Q1 2025 Curtiss-Wright Corp Earnings Call
Yeah.
Speaker Change: Welcome to the Curtiss Wright first quarter 2025 earnings conference call.
Speaker Change: At this time, all participants have been placed on a listen only mode and the floor will be opened for your questions. Following the presentation.
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Speaker Change: I would now like to turn the call over to Jim Ryan Vice President of Investor Relations.
Jim Ryan: Thank you Chelsea and good morning, everyone welcome to Curtiss Wright's first quarter 2025 earnings conference call joining.
Speaker Change: Joining me on the call today are chairman and Chief Executive Officer Linda.
Chris Parks: Vice President and Chief Financial Officer, Chris Parks.
Chris Parks: A copy of todays financial presentation in the press release are available for download through the Investor Relations section of our website at Curtiss Wright Dot Com a replay of this webcast will also be available on the website.
Chris Parks: Our discussion today include certain projections and forward looking statements that are based on management's current expectations and are not guarantees of future performance.
Chris Parks: Those risks and uncertainties associated with our forward looking statements, including the impacts of tariffs and our public filings with the SEC.
Chris Parks: As a reminder, the company's results and guidance include an adjusted non-GAAP view that excludes certain costs or right greater transparency into Curtiss Wright's ongoing operating and financial performance.
Chris Parks: non-GAAP reconciliations are available in the earnings release and on our website.
Lynn: Now I'd like to turn the call over to Lynn to get things started.
Lynn: Thank you Jim and good morning, everyone. We are off to a great start in 2025, as we delivered fantastic results that exceeded our expectations before getting into the details I would like to say a few words about the momentum that continues to build with respect to our pivot to growth strategy and how that translates into value for all of <unk>.
Speaker Change: Other stakeholders first and foremost I commend the team for embracing our strategy and their drive and execution, which has yielded better than expected result in both growth and efficiency.
Speaker Change: As we discussed at our May 2020 for Investor Day, we continue to enhance customer engagement, while leveraging our strong domain expertise as a highly valued supplier of mission critical technologies to help solve our customers' most challenging problems. In addition, we are implementing the core principles of our <unk>.
Speaker Change: Operational gross platform remaining focused on those commercial and operational excellence to expand margin and free up funding opportunities for investments that will accelerate profitable growth across the portfolio.
Speaker Change: Regarding our improved 2025 outlook, we take pride in meeting our commitments and being a company that investors can rely on to deliver strong results even in the face of macroeconomic uncertainty whether it was a quick return to providing guidance during the pandemic with minimal margin dilution.
Speaker Change: Or the rapid response of our team to the electronic supply chain challenges in 2022, and all cases. Our team has responded quickly to adapt as needed and to deliver superior results. This is a testament not only to our strategy, but also to our leadership positions in our end markets as well as the <unk>.
Speaker Change: People the systems and the processes that we continuously invest in to ensure the Curtiss Wright is built for long term success.
Speaker Change: As a result and in the face of a number of macro level uncertainties. We are confidently raising our overall full year 2025 guidance.
Speaker Change: With that I'll turn to today's presentation.
Speaker Change: Starting with our first quarter 2025 highlights.
Speaker Change: Sales of <unk> of $806 million represented an increase of 13% year over year or 11% on an organic basis, driven by stronger than expected growth in our aerospace and defense markets operating income increased 34% year over year one.
Speaker Change: Again exceeding our sales growth and resulted in 260 basis points of overall operating margin expansion. This performance reflected the strong growth in sales the benefits of our corporate wide restructuring actions initiated last year to support future growth and efficiency and are on.
Speaker Change: <unk> commercial and operational excellence programs diluted earnings per share increased 42% year over year, which also exceeded our expectations and was primarily driven by our higher A&D sales.
Speaker Change: Free cash flow was typically our first quarter outflow reflected a year over year increase of 5%, while we continue to support investments across all three segments.
Speaker Change: New orders increased 13% year over year to a record of more than $1 billion and resulted in an overall book to Bill of 1.26 times.
Speaker Change: Within our A&D markets, we experienced strong demand for neighbor nuclear propulsion equipment supporting the U S. Navy's current and next generation submarine programs.
Speaker Change: Orders within our commercial aerospace market were mainly driven by higher demand for avionics equipment within our defense electronics segment.
Speaker Change: Within our commercial markets, we continued to benefit from increasing demand for commercial nuclear aftermarket products supporting the upcoming spring outage season advanced SM Mars and the contribution from Ultra energy.
Speaker Change: Overall, we reached a new record backlog in excess of $3 $6 billion, which provides us great visibility and confidence in our long term growth outlook.
Speaker Change: Regarding our full year guidance, we have raised our overall outlook for sales operating margins and earnings per share and are on track to deliver strong top and bottom line growth this year.
Speaker Change: We now expect overall sales to increase 8% to 9%, reflecting an improved outlook in the majority of our A&D markets and the strength of our order book.
Speaker Change: In addition, the organization's continuous drive for commercial and operational excellence is fueling some tremendous margin expansion this year.
Speaker Change: We now anticipate an increase of 80 to 100 basis points in pursuit of a record operating margin of 18.3 to 18, 5% and we expect to generate these strong returns while maintaining our incremental investments in research and development.
Speaker Change: In addition, we expect to overcome the impact of tariff related headwinds, which Chris will cover in more detail in a few minutes.
Speaker Change: Diluted EPS is now expected to grow 14% to 17%. In addition, we raised our free cash flow guide to reflect higher confidence in the full year outlook and continue to expect strong free cash flow conversion in summary, Curtiss Wright remains well positioned to deliver another exceptional performance.
Speaker Change: In 2025, now I would like to turn the call over to Chris to provide a more in depth review of our financials. Thank you Lynne.
Chris Parks: I'll begin on slide four by reviewing the key drivers of our first quarter 2025 performance by segment.
Chris Parks: Starting in aerospace and industrial overall sales increased 4%, which was slightly ahead of our expectations.
Chris Parks: Beginning with this segments defense markets, we experienced solid increases in actuation equipment sales, most notably within our aerospace defense market supporting the F 35, and F 18 programs and also in ground defense for the enduring shield platform.
