管理層發言
Thank you for your continued patience. Your meeting will begin shortly. Star 0, and a member of our team will be happy to assist. Please stand by, your meeting is about to begin. Welcome to the Curtiss-Wright Second Quarter 26 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode. I would now like to turn the call over to Jim Ryan, Vice President of Investor Relations.
Thank you, Angela, and good morning, everyone. Welcome to Curtiss-Wright's second quarter 26 Earnings Conference Call. Chair and Chief Executive Officer, Lynn Bamford and Executive Vice President and Chief Financial Officer, K. Christopher Farkas are on the line. A copy of today's financial presentation and the press release are available in the Investor Relations section of our website. Our discussion today includes certain projections and forward-looking statements that are based on management's views of future performance. We detail those risks and uncertainties associated with the forward-looking statements in our public filings with the SEC. As a reminder, the company's results and guidance include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency into Curtiss-Wright's ongoing operating and financial performance. GAAP to non-GAAP reconciliations are available in the earnings release and on our website. Now I would like to turn the call over to Lynn to get things started.
Thank you, Jim, and good morning, everyone. Curtiss-Wright delivered excellent second quarter results that exceeded our expectations. We also raised our full year earnings guidance to reflect the strong first half results, record backlog and the outlook for the balance of the year. The successful and ongoing execution of our pivot to growth strategy has been the key to our quarterly performance, and I am proud of our team's ability to deliver consistently strong results for our shareholders. With that and turning to today's presentation, I will begin with the highlights of our second quarter 2026 results. Sales of $924 million grew 5% year over year, reflecting solid growth across our overall A&D and commercial markets. Operating income increased 12% year over year, exceeding our sales growth and resulting in 110 basis points of operating margin expansion. As a result, diluted earnings per share increased 15% year over year and was slightly ahead of our expectations, driven by the strong operational performance. We also generated $160 million of free cash flow representing a year over year improvement of 37% and a strong cash conversion rate of 115%. Free cash flow generation continues to be an important focus for the team, driving funding for continued investments back into the organization to support our future profitable growth. I will provide more information about these targeted investments and our alignment to growth factors across our markets later in my prepared remarks. Regarding our order book, we experienced strong demand in the second quarter as new orders increased 8% and reflected an overall book-to-bill in excess of 1.1x. We have a robust and growing pipeline, which continues to demonstrate positive momentum across our end markets. Digging into the details by segment, I will start with Defense Electronics, which delivered a record performance as orders grew nearly 50% year over year and are now up more than 30% year to date, reflecting the team's alignment to the strategic growth priorities of the U.S. and allied militaries. Notable bookings within the segment included significant awards for turret drive stabilization systems supporting international ground vehicles along with tactical communications equipment supporting the U.S. Army, Marine Corps and Air Force operations. We also received numerous awards supporting the modernization of existing helicopter, UAV and fighter jet platforms, some initial orders on Golden Dome and various development contracts supporting next generation programs. Next, in the A&I segment, Enstar experienced strong demand for our industry-leading EM actuation technology supporting the U.S. Army's IFPC program. This program is on track to receive another sizable increase in funding under the FY 2027 budget and maintains continued healthy growth projections. I would also emphasize our industrial vehicle order book, which has achieved strong growth for three consecutive quarters and is contributing to our more positive outlook in the general industrial market. Chris will discuss this further in his remarks. Lastly, within the Naval & Power segment, following a strong Q1 order book, second quarter orders were down year over year, principally due to the timing of naval defense orders on submarine programs. Aside from that, we continue our commercial nuclear aftermarket supporting plant outages and restarts and also experienced strong demand for valve equipment in our process markets. To sum up, our overall orders thus far in 2026 are up 12% year to date, exceeding sales growth of 9%, to yield an overall book-to-bill in excess of 1.2x. In addition, Curtiss-Wright's strengthening pipeline enhances our confidence in meeting our near-term targets and establishing a strong foundation for sustained medium and long-term growth across our end markets. Turning to our full year 2026 guidance, overall sales are now projected to increase 8% to 9% driven by a more favorable outlook in our defense and general industrial markets. We continue to expect that operating income growth will outpace sales growth and our increased guidance reflects 50 to 70 basis points of margin expansion in pursuit of a record 19.1% to 19.3%. As a result, diluted EPS is now projected to grow 14% to 16% as we continue to compound our earnings at a mid-teens pace over time. Lastly, we raised our free cash flow guidance and continue to expect strong free cash flow conversion in excess of 105%. Overall, Curtiss-Wright's strong growth in revenue during the first half of 2026, along with gains in operational efficiency, have positioned our team to continue to deliver outstanding financial performance. Now I would like to turn the call over to Chris to provide a more in-depth review of our financials.
