Curtiss-Wright Corporation (CW) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A reflect strong financial performance and optimistic guidance, with notable growth in defense and commercial nuclear sectors. Despite some uncertainties, the company's strategic focus on M&A, nuclear expansion, and partnerships suggests positive future prospects. The raised free cash flow guidance and operating margin expansion further support a positive sentiment.
Key Financial Performance
Revenue $869 million, an increase of 9% year-over-year, with 6% organic growth. The increase was driven by strong demand across all three segments.
Operating Income Increased 14% year-over-year, exceeding sales growth and driving 90 basis points of overall operating margin expansion to 19.6%. This was due to improved operational performance and favorable absorption on higher sales.
Diluted Earnings Per Share (EPS) Increased 14% year-over-year, slightly exceeding expectations due to improved operational performance and fewer shares outstanding.
Free Cash Flow $176 million, up 8% year-over-year, reflecting nearly 140% conversion due to higher cash earnings and lower tax payments, while increasing growth investments in capital spending.
New Orders Increased 8%, resulting in an overall book-to-bill ratio that supports future top-line growth.
Aerospace & Industrial Segment Sales Increased 8%, driven by strong demand in commercial aerospace and growth in ground defense markets. Operating income grew 17%, with a 140 basis point margin expansion to 18.6%.
Defense Electronics Segment Sales Grew 4%, driven by tactical communications equipment and embedded computing equipment for defense programs. Operating margin increased 270 basis points to 29.2% due to favorable absorption and operational excellence.
Naval & Power Segment Sales Increased 12%, driven by strong revenue growth in Columbia-class and Virginia-class submarine programs. Operating income grew 14%, with a 20 basis point margin expansion to 16.6%.
Commercial Nuclear Sales Grew more than 10% organically, driven by ramp-up in SMR development and higher government nuclear revenues.
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Operating Highlights
Commercial nuclear orders: Tremendous growth in commercial nuclear orders, including 2 new DOE-funded multiyear contracts in support of Idaho National Laboratory and other government sites.
Flight data recorders: Improved cockpit voice recorder solutions to meet FAA and EASA safety mandates for longer recording capacity, with meaningful revenues expected to accelerate over the next several years.
Subsea pump technology: First subsea pump delivered to Shell, with ongoing development and testing for Petrobras and others, positioning for significant new business by the end of the decade.
Aerospace & Defense (A&D) markets: Strong demand for commercial aerospace products and higher orders for nuclear propulsion equipment for U.S. Navy submarines. Growth in defense electronics and tactical communications equipment.
Commercial markets: Growth in commercial nuclear orders and stable order book in general industrial markets despite global macro challenges.
Operational performance: Revenue of $869 million, up 9% year-over-year, with 6% organic growth. Operating income increased 14%, driving 90 basis points of margin expansion to 19.6%.
Free cash flow: $176 million, up 8% year-over-year, with nearly 140% conversion due to higher cash earnings and lower tax payments.
Pivot to Growth strategy: Focused investments in A&D and commercial markets, alignment to growth vectors, and increased share repurchase activity of over $450 million in 2025.
Capital allocation: Record free cash flow generation supporting R&D, talent, systems, and acquisitions, with a priority on fueling core growth.
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Risk or Challenges
Timing of Orders: Delays in orders within aerospace defense and ground defense markets due to extended continuing resolution.
General Industrial Market Challenges: Flat sales in the general industrial market due to ongoing macroeconomic challenges affecting global industrial vehicle markets.
Naval Defense Revenue Timing: Sequential decline in naval defense revenues in Q4 due to timing of material receipts.
Process Market Sales: Slight decline in process market sales, reflecting challenges in subsea pump development revenues.
Increased Capital Expenditures: Higher capital expenditures, up 40% year-over-year, which could strain cash flow despite strong free cash flow conversion.
Global Macroeconomic Challenges: Ongoing global macroeconomic challenges affecting industrial vehicle markets and potentially impacting future growth.
Defense Electronics Revenue Timing: Revenue timing issues in defense electronics, particularly in helicopter programs, which could affect quarterly performance.