Chris Parks: Within the segments commercial aerospace market, our results reflected solid OEM sales growth supporting increased production on both narrow body and wide body platforms.
Chris Parks: And the general industrial market, our results reflected a modest increase in sales for our industrial automation equipment, which was essentially offset by reduced sales of industrial vehicle products.
Chris Parks: And turning to the segments first quarter profitability operating income and margin were ahead of expectations growing 15% and 140 basis points, respectively, driven by favorable absorption on higher sales and restructuring savings as well as a tailwind from FX.
Chris Parks: Next in the defense electronics segment sales growth of 16% reflected increases in embedded computing equipment sales supporting a variety of <unk> ISR programs as we continue to benefit from increases in global demand.
Chris Parks: Within the segments Aerospace defense market, we experienced higher revenue supporting various helicopter platforms, most notably on the Blackhawk and in addition to higher sales on the Triton UAV program.
Chris Parks: While in ground defense, our results, mainly reflected higher revenue supporting U S Army vehicle modernization and replenishment.
Chris Parks: Regarding the segment's operating performance, we delivered a record first quarter operating margin of 27, 5%, mainly reflecting favorable absorption on higher revenues as well as the shift in mix towards higher margin <unk> ISR programs.
Chris Parks: In addition, we continue to improve the efficiency of our operations to support this business as future growth and further bolster our position as a leading supplier of defense electronics.
First quarter profitability also reflected the benefits of our prior year restructuring program to expand our manufacturing capacity as well as our ongoing operational and commercial excellence initiatives, which are now expected to promote further margin expansion in 2025.
Chris Parks: Turning to enable and power segment sales growth of 18% exceeded our expectations, principally driven by higher revenue across several key platforms enabled defense.
Chris Parks: Within this market our results reflected strong performance and execution on the submarine programs as well as the timing and acceleration of material receipts from suppliers.
Chris Parks: And the power and process market our results mainly reflected the contribution from acquisitions driving strong growth in both our commercial nuclear and process markets.
Chris Parks: On an organic basis, we experienced high single digit revenue growth in commercial nuclear supporting the maintenance of operating reactors.
Chris Parks: As well as the ramp up in development across several SM, our designs, including the ex energy in Terrapower advanced reactors.
Chris Parks: Elsewhere within the process market higher domestic MRO valve sales were essentially offset by the timing of large capital projects.
Chris Parks: Regarding the segment's operating performance favorable absorption on higher organic revenues was partially offset by unfavorable mix as well as increased investment in customer funded development programs supporting future growth in our enablement and commercial nuclear businesses.
Chris Parks: As a reminder, last year's results included an unfavorable naval contract adjustment that did not recur in 2025.
Chris Parks: Beyond that and as expected while it was a strong contributor to our first quarter sales growth. We did experience margin dilution from the ultra energy acquisition as we integrate this business into our operations.
Chris Parks: To sum up Curtiss Wright's first quarter results overall, we generated a strong operating margin of 16, 6% driving 260 basis points and operating margin expansion on our stronger than expected top line performance.
Chris Parks: Turning to our full year 2025 guidance I'll begin on slide five of their end market sales outlook. We now expect total sales to grow 8% to 9%, reflecting 5% to 7% organic growth, mainly driven by continued momentum in defense electronics and more broadly across our A&D markets.
Chris Parks: Starting in aerospace defense, our outlook for 6% to 8% sales growth remains unchanged, mainly reflecting our strong order book for embedded computing equipment on various <unk> ISR programs.
Chris Parks: Within ground defense, we now expect full year sales growth of 6% to 8% driven by increased throughput for our tactical communications equipment, resulting from our recent restructuring actions.
Chris Parks: Enabled defense, we now expect full year sales growth of 5% to 7% based on expectations for higher production revenue on submarine programs. Following the strong Q1 results as well as higher aftermarket revenue supporting overhauls and retrofits on prior generation carriers.
Chris Parks: Okay.
Chris Parks: Elsewhere within our defense electronics business, we continue to anticipate strong growth in embedded computing revenue supporting various domestic and international programs.
Chris Parks: Looking more broadly across all three defense markets. We now expect high teens growth in direct foreign military sales in 2025, driven by the alignment of our technologies such as <unk> ISR interesting systems equipment to support increased global defense spending priorities.
Chris Parks: Turning to commercial aerospace, we now expect full year sales to increase 13% to 15% with the increased outlook fully driven by an exciting new Avenue for growth in avionics equipment within our defense electronics segment.
Chris Parks: Building upon our legacy flight data recorder technology used in both defense and commercial applications. We are bringing improved cockpit voice recorder solutions to the commercial aerospace market to meet new safety mandates for longer reporting capability.
Speaker Change: We will provide additional color on these efforts and our opportunities for growth later in her prepared remarks.
Speaker Change: Wrapping up our aerospace and defense outlook, we now expect total sales in these markets to increase 7% to 9% in 2025.
Speaker Change: Moving to our commercial markets empowerment process, our outlook for 16% to 18% sales growth remains unchanged and continues to reflect a combination of mid to high single digit organic revenue growth as well as the contribution from Walter energy.
Speaker Change: Within our commercial nuclear market, we continue to expect increased aftermarket sales supporting the maintenance of the U S U K and South Korea reactors as well as a ramp up in development revenues across several of them are in advanced reactor designs.
Speaker Change: Next within the process market, we continue to expect solid organic growth, mainly reflecting increased development on subsea pumps.
Speaker Change: And lastly in the general industrial.
Speaker Change: Can you to take a cautious approach and anticipate sales to be flat in 2025 were modest growth in industrial automation and surface treatment services will be offset by reduced sales of industrial vehicle products.
Speaker Change: No. The order book for our vehicle products has remained stable over the past five quarters in spite of ongoing industry headwinds.
Speaker Change: Wrapping up our total commercial markets, we continue to target full year sales growth of 9% to 11%.
Speaker Change: Moving onto our full year 2025 outlook by segment on slide six on a begin by discussing the tariff impact on our operations.
