Curtiss-Wright Corp. 2026 Q2 Earnings Call

Thank you, Angela, and good morning, everyone. Welcome to Curtiss-Wright's second quarter 2026 earnings conference call. Joining me on the call today are Chair and Chief Executive Officer, Lynn Bamford, and Executive Vice President and Chief Financial Officer, Chris Barkes. The copy of today's financial presentation and the press release are available in the investor relations section of our website. A replay of this webcast will also be available on the website. Our discussion today includes certain projections and forward-looking statements that are based on management's current expectations and are not guarantees of future performance. We detail those risks and uncertainties associated with our forward-looking statements in our public filings with the SEC. As a reminder, the company's results and guidance include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency into Curtiss-Wright's ongoing operating and financial performance.

GAAP to non-GAAP reconciliations are available in the earnings release and on our website. Now I would like to turn the call over to Lynn to get things started.

Thank you, Jim, and good morning, everyone. Curtiss-Wright delivered excellent second-quarter results that exceeded our expectations. We also raised our full-year earnings guidance to reflect the strong first half result, record backlog, and the outlook for the balance of the year. The successful and ongoing execution of our Pivot to Growth strategy has been the key to our quarterly performance, and I'm proud of our team's ability to deliver consistently strong results for our shareholders. With that, in turning to today's presentation, I'll begin with the highlights of our second quarter 2026 results. Sales of $924 million grew 5% year-over-year, reflecting solid growth across our overall A&D and commercial markets. Operating income increased 12% year-over-year, exceeding our sales growth, and resulted in 110 basis points of operating margin expansion.

As a result, diluted earnings per share increased 15% year-over-year and was slightly ahead of our expectations, driven by the strong operational performance. We also generated $160 million of free cash flow, representing a year-over-year improvement of 37% and a strong cash conversion rate of 116%. Free cash flow generation continues to be an important focus for the team, driving funding for continued investments back into the organization to support our future profitable growth. I'll provide more information about these targeted investments and our alignment to growth vectors across our markets later in my prepared remarks. Regarding our order book, we experienced strong demand in the second quarter as new orders increased 8% and reflected an overall book-to-bill in excess of 1.1 times. We have a robust and growing pipeline, which continues to demonstrate positive momentum across our A&D and commercial markets.

Digging into the details by segment, I'll start with Defense Electronics, which delivered a record performance as orders grew nearly 50% year-over-year and are now up more than 30% year to date, reflecting the team's alignment to the strategic growth priorities of the U.S. and allied militaries. Notable bookings within the segment included some significant awards for turret drive stabilization systems supporting international ground vehicles, along with tactical communication equipment supporting the U.S. Army, U.S. Marine Corps, and U.S. Air Force operations. We also received numerous awards supporting the modernization of existing helicopter, UAV, and fighter jet platforms, some initial orders on Golden Dome, and various development contracts supporting next-generation programs. Next, in the A&I segment and starting with our defense market, we experienced strong demand for our industry-leading EM actuation technology supporting the U.S. Army's IFPC program. This program is on track to receive another sizable increase in funding under the FY 2027 budget and maintains continued healthy growth projections.

I would also emphasize the notable progress in our industrial vehicle order book, which has achieved strong growth for three consecutive quarters and is contributing to our more positive outlook in the general industrial market. Chris will discuss this further in his remarks. Lastly, within the Naval & Power segment, following a strong Q1 order book, second quarter orders were down year-over-year, principally due to the timing of naval defense orders on submarine programs. Aside from that, we continued to benefit from increasing demand in our commercial nuclear aftermarket, supporting plant outages and restarts, and also experienced a strong demand for valve equipment in our process markets.

To sum up our overall order activity, and based on the strong demand thus far in 2026, orders are up 12% year to date, exceeding sales growth of 9%, to yield an overall book-to-bill in excess of 1.2 times. In addition, Curtiss-Wright's strengthening pipeline enhances our confidence in meeting our near-term targets and establishing a strong foundation for sustained medium and long-term growth across our end markets. Turning to our full year 2026 guidance, overall sales are now projected to increase 8%-9%, driven by more favorable outlook in our defense and general industrial markets. We continue to expect that operating income growth will outpace sales growth, and our increased guidance reflects 50 to 70 basis points of margin expansion in pursuit of a record 19.1%-19.3%.