Thank you, Lynn. Turning to Slide 4, I will begin by reviewing the key drivers of our second quarter 2026 performance by segment. Starting with A&I, sales grew 12%, which was in line with our expectations. Beginning with the segment's defense markets, our results reflected higher sales of actuation and sensors equipment within our aerospace defense market, supporting various U.S. and foreign fighter jet programs. In addition, we experienced solid sales growth for EM actuation equipment supporting ground-based mobile launcher systems. Within the commercial aerospace market, we experienced solid OEM sales growth supporting increased production on both narrow body and wide body platforms. And in the general industrial market, our results reflected modest growth in sales for industrial vehicle products. Regarding the segment's operating performance, operating income and margin grew 25% and 180 basis points respectively, driven by favorable absorption on higher revenues, favorable mix and restructuring savings which were partially offset by continued investments in development programs. Next, in the Defense Electronics segment, overall sales were down 3% and essentially in line with our expectations. Within the segment's ground defense market, and as anticipated, our results reflected lower sales of tactical communications equipment due to the timing of prior year orders, which were partially offset by higher turret drive stabilization systems revenues supporting international programs. Growth in the aerospace defense market was driven by higher domestic sales of embedded computing equipment supporting various aircraft modernization, UAV and next generation development programs. Regarding the segment's operating performance, it delivered stronger-than-expected second quarter operating margin of 28%, up 120 basis points year over year, reflecting a favorable mix of business and cost containment more than offsetting higher investment in research and development. Moving to the Naval & Power segment, sales growth of 7% was primarily driven by strong growth in our Naval Defense market associated with the timing of production on submarine programs. We also experienced a solid uplift in aftermarket revenues supporting naval shipyards, including increased support for the CVN-75 Refueling and Complex Overhaul program. Growth in the Power and Process market was mainly driven by increased revenues in the commercial nuclear market, supporting advanced small modular reactors. We also experienced higher government nuclear revenues supporting various DOE projects at national laboratories. Regarding the segment's operating performance, operating income grew 12%, generating 80 basis points of operating margin expansion mainly reflecting favorable absorption on higher revenues. To sum up Curtiss-Wright's second quarter results, our solid top line performance generated a strong operating margin of 19.4% driving 110 basis points in operating margin expansion. Turning to our full year 2026 guidance, I will begin on Slide 5 with our end market sales outlook where we now anticipate total sales to grow 8% to 9% driven by improved expectations in both our defense and general industrial markets. Starting in aerospace defense, we raised our full year outlook to a new range of 12% to 14%, reflecting increased sales of actuation and sensors equipment supporting both domestic and international fighter jet programs. Additionally, we continue to project strong year-over-year sales growth for defense electronics, which we expect to accelerate across the remainder of this year. Within ground defense, while confident in the pipeline and growing strength in the 2026 order book, we maintained our full year 2026 outlook based on the timing of production for our tactical communications equipment. Beyond the timing matters, we continue to expect increased actuation sales supporting the IFPC program as well as increased demand for turret drive stabilization systems supporting international ground vehicle programs most notably through our relationship with Rheinmetall. Naval Defense, following our strong first half results, we now project full year sales growth of 7% to 9% mainly due to expectations for higher production revenue on submarine programs while we continue to expect solid growth on the CVN-81 carrier program. This raise in guidance also reflects increased aftermarket revenues supporting the CVN-75 Refueling and Complex Overhaul program. Moving to Commercial Aerospace, our guidance continues to reflect the strength of our backlog supporting the ramp up in OEM production across both major narrow body and wide body platforms. Our outlook for 10% to 12% sales growth remains unchanged and will remain on track to deliver steady sequential growth over the remainder of the year. Wrapping up our aerospace and defense market outlook, we now expect total sales in these markets to increase 7% to 9%. Moving to our commercial markets, in Power and Process, we maintained our outlook for full year sales to increase 13% to 15%. Starting in the commercial nuclear market, we expect to deliver mid-to-high teens sales growth this year, driven by the