Speaker Change: Of note approximately 20% of our businesses are currently subject to tariffs.
Speaker Change: For those areas, where we have exposure at the gross level, we estimate approximately $30 million and impacts for the remainder of 2025, most of which is related to imports from China.
Speaker Change: As we instituted in 2018 and 2019, we have tariff mitigation strategies in place, including various pricing and operational actions to improve our competitive positioning and to protect our operating margin.
Speaker Change: As a result, we expect 2025 net impact from tariffs to be approximately $10 million about two thirds within our aerospace and industrial segment and one third enable and power.
Speaker Change: We're also updating our expectations for the corporate wide restructuring program that we initially launched in 2024, where we had originally anticipated $15 million in total cost to yield $10 million in annualized savings to operating income by the end of 2025.
Speaker Change: Okay.
Speaker Change: Due to additional actions being implemented this year, we now anticipate total cost of approximately $20 million with the increase mainly impacting the aerospace and industrial segment driven by additional facility consolidations.
Speaker Change: As a result, we now expect approximately $12 million in total annualized savings the majority of which were recognized in 2025.
Speaker Change: Regarding the updates to our outlook by segment I'll begin in aerospace and industrial where we continue to expect to grow 3% to 5%, reflecting strong growth in our A&D markets and flat sales in general industrial.
Speaker Change: Regarding our segments profitability and as a result of potential tariff impacts we reduce the low end of the guidance range for operating income and margins slightly to reflect our net exposure.
Speaker Change: In the event that the latest tariffs or lessened or lifted we still see a path to the high end of our original segment guidance driven by our expectation for higher sales and the savings generated by our restructuring actions.
Speaker Change: We now project operating income to increase 3% to 8% and operating margin to be flat to up 60 basis points and range from 17% to 17, 6%.
Speaker Change: Next in defense Electronics, we now expect sales to grow 9% to 11% following the strong first quarter performance and the strength of this business has record 2024 order book, which is driving solid growth across all A&D markets.
Speaker Change: Regarding the segments profitability, we now expect operating income growth of 15% to 18% and operating margin expansion of 140 to 160 basis points to a new all time high range of 26, 3% to 26, 5%.
Speaker Change: The dramatic improvement in our outlook results from a combination of the higher topline guide the acceleration of our commercial and operational excellence initiatives and better than anticipated savings, resulting from our prior year restructuring efforts.
Speaker Change: And enable empower we now expect sales to grow 10% to 12% reflecting increased confidence following the strong first quarter performance enabled defense and overall solid growth across the segments defense and commercial markets.
Speaker Change: Regarding our segments profitability, we now expect operating income growth of 14% to 17% on the higher sales.
Speaker Change: And of note, we are holding our margin guidance. Despite a tariff impact in this segment, which we plan to mitigate through higher sales pricing and commercial excellence initiatives.
Speaker Change: As a reminder, our outlook also reflects the contribution from ultra energy, which will initially be dilutive to operating margin in its first year with Curtis rate as well as approximately $4 million in incremental investments to support internally funded R&D programs.
Speaker Change: So to summarize our 2025 outlook overall, we now expect total Curtiss Wright operating income to grow 13% to 16% and operating margin to range from $18 three to 18, 5% up 80 to 100 basis points.
Speaker Change: Next to aid in your quarterly modeling of sales and operating margin. We expect second quarter 2025 sales to grow by high single digits relative to the second quarter of 2024, reflecting increases in all three segments and most notably driven by the timing of higher naval defense and commercial nuclear revenues enable and power.
Speaker Change: Segment.
Speaker Change: Within the <unk> segment, we expect operating margin to be up slightly compared with our second quarter 2024 results along with strong year over year growth in profitability within our defense electronics enable and power segments.
Speaker Change: In summary, the overall Curtiss Wright level, we're expecting high teens second quarter operating margin on strong sales growth.
Speaker Change: Continuing with our financial outlook on slide seven and starting with our EPS guidance.
Speaker Change: Building upon our strong first quarter performance, we now expect full year 2025 diluted EPS to range from $12 45 to $12 80 up 14% to 17%, mainly reflecting improved sales and profitability within defense electronics.
Speaker Change: To aid in your quarterly EPS modeling, we expect second quarter 2025, EPS to reflect low double digit growth sequentially relative to our strong first quarter results.
Speaker Change: We then expect modest sequential EPS growth over the remainder of 2025 based on the timing of a strong first half revenues with the fourth quarter EPS being our strongest.
Speaker Change: And lastly, turning to free cash flow in Q1, while we experienced our typical outflow we delivered a solid year over year improvement of 5% driven by the strong growth in earnings.
Speaker Change: Overall, we had a good start to the year and that provides us with confidence to raise our full year free cash flow projections to a new range of $495 million to $515 million up 2% to 7% over 2024.
Speaker Change: And as a reminder, our outlook includes an increase in capital expenditures of nearly $20 million year over year relative to the midpoint of our guide as we continue to invest in support of our future growth.
Speaker Change: Of note. We also remain on track to deliver a healthy free cash flow conversion rate in excess of 105% again this year, which remains in line with our long term targets.
Lynn: Now I'd like to turn the call back over to Lynn.
Lynn: Thank you, Chris and turning to slide eight as we have discussed today. Our strategy continues to build momentum while we remain cautious in light of the uncertain geopolitical and macroeconomic environment Curtiss Wright remains well positioned to deliver strong profitable growth again in 2025.
Lynn: Our execution during the first quarter is a perfect illustration of how we are focused on managing Curtiss Wright consolidated portfolio, which in turn supports our revised outlook targeting record financial performance across all major metrics. This year I'm, particularly excited about the team's ability to targa.
Lynn: Robust operating margin expansion of 80 to 100 basis points to nearly 18, 5% and to generate at least $500 million and free cash flow this year.
Lynn: Overall, the team continues to deliver at a high level in support of our three year objectives provided at last May's Investor day.
Lynn: Next regarding our capital allocation.
Lynn: <unk> maintained a very healthy balance sheet supporting our disciplined and strategic approach to capital deployment, while we continue to foster significant financial flexibility to pursue acquisitions and continued share repurchase. We're also driving steady investments in our systems and infrastructure, which support the team's.
