Esterline Revenues Take Off, Earnings Stutter

Esterline Technologies (NYS: ESL) , a specialty manufacturer for the global aerospace and defense markets, came out with fourth-quarter numbers that were below Wall Street expectations. Let's take a closer, Foolish look at what's going on with Esterline.

Figuring it out
The company saw its revenue rise by a solid 17% to $502.4 million. Esterline's net profit, on the other hand, declined by a staggering 67% to just $19.4 million mainly because higher sales were offset by acquisition-related costs, coupled with higher interest expenses.

In July, Esterline announced the completion of its acquisition of France-based Souriau Group for around $705 million. According to management, Souriau, a supplier of connector products for rough environments, would enhance the company's business in France and in sectors including defense, aerospace, power generation, rail, and industrial equipment.

Moving ahead with a few speed bumps
Esterline's R&D expenses have risen by 73% from the previous year's quarter, to $30.6 million. However, the R&D efforts seem to have paid off as the company has secured important positions for numerous military aircrafts, such as Boeing's (NYS: BA) P-8, Lockheed Martin's (NYS: LMT) F-35, and Airbus' A400M.

On the commercial aircraft front, Esterline says aircraft production is witnessing an up cycle at customers including Airbus, Boeing, Bombardier, and Embraer (NYS: ERJ) on the back of loads of demand for new platforms as well as legacy aircrafts.

However, along with the good news, the company faces a few pain points in the year ahead. One of them relates to Esterline's multiyear contract to upgrade cockpits of around half of the Saudi fleet of C-130 aircraft. A delay being caused by the current operational requirement of these aircraft in the region will delay the deal, worth $25 million, until at least the second half of 2012.

The Foolish bottom line
While demand from the commercial aerospace industry is witnessing a cyclical uptrend, Esterline could face a downtrend in its defense-related business in the next few years due to defense budget cuts in the U.S. However, on the bright side, defense spending would likely increase in countries such as India, Brazil, Saudi Arabia, and Australia, and the company is well-diversified with its commercial aviation segment.

Overall, I think Esterline is a very intriguing aerospace and defense pick for the future, but our analysts have selected a different stock that they believe is poised for tremendous growth in 2012. Find out which company in our new free report: "The Motley Fool's Top Stock for 2012." Thousands have already requested access and it'll only be available for a limited time. Simply click here -- it's free.

Keki Fatakia does not hold shares in any of the companies mentioned in this article.Motley Fool newsletter serviceshave recommended buying shares of Embraer. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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