Curtiss-Wright Corporation (CW) Earnings

Management highlights

- Pivot to Growth Strategy Execution * The company continues to deliver strong results under the Pivot to Growth strategy, and is on track to exceed all 2024 Investor Day top and bottom-line financial metrics. Management expects record full-year 2026 financial performance across all major metrics. * R&D investment is accelerating at a faster pace than sales growth, with consistent reinvestment to support long-term earnings compounding at a mid-teens annual pace, while maintaining a target of top-quartile financial performance. - Capital Investments and Industrial Base Expansion * Curtiss-Wright announced an $80 million multi-year investment to expand its Chesley, Pennsylvania facility (naval and power segment) to meet growing naval and commercial nuclear demand. The expansion is funded via internal capital, U.S. Maritime Industrial Base (MIB) funding, and state assistance. * To date, the company has received $95 million in MIB funding (up from $70 million at the end of March 2026), which supports gaining increased content and becoming a second-source supplier for critical U.S. Navy platforms. - Commercial Nuclear Market Positioning * The company has decades of commercial nuclear expertise, supporting the full lifecycle of reactors from new build to aftermarket, with content on every operating reactor in North America and South Korea. * The company is well positioned to support the U.S. goal of quadrupling nuclear generation capacity to 400 gigawatts by 2050, including new AP1000 reactor builds. A DOE conditional $17.5 billion loan commitment for up to 10 new AP1000 reactors is expected to include long-lead procurement of Curtiss-Wright reactor coolant pumps, and management expects to receive an AP1000 order in 2026, with additional international opportunities across Eastern Europe and other markets.

Guidance

- Full-year 2026 total company sales guidance is raised to 8% to 9% growth, driven by improved expectations for defense and general industrial markets. - **End market guidance revisions:** * Aerospace defense full-year sales growth guidance raised to 12% to 14%; ground defense full-year guidance maintained due to tactical communications production timing; total aerospace and defense sales projected to grow 7% to 9%. * Naval defense full-year sales growth guidance raised to 7% to 9%; commercial aerospace 10% to 12% sales growth guidance maintained. * Power and process full-year 13% to 15% sales growth guidance maintained; general industrial full-year sales guidance raised to 1% to 3% growth; total commercial markets projected to grow 8% to 10%. - **Segment financial guidance revisions:** * Aerospace and Industrial segment: Revenue guidance raised to 8% to 10% growth; operating income projected to grow 15% to 17%, with operating margin expansion of 110 to 130 basis points (18.5% to 18.7% range). * Defense Electronics segment: Sales growth guidance maintained at 4% to 6%; operating income growth guidance revised to 5% to 7%, with 20 to 40 basis points of margin expansion (27.5% to 27.7% range). * Enable Empower segment: Sales growth guidance raised to 10% to 11%; operating income projected to grow 14% to 16%, with 50 to 70 basis points of margin expansion. - **Overall company financial guidance:** * Total operating income projected to grow 11% to 13%, with operating margin of 19.1% to 19.3% (up 50 to 70 basis points from prior guidance). * Full-year diluted EPS guidance raised to $15.10 to $15.40, an increase of 14% to 16% from prior guidance. * Full-year free cash flow guidance raised to a record $585 to $605 million, with a projected free cash flow conversion rate of ~105% even with a 30% year-over-year increase in capital expenditures.

Segment performance

1. Aerospace Defense (Defense Electronics segment): Second-quarter operating margin reached 28%, up 120 basis points year-over-year, outperforming expectations. Favorable business mix and cost containment offset higher R&D investment. This segment contributes the highest margin to the company overall. 2. Naval and Power (Enable Empower segment): Sales grew 7% year-over-year, driven by strong naval defense growth tied to submarine program production timing and increased aftermarket revenues for naval shipyards (including the CDN-75 refueling and complex overhaul program). Operating income grew 12% year-over-year, with 80 basis points of operating margin expansion, driven by better cost absorption from higher revenues. 3. Overall Company: Aggregate second-quarter operating margin hit 19.4%, representing 110 basis points of year-over-year expansion.

Risks & headwinds

- Supply chain pressures have increased in 2026 H1, with elevated demand for chips/electronics from the data center sector and pricing pressures on rare earth materials used for surface treatment operations. - Timing delays in Defense Electronics order intake (tied to the U.S. continuing resolution) pushed revenue recognition into later quarters, resulting in an expected flat Q3 sequentially, with a large concentration of revenue in Q4 2026. - M&A market conditions are volatile, with elevated valuation multiples for potential acquisition targets, requiring disciplined underwriting to maintain value creation for shareholders.

Analyst Q&A

• Q: With three consecutive quarters of very strong order intake well above current revenue levels, what is the backlog duration, and when will these orders translate into higher revenue? /

  A: Management notes strong order momentum is continuing into Q3 2026, driven by alignment of the company's product portfolio with strong U.S. and international defense budgets. Earlier order delays from the U.S. continuing resolution have fully corrected, with Defense Electronics orders up 47% year-over-year in Q2. Many of the new orders are multi-year long-term programs (such as the C-17 modernization and long-range ground defense turret drive orders), which supports revenue growth not just for 2026 but also into 2027 and beyond. General industrial orders are up 21% year-to-date, also confirming broad-based momentum. (392 characters)

• Q: Supply chain pressures for electronics and rare earths have increased this year. What challenges is Curtis-Wright facing, and how are you mitigating them? /

  A: Management confirms supply chain pressures have risen in H1 2026, but lessons and inventory strategies implemented during the 2022 supply chain crisis have left the company well-positioned. The company has secured priority allocation from key suppliers such as Micron for critical chips, supported by high-level government and industry partnerships, and is largely secured for all 2026 revenue, with current work focused on securing supply for 2027. For rare earth material pressures, the company is qualifying dual sourcing and alternative materials, and adjusting prices where necessary to reflect increased input costs. (428 characters)

• Q: Given you are already exceeding 2024 Investor Day targets and have multiple strong end-market growth drivers, can you support sustained double-digit (or mid-teens) revenue growth over the next three years? /

  A: Management confirms current momentum is very strong, with the company already progressing toward 10% overall annual revenue growth, above original 2024 Investor Day targets. Strong end-market tailwinds include a growing $1.5 trillion 2027 U.S. defense budget, continued commercial aerospace production ramp-up, and the emerging large opportunity from new commercial nuclear build that is expected to deliver the first AP1000 order this year. R&D investment has outpaced sales growth for over five years, and early investments are now beginning to compound revenue growth, with updated long-term targets to be shared at the Q2 2027 Investor Day. (441 characters)

• Q: How do non-traditional fast-moving defense startups change the market, and is this an opportunity or a margin risk for Curtis-Wright? /

  A: Management views this as a strong growth opportunity, not a risk. Most non-traditional defense contractors focus on delivering end-system vehicles and weapons, and do not focus on the Tier 2/Tier 3 component supply chain where Curtis-Wright operates. These startups need to source commercial off-the-shelf (COTS) components to meet their fast development timelines, and Curtis-Wright has a broad portfolio of ready available capabilities (including advanced NVIDIA-based processing solutions) across multiple size, weight, power, and price points that fit their needs, positioning the company well to capture new demand. (398 characters)