Lynn: Hertz to capture positions on both current and next generation platforms across our A&D and commercial businesses.
Lynn: Finally, as I look across our operations, we remain very well positioned to capture the medium and long term secular growth trends across our end markets.
Lynn: I'll highlight a few examples and starting with defense. We believe the fundamentals of our industry remains strong and Curtiss Wright is poised to grow in all facets of our defense end markets. The passage of the FY 'twenty five budget, even with when considering the full year continuing resolution helped remove some uncertainty.
Lynn: While still allowing for a critical new programs start.
Lynn: Further we are encouraged by the release of the initial FY 'twenty six budget, which includes the benefit of budget reconciliation to drive a total defense spending of more than one trillion.
Lynn: Which would reflect strong year over year growth of more than 13% given our alignment across many of the platforms and priorities in those bills, including shipbuilding missile defense and are superior D. We expect our defense businesses to be well positioned entering into 2026.
Lynn: Turning to our World class Defence electronics portfolio, which remains a growing and very profitable business for Curtiss Wright, we take pride in being an industry leader, leading supplier of commercial off the shelf embedded computing technology, we continuously invest in research and development to maintain our technological.
Lynn: Leadership stay ahead of our customers' needs and speed the delivery of next generation technology to the battlefield.
Lynn: This includes our alignment to rugged modular open systems approach are most of these solutions to accelerate the development of leading edge computing technologies into multi platform solutions.
Lynn: In addition through our fabric 100 product line. This ecosystem of very high performance processors network switches and processing units, such as GPU and FPGA modules, bringing state of the art expertise to enable faster data communication capabilities for sensor and mission processing.
Lynn: <unk>.
Lynn: Through our recent alignment with Nvidia their OEM partner program Curtiss Wright is integrating Nvidia is cutting edge AI technology into rugged deployable systems that bring commercial innovation to the tactical edge.
Lynn: Today with the markets. We serve we are the only company to hold the distinction covering the three major competencies embedded computing networking and AI reinforcing Curtis <unk> ability to meet the growing demand for higher performance and advanced processing solutions across our customer base.
Lynn: Next in commercial aerospace and as Chris alluded to earlier, we have traditionally served the aerospace and defense markets with our fortress Ruggedized cockpit voice and data recorder solutions essentially the back box used in aviation more recently, we built upon our commercial successes and we're awarded a contract with <unk>.
Lynn: Support the D O D G six Texan primary training fleet.
Lynn: We have also aligned with Honeywell to develop critical technology supporting the 25 hour safety mandate for longer recording capability in commercial aviation, which well exceeds the current standards for only two hours of recorded audio are jointly developed flight recorder innovation complies with both the FAA and the.
Lynn: The European Aviation Safety agency already asked some mandates and allows us to support our OEM customers, including Boeing and others still in pursuit as well as the airlines as they prepare to implement this critical upgrade.
Lynn: In addition, the FAA Reauthorization Act of 2024 applies to both new OEM installations as well as retrofit applications in the U S, providing Curtiss Wright with an opportunity to serve thousands of registered aircrafts.
Lynn: Further order activity supporting these efforts has been accelerating since late 2024 and has begun to translate into meaningful revenues for defense electronics This year.
Lynn: Lastly in commercial nuclear we have steadily communicated our vast opportunities for growth in this market and are well positioned to provide continued value to our shareholders over the near medium and long term Curtiss Wright's dedication and expertise to safeguarding existing operating reactors provides us with strong.
Lynn: <unk> immediate opportunities for growth beyond the aftermarket, we remain well positioned with Westinghouse and Theyre pursuits to construct new AP 1000 power plants globally as they move closer to production orders from Poland in Bulgaria at the same time, we continue to grow our presence with the leading designers of advanced and small.
Lynn: <unk> reactors as current design and development will begin to translate into prototypes and eventually into production units.
Lynn: Overall, Curtiss Wright's technologies remain well aligned globally to support the entire commercial nuclear lifecycle from the newbuild to the aftermarket for decades to come.
Lynn: These are some of the many exciting pursuits that we expect to support our pivot to growth strategy.
Lynn: In summary, I remain confident in Curtiss Wright's ability to demonstrate strong profitable growth. This year, our agility as an organization and drive for operational and commercial excellence runs deep providing confidence in our proven ability to mitigate the impact of economic uncertainty on our financials, while leveraging.
Lynn: A record order book and growing backlog to position us to drive strong returns for our shareholders.
Lynn: Thank you and at this time I would like to open up today's conference call for questions.
Lynn: The floor is now open for questions. At this time, if you have a question or comment. Please press star one on your telephone keypad.
Lynn: If at any point. Your question is answered you may remove yourself from the queue by pressing star Q.
Lynn: We ask that you pick up your handset when posing your questions to provide optimal sound quality.
Lynn: Again, we ask that you please limit yourself to one question and one follow up question. Thank you.
Speaker Change: And our first question will come from Pete <unk> with Alembic.
Lynn: Alembic Global please go ahead.
Speaker Change: Okay.
Speaker Change: Your line is open.
Speaker Change: Oh I'm sorry, good morning, Chris.
Speaker Change: Chris and Jim very nice quarter.
Chris Parks: Thank you.
Speaker Change: Wonder if we could start just a little more specificity on the tariff impact sounds like you could mitigate it.
Speaker Change: Pretty well, but could you give us some detail just in terms of the products impacted and how China plays into it and.
Speaker Change: The cost side sounds pretty well mitigated, but just on the sourcing any concerns about sourcing in this tariff environment.
Speaker Change: Yes. It is thank you for that question Pete and it surely is a dynamic situation, but one we have really.
Speaker Change: <unk> been very purposeful in how we're approaching as a company.
Speaker Change: Quite a few months ago, we put together a tiger team, which was very cross functional to really make sure we understood aspects of our of our contracts and honestly.
Speaker Change: Personality, we had to try and mitigate the tariffs and so we're I'm really.
