Extracts from the full financial statements as follows
Neal J. Keating, Chairman, President and Chief Executive Officer, stated, “While we faced several challenges during the third quarter we are pleased that Aerospace continued to deliver improved margin performance and Distribution achieved its fourth consecutive quarter of organic sales growth. In addition, we generated very strong free cash flow during the quarter, which provides us the ability to increase our free cash flow outlook for the year.
Distribution achieved sales growth of 13.0%; our highest rate of growth since the second quarter of 2011. Organic sales growth trends through mid-September were favorable; however, we experienced significantly weaker sales in late September, reducing our organic growth for the quarter to 1.7%. In addition, the first phase of our ERP implementation went live during the quarter causing a larger sales disruption than anticipated. We remained focused on servicing our customers and deployed additional resources after go-live to support our operations. Despite the impact this had on our results for the quarter, we have gained important experience from this critical phase of the implementation that will improve our future implementation efforts. Profit performance was also impacted by the higher expenses associated with our sales force expansion which we believe will provide positive momentum as we enter 2015.
Aerospace continues to deliver strong profit performance with sequential operating margin improvement to 17.4%. We are currently preparing the first of the New Zealand SH-2G(I) aircraft for acceptance by the New Zealand Ministry of Defence and expect this to occur in the next few weeks. We have had a number of program wins and contract extensions during the quarter and, more recently, we are pleased that the Peruvian Navy has agreed to buy New Zealand’s existing fleet of SH-2s. We are negotiating final terms with General Dynamics Canada and are prepared to provide upgrades and overhaul services for these aircraft. Once under contract, we expect program activities to commence later this year. Quoting activity remains high and there are a number of programs that would fit nicely with our capabilities and would allow us to expand our presence on a number of key platforms.”
Sales for the third quarter increased due to higher shipments of the JPF to the U.S. Government, work performed on our SH-2G(I) contract with New Zealand and the delivery of three cabins under our AH-1Z program. These increases were partially offset by reduced deliveries of the JPF to foreign militaries, a reduction in shipments on our Sikorsky BLACK HAWK helicopter program, decreased volume for our Egypt SH-2G(E) upgrade and Learjet 85 programs, and lower sales of engineering design services.
Operating margin in the third quarter was lower than the prior year primarily due to lower commercial sales of the JPF to foreign militaries and decreased volume under our Egypt SH-2G(E) upgrade program. These decreases were partially offset by work performed on our SH-2G(I) contract with New Zealand and higher sales to the U.S. Government under the JPF program.
Chief Financial Officer, Robert D. Starr, said, “Aerospace delivered a solid performance for the quarter, with a 17.4% operating margin, due to continued strong performance for our bearings products and the New Zealand Program. While we are pleased with this performance, our year over year margin results were lower largely due to the mix of our JPF sales in the quarter which shifted from higher margin direct commercial sales to lower margin USG sales. We have lowered our Aerospace sales outlook to reflect project delays and timing of deliveries for certain aerostructure programs. Based upon our anticipated fourth quarter sales mix we have raised our full-year operating profit margin outlook to 16.8% to 17.0%.
Distribution sales grew 13.0% to a record $309 million due to the contribution of B.W. Rogers and continued organic sales growth. We have reduced our sales outlook to reflect the estimated disruption related to our ERP implementation and to account for lower organic growth rate expectations that are largely attributable to weakness in the domestic mining sector, project delays within our Automation, Control and Energy product platform and continued sales weakness in Mexico. Our revised margin outlook reflects the deleveraging impact associated with the decrease in sales and the impact of the ERP roll-out.
We are reducing our Corporate expense outlook by $1 million to approximately $51 million, excluding costs associated with the sale of the idle facility in Moosup, based on favorable trends through the third quarter driven by our cost control initiatives.
Finally, given our better than anticipated performance in free cash flow during the quarter we are raising our outlook for the year to $55 million to $60 million.”
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