerospace and Defense Electronics segment’s third quarter 2015 sales were $151.3m, compared with $151.8m, a decrease of 0.3%. Operating income was $23.5m for the third quarter of 2015, compared with $21.6m, an increase of 8.8%.
The third quarter 2015 sales reflected lower sales of $2.7m from electronic manufacturing services products and $0.7m of microwave and interconnect systems, partially offset by higher net sales of $2.9m from avionics products and electronic relays. Operating income in the third quarter of 2015 reflected the impact of improved margins for microwave and interconnect systems, as well as increased sales of higher margin avionics products. The third quarter of 2015 also reflected higher pension expense of $0.5m.
Engineered Systems
The Engineered Systems segment’s third quarter 2015 sales were $65.2m compared with $73.3m, a decrease of 11.1%. Operating income was $5.9m for the third quarter of 2015, compared with $8.5m, a decrease of 30.6%.
The third quarter 2015 sales reflected lower sales of engineered products and services of $4.0m, lower turbine engine sales of $2.1m and lower sales of energy systems products of $2.0m. The lower sales of engineered products and services primarily resulted from lower sales of marine manufacturing programs due in part to the timing of shipments. Operating income in the third quarter of 2015 reflected the impact of lower sales including higher margin turbine engines and higher pension expense of $0.5m.
Additional Financial Information
Cash Flow
Cash provided by operating activities was $73.5m for the third quarter of 2015, compared with $80.2m. The lower cash provided by operating activities in the third quarter of 2015 reflected lower net income and higher income tax payments. Free cash flow (cash provided by operating activities less capital expenditures) was $63.2m for the third quarter of 2015, compared with $71.1 m and reflected lower cash provided by operating activities and higher capital expenditures. At September 27, 2015, total debt, including capital lease obligations, was $712.7m, which included $205.0m outstanding under the $750.0m credit facility. In the third quarter, the company entered into a note purchase agreement providing for a private placement of $125.0m in aggregate principal amount of senior unsecured notes expected to be issued on November 5, 2015. The notes will consist of $25.0m of 2.81% senior unsecured notes due November 5, 2020, and $100.0m of 3.28% senior unsecured notes due November 5, 2022. Cash totaled $71.5m at September 27, 2015. The company received $2.7m from the exercise of stock options in the third quarter of 2015, compared with $1.0m. Capital expenditures for the third quarter of 2015 were $10.3m, compared with $9.1m. Depreciation and amortization expense for the third quarter of 2015 was $21.9 m, compared with $23.5m.
Pension
Pension expense was $1.0m for the third quarter of 2015 compared with pension income of $0.3m. Pension expense allocated to contracts pursuant to U.S. Government Cost Accounting Standards (“CAS”) was $3.4m for both the third quarter of 2015 and 2014. Pension expense determined allowable under CAS can generally be recovered through the pricing of products and services sold to the U.S. Government.
Income Taxes
The effective tax rate for the third quarter of 2015 was 21.4% compared with 19.2%. The third quarter of 2015 reflected net discrete tax benefits of $7.4m compared with net discrete tax benefits of $6.1m. Excluding the net discrete tax items in both periods, the effective tax rates would have been 33.5% for the third quarter of 2015 and 28.1% for the third quarter of 2014. The higher effective tax rate in 2015 primarily reflects a change in the mix of U.S. and foreign earnings.
Stock Option Compensation Expense
For the third quarter of 2015, the company recorded a total of $2.6m in stock option expense, of which $1.9m was recorded in the operating segment results and $0.7m was recorded as corporate expense. For the third quarter of 2014, the company recorded a total of $3.9m in stock option expense, of which $2.7m was recorded in the operating segment results and $1.2m was recorded as corporate expense.
Other
Interest expense, net of interest income, was $6.0 m for the third quarter of 2015, compared with $4.6m, and primarily reflected higher average debt levels, due to recent acquisitions and the stock repurchase program. Corporate expense was $8.9m for the third quarter of 2015, compared with $10.6m and primarily reflected lower compensation expenses. Other income and expense was $2.1m of expense for the third quarter of 2015 compared with expense of $1.8m.
Outlook
Based on its current outlook, the company’s management believes that fourth quarter 2015 earnings per diluted share will be in the range of approximately $1.25 to $1.30 and the full year 2015 earnings per diluted share outlook is expected to be in the range of approximately $5.13 to $5.18, an increase from the prior outlook of $5.10 to $5.17. The company’s effective tax rate for 2015 is expected to be 30.8%, before discrete items. For the company’s domestic pension plan, the discount rate for 2015 decreased to 4.5% from 5.4%. Total year 2015 pension expense is expected to be $3.0m, including the one-time gain of $1.2m in the first quarter, compared with pension income of $1.3m for total year 2014. The company plans to enter into a new accelerated share repurchase agreement for approximately $100.0m in the near-term. (Source: Yahoo!/BUSINESS WIRE)