Speaker Change: Please the numbers that Chris put forward deals or reducing mitigating over $20 million of the potential impact is pretty impressive and it's hats off to the team for being able to do that there is a lot of hard work that has gone behind that.
Speaker Change: And that mitigation comes through a variety of avenues. It is.
Speaker Change: <unk> of operational outcomes in.
Speaker Change: How we go about sourcing and supplying products to our customers.
Speaker Change: We learned a lot back in 2018 and put a lot of flexibility into our operational footprint at that time, so we'd be prepared.
Speaker Change: If there was a similar situation and so we didn't have to start from ground zero that was really important and.
Speaker Change: Pricing is also part of it and that is something that.
Speaker Change: Were very purposeful in talking to our customers about and working with them and being fairly transparent and they're willing to work with us largely.
Speaker Change: As we approach.
Speaker Change: Some targeted price increases for where we're seeing the tariff so.
Speaker Change: A lot of hard work by the team to be able to achieve what we spoke about during our prepared remarks, and maybe with that I'll turn it over to Chris to put a little more color on some parts of your question sure.
Speaker Change: So you heard in the prepared remarks that roughly 20% of our our product portfolio is subject to tariff risks in the way you kind of break that down as you look across our defense markets. It represents 50% of our business today most of that's domestic sourcing.
Speaker Change: But we're it's not there are tariff exclusions for military products that allow us to effectively mitigate that exposure.
Speaker Change: Tariffs are not applied to service revenue today, that's roughly 15% of our total business and then when we look across our non U S sites to non U S customers today, that's roughly 10% to 15% of our business. So within that 20%. The greatest pressure is certainly within the aerospace and industrial segments mainly.
Speaker Change: With industrial products like you saw back in 2018 2019 timeframe, but then also there's some process product exposure within enable and power segment stepping back and looking at.
Speaker Change: What were being tariffs on.
Speaker Change: Not a big impact from Canada, and Mexico. The majority of those products are covered by U S. MCA nothing material from the title III tariffs and steel and aluminum tariffs imports are low volume and our largest consumers are really source domestic so we.
Speaker Change: We feel good about the position and our guide in the full year.
Speaker Change: Okay very helpful. Thanks, guys, just one follow up.
Speaker Change: You raised the commercial aerospace guide quite a bit for the year I'm. Just wondering was the Boeing kind of return.
Speaker Change: Production in an accelerated production post strike was that a part of that or was it all kind of FAA safety mandate.
Speaker Change: In terms of the corner sales, there and I'm just wondering.
Speaker Change: How long should we expect a safety mandate related sales that got us to drive revenue for you.
Speaker Change: Well, maybe I'll start off with the guide and then just in terms of the longevity ill turn that back over to Lance, but I want to be clear the guidance increase that we made here.
Speaker Change: On the call is entirely related to the Honeywell the new cockpit voice recorders.
Speaker Change: We do still have got some conservatism that's embedded within the guide.
Speaker Change: There's obviously a lot happening in commercial aerospace right now relative.
Speaker Change: Relative to.
Speaker Change: Boeing and Airbus is supply chain. So we're trying to approach that situation cautiously but.
Speaker Change: But we feel good about being able to increase our guide in this environment and it's mainly the CVR.
Speaker Change: And you've taken up from.
Chris Parks: Chris just commented on this is this is definitely a long term sustainable.
Speaker Change: Revenue source for Curtiss Wright, the FAA mandate.
Speaker Change: Gives airlines through the end of this decade to do the retrofit.
Speaker Change: And.
Speaker Change: So we are really at the very beginning of that and its mandate in new production.
Speaker Change: Aircraft and so this is an area. This is an area that we are continuing to grow we have a very solid position with Boeing having received.
Speaker Change: With various certifications for new and retrofit airlines back in the end of 2023, but it takes a while for these things to kick in or very working very hard to.
Speaker Change: We received certification across the Airbus <unk> hundred 20 fleet and there is a lot of work to go going on to receive certification across a lot of the regional jets that are also sub.
Speaker Change: Subject to the mandate. So this is a very exciting portion of our business that has been building really even in 2024, but.
Speaker Change: It doesn't get talked about a lot and thats why we really wanted to bring it to the forefront as it really begins to see some really dynamic growth in.
Speaker Change: And bringing a bit more to the forefront during the call.
Speaker Change: Thank you.
Speaker Change: Our next question will come from Kristina <unk> with Morgan Stanley. Please go ahead.
Kristina: Good morning, everyone.
Speaker Change: Interesting nice to hear your voice welcome back Thanks, I'm back happy to send I would be curious if you guys want.
Speaker Change: Oh absolutely.
Speaker Change: She is a seven months and I'll, just blowing raspberries all day long she's a raspberry factory.
Speaker Change: Alright.
Speaker Change: So maybe starting on a commercial nuclear.
The Trump administration and their approach to energy has their approach on nuclear been more supportive to the degree you were expecting or has there been a change and so.
Speaker Change: Just want to understand the outlook for U S. Nuclear and then also the second piece is once we get out to the international orders Poland in Bulgaria, how has this geopolitical environment and uncertainty with tariffs affected their plans to go build new nuclear power plants.
Speaker Change: So I would say we are cautiously positive before.
Speaker Change: We move to the new administration that there would be ongoing support and that was largely based on the standards as we knew a lot of the cabinet members, we're very pro nuclear and so you could see that that was in the underpinnings of the people he put around himself, but I think it is played out.
Speaker Change: Maybe even better than we would have anticipated in Q.
Speaker Change: Two examples secretary right.
Speaker Change: Was.
Speaker Change: Very much front and center in both our recent announcement in Poland that was extending.
Speaker Change: <unk> engineering contract to the end of the year, which will.
Speaker Change: Really be the final stage before construction.
Construction contracts are awarded and was front and center with in Bulgaria with.
Speaker Change: Then declaring.
Speaker Change: The site of their first AP 1000 plant in their goal of being the first AP 1000 plant.
Speaker Change: In Europe jumping ahead of Poland, So a little bit of a foot race is not a bad thing in our world and I think every time you see the executive orders that come out in across the U S. About energy dominance is always includes nuclear nuclear on a very positive.
