ESL - Esterline Technologies Corporation

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One of my favourite companies ESL closed at $57.49, being up on their opening position of $56.60. Given their recent trading program there was quite a spike of volume at around 4pm. For those not familiar, ESL is a manufacturing company serving aerospace and defense customers. The Company designs, manufactures and markets engineered products and systems. It operates in three segments: Avionics & Controls, Sensors & Systems, and Advanced Materials, including thermally engineered components and specialized elastomers and other complex materials, for aerospace and defense markets. I am personally in the marine industry and have used software and equipment derived from ESL. Does anyone else have thoughts on their current position?

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ESL (Esterline Technologies) showing bearish technicals but could fall through $47.74 support. Esterline Technologies (NYSE: ESL) closed Friday's trading session at $48.66. In the past year, the stock has hit a 52-week low of $47.48 and 52-week high of $82.28. Esterline Technologies (ESL) stock has been showing support around $47.74 and resistance in the $50.18 range. Technical indicators for the stock are Bearish. For a hedged play on Esterline Technologies (ESL), look at the May '12 $40.00 covered call for a net debit in the $38.96 area. That is also the break-even stock price for this trade. This covered call has a duration of 173 days, provides 19.93% downside protection and an assigned return rate of 2.67% for an annualized return rate of 5.63% (for comparison purposes only). Esterline Technologies (ESL) has a current trailing average dividend yield of 0%.

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Well have the tides turn, they're now showing a bullish moving average cross over alert. Shares of Esterline Technologies (NYSE:ESL) have crossed bullishly above their 10-day moving average of $52.20 on a volume of 175K shares. This may provide short-term investors a chance for a long position, as such a crossover often suggests higher prices in the near term.

Esterline Technologies share prices have moved between a 52-week high of $82.28 and a 52-week low of $47.48 and are now trading 12% above that low price at $53.10 per share. Over the last five market days, the 200-day moving average (MA) has gone down 0.5% while the 50-day MA has declined 1.1%.

Esterline Technologies (NYSE:ESL) has potential upside of 55.4% based on a current price of $53.10 and analysts' consensus price target of $82.50. The stock should run into initial resistance at its 50-day moving average (MA) of $54.34 and subsequent resistance at its 200-day MA of $67.20.

Esterline Technologies Corporation is worldwide supplier to the aerospace and defense industry. The Company's core products include technology interface systems for commercial and military aircraft, jet engine sensors and electrical power distribution equipment, high temperature resistant materials, combustible ordinance and electronic warfare countermeasure products.

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For those interested there is some potential for growth from trading ESL through their subsidiary business interests. Esterline maintains a targeted acquisition approach that involves growing Esterline’s core aerospace and defense business or acquiring businesses that provide opportunity to migrate their core technologies into high-end industrial markets. Since 1996, ESL has acquired 30 companies or product lines with annual revenues exceeding $500 million, while divesting 16 operations with annual revenues of more than $200 million that did not fit ESL strategy.

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ESL Earnings Preview: Investors are on the edge of their collective seats, hoping that ESL will top analyst expectations for the fifth consecutive quarter. The company will unveil its latest earnings on Thursday, Dec. 8. ESL designs, manufactures, and markets highly engineered products. It serves the aerospace and defense industry, primarily in the United States and Europe.

What analysts say:

•Buy, sell, or hold?: Analysts strongly back Esterline Technologies, with seven out of 10 rating it a buy and the remainder rating it a hold. Analysts like Esterline Technologies better than competitor HEICO overall. While analysts still rate the stock a moderate buy, they are a little more optimistic about it compared to three months ago.
•Revenue forecasts: On average, analysts predict $524.4 million in revenue this quarter. That would represent a rise of 21.8% from the year-ago quarter.
•Wall Street earnings expectations: The average analyst estimate is earnings of $1.16 per share. Estimates range from $0.86 to $1.35.
What our community says:
CAPS All-Stars are solidly behind the stock, with 98% giving it an outperform rating. The community at large concurs with the All-Stars, with 95.4% granting it a rating of outperform. Fools are gung-ho about Esterline Technologies, though the message boards have been quiet lately, with only 56 posts in the past 30 days. Even with a robust four out of five stars, Esterline Technologies' CAPS rating falls a little short of the community's upbeat outlook.

Management:
Esterline Technologies' profit has risen year over year by an average of 64.5% over the past five quarters. Revenue has now gone up for three straight quarters.

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December 8, 2011 – Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace/defense markets, today reported results for its fiscal 2011 fourth quarter and fiscal year ended October 28, 2011, and initiated forward-looking guidance for the first quarter and full fiscal year of 2012.