continued underlying strength of our order book. Of note, we anticipate sales in this market to be flat sequentially in Q3, as fewer outages are expected during peak electricity demand, followed by a strong fourth quarter performance. Shifting to the process market, we remain on track to demonstrate solid growth based on higher sales of MRO valves and instrumentation solutions as well as higher revenues from subsea pump development and then similarly deliver a strong fourth quarter performance. Lastly, in General Industrial, as Lynn mentioned earlier, we are seeing steady improvements in our industrial vehicles order book and now anticipate full year sales growth of 1% to 3%. We remain encouraged by the improving outlook and expect continued momentum in this market as we approach 2027. Wrapping up our total commercial markets, we continue to project total sales in these markets will increase 8% to 10%. Moving on to our updated full year 2026 financial outlook by segment on Slide 6. I will begin with A&I where we now expect sales to grow 8% to 10%, driven by the strong first half performance in the segment's A&D markets, continued growth in our order book and the anticipated ramp up in commercial aerospace production. Regarding the segment's profitability, operating income is now projected to grow 15% to 17% and drive operating margin expansion of 110 to 130 basis points ranging from 18.5% to 18.7%. In addition to the improved top line guide, this revised outlook reflects more favorable absorption and mix on higher sales. For your modeling purposes, we expect strong second half growth in total sales and profitability with the results fairly evenly distributed between the third and fourth quarters. Moving to Defense Electronics, where we continue to anticipate sales will grow 4% to 6%, principally driven by strong growth in Aerospace Defense and partially offset by the timing of revenues in Ground Defense. Regarding the segment's profitability, we now expect operating income growth of 5% to 7% and operating margin expansion of 20 to 40 basis points, marking continued improvement in our industry-leading margins to a new range of 27.5% to 27.7%. For your modeling purposes, we expect the segment's third quarter sales to be flat with our second quarter results mainly due to the timing of ground defense revenues followed by a strong finish to the year. In addition, third quarter operating income and margin are expected to be down sequentially as favorable mix experienced in the first half of this year is anticipated to normalize by year end while we also expect a higher level of second half R&D investments. In Naval & Power, we now expect sales to grow 10% to 11%, reflecting the increased naval defense market outlook and overall solid growth across the segment's commercial markets. Regarding the segment's profitability, we now expect operating income growth of 14% to 16% and operating margin expansion of 50 to 70 basis points with this uplift mainly driven by the stronger revenue outlook. For your modeling purposes, we remain on track to deliver steady sequential sales growth over the remainder of the year. In addition, expect the segment's third quarter operating income and margin to be in line with our second quarter results with higher absorption mainly being offset by increased R&D investments. So to summarize our 2026 outlook, overall, we now anticipate total Curtiss-Wright operating income will grow 11% to 13% and expect operating margin to range from 19.1% to 19.3%, now up 50 to 70 basis points. For your modeling purposes at the overall purchase rate level, we expect third quarter 26 sales to reflect modest growth relative to our second quarter results, while operating income and margin are projected to be flat sequentially based on the timing of revenues, unfavorable mix in Defense Electronics, and overall higher R&D investments. We anticipate the fourth quarter will reflect a record top line performance, resulting in a strong operating margin in excess of 20% to conclude the year. Continuing with our financial outlook on Slide 7 and starting with our EPS guidance, building upon our strong first half performance, we have increased our full year 2026 diluted EPS guidance to a new range of $15.10 to $15.40, up 14% to 16%. And based upon the timing of sales and profitability as previously discussed, we expect our third quarter 26 EPS will be on par sequentially with our second quarter 26 results followed by a strong finish to the year. And lastly, turning to free cash flow. Based upon our strong second quarter and first half free cash flow, and the confidence that provides in execution, we raised our full year outlook and now project record free cash flow of $585 million to $605 million. Please note that this guidance includes a nearly 30% increase year over year in capital expenditures associated with ongoing growth investments which will be more than offset by strong growth in earnings and a record level of working capital as a percentage of sales below 18%, as we continue to deliver a free cash flow conversion rate approximately 105% again this year. Now I would like to turn the call back over to Lynn.