Speaker Change: We feel very good about.
Speaker Change: The support from this administration and even some of the things.
Speaker Change: <unk>.
Speaker Change: It ties to deregulation and making the NRC more efficient while also fundamentally lend themselves to the build out so there's a lot of different angles to it but it's.
Speaker Change: It's positive from what we see today.
Speaker Change: Thank you for that and shifting gears to shipbuilding Theres, a clear shipbuilding emphasis from this administration, but starting out new programs take time in building ships take time, how do you think this plays out and how does that flow.
Speaker Change: Get to you and when would you start expecting to see significant orders to come through you are generally in the earlier side of those projects.
Speaker Change: Yeah, It's a fair point these industries don't turn on a dime I do think it's interesting to see that you know obviously.
Speaker Change: Obviously, there are great support for shipbuilding and what we see in both the reconciliation reconciliation bill and the skinny budget so to speak.
Speaker Change: And a lot of money for the industrial base I think one point that's noteworthy is we.
Speaker Change: We commented in our Investor day.
Back in May of 2024 that we had received $15 million over the prior few years for industrial based funding that is up to 21 million as of to date and we have a lot of money in pursuit. So thats.
Speaker Change: Maybe the more immediate here and now but we also are seeing.
Speaker Change: Opportunities to take work share as there is a real push to get the existing fleet more operational and it is leading to.
Speaker Change: Opening up some new opportunities for ourselves.
Speaker Change: As well as the ongoing work that we have across Virginia, Colombia, the aircraft carriers and one one Saturday that was in the reconciliation Bill was putting the second Virginia class back in 2007 so.
Speaker Change: That's just a good thing so.
Speaker Change: It will build over time, but we're very conscious of things we can do in the near term to try and win business as we build our long term positions.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question will come from Myles Walton with Wolfe Research. Please go ahead.
Myles Walton: Thanks. Good morning, I was wondering if you could comment on the defense electronics margin performance or maybe the absolute EBIT dollar performance I think the rest of the year is implied to be below the run rate of the first quarter, which which would be pretty unusual given your historical tendency in that segment.
Myles Walton: Thing that was accelerated in the first quarter or is this more conservatism for the rest of the year.
Myles Walton: So thank you for that question Myles I guess I'd like to honestly start and backup for a second and talk about the corporation in total because I think it's important to set the stage about how we're viewing our guidance and the raise that we did put forward as we started the year.
I will definitely come to the details of what you asked so if you give me two seconds on that.
Myles Walton: Dodging your question.
Myles Walton: Thanks.
Myles Walton: So yes.
Myles Walton: Yes.
Myles Walton: Started out with a reasonable amount of conservatism in our initial guide. This year you know I mean, there was talks of tear us what was going to happen with the continuing resolution recession fears just a lot of different things going on and some things going on inside the business specifically in defense electronics with our restructuring.
Myles Walton: Setting the stage for growth in ERP implementation, so with that we took a pretty cautionary tone to our guide and I will say.
Myles Walton: We've raised our guidance.
Speaker Change: By thinking that we can more clearly see line of sight on some of those things, but there is definitely still areas. Chris mentioned, one just a moment ago, where we are still.
We know we have conservatism in our guidance and whether that's commercial aerospace, which you just mentioned a minute or two ago whats going on in general industrial.
Speaker Change: Recessionary signals and our risk with tariffs and how that's going to play out.
Speaker Change: Within defense electronics.
Speaker Change: Doing a full ERP implementation across that group and.
Speaker Change: And we have a lot of big projects going on to enable and power.
Speaker Change: No I'm not.
Speaker Change: Throwing up any alarms on any of these things, but we try and make sure we are.
Speaker Change: Putting important numbers that we will be able to deliver on to the street. That's important to US is how we operate as a management team and so with that there is conservatism across the board and what we've put forward, but there's also a lot of things that are all the ongoing problem.
Speaker Change: Programs around commercial excellence and operational excellence, they are bearing fruits and.
Speaker Change: Turning those to talk about defense electronics, specifically, there's a blend of things and maybe I'll ask Chris to speak about a few of the things that are driving the margin and then I would like to come back and touch on pricing.
Speaker Change: No.
Speaker Change: Absolutely.
Speaker Change: Trying to approach this cautiously as we move through the rest of the year, but miles specifically.
Speaker Change: Look at the Q1 margin, we talked a little bit about the mix that's going on we're certainly seeing some expansion from commercial and operational excellence also in Q1, we had some FX benefits. So we saw.
Speaker Change: The U S dollar strengthened against key currencies using our bank.
Speaker Change: <unk> forecast for looking out across the remainder of the year, we're expecting some of that FX benefit to go away as the dollar weakens against some of those currencies.
Speaker Change: We expect research and development to ramp as we progress through the rest of the year.
Speaker Change: And then.
Speaker Change: Important to note we've talked about this in past calls.
Speaker Change: The sequential ramp in defense electronics. This team has really been working hard to try to balance that out and to not have it be such in the fourth quarter Spike. So as you look at defense electronics over the remainder of the year. It will be very modest sequential growth for that segment. So it's really the combination.
Speaker Change: <unk>.
Speaker Change: Very modest sequential growth in those other things that I just talked about.
Speaker Change: Yeah in the lab.
Speaker Change: <unk> element that.
Speaker Change: Is meaningful but I want to be very purposeful on how I speak to it is.
Speaker Change: Our ability to drive pricing across the products that we provide to our customers in this segment and we are.
Speaker Change: We're very focused on delivering a fantastic value to our customers and being a rock solid supplier that is there for them in all aspects of how they take advantage of our products and work them into their systems, and overall solutions and with that well.
Speaker Change: Launched the operational growth platform.
Speaker Change: <unk>.
Speaker Change: Back at the beginning of my tenure commercial excellence was a big part of that and Thats really understanding the value, you're bringing to customers and pricing appropriately and keeping in mind competition and a win win with your customer and all of those things. So it's not just you.