For the fourth quarter of fiscal 2011, ESL's trading sales were $502.4 million and income from continuing operations of $19.4 million, or $0.62 per diluted share. The company noted that results for the fourth quarter include certain after-tax discrete items of $18.3 million, or $(0.59) per share. Year-ago fourth quarter sales were $430.5 million, with income from continuing operations of $49.3 million, or $1.60 per diluted share.

Brad Lawrence, ESL's Chief Executive Officer, said, “We are in the early innings of a commercial aerospace industry upcycle, and Esterline is in a strong position to benefit.” Lawrence said that although the company’s fourth quarter and the outlook for next year reflect the anticipated softening of global defense markets and a number of discrete items, he emphasized that “…fiscal 2011 was one of the strongest years in our history and we expect to grow about 20% in fiscal 2012.” He added that ESL trading generated about $190 million of cash in 2011 “… that will enable us to deploy capital in a variety of ways to support growth and enhance shareholder value.”

In issuing guidance for next year, Lawrence said that “…financially, a modest start in the first half will lead to a strong finish.” For the full fiscal year ending October 26, 2012, the company estimates sales of $2.0 billion to $2.1 billion growing 16% to 22% from the prior year, with fully diluted earnings per share (EPS) of $5.00 to $5.30 growing 17% to 24%. The full-year EPS range incorporates first quarter EPS of $0.40 to $0.50, including a charge of $(0.27). This non-cash charge covers the remainder of the GAAP-required inventory write-up associated with the company’s acquisition of the Souriau Group in July. First quarter sales are expected to reach $480 million.

New orders in fiscal 2011 were $1.87 billion compared with $1.55 billion for fiscal 2010. Primarily reflecting Souriau, backlog increased to $1.25 billion at October 28, 2011, compared with $1.10 billion at the end of the prior year.

With regard to the overall defense market in fiscal 2012, the company expects retrofit demand for both rotary and fixed wing aircraft, certain new aircraft platforms, and secure communications, intelligence, surveilance and reconnisance programs to be relatively strong categories of business. Lawrence said, “… R&D efforts have secured significant positions for us on many future military aircraft, including the Airbus A400M, Boeing P-8, Lockheed F-35 and Embraer KC-390.” Lawrence reiterated his belief that “… the company will continue to see growth in the defense sector, despite near-term budgetary headwinds and the anticipated reduction in operational tempo in Iraq and Afghanistan."

On the commercial aerospace side, Lawrence said he expects the upcycle to continue in fiscal 2012. “Build rates are accelerating for the Airbus A320 and Boeing 737 narrow-body aircraft, two of the most important commercial programs for Esterline,” he said. In addition, he said, “We have significant positions on the wide-body 777 and the super wide-body A380, a plane with $750,000 of Esterline content.” Lawrence noted that ESL's development efforts have led to significant growth opportunities for the company on a variety of new trading programs, including the long-awaited 787, and farther out, the Airbus A350, Bombardier’s C-Series and the COMAC C919 — not to mention numerous regional and business jet programs. Lawrence said that “… our product diversity and global presence help drive increased content on a very wide variety of commercial aircraft, regardless of customer location.”

Regarding ESL's roughly 20% of revenues derived from markets adjacent to aerospace and defense, Lawrence noted that the company continues to have good growth opportunities for its ESL software interface technology products in the medical capital equipment and casino gaming markets. He also cited recent gains for the company’s power management equipment for high-speed rail markets in Europe, India and China, an important initial win to provide custom insulation components for the retrofit of a British nuclear power plant, and a significant win for newly acquired Souriau to provide custom connectors for a U.S. solar power installation.

Lawrence, speaking of ESL's recently acquired French connector company, said Souriau will contribute significantly to all three of ESL’s principal markets: Aerospace, Defense and Industrial. “We’re very pleased with how the Souriau integration is progressing,” he said, adding, “Our platform leaders are actively identifying synergies and are determined to capitalize on the opportunities presented by the addition of Souriau to the Esterline family.”

For the full fiscal year 2011, ESL trading reported income from continuing operations of $133.1 million, or $4.27 per diluted share, on record sales of $1.72 billion. The full-year income results include the effect of the discrete items in Table 1. This compares to fiscal 2010 income from continuing operations of $130.0 million, or $4.27 per diluted share, on $1.53 billion in sales. The company noted that acquisitions contributed approximately $115 million of the $190 million year-over-year growth in revenues.

Gross margin as a percentage of sales in the fourth quarter of fiscal 2011 was 30.5% compared to the year-ago level of 36.7%. The year-over-year decline in gross margin principally reflects certain charges referenced in Table 1. Gross margin for the full fiscal year ended October 28, 2011, was 34.3% compared to the fiscal 2010 level of 33.8%. The year-over-year increase was due primarily to higher sales activity and enhanced product mix in the first half of the fiscal year.

