Esterline Technologies (ESL) 3Q16 Earnings Call Notes

posted in: Earnings, Earnings Call, Notes | 0

Brexit and current geopolitical climate make it an interesting time for defense market

“The macro backdrop to the quarter was complex. As you know, since the last earnings call, we’ve had the Brexit vote, a sharpened, heightened global security environment, and continued questions about future trends in certain commercial aerospace markets.” Curtis C. Reusser – Chairman, President & Chief Executive Officer


Client relationships are handled at the executive level

“First of all, our platform presidents, who are responsible for executing our sales growth strategy, are energized and motivated to drive results for the overall enterprise. Each platform president is an enterprise point-of-contact for certain key customers. This ensures that the breadth of our Esterline products and technologies are showcased at the highest level in our customer relationships. This is an important lever to capture future sales growth.” Curtis C. Reusser – Chairman, President & Chief Executive Officer


Demand remains strong, as evidenced by book-to-bill ratio and an increase in backlog

“We continued a strong orders trend with a book-to-bill of 1.1 for both the third quarter and on a year-to-date basis, with backlog now at $1.4 billion from $1.2 billion a year ago. And we delivered on the sequentially improving results that we expected when we re-baselined our markets and operations in the first quarter. This includes stronger sales with the related gross margin drop-through and well-managed controllable costs.” Robert D. George – Executive Vice President, Chief Financial Officer & Corporate Development


Management prioritizes stability over growth

“No. I’m cautious. I want to be cautious. I don’t want to get ahead of myself, but we’ve had a lot of balls in the air with the Consent Agreements that’s wrapping up, with the facility moves that are all but done, with DAT integration, some lower sales that we’re seeing trending the other way. So I do think that there is more stability. I think the team is gelling well together. We’ve got a pretty clear focus on what we’re doing. So I feel like – as I said, I feel better now than I have before, but I don’t want to get out over my skis. So I’m cautious.” Curtis C. Reusser – Chairman, President & Chief Executive Officer


Lower CapEx and higher income will help bring down leverage ratio, FX translations will not

“Well, actually, so I’ve got to answer that a little cautiously. So the answer is yes, we will be de-levering from our free cash flow, without a doubt. As you know, however, we do have a fair amount of cash flow that’s generated in our European facilities, and so that is going to remain offshore….One of the reasons why cash flow is a little softer year-to-date is because of the significant capital expenditures that we’ve incurred relative to our norm. We’re anticipating that we’re not going to see that level of CapEx in Q4. So we’ve got higher income, and we’ve got lower CapEx.”  Robert D. George – Executive Vice President, Chief Financial Officer & Corporate Development