Esterline Explained. Second Quarter, Fiscal This presentation contains no controlled technical data or technology.

Transcription

1 Esterline Explained Second Quarter, Fiscal 2016 This presentation contains no controlled technical data or technology.

2 This presentation may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as anticipate, believe, continue, could, estimate, expect, intend, may, might, plan, potential, predict, should or will, or the negative of such terms, or other comparable terminology. These forward-looking statements are only predictions based on the current intent and expectations of the management of Esterline, are not guarantees of future performance or actions, and involve risks and uncertainties that are difficult to predict and may cause Esterline s or its industry s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Esterline's actual results and the timing and outcome of events may differ materially from those expressed in or implied by the forward-looking statements due to risks detailed in Esterline's public filings with the Securities and Exchange Commission including its most recent Annual Report on Form 10-K. This presentation also contains references to non-gaap financial information subject to Regulation G. The reconciliations of each non-gaap financial measure to its comparable GAAP measure as well as further information on management s use of non-gaap financial measures are included in Esterline s press release dated May 5, 2016, included as Exhibit 99.1 to Form 8-K filed with the SEC on the same date, as well as in this presentation. 1

3 Overview Esterline is... A highly diversified, global manufacturer of custom engineered solutions for the aerospace and defense market, operating through three distinct business segments: Advanced Materials Sensors & Systems Avionics & Controls Employees: Approx. 13,000 Enterprise Value: $2.7B 2

4 Key Investment Highlights A highly diversified, balanced business A strong, well structured yet flexible organization Compelling financial performance Strong balance sheet and cash generation Well positioned for sales growth and increased profits Many varied opportunities to drive growth and create shareholder value 3

5 Balanced Globally and by End Market Business Balance Market Balance 50% 50% United States Outside the US 50% Commercial Aerospace 30% Defense 20% High-end, non-aero applications 4

6 Common Product/Market Characteristics Aerospace Defense Adjacent Regulated businesses with high barriers to entry Highly reliable products for harsh environments Critical human-machine interface capabilities Precision machine-machine system interfaces More electric / smart systems Mission-critical subsystems and components 5

7 3 Business Segments 8 Primary Capabilities Advanced Materials Avionics & Controls Sensors & Systems 6

8 Advanced Materials Segment Two distinct product categories 7

9 Avionics & Controls Segment Tier 1 components and systems provider 8

10 Sensors & Systems Segment World leader in relays, GFI, Tier 1 sensor packages, and connectors 9

11 Dozens of Major Customers 10

12 Hundreds of Programs 11

13 Thousands of Products 12

14 COMPELLING FINANCIAL PERFORMANCE 13

15 Recent Revenue Growth $1,853 $1,867 $1,603 Sales ($ in millions) $2,029 $2,002 * $ YTD Q2 * 11-month fiscal year restated for 12 months ended Oct. 2,

16 Q Year-over-Year (YOY) Summary* Dollars in millions, except EPS Q Q2 2015* Change Sales $ 490 $ 468 $ 22 Gross Margin $ 156 $ 150 $ 6 - % of sales 32% 32% -- Net Earnings from Continuing Operations Net Earnings Per Diluted Share $ 17 $ 25 $ (8) $ 0.57 $ 0.79 $ (0.22) * Comparison is to the recast three-month period ended March 27,

17 Q Earnings Adjustment Dollars in millions, except EPS Earnings from Continuing Ops EPS GAAP $ 17.0 $ 0.57 Accelerated integration Incremental compliance DAT integration Long-term contract adjustments Adjusted * $ 27.3 $ 0.92 * See Page 1 regarding non-gaap financial measures. 16

18 Q Sales Change (YOY)* Dollars in millions Items Sales Q2 2015* $ 468 Foreign currency translation (11) FX forward contract gain 1 DAT incremental 12 Sales volume 20 Q $ 490 * Comparison is to the recast three-month period ended March 27,

19 Q Segment Sales Change (YOY)* Total Change Organic¹ FX Acquisition Avionics & Controls 6% 3% (4%) 7% Sensors & Systems 3% 3% (1%) - Advanced Materials 6% 8% (2%) - Total 5% 4% (2%) 3% ¹ Q organic sales growth represents the total reported increase within the company s continuing operations less the impact of all foreign currency translation and hedging activities and acquisitions. * Comparison is to the recast three-month period ended March 27,

20 Q Gross Margin Change (YOY)* Dollars in millions Items Gross Margin Q2 2015* $ 150 Foreign currency translation (7) FX forward contract gain 1 DAT incremental 5 Sales volume / mix 7 Q $ 156 * Comparison is to the recast three-month period ended March 27,