Thank you, Chris. As we have discussed today, the team continues to deliver tremendous results under our pivot to growth strategy, reinforcing our confidence in achieving record financials across all major metrics in 2026. Our success in meeting these objectives is supported by the strength of our order book, close alignment with our customer priorities, focused investments back into the business and our commitment to drive sustained margin improvement. At the same time, we are targeting record levels of profitability and are delivering strong results as we continue to accelerate investments in R&D at a faster pace than sales. This steady drive for top-quartile financial performance, combined with substantial and targeted reinvestment in the business, remains fundamental in our ability to compound earnings at a mid-teens pace over time. It also supports our ability to deliver strong and consistent free cash flow generation for our shareholders and drive strategic investments in growth CapEx across the portfolio. These efforts will ensure that our workforce and factories have the necessary tools, systems and resources to continue to drive strong growth in sales and operational efficiency. I wanted to highlight one of those critical investment opportunities shared in a recent press release. In July, we announced an $80 million multiyear investment to expand our Chesapeake, Virginia facility within our Naval & Power segment to support growing market demand across our naval businesses and also in anticipation of future commercial nuclear awards. This expansion, which began in 2025, will be financed through various channels, including internal capital investment, maritime industrial base funding and state assistance. Regarding the maritime industrial base funding, we have spoken quite a bit about it recently and the growing support from our U.S. Navy customer. This continues to accelerate. Curtiss-Wright has now been awarded approximately $95 million in industrial base funding to date. Note, this award value was $70 million as of the end of March. Overall, this funding provides us an opportunity to gain increased content and potentially become a second source to further support our customers' efforts as they look to expedite production on the U.S. Navy's most critical platform. This is one of many investment opportunities that we have been pursuing across our operations to position Curtiss-Wright for long-term growth. Turning to the right-hand side of the slide, and taking a broader perspective across Curtiss-Wright's entire portfolio, we continue to build momentum. Our teams remain focused on executing in the short term while investing to capture the strongest medium and long-term growth sectors globally in the markets in which we compete. While the slide outlines many of the meaningful end market drivers, I will direct our focus to the commercial nuclear market. For those less familiar, Curtiss-Wright possesses long-established and significant commercial nuclear expertise dating back to the industry's inception. Today, our technology supports the entire life cycle from the new build to the aftermarket. The company's extensive portfolio of aftermarket technology supports the continued performance, safety and modernization of operating reactors worldwide including content on every reactor across North America and South Korea. In the U.S., the administration has exhibited a clear dedication to expediting life extension of existing nuclear facilities and expanding the reactor fleet with the goal of quadrupling U.S. nuclear generation capacity to 400 gigawatts in restarts and new builds. Curtiss-Wright remains well positioned to serve this massive acceleration in demand. Leveraging our established foundation, we also anticipate a substantial near and long-term opportunity to support the construction of Westinghouse AP1000 reactors. On that front, AP1000 efforts in the U.S. continue to advance. In June, the Department of Energy issued a conditional $17.5 billion loan commitment through its Office of Financial Institution Financing to support the deployment of up to 10 new AP1000 reactors. The loans are expected to finance long lead equipment purchases for up to five projects with two reactors at each site potentially bringing all 10 reactors under construction by 2030 which will remain in line with the President's goals. It is anticipated that the long lead equipment purchases would include Curtiss-Wright's reactor coolant pumps and that these components will be procured prior to the project's reaching final investment decision. As a proof point, I would like to highlight something which