R&D Investments: Higher research and development costs, particularly for next-generation SMR designs, which could pressure margins.
Dependence on Government Funding: Significant reliance on government funding for naval and nuclear projects, which could be impacted by policy changes or budget constraints.
Commercial Nuclear Market Risks: Dependence on new AP1000 reactor orders and SMR development, which are subject to regulatory and market uncertainties.
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Guidance & Outlook
Revenue Growth: Curtiss-Wright expects total sales to grow 10% to 11% in 2025, driven by improved expectations for organic growth across Aerospace & Defense (A&D) markets. Commercial markets are also expected to achieve strong full-year sales growth of 9% to 11%.
Operating Income and Margins: Operating income is projected to grow 16% to 19% in 2025, with operating margins expected to range from 18.5% to 18.7%, reflecting an increase of 100 to 120 basis points.
Earnings Per Share (EPS): Adjusted diluted EPS guidance has been increased to a range of $12.95 to $13.20, representing growth of 19% to 21%.
Free Cash Flow: Free cash flow is expected to reach a record $520 million to $535 million in 2025, with a free cash flow conversion rate of approximately 108%.
Capital Expenditures: Capital expenditures are anticipated to increase by approximately 40% year-over-year to $85 million, supporting near- and medium-term growth initiatives.
Aerospace & Defense Markets: Sales in A&D markets are projected to increase 10% to 11% in 2025, with strong growth in defense electronics, aircraft arresting systems, and naval defense. Continued solid growth is expected in these markets in 2026.
Commercial Aerospace: Sales growth of 13% to 15% is expected in 2025, driven by increased OEM production and sales of flight data recorders. Strong growth is anticipated to continue in 2026.
Commercial Nuclear: The commercial nuclear market is expected to see significant growth, with potential orders for AP1000 reactors anticipated as soon as 2026. Revenue in this market is targeted to double by 2028 and exceed $1.5 billion annually by the mid-2030s.
Defense Electronics: Operating income in the Defense Electronics segment is expected to grow 19% to 22%, with operating margins reaching a record 27.1% to 27.3% in 2025.
Naval Defense: Sales in the naval defense market are projected to grow 9% to 11% in 2025, supported by strong performance on submarine platforms and a robust backlog.
General Industrial Market: Sales in the general industrial market are expected to remain flat in 2025, but the order book has shown slight improvement heading into 2026.
Research and Development (R&D): Investments in R&D are expected to increase, positioning the company for future organic growth.
Share Repurchases: Curtiss-Wright plans to repurchase more than $450 million in shares in 2025, reflecting confidence in the company's growth and earnings potential.
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Shareholder Return Plan
Share Repurchase Program: In May, the Board approved a $400 million increase in our share repurchase authorization, reflecting their confidence in the company's strong free cash flow generation and the momentum we are building in the Pivot to Growth strategy. Subsequently, in August and then again in September, the Board approved our request for 2 separate $200 million expansions of our 2025 share buyback program. As a result, we now anticipate a record of more than $450 million in share repurchases this year.
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Key Q&A
Q:Can you provide details on the shipset content for the AP1000 reactor?
A:Lynn Bamford explained that the reactor coolant pumps (RCPs) were last sold for just over $28 million per RCP. Historically, Curtiss-Wright's content on top of the RCPs was $10 million to $20 million, but the team is working to increase this by 2-3x. This is still in progress and not yet assured.
Q:Can you provide bookings by segment, particularly for Defense Electronics?
A:Lynn Bamford noted a 1.1x book-to-bill ratio for the quarter, with Defense Electronics seeing over $50 million in orders pushed out of Q3 due to the government shutdown. Chris Farkas added that Q3 book-to-bill was 1.1x overall, with 1.04x for Aerospace & Industrial and 1.14x for Naval & Power. Defense Electronics had a 1x book-to-bill, which could have been 1.1x without the pushouts. Backlog is at a record $3.9 billion.
Q:What is the historical benchmark for incremental content on the AP1000, and has it grown?