Speaker Change: All about margin, but it's about charging for the value you bring and the I think the team has done a great job to evolve over the past few years and to be able to understand the value they are bringing and price appropriately and thats also part of the margins that were receiving in that team.
Speaker Change: Alright, thanks for the color.
Speaker Change: And then one follow up if I could the book to Bill for the company was 1.26 was there much of a differentiated by segment or if you can just provide let's go by segment.
Speaker Change: Sure, yes, it within the aerospace and industrial segment miles it was a $1 one time approximately one point onetime book to bill in the quarter.
Speaker Change: We had great commercial aerospace court.
Speaker Change: Orders for the quarter.
Speaker Change: Within defense electronics, It was about a onetime book to bill on 16% sales growth.
Speaker Change: Not anything really unusual here.
Speaker Change: Obviously started off the first quarter with a CR that kind of creates some slowness in terms of the order patterns, but then as you look back at Q1 of 2024.
Speaker Change: There are some pretty big lumpy orders that had come on and at that point in time for multiyear orders that have come in at that time for defense electronics, So pipeline still looks great as we look ahead.
Speaker Change: With enabling powers of one six times book to Bill.
Speaker Change: Very strong naval order quarter, you know that that can be somewhat lumpy, but I think when you start to take it into context of what we did last year with naval orders, where we're seeing this year is really helping to drive our expectations for these very strong first half revenues.
Speaker Change: Lot of material timing in there, but very strong first half revenues for.
Speaker Change: Naval and power.
Speaker Change: This year.
Speaker Change: Thank you.
Speaker Change: Our next question will come from Jason Gursky with Citi. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Good morning, everybody.
Speaker Change: Hey, Jay.
Speaker Change: Paresh.
Speaker Change: Well I've been asking everybody this quarter are similar.
Speaker Change: <expletive> around.
Speaker Change: The change in foot.
Speaker Change: Washington, particularly around acquisition.
Speaker Change: For them.
Speaker Change: And our proposal to reroute Star <unk>.
Speaker Change: Just kind of curious if you can.
Speaker Change: Maybe step in and provide.
Speaker Change: The context from your perspective on what you think is.
Speaker Change: In front of us on that front.
Speaker Change: The applications closer to the industry and for Curtiss Wright in particular, so it's going to end up going up.
Speaker Change: A positive.
Speaker Change: It is kind of a neutral I would just kind of curious how you're thinking about the prospects of <unk>.
Speaker Change: What seems to be pretty.
Speaker Change: Pretty significant efforts.
Speaker Change: Reformed the way that.
Speaker Change: The government is going to buy goods and services going forward. Thanks.
Speaker Change: Thank you for that question, it's definitely something there has been a lot of activity and so a lot of executive orders. So.
Speaker Change: Many of them very good in the line broadly speaking new before we talk specifically about acquisition you know around shipbuilding in energy production in all areas that.
Speaker Change: Should be really strong forces for Curtiss Wright's growth going forward.
Speaker Change: I think it's interesting.
Speaker Change: As we are digging into this.
Speaker Change: I'm very much feel it's going to be a strong positive for Curtiss Wright and Theres. A couple of avenues of that that you have a lot of where the focus is has been.
Speaker Change: Large cost plus type contracts that.
Speaker Change: It keeps growing in size characterize almost exclusively a firm fixed price.
Speaker Change: Contracting across our defense work and that's very much where theres pushes to move to one of the things that's very down in those executive orders were comfortable taking business in that approach and we deliver great value and I am always want to make that point that I really do know that we provide a great.
Speaker Change: All you to our government for the contracts that they afford to give the Curtiss Wright and so.
Speaker Change: That's the most fundamental basis, so same why I think we will win.
Speaker Change: But that's one of the pushes and that's how we like to do business another big focus out of.
Speaker Change: Some of the E OS is a push towards more commercial practices and more commercial commercial buying practices and really our defense electronics segment that as they go to market commercially. So we are very much.
Speaker Change: Know how to go about working commercially with the government and know how to do that and think it's great to see that there'll be more buying practices pushed in that direction, and we will look to see where else in our portfolio weaken.
Speaker Change: Leverage commercial pricing and drive more business that way and I think it'll be great for the business for the the customer great for our defense Department and Great for Curtiss Wright and so those are two things. The other thing that's in there is something that's called the otas or the.
Speaker Change: Other.
Speaker Change: Transaction authority and the.
Speaker Change: Thats, an area, where Curtiss Wright, we don't have an extensive experience in it but we absolutely have worked are setup with through the partnerships to be able to take OTI money and will absolutely are seeing that part of the executive orders and building out to make sure we're ready as money flows through those OTA.
Speaker Change: Is that where we are.
Speaker Change: Sure.
Speaker Change: The fundamental relationships that we're able to take those types of partnerships. So I do I feel that.
Speaker Change: I feel proud of the value we bring to the defense Department for what we do and I think as they look to drive efficiencies and value fundamentally in in how they spend their money I think courage rate will be at the forefront of waiting for that.
Shlomo: That's helpful. I appreciate it thanks, Shlomo the floor with one.
Shlomo: Okay. Thank you. Thank you Joseph.
Shlomo: Yeah.
Speaker Change: Our next question will come from Louie Dipalma with William Blair. Please go ahead.
Shlomo: Great.
Speaker Change: I was wondering if you can.
Shlomo: The exposure to <unk>.
Shlomo: Our drone platforms.
Shlomo: But it's all good.
Shlomo: Well from them.
Shlomo: All forms of it.
Shlomo: As you mentioned.
Shlomo: Okay.
Shlomo: Perfect.
Shlomo: Yes.
Speaker Change: Yes, sorry, we are not able to hear you would you mind repeating that.
Speaker Change: You just kind of coming through mumbled, I don't not sure what's going on with the lines is sorry about that Louie.
Speaker Change: Okay.
Speaker Change: Move on next to Nathan Jones with Stifel. Please go ahead.
Nathan Jones: Good morning, everyone.
Speaker Change: Hey, good.
Nathan Jones: Good morning, just.
Nathan Jones: Just a couple of follow up questions.
Nathan Jones: You said the commercial aerospace our guidance was raised.