21 YTD Q Free Cash Flow Reconciliation Dollars in millions; GAAP results YTD Q YTD Q2 2015* Net Earnings $ 20 $ 39 Depreciation and amortization Change in working capital (A/R, Inventory, A/P) 2 (21) Other 9 (17) Cash flow from operations $ 80 $ 51 Capital expenditures (43) (25) Free cash flow** $ 37 $ 26 Amounts included in Free Cash Flow - GAAP YTD Q YTD Q2 2015* Adjustments to Net Income (after-tax) ** $ 19 $ 18 Loss from Discontinued Operations $ (7) $ (20) * Comparison is to the recast six-month period ended March 27, ** See Page 1 regarding non-gaap financial measures. 20

22 2016 Guidance Guidance Guidance 2016 Adjusted EPS Sales $1.925B - $1.975B GAAP EPS (diluted, continuing ops) $ $3.82 GAAP EPS (diluted, continuing ops) Adjusted EPS* (diluted, continuing ops) $ $3.82 $ $4.80 EBITDA* $230M - $250M Free Cash Flow* $110M - $130M Accelerated Integration $0.17 Incremental Compliance $0.31 DAT Integration $0.37 Long-Term Contract Adjustment $0.13 Adjusted EPS* (diluted, continuing ops) $ $4.80 Reaffirm 2016 Guidance * See Page 1 regarding non-gaap financial measures. 21

23 Esterline Capital Structure Strategy Continue to Fuel Growth with the Flexibility of an Investment Grade Caliber Balance Sheet 22

24 Disciplined Approach to Allocate Capital Share Buyback R&D CapEx ROIC mid-high teens % Acquisition Growth 23

25 Capital Deployment Strategy Portfolio Shaping Capex R&D Strategic M&A Share Buybacks Above Op. Cash Flow Internal Growth External Growth Options Return to Shareholders Capital Allocation Strategy Internal Investment External Acquisitions Direct Shareholder Return 24

26 WELL STRUCTURED YET FLEXIBLE ORGANIZATION 25

27 Mission-Critical Culture 26

28 Strategic Focus Areas Profitable & Balanced Sales Growth Regulatory & Customer Compliance Enterprise Excellence Leverage the Enterprise Employee Engagement 27

29 Operating System Deployment Operating System assessments completed at site level Active use of Policy Deployment in place with rolling six-week reporting schedule Wave 1 Lean Transformation well underway End of and Beyond Wave 1 Lean Transformation launched Eight CI academies completed in 2015; 290 leaders trained 20+ CI academies scheduled in 2016 (228 people trained YTD) Expand use of Operating System into the back office Kaikaku lean event launched in Everett Wave 2 Lean Transformation started and progressing 28

30 Stakeholder Commitment A high-performing aerospace and defense company whose engaged employees deliver value through world-class products, services, and technologies. Customers OTD / Quality as committed Competitive products & services Partner they depend on Economics to justify new growth Shareholders Peer group leader Acquisition funding Higher stock price Long-term growth Employees World-class organization Financially stable company Learning and development Growth opportunities 29

31 MANY, VARIED OPPORTUNITIES TO DRIVE GROWTH AND CREATE SHAREHOLDER VALUE 30

32 Choosing the Right Programs Commercial 787, 777x, 737 A320, A350 E2, MRJ, CSeries Defense JSF, A400M, P-8, KC-390 Adjacent UK nuclear market Asian rail market High end medical 31

33 Important Program Values Program Name Esterline approx. value per ship set Airbus A380 $ 1,000,000 Airbus A400M $ 1,000,000 Boeing 787 $ 600,000 Boeing P-8 $ 1,000,000 Boeing $ 450,000 Lockheed F-35 $ 900,000 Sukhoi Super Jet 100 $ 500,000 Additional Growth Programs: Boeing 777X, Airbus A350, Bombardier CSeries, Embraer E2, Mitsubishi Reg. Jet 32

34 Investment in the Future Continued R&D investments are paying off now with more to come Enables competitive position as best-in-class niche provider Positioned for strong production ramp on invested programs and entry into more new programs Focused on improving the business through strategic continuous improvement and enterprise excellence initiatives to achieve superior customer satisfaction 33

35 Company-Wide Efficiency Initiatives Update Ops Excellence Strategic Sourcing Global Footprint In-process lean transformation impacting ~ 80% global footprint 20+ Cont. Improvement academies planned in 2016; 228 leaders trained YTD INITIATIVE GOALS Enterprise-wide Lean transformation New operating system deployed Leadership-driven, fully aligned operational improvements Savings projections and timelines being maintained Master Supply Agreement in use Opportunity exploration continues INITIATIVE GOALS Achieve significant savings in material and services Implement standards and tools for sustainability Remaining restructuring projects will complete in 2016 Acquisition integrating well Increasing competitive global presence Savings ahead of plan INITIATIVE GOALS Leverage global presence for growth Develop competitive cost structure Infrastructure supporting the Esterline Operating System 34

36 Key Investment Highlights A highly diversified, balanced business A strong, well structured yet flexible organization Compelling financial performance Strong balance sheet and cash generation Well positioned for sales growth and increased profits Many varied opportunities to drive growth and create shareholder value 35