Chief Executive Officer CommentsMr. Berges commented, “This was another strong quarter that exceeded our expectations. For the quarter, we had a 31.6% increase in commercial aerospace sales, driven by increased airplane build rates, the ramp-up of new programs and restocking by our customers. Solid gross margin performance coupled with our cost control efforts resulted in a 13.8% adjusted operating margin. Add the strong operating performance to the benefits of a lower tax rate this quarter and we achieved a 70% increase in adjusted diluted EPS compared to last year. Based on these favorable year-to-date results and our current outlook for the remainder of the year, we are increasing 2011 adjusted diluted EPS guidance to $1.18 - $1.23 (from $1.05 - $1.12). We are also raising our sales guidance for the year to $1,375 million - $1,400 million (from $1,325 million - $1,375 million).”
- Commercial Aerospace sales of $207.4 million increased 31.6% (31.2% in constant currency) for the quarter as compared to the third quarter 2010. Revenues attributed to new aircraft programs (A380, A350, B787, B747-8) increased more than 35% versus the same period last year and continue to comprise more than 25% of our total Commercial Aerospace sales. Airbus and Boeing legacy aircraft related sales for the quarter were up over 25% compared to the third quarter of 2010 as we see the additional demand for upcoming line-rate increases.
- Sales to “Other Commercial Aerospace,” which include regional and business aircraft customers, were up over 30% for both the quarter and year to date compared to the same periods last year, maintaining their improved level of the first two quarters of 2011.
- Space & Defense sales of $80.9 million were 8.7% higher (7.4% in constant currency) than the third quarter of 2010. We continue to benefit from rotorcraft related growth as new programs and blade retrofit programs are increasingly composites based.
- Total Industrial sales of $63.5 million for the third quarter of 2011 were 1.6% higher (4.5% lower in constant currency) than the third quarter of 2010. Wind sales were down modestly in constant currency from the third quarter of 2010, but up more than 10% from the second quarter of 2011. This was the third straight quarter of sequential growth for wind sales.
- Gross margin was 24.6% of net sales for the quarter as compared to 23.9% in the third quarter of 2010 due to good leverage on the strong sales volume. Despite the typical summer seasonal schedules, third quarter of 2011 sales were almost the same level as the second quarter of 2011 for the first time in recent history. On a constant currency basis, selling, general and administrative expenses were about 2% higher than last year helping us achieve adjusted operating income of 13.8% for the quarter compared to 11.7% for the third quarter of 2010.
- The tax provision was $12.0 million for the third quarter of 2011, an effective tax rate of 27.4%. The current quarter benefited from both the reduction in our estimated tax rate for the year from 31.8% to 31%, and the release of $1.0 million of reserves for uncertain tax positions. Last year’s third quarter tax provision was $6.8 million, a 30.4% effective tax rate.
- Free cash flow for the first nine months of 2011 was $11.5 million versus $37.6 million in 2010, as higher earnings were offset by increased capital spending. Free cash flow is defined as cash provided from operating activities less cash paid for capital expenditures. Total debt, net of cash as of September 30, 2011 was $200.4 million, a decrease of $14.6 million from December 31, 2010. Our accrual based capital expenditures were $104.3 million for the first nine months of 2011, and we now expect these expenditures for 2011 to be at the high end of our $150 million - $175 million range for the year as we accelerate our expansion programs.
- Interest expense for the third quarter was $2.2 million compared to $5.3 million last year. The decrease primarily reflects the lower borrowing rate as a result of the July 2010 refinancing and the February 1, 2011 bond redemption, as well as lower outstanding debt.
- The third quarter of 2011 results include a pre-tax charge of $2.7 million for additional environmental reserves (recorded in other operating expense) primarily to remediate our former Lodi, New Jersey manufacturing facility sold in 1986. We had expected to substantially complete the remediation by the end of this year, but severe regional flooding, particularly from hurricane Irene, has extended the completion date to next year and increased the remediation costs.