Fourth quarter and full fiscal year 2011 selling, general and administrative (SG&A) expenses as a percent of sales were 17.8% and 17.7% respectively. Year-ago SG&A expenses for the same periods were 16.2% and 16.9%. The year-over-year differences primarily reflect incremental SG&A from acquisitions, acquisition-related expenses, and certain discrete items referenced in Table 1.

Research, development and engineering spending in the fourth quarter was $30.6 million, or 6.1% of sales, compared with $17.7 million, or 4.1% of sales, a year ago. The increase resulted largely from initiatives to advance the company's development of next-generation avionics systems, including its SmartDeck® integrated flight control and display system, and several overhead panel development programs for regional and large business jets. For the full fiscal year of 2011, research, development and engineering expenses were $94.5 million or 5.5% of sales as compared to $69.8 million or 4.6% of sales in fiscal 2010.

The company's income tax rate in the fourth quarter of 2011 was 11.8% compared with 17.4% for the prior year period. Both quarters — last year and this year — benefited from various tax credits and certain discrete items, as well as foreign interest expense deductions.Total debt decreased by $50 million from the third quarter level. Free cash flow generated in the fourth quarter was used to reduce the outstanding balances on the company’s revolving credit facility and international term loan. “The company continues to be focused on de-levering using future free cash flow, and maintaining a flexible balance sheet to drive long-term growth,” Lawrence said.

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Interview With The President And CEO: Esterline Technologies Corporation (ESL) - Brad Lawrence

Brad Lawrence is President and Chief Executive Officer of ESL. He brought more than 30 years of experience in the technology and manufacturing industries when he joined ESL in 2002 as President of its advanced input systems operation. His role soon was expanded to include general management responsibility for ESL's interface technologies business platform. His responsibilities expanded further in 2007, when he was appointed to the position of Group Vice President for ESL. In September 2009, he was appointed ESL's President and Chief Operating Officer and was promoted to CEO in November of that same year. Before joining ESL, Mr. Lawrence held management and executive positions in sales, marketing and operations with Rockwell International, PACCAR Inc., Conductive Rubber Technology Inc., Flow International Corporation and PRI Automation Inc. He holds an MBA from the University of Pittsburgh and a bachelor's degree in business administration from The Pennsylvania State University.

TWST: Please introduce us to ESL with a brief history of the company and a discussion of your operations.

Mr. Lawrence: ESL was a diversified industrial conglomerate in the 1990s. The management team at the time decided that wasn't the way forward to success. We needed to be more focused on our customers. So over the next several years, we divested our industrial companies to get back to our aerospace and defense roots, and then essentially rebuilt the company with a strong focus on organic growth as well as growth through acquisition. Since 2000, we've made 30-plus acquisitions, and our growth has been about 50% organic and 50% from acquisition. Virtually, all the acquisitions have had an aerospace and defense focus, so we're staying true to that vision. We report through three technology segments: we have our avionics and controls segment, which is our largest segment; our sensors and systems segment, which is electric power distribution and engine sensors; and then we have our advanced materials group, which focuses on highly engineered materials for the aerospace and defense sector.

TWST: Would you discuss ESL's principal markets and how much of a focus each one is for the business?

Mr. Lawrence: We're really a niche-oriented company. In the beginning, our acquisition process was what we called a string-of-pearls strategy. In other words, finding good-fit acquisitions that had a baseline aerospace and defense focus. They also needed to have very similar characteristics to our business so we could apply our knowledge of our existing markets and our customers. And as the organization evolved, we continued to emphasize a decentralized approach with a very small corporate staff. We wanted our decision making made by people that were intimate with the technologies, products, customers and the markets that they serve. So by our sheer critical mass, we have now developed business platforms to share all this knowledge.

Our platforms are made up of everything from one large company to - more typically - three to five business units that share common technologies and a common customer base. The decision making for the future of those companies takes place at that platform level so they can grow as a group and realize collective benefits. We think this makes us more agile, faster to execute on opportunities, and I think we actually make better decisions because we don't have a large bureaucracy to vet everything.

TWST: In terms of how revenues break down by the different markets or platforms, is one area more significant than the others? Do you expect the breakdown in revenues to change in the future?

Mr. Lawrence: I get asked that question a lot. We have these three segments as I mentioned: advanced materials, avionics and controls, and sensors and systems. Avionics and controls is our largest segment, but sensors and systems just jumped into second place with the large acquisition of Souriau, a French connector company, which essentially doubled the size of that segment. People ask me a lot, which segment are you looking to grow? We really are agnostic. We have solid management teams who oversee these three areas. We see growth opportunities in all three areas. When a company that's on our wish list in any of these areas becomes available, we will take a serious look at it. We have a rigorous due diligence process that leads us to the conclusion of whether the company will be a good fit for ESL. Now having said that, through the years and all of our acquisitions, we have maintained a market balance of about 40% defense, 40% commercial aerospace and 20% in other adjacent markets, which include industrial, medical and rail.