As a result, diluted EPS is now projected to grow 14%-16% as we continue to compound our earnings at a mid-teens pace over time. Lastly, we raised our free cash flow guidance and continue to expect strong free cash flow conversion in excess of 105%. Overall, Curtiss-Wright's strong growth in revenue during the first half of 2026, along with gains in operational efficiency, have positioned our team to continue to deliver outstanding financial performance. Now, I would like to turn the call over to Chris to provide a more in-depth review of our financials.

Thank you, Lynn. Turning to slide four, I'll begin by reviewing the key drivers of our second quarter 2026 performance by segment. Starting in Aerospace and Industrial, overall sales increased 12%, which was in line with our expectations. Beginning with the segment's defense markets, our results reflected higher sales of actuation and sensors equipment within our aerospace defense market, supporting various U.S. and foreign fighter jet programs. In addition, we experienced solid sales growth for EM actuation equipment supporting ground-based mobile launcher systems. Within the commercial aerospace market, we experienced solid OEM sales growth, supporting increased production on both narrow body and wide body platforms. In the general industrial market, our results reflected modest growth in sales for industrial vehicle products.

Regarding the segment's operating performance, operating income and margin grew 25% and 180 basis points respectively, driven by favorable absorption on higher revenues, favorable mix, and restructuring savings, which are partially offset by continued investments in development programs. Next, in the Defense Electronics segment, overall sales were down 3% and essentially in line with our expectations. Within the segment's ground defense market and as anticipated, our results reflected lower sales of tactical communications equipment due to the timing of prior year orders, which were partially offset by higher Turret Drive Stabilization System revenues supporting international programs. Growth in the aerospace defense market was driven by higher domestic sales of embedded computing equipment supporting various aircraft modernization, UAV, and next-generation development programs.

Regarding the segment's operating performance, we delivered stronger than expected second quarter operating margin of 28% up 120 basis points year-over-year, reflecting a favorable mix of business and cost containment, which more than offset higher investment in research and development. Moving to the Naval & Power segment, sales growth of 7% was primarily driven by strong growth in our naval defense markets associated with the timing of production on submarine programs. We also experienced a solid uplift in aftermarket revenues supporting naval shipyards, including increased support for the CVN-75 refueling and complex overhaul program. Growth in the power and process market was mainly driven by increased revenues in the commercial nuclear market supporting advanced small modular reactors. We also experienced higher government nuclear revenue supporting various DOE projects at national laboratories.

Regarding the segment's operating performance, operating income grew 12%, generating 80 basis points on operating margin expansion, mainly reflecting favorable absorption on higher revenues. To sum up Curtiss-Wright's second quarter results, our solid top-line performance generated a strong operating margin of 19.4%, driving 110 basis points in operating margin expansion. Turning to our full year 2026 guidance, I'll begin on slide five with our end market sales outlook, where we now anticipate total sales to grow 8%-9%, driven by improved expectations in both our defense and general industrial markets. Starting in aerospace defense, we raised our full year outlook to a new range of 12%-14%, reflecting increased sales of actuation and sensors equipment supporting both domestic and international fighter jet programs. Additionally, we continue to project strong year-over-year sales growth for Defense Electronics, which we expect to accelerate across the remainder of this year.

Within ground defense, while confident in the pipeline and growing strength in the 2026 order book, we maintained our full year 2026 outlook based on the timing of production for our tactical communications equipment. Beyond the timing matters, we continue to expect increased actuation sales supporting the IFPC program, as well as increased demand for Turret Drive Stabilization Systems supporting international ground vehicle programs, most notably through our relationship with Rheinmetall. In naval defense, following our strong first half results, we now project full-year sales growth of 7%-9%, mainly due to expectations for higher production revenue on submarine programs while we continue to expect solid growth on the CVN-81 carrier program. This raise in guidance also reflects increased aftermarket revenues supporting the CVN-75 refueling and complex overhaul program.