Nathan Jones: Solely on that voice recorder.
Nathan Jones: Incremental business that Youre, winning I think it works out to be about 12 million bucks or something for 2025.
Nathan Jones: But you also had talked about these being the very beginning and extending out through at least the end of this decade could you give us a bit more color on what you think that the market potential there could be over the next few years.
Nathan Jones: I would imagine that's growing fairly quickly.
Nathan Jones: Given that you are right at the start of that.
Nathan Jones: Yeah, I mean, we are definitely on.
Nathan Jones: Got it.
Clearly as part of our forecast at the beginning of the year and as Chris said it was.
Nathan Jones: The entirety of why we raised our commercial aerospace as you know, we're getting more clarity with our partnership with Honeywell and how the ramp is beginning to become visible and it's a little I mean, there's still some undetermined.
Nathan Jones: It's going to continue to grow for many years to come and we're in the work of are in the process.
Nathan Jones: Getting certification across the Airbus platforms that will happen.
Nathan Jones: Probably in 2026, so that's still a future dynamic that's coming and across some of the regional jets. So it's a little hard at this point until we've really sized.
Nathan Jones: The opportunity.
Nathan Jones: And figure out who we are where we're going to win and have content to put a dollar figure to it but.
Nathan Jones: I think we're I will agree with you we are at the very beginning of.
Nathan Jones: What's going to be a long steady ramp for that product family.
Nathan Jones: Fair enough.
Nathan Jones: I'll ask again in a couple of cornerstone.
Nathan Jones: The defense electronics.
Speaker Change: <unk> electronics margins I know you got asked about.
Nathan Jones: The progression through the year.
Nathan Jones: It's obviously significantly higher than where you started and then based on all of the things you talked about it doesn't sound like any of those are onetime in nature for 2025 year commercial excellence restructuring.
Speaker Change: High levels of volume that Doug how might be going away.
Speaker Change: There is no reason why we think there's any step down next year or something like that in the defense electronics margins, just kind of a new higher baseline that we're starting from now and then maybe you could just comment on what kind of incremental margins, we should expect in that business. Thanks.
Chris Parks: So I can I'll ask Chris to put a little more color on the defense electronics margins, but were really not putting forward.
Chris Parks: Predictions for 2026 at this time and I can appreciate the question and wanting to know but.
Chris Parks: Going to take it.
Chris Parks: <unk>.
Chris Parks: A year at a time and we have our current guide we've updated that and we feel good about it but I would agree there is not there is not a one time thing in that.
Chris Parks: Across our product portfolio, but we really do like to afford ourselves the flexibility to invest as we see a strong return for the company going forward and so.
Chris Parks: That's really the caution around trying to lock in or foreshadow margins coming in and out year.
Chris Parks: Yeah, and I would just say in terms of incremental margins for that segment absence, R&D investments or other things that we're doing you know youre going to see that in that 30% to 35% range. I mean that is the pivot to growth greater top line and free up that funding for investment beneath right. So team is doing a great job and all those things you talked about.
Chris Parks: Our absolutely.
Chris Parks: So we're excited about and see as we look out into the future.
Speaker Change: Thanks, very much for taking my questions.
Jim Ryan: Thank you Nathan.
Speaker Change: Thank you.
Speaker Change: Once again, if you have a question. Please press star one on your telephone keypad at this time.
Speaker Change: And we'll move next back to Louie Dipalma with William Blair.
Speaker Change: Lynn, Chris and Jim Good morning, I Hope you can hear me more clearly this time, but I was just wondering how are the S. M. R content partnerships progressing.
Speaker Change: So thank you and yes, you are coming through loud and clear so glad we could get your your question. So it's you know it's.
Speaker Change: They are definitely progressing and I think you made reference to ramping.
Speaker Change: Development dollars across Terrapower in ex energy for some of the projects we're working on there.
Speaker Change: Indicative of.
Speaker Change: We're ever becoming more.
Speaker Change: Yes.
Speaker Change: Clear and where we're going to bring products to market with them are our work with Rolls Royce from the Ultra energy acquisition, we talked about that being a critical to helping us.
Speaker Change: Even extend our partnership with them that is going very well.
Speaker Change: So it's all steady as she goes and we're beginning to be able to more clearly see.
Speaker Change: <unk>.
Speaker Change: Designed to take form and line of sight that we will be moving to prototyping here in the next 12 24 months and.
Speaker Change: Working with them to get their first plants online so it's exciting.
Speaker Change: Excellent that's it for me thanks Glenn.
Speaker Change: Thank you Lily thank you.
Speaker Change: Thank you.
Myles Walton: Our next question will come from Myles Walton with Wolfe Research. Please go ahead.
Speaker Change: Thanks for the follow up Lynn you'd mentioned Westinghouse's press releases in the last week or two regarding Poland in Bulgaria in one of the.
Myles Walton: Dates.
Myles Walton: Westinghouse referred to as the engineering procurement and construction agreement by the end of 2025, if that timeline stocks would you expect to have a construction contract of your own by the end of 2025 or early 2026.
Myles Walton: Yeah, I mean, we're.
Myles Walton: Thank you.
Myles Walton: I'm really pleased to be able to say, we three years ago started to say three to five years and have whittled that down and we're very much saying, we expect an order.
Myles Walton: In 2026 at some point in time and by the end of the year, but.
Myles Walton: It could come mid year, so I feel like we're we believe we're triangulating in on that timeframe, but I wouldnt say by the end of this year.
Myles Walton: Okay that was it.
Myles Walton: So much.
Myles Walton: Thank you.
Myles Walton: Thank you.
Speaker Change: And at this time there are no further questions. So I'd like to turn the floor back over to Lynn Bamford Chair and Chief Executive officer for additional or closing remarks.
Speaker Change: Thank you everyone for joining us today, and we look forward to speaking with you again on the road or at our next quarter results call. Thank you have a great day. Thank you.
Speaker Change: Thank you.
Speaker Change: This concludes today's Curtiss Wright earnings Conference call.
Speaker Change: Please disconnect. Your line at this time and have a wonderful day.
Speaker Change: Okay.
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