is not directly in the public site regarding the progress being made between Westinghouse, the Department of Energy and the launch customers. During the month of July, one of the DOE's initial launch customers, which we cannot name, visited our operation and they were overwhelmingly impressed with the quality of our critical manufacturing processes and our preparedness to support the impending build out of AP1000 reactors. Overall, we continue to expect an AP1000 order this year. We remain excited for the opportunity to support the build out of AP1000 reactors, not only domestically through the DOE, but also through the Department of Commerce and across Eastern Europe and internationally. We intend to fully capitalize on the tremendous growth ahead in our commercial nuclear power business. In summary, we anticipate another record financial performance this year driven by the team's steadfast focus on execution. We can confidently state that we are on track to exceed all of the major financial metrics issued at our 24 Investor Day at the top and bottom line. Looking forward to the coming year, we expect to share updated long-term financial targets during our next Investor Day which is currently being planned for the second quarter of 27. The future remains extremely bright as the momentum continues to build at Curtiss-Wright across all these end markets and we remain well positioned to continue to deliver long-term value for our shareholders. Thank you. And at this time, I would like to open up today's conference call for questions.
分析師問答
Thank you. The floor is now open for questions. Please press star then one on your telephone keypad to ask a question. Our first question today comes from Nathan Jones with Stifel. Your line is now open.
Good morning, everyone.
Hi, Nathan. How are you?
I am very well, thanks. Orders have been exceptionally strong for several quarters here in the 1.1 billion to 1.2 billion range for the last three quarters, which is significantly above the revenue level that is averaging about $925 million in the first half of 26. Can you talk about the duration of the backlog and how we should expect those strong order rates to translate into higher revenue levels?
Thanks for pointing that out, Nathan. We are really pleased with what is happening in the order book, and you can see the momentum. I will start by saying I think Q3 is shaping up to look pretty good as well. When you step back and take a look at what is happening in the Curtiss-Wright order book, there are a few dynamics at play. Number one is the alignment of our technologies to the overall strength in the defense budgets here in the U.S. and also internationally. If I dive a little deeper into that, we started off the year talking about some of the delays in the Defense Electronics order book associated with the continuing resolution. We were forecasting earlier this year that it would take about 60 to 90 days for that to clear itself up. Given the strong Q1 orders in Defense Electronics that were up 18% year-over-year, and now what we saw here in Q2 with record orders being up 47% year-over-year, that has corrected itself. Embedded within some of the Defense Electronics order book, there are some things that are a little bit longer term in nature. We have multiyear programs such as the C-17 modernization program that we discussed earlier this year. We had an incredibly strong second quarter order book within ground defense, and that included some long-term production orders related to turret drive stabilization systems, and we are seeing some things pick up. Overall on the continuing resolution front, that all speaks very positively not only to this year, but as we look outward. Looking across Commercial Aerospace, continued strength following the ramp at Boeing and Airbus and Lynn talked a bit about general industrial surge in orders in Q4. We saw a strong surge in orders in Q1 and again in Q2. The order book there is up 21% year-to-date and that business is having a strong July. The order book is very strong. I think it speaks very positively not only to what is happening this year, but as we look forward into 2027 and beyond.
Thanks for that color. The second question is on supply chain. There is high demand for chips and electronics these days from data center demand. I know you generally are in a priority position given the industries you are in and managed through it extremely well during COVID, but can you talk about any challenges you are seeing in the supply chain, any inventory prepositioning you are doing or anything like that we should be thinking about? Thanks for taking the questions.