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ESL Financial status is not too shabby at present, analysts assumed coverage on shares of ESL in a research report issued to clients and investors on Tuesday. They set an “outperform” rating on the stock.

Separately, analysts cut their price target on shares of Esterline Technologies from $80.00 to $75.00 in a research note to investors on Friday, December 16th. They now have a “buy” rating on the stock. Analysts at Jefferies Group reiterated a “buy” rating on shares of ESL Financial in a research note to investors on Friday, December 9th. They now have a $65.00 price target on the stock. Also, analysts at Stifel Nicolaus cut their price target on shares of ESL from $90.00 to $84.00 in a research note to investors on Friday, December 9th. They now have a “buy” rating on the stock.

Shares of ESL traded up 0.03% during mid-day trading on Tuesday, hitting $61.15. Esterline Technologies has a one year low of $47.48 and a one year high of $82.28. The stock’s 50-day moving average is $57.35 and its 200-day moving average is $60.00. The company has a market cap of $1.873 billion and a P/E ratio of 14.32.

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UBS maintains a 'Neutral' on ESL Financial price target raised $10 to $65.

UBS analyst says, "Our FY12 EPS estimate moves $0.25 higher to $5.25, reflecting 10% growth from $4.75 on a recurring basis in FY11 after adjusting for Q3 f/x gain and Q4 acquisition-related charges. In FY12, we see $0.50 in incremental EPS primarily driven by aerospace growth ($0.75) and Souriau accretion ($0.40), partially offset by defense downside from declining supplementals ($0.25) and slip in C-130 upgrade programs for Saudi Arabia ($0.25), along with higher tax rate ($0.15)."

"ESL will report its Q1 on March 1 and at $0.58 our EPS estimate is below consensus at $0.63, but above ESL’s Q1 guidance at $0.40-0.50

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ESL FINANCIAL UPDATE: ESL plans to announce financial results for its 1st quarter for fiscal 2012 on Thursday, March 1, 2012. ESL will host a conference call featuring remarks by Brad Lawrence, President and Chief Executive Officer, and Bob George, Vice President and Chief Financial Officer. Following these remarks, there will be a question and answer session. The call is scheduled to start at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) and will last approximately 45 minutes. A news release announcing the earnings results will be issued at market close on the day of the call as well.

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Esterline CMC Electronics (CMC) has achieved a production milestone with the recent shipment of its 500th SureSight® enhanced vision system (EVS) sensor.

CMC’s SureSight family of integrated sensor systems comprises the CMA-2600 and CMA-2700. These systems are designed to meet demanding video performance, reliability and quality standards, and are the leading choice for airframe manufacturers and prime contractors. They offer enhanced situational awareness in adverse visual conditions and enable operators to take advantage of regulations expanding the operational capabilities of aircraft equipped with an EVS.

Under these regulations, when the runway environment cannot be visually acquired at the decision altitude or the minimum decision altitude using natural vision, the pilot of an aircraft equipped with a Head Up Display presenting the EVS imagery can continue the descent down to 100 feet above the touchdown zone elevation, provided the requirements for a visual approach are met using the EVS. From that point onwards in the descent, these visual references must be visible to the pilot without the use of the EVS system in order for the aircraft to proceed to a landing.

The SureSight CMA-2600 sensor is in operation on multiple aircraft platforms, including the Bombardier Global Express and Global 5000, the Dassault Falcon 900, 2000 and 7X, and the Boeing Business Jet.

The third-generation SureSight CMA-2700 sensor offers the highest resolution available for an EVS sensor and four times the resolution of currently certified systems. It features state-of-the-art digital image processing, including dynamic non-uniformity corrections. This end-to-end digital system is also the first EVS fully compliant to ARINC 818 Avionics Digital Video Bus standards. This sensor has been selected for the Bombardier Global aircraft with the Global Vision Cockpit and the Bombardier Challenger 605.

Esterline CMC Electronics (www.cmcelectronics.ca) has achieved an international reputation for innovation and excellence in the design and manufacture of electronics products for the military and commercial aviation markets. CMC’s focus is on delivering innovative cockpit systems integration and avionics solutions to its customers worldwide. Its principal locations are in Montreal, Quebec; Ottawa, Ontario; and Chicago, Illinois. CMC is a wholly owned subsidiary of Esterline Corporation (NYSE:ESL, www.esterline.com), a specialized aerospace and defense company headquartered in Bellevue, Washington. Esterline employs over 10,000 people worldwide.