Tuesday, February 12, 2008

Curtiss Wright Powers Up Without Cash Flow

Curtiss-Wright Corporation (CW) announced year end results. They made much noise about the following Sales up 24%; Operating Income up 27%; Net Earnings up 30%; 12th Consecutive Year of Revenue Growth. Does sound rather good especially in a tough market.

The not so silver lining is in the cash flow. The corporate press release put out this paragraph

“Net cash provided by operating activities for the full year 2007 was $139.1 million, down slightly from the $143.9 million in 2006. Our 2007 free cash flow, defined as cash flow from operations less capital expenditures, was $84.7 million for 2007 as compared to $103.7 million in 2006. Higher capital expenditures, inventory, and receivables to support increased sales were partially offset by higher earnings and advance payments.”

Curtiss Wright is investing heavily in its own operations and they as yet are not generating increasing levels of cash flow. Receivables are up 38%. Inventories are up 50%. Pre paid pension costs are down 19% (have we deferred a problem here) Accounts payable are up 43%. Long term debt is up 42%.

The stock has been trending downwards since late Oct. corporate management needs to better explain how their financial model is working. The current format cannot continue for too much longer before they crash and seriously burn.