Thank you, Nathan. It is a very worthy topic to bring up because the supply chain pressures have definitely increased in the first half of this year. I would not say it is back to COVID levels, but there are some similarities to 2022. We learned a lot of things in 2022. We installed a bunch of different tools and took on some different approaches to how we managed our inventory and those are serving us well. We are largely secured for our 2026 revenue, and the real focus at this point is positioning for 2027. We have DPAS ratings and we have built close relationships with our supply base that we focused on in a new way back in 2022. A recent example of where that is playing out is that some of our leadership attended a meeting in Manassas, Virginia on May 22 that was the initiation of the Alpha-1 DVR Made-in-America event at the Micron facility that was attended by the CEO of Micron and the Secretary of Commerce. During that time, with their understanding of what we do, we have been assured that we have priority allocation out of Micron. That is one example in the press and it is something people can look at. It is systematic and across the board. Our Defense Electronics and industrial teams collaborate closely where there are shared dependencies on the electronics industry and we make the power of our business work together in that area. It is not just electronics; there are some pressures on rare earth materials across our surface treatment business. We use a couple of compounds that have come under pressure, and the team is figuring out dual sources and qualifying other powders with the customer bases to make sure we can support ongoing production. Where there can be movement, we are adjusting our prices to reflect increased pressure on the supply chain. It is not something you can take your eye off, but the team is doing a great job of managing it. Thanks for the question.
Thank you, Nathan.
Thank you. Our next question comes from Kristine Liwag with Morgan Stanley. Your line is now open.
Hey, good morning everyone.
Good morning.
Lynn, Chris, Jim, the pivot to growth strategy has clearly delivered. You are tracking well ahead of those 24 Investor Day targets on margins, EPS, revenue growth, etcetera. I know it is premature to lay out another formal outlook today, but conceptually, from what you have said about the building blocks—Golden Dome, submarine production acceleration, commercial nuclear with AP1000 and SMR—plus a very strong underlying cycle for your end markets in aerospace and defense, are these enough to support double-digit revenue growth in the next three years? Maybe even potentially mid-teens as we look out?
I very much appreciate the question. We are proud of exceeding the prior targets. We are well above the 5% targets and currently at 9% organic and 10% overall revenue growth. Revenue growth gives us opportunity for other metrics to follow. When you consider the end markets coming together—an anticipated 2027 defense budget with clear support for where we are focused, commercial aerospace continuing to ramp, early days in the commercial nuclear build-out where we expect our first AP1000 order this year—these are material drivers. Across the board we are seeing improvements in businesses that were previously flatter, including industrial vehicles and process markets. We have been investing in R&D and it pays faster than sales over the past five-plus years; the team knows where to invest to drive growth. Our industries are long-cycle, and new products or custom projects can take several years to turn into production revenue. Early investments are beginning to pay off and we have a compounding list of investments that will build into the future. Our Investor Day in Q2 of 2027 will share more, but the future is very bright for Curtiss-Wright.
Super helpful. And a follow-up: you have been historically disciplined in running the business. When you think about defense end markets and commercial, you have brought a commercial approach to the defense business that has improved margins. Looking at new-generation defense tech companies in the private markets that move fast, iterate quickly, get capability into customer hands earlier, and invest more of their internal R&D and CapEx ahead of programs—do you see this as an opportunity for Curtiss-Wright to adopt some of that approach to get technology faster to customers, or as a risk for margins?
It is early days, but we see it as a great growth opportunity for Curtiss-Wright. Many nontraditional defense companies focus on end systems—UAVs, underwater vehicles, ground vehicles and weapons—not on the Tier 2 and Tier 3 supply chain where we play. Our Tier 2 and Tier 3 products, especially COTS capabilities in Defense Electronics and offerings from our A&I segment, can get these companies products they can use in weeks, while development cycles for the end systems are often over a year or two. That increases opportunities for different levels of capabilities and additional customers. Over the past five years we have broadened our product offering to cover size, weight and power variations to fit a broader range of platforms, which aligns well with the nimble systems these companies build. Our sales team is actively engaging with many of these companies and we are sought after as a supplier.
Our next question will come from Jan-Frans Engelbrecht with Baird. Your line is now open.
Good morning, Lynn, Chris and Jim. Congrats on another set of strong results. I will start with Aerospace and Industrial. I think the guidance implies around 20% second-half margins, and I think you did around 17% in the first half. Can you describe the various puts and takes? It looks like aerospace defense accelerates in the second half sequentially, but commercial aerospace looks like it is down around 8% sequentially despite Boeing production rates going higher. I wanted to understand that better. Thanks.
