As projected, the global economic recession had a negative impact on our first quarter results. In particular, a slowdown in the general industrial, oil and gas, and commercial aerospace markets was driven by lower investment spending, tighter credit restrictions and our customers’ working down their inventory levels, all of which resulted in new orders shifting to later in the year, commented Martin R. Benante, chairman and chief executive officer of Curtiss-Wright. Despite a challenging first quarter, we experienced increased demand in some of our key markets, most notably commercial power, naval and ground defense, which grew organically by 33%, 18% and 11%, respectively.
Our organic operating income performance in the first quarter of 2009 was lower by 19% as compared to the prior year quarter due to the significant under absorption of overhead costs resulting from a dramatic decline in sales in certain commercial markets, as well as business restructuring costs.
Sales
The company’s organic sales were lower by 4%, while incremental sales, primarily from our 2008 and 2009 acquisitions, contributed $8 million in the quarter. Organic sales in our Flow Control segment increased by 3%, while our Metal Treatment and Motion Control segments declined 23% and 7%, respectively, as compared to year-ago quarter.
From a market perspective, the company has experienced lower organic sales to the general industrial market, primarily automotive, and also less sales to the commercial aerospace and oil and gas markets, which were partially offset by higher sales to the commercial power and defense markets. Additionally, foreign currency translation has negatively impacted sales in the first quarter of 2009 by $15 million as compared to the year-ago quarter.
Operating Income
The company’s operating income of $31 million decreased 24% in the first quarter of 2009 as compared to the year-ago quarter. The organic operating income decreased 19% in the first quarter of 2009, while incremental operating income, primarily from company’s 2008 and 2009 acquisitions, was negative $2 million. The organic operating income in company’s Metal Treatment segment has decreased 50% from the first quarter of 2008 mainly due to under absorption of overhead costs resulting from significantly lower volumes. The company’s Flow Control segment also experienced lower organic operating income driven by under absorption of overhead costs due to less sales volumes in certain commercial markets, and business restructuring costs. These decreases were partially offset by an increase in its Motion Control segment which benefited by $5.4 million from favorable foreign currency translation in the first quarter of 2009 as compared to the prior year period. Excluding the impact of foreign currency translation, organic operating income in our Motion Control segment was lower due to under absorption of overhead costs due to lower volumes and business restructuring costs. Foreign currency translation favorably impacted consolidated operating income and operating margin by $5.3 million and 140 basis points, respectively, in the first quarter of 2009.
The company’s segment operating margin was 140 basis points lower in the first quarter of 2009 as compared to the prior year period. The lower segment operating margin was mainly driven by significantly lower volumes and resultant under absorption of costs and business restructuring costs mentioned above. Non-segment operating expense increased over the prior year due to higher foreign exchange transaction losses and higher pension costs.
Net Earnings
The company’s net earnings for the first quarter of 2009 decreased 27% from the comparable to year-ago period. The decreased net earnings were due to the decline in operating income and a slightly higher effective tax rate, partly offset by lower interest expense. The company’s effective tax rate for the first quarter of 2009 was 35.5% against 35.2% for the first quarter of 2008. Lower interest expense for the first quarter of 2009 was mainly due to lower average interest rates partially offset by higher average debt levels resulting primarily from our 2008 and 2009 acquisitions, as compared to the prior year period.
Cash Flow
The company’s free cash flow, defined as cash flow from operations less capital expenditures, was a negative $50 million for the first quarter of 2009 against to a negative $42 million in the prior year period. Net cash used by operating activities was a negative $33 million in the first quarter of 2009 versus a negative $19 million for the comparable prior year period. The reduction is mainly due to a higher reduction in accounts payable primarily due to timing of payments and lower earnings. These decreases were partially offset by a higher reduction in accounts receivable resulting from improved cash collections and a lower increase in inventories against the year-ago quarter. The company’s capital expenditures were $17 million in the first quarter of 2009 versus $24 million in the comparable prior year period. The AP1000 program accounted for the majority of the decrease as our facility expansion is nearing completion.
Segment Performance
Flow Control – Sales for the first quarter of 2009 were $230 million, an increase of 5% over the comparable prior year period. The sales improvement was due to solid organic growth of 3% and the contribution of our 2009 acquisitions, which provided $3 million in incremental sales in the first quarter of 2009. The organic sales growth was driven by higher sales to the commercial power and naval defense markets, partially offset by declines in the oil and gas and general industrial markets as compared to the prior year period. The higher sales to the commercial power market were due to both higher plant outages, as well as higher sales of our reactor coolant pumps for the AP1000 nuclear reactors for China and the United States. The increase in the naval defense market was driven by higher sales of our embedded computing products for the submarine program. The decrease in the oil and gas market was due to a delay in timing of new order placement while our general industrial market experienced lower sales resulting from depressed economic conditions. Sales of this segment were negatively affected by foreign currency translation of $4 million in the first quarter of 2009 as compared to the prior year period.
Operating income for this segment was $13 million, a decrease of 6% from the same period last year. Our 2009 acquisitions contributed $2 million of incremental operating income in the first quarter of 2009. This segment’s organic operating income and operating margin declined by 18% and 130 basis points, respectively, compared to the prior year period mainly due to the under absorption of overhead costs due to the significant reduction in sales volume in our oil and gas and general industrial markets, and business restructuring costs. Operating income of this segment was favorably affected by foreign currency translation of $1.6 million in the first quarter of 2009 compared to the prior year.
Motion Control – Sales for the first quarter of 2009 were $141 million, down 3% as compared to the year-ago quarter. The decrease was driven by an organic sales decrease of 7% and the divestiture of our commercial overhaul and repair business in 2008. The company’s 2008 acquisitions of VMetro and Mechetronics have added $10 million of incremental sales for the first quarter of 2009. The organic sales decrease was driven primarily by unfavorable foreign currency translation amounting to $5 million in the first quarter of 2009.