A:Lynn Bamford clarified that the $10 million to $20 million incremental content is a historical benchmark from the mid-teens, and the team is targeting doubling or tripling this amount.
Q:Can you clarify the pricing and incremental content for AP1000 reactors, especially for Poland and other projects?
A:Lynn Bamford explained that Curtiss-Wright's revenue per plant is $110+ million, with Poland planning 6 plants, Bulgaria 2, and Fermi 4. Incremental content on top of RCPs is targeted to double or triple, pushing content per plant into the mid-100s of millions.
Q:What is the potential of the U.S. market for nuclear reactors, and what orders are expected for 2026?
A:Lynn Bamford highlighted recent U.S. government support for nuclear builds and partnerships like Cameco and Brookfield. The first order is expected from Poland in 2026, with Bulgaria also in contention. U.S. orders are less certain for 2026 but are part of a broader pipeline.
Q:What is Curtiss-Wright's capacity to build AP1000 reactors, and how is CapEx being allocated?
A:Lynn Bamford stated a capacity of 12-16 reactors per year, dovetailed with naval work. CapEx has increased by 30% each year recently, with $10 million allocated for nuclear expansion.
Q:How quickly will revenue be recognized for a 2026 AP1000 order?
A:Chris Farkas explained that revenue recognition depends on material receipts and labor. Historically, it followed a 5-year bell curve, but this could be accelerated. Revenue recognition would start in 2026 and accelerate in 2027.
Q:Did Curtiss-Wright's 2028 targets include restarts of nuclear plants like Palisades or Three Mile Island?
A:Lynn Bamford confirmed that these restarts were not included in the 2028 targets, making them an incremental tailwind.
Q:What is the demand for the 25-hour flight data recorder, and how does it impact margins?
A:Lynn Bamford noted a blend of OEM and retrofit demand, with retrofits still in early stages. The product supports margins in the Defense Electronics segment, but specific shipset content and margins were not disclosed.
Q:What is the state of the M&A pipeline, and what is the outlook for 2026?
A:Lynn Bamford stated that M&A is a top priority, with discussions ongoing for strategic properties. The company remains focused on strategic and financial fit, avoiding overpaying for acquisitions.
Q:What is the growth trajectory for industrial vehicles, and what regions or markets are driving it?
A:Chris Farkas noted stabilization in industrial vehicles, with a 4% year-over-year order improvement in Q3 and a strong October. Growth is expected in Europe, despite challenges in North America.
Q:What is the impact of the government shutdown on Defense Electronics and 2026 cadence?
A:Chris Farkas expects some Q1 2026 pressure due to delayed orders but anticipates recovery over the year. The company aims to avoid a dramatic Q4.
Q:What is the outlook for the Turret Drive Stabilization business in Switzerland?
A:Lynn Bamford highlighted strong relationships with Rheinmetall and growth opportunities in Europe, including the XM30 win. The business is turning a corner with increased orders.
Q:How is Curtiss-Wright prioritizing its growth opportunities across segments?
A:Lynn Bamford emphasized that investments in aerospace, defense, and commercial nuclear markets also benefit other segments due to shared technologies and capabilities.
Q:What is the growth trajectory and margin expansion outlook for 2026?
A:Lynn Bamford expects growth across all segments in 2026, with operating margin expansion and strong alignment to Investor Day targets.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the shipset content and margins for the 25-hour flight data recorder, as well as the exact pricing and timeline for AP1000 reactor orders. Additionally, they did not clarify the full impact of government shutdowns on 2026 cadence or provide a detailed 10-year revenue view for the flight data recorder program.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AD market
Army IFPC
Curtiss Wright
EM actuation
IC Solutions
Pivot
SMR design
Slide
Wright Conference
actuation sale
benefit excellence
capital expenditure
challenge vehicle
communication equipment
computing equipment
contribution IC
equipment revenue
fighter jet
ground defense
income share
market aerospace
market computing
market outlook
opportunity Curtiss
point absorption
power process
process market
program segment
ramp OEM
repurchase activity
revenue segment
sale defense
sale expectation
sale flight
segment sale
tax
timing quarter
vehicle market
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