As we step back and talk about commercial aerospace, we continue to see strong growth in orders. We are planning to be up 11% in Q2 and feel confident in the full-year guide of 10% to 12%. Across the Aerospace and Industrial segment, we recently lifted our sales guidance by $15 million to $17 million primarily driven by aerospace defense and general industrial. We expect continued strong revenue growth in commercial aerospace. From a margin perspective, absorption and favorable mix are part of the story. We expect margin expansion and raised our margin guidance by about 10 basis points or $3.5 million, reflecting sales volume absorption consistent with historical levels and favorable product mix such as EM actuation, which has attractive margins and is spinning into defense programs. We are also benefiting from prior-year restructuring actions even while we continue to invest in R&D, which will increase in the second half. Overall we expect 110 to 130 basis points of margin expansion.
Thanks, Chris. A quick follow-up. For Defense Electronics, strong second-half growth is implied. How much of that second-half revenue is already in backlog, and how much book-and-ship business do you still need to book in the second half to meet guidance?
I will not provide an exact percentage of sales and backlog figure. We are very well positioned following the record second quarter and, as I mentioned earlier, Q3 is expected to be very strong. The second half revenue profile reflects pressure associated with the timing of orders coming in and the ability to convert that into revenue quickly. We expect relatively flat to down sequential revenues in Defense Electronics in Q3 versus Q2, with a big fourth quarter. We've done work to smooth that, but given the timing of orders, it is going to be a sizable fourth quarter for the business.
We will go next to Myles Walton with Wolfe Research. Your line is now open.
Morning. Lynn, Chris, Jim — hi, this is Louis on for Myles. You guys had some large contracts signed for subs. What if any flow-through have you seen from these? Or do you think you could see flow-through?
There was a lot of press around that and it is good to see. It shows the government's commitment to start work at the shipyards, which is where the bulk of that $77 billion goes into our two main shipyards. That fully funds work that is already in our pipeline, some of which we were already under contract for. It is good for the industry and good for the shipbuilders, which is good for Curtiss-Wright. I do not want to minimize it, but it is not a dramatic change in our order flow or how our business will transpire over the next couple of years.
Great. And maybe, Lynn, latest thoughts on the M&A market?
M&A remains our top priority for use of capital and we are very active. Our last acquisition closed at the end of 2024, so it's been some time since we closed on an acquisition, but we have been very active during that time. The market is frothy and multiples are high. We remain disciplined to ensure any deal has the strategic and financial fit that creates shareholder value. We are evaluating meaningful opportunities but are cautious—many potential deals look optimistic until they are not. We will continue using capital for acquisitions over time, and we also put capital to work internally. We have significantly increased capital investment over the past few years to prepare our factories, and that will continue into the next couple of years. We can fund this out of free cash flow and prepare for growth, including potential second-source work which would be incremental for Curtiss-Wright.
We will move next to Louie Dipalma with William Blair. Your line is now open.
Good afternoon.
Hello. Good morning depending on where you are.
Earlier this year you announced the C-17 Globemaster Modernization Award. How have those upgrades progressed? Are there similar electronics modernization upgrades in the pipeline?
The C-17 modernization program is off to a great start. We have had quite a few face-to-face meetings with Boeing on early-stage parts of the program. I personally sit on a monthly review given the significance. It is a different scale of work than we have traditionally done, and the team is doing a great job executing and keeping the customer happy. The customer is very satisfied. There is a chance Boeing will leverage that capability onto other platforms, which would be exciting. We have done the work to develop the capability and are always looking for more production homes. There are other things in the pipeline we hope to announce later this year, but some customer agreements limit public disclosures. The team is doing a great job.
Great. Also, what is your long-term view of the ground defense end market? Right now it is your smallest end market and it has been shrinking. There is a viewpoint that ground defense vehicles are highly vulnerable to drones. Do you see improvement on the horizon? I know you're involved in the Army's next generation command and control program. Are there other catalysts that could turn around that end market?
Connectivity on the battlefield and across Golden Dome, and land equipment with radars and effectors to thwart incoming attacks, represents a major opportunity. Golden Dome aims to deploy systems that work together as a network capability, interconnected via communications networks. Our communications equipment and tactical data links are in the sweet spot and we are winning work to support that networking, particularly secure networking. We have content across launchers and the IFPC program, and new platforms are being pursued. Directed energy and laser systems are emerging as new sustainable ways to defend against threats, and we are active in those areas with relevant technology. We have adapted our product portfolio to be more relevant for different vehicle sizes, weights and power, including tracked and wheeled vehicles. International opportunities, such as through Rheinmetall, and domestic opportunities exist. There are discussions about munitions restocking where our content is relatively minor now, but other capabilities like directed energy are promising. The team knows the industry well and positions our products to solve evolving market challenges.
Thank you.
We will move next to Scott Deuschle with Deutsche Bank. Your line is now open.
Hey, good morning. Sorry, I joined a bit late. Are you expecting tactical comms specifically to step up in the second half?
If you look at Tactical Communications, we expect growth to improve in the second half. Given the timing pressures in the order book, you are not going to see that in Q3, but you will see it in Q4. We are expecting a very strong fourth quarter.
Lynn, have you seen any signs that the timing delays in Defense Electronics could be more than timing—potentially reflecting customers evaluating the products more closely—or have you gotten explicit signals that it is really just timing?
It definitely feels like timing. You can see the evidence in the strong Q1 and Q2 order books and a strong July. We are anticipating a very strong Q3 and that will carry into Q4. There is a delay in turning orders into revenue, but I do not believe there is demand destruction; it is timing.
Our next question comes from John Godyn with Citi. Your line is now open.
Hi, good morning. This is Bradley Eyster on for John Godyn. Thanks for taking my question. I wanted to circle back on your prepared remarks where you initially received awards for both UAVs and Golden Dome. Could you take a step back and talk about the opportunities in these two end markets for Curtiss-Wright? What role do you play and how do these opportunities take shape over time?
You are correct that we mentioned awards in UAVs and Golden Dome. Golden Dome opportunities are multiple: major detector systems such as radars are evolving and there is a rich opportunity base. The fundamental point of Golden Dome is to deploy these systems and have them work as a network capability interconnected via communications networks. Our communications equipment and tactical data links are well positioned and we are winning work to support that secure networking. We also have content on launchers, such as the IFPC program, and capabilities in directed energy and laser systems as sustainable ways to defend. Across UAVs, we have participated for decades, including on Global Hawk, and our technology is relevant for UAV systems: high-tech avionics, processing sensor data, and command and control capabilities. We are pursuing a variety of opportunities where our technology aligns to those needs.
Also, I wanted to touch on the general industrial outlook. You called this out a few times on the call and the strength in industrial vehicles. What gave you confidence to increase guidance here and what is the future opportunity?
Starting with last year, Q4 orders were up 26%. We entered the year with Q1 strong and Q2 has been strong. Year-to-date our order book is up 21% and July followed a similar pattern. We see strong signals in our order book and growth in On-Highway and Off-Highway. We are now forecasting On-Highway to be up high single digits for the year, tracking in line with North America Class 5 through 8 trends and Rest of World. For Off-Highway, we are now forecasting mid single-digit growth, tracking ahead of global construction and agriculture industry forecasts. We still see some delays in specialty vehicles and industrial automation and services, which we forecast to be down low single digits for the full year. Overall, the 1% to 3% guidance for General Industrial reflects improving confidence in 2026 and 2027, and continued momentum in the order book represents an opportunity for the year.
Thank you. I am showing no additional questions at this time. I will now turn the floor over to Lynn Bamford, Chair and Chief Executive Officer for additional or closing remarks.
Thank you everybody for joining us today and we look forward to seeing many of you again on the road or at our third quarter results. Have a great day. Thanks everyone.
Thank you. This concludes today's Curtiss-Wright earnings conference call. Please disconnect your line at this time and have a wonderful day.