Earnings Call
Curtiss Wright Corp (CW)
Earnings Call Transcript - CW Q1 2023
Operator, Operator
Welcome to the Curtiss-Wright First Quarter 2023 Earnings Conference Call. All participants are in listen-only mode, and we will open the floor for questions after the presentation. I will now hand the call over to Jim Ryan, Vice President of Investor Relations. Please proceed.
Jim Ryan, Vice President of Investor Relations
Thank you, Angela, and good morning, everyone. Welcome to Curtiss-Wright's First Quarter 2023 Earnings Conference Call. Joining me on the call today are: Chair and Chief Executive Officer, Lynn Bamford and Vice President and Chief Financial Officer, Chris Farkas. Our call today is being webcast and the press release as well as a copy of today's financial presentation is available for download through the Investor Relations section of our company website at www.curtisswright.com. A replay of this webcast can also be found on the website. Please note, today’s discussion will include certain projections and statements that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and are not guarantees of future performance. We detail those risks and uncertainties associated with our forward-looking statements and our public filings with the SEC. As a reminder, the company’s results include an adjusted non-GAAP view that exclude certain costs in order to provide greater transparency in Curtiss-Wright’s ongoing operating and financial performance. Any references to organic growth are on an adjusted basis and exclude foreign currency translation, acquisitions and divestitures, unless otherwise noted. GAAP to non-GAAP reconciliations for current and prior year periods are available in the earnings release and on our website. Now I’d like to turn the call over to Lynn to get things started. Lynn?
Lynn Bamford, CEO
Thank you, Jim, and good morning, everyone. I will begin by covering the highlights of our first quarter 2023 performance and a brief update on our full year financial outlook. Then I'll turn the call over to Chris to provide a more in-depth review of our financials. Finally, I'll wrap up our prepared remarks before we move to Q&A. Starting with our first quarter 2023 highlights, we are off to a great start. Sales increased by 13% overall to $631 million and improved 11% organically. Our overall results reflected strong conversion on our backlog and higher year-over-year sales in all aerospace and defense as well as commercial markets. Starting with our A&D markets, we were encouraged to see some stability in the electronic component supply chain which played a strong role in driving 13% growth in A&D sales in the first quarter. Those results also reflected the contribution from the Arresting Systems acquisition completed last June. As you have seen in some of our recent press releases, this business continues to secure new orders for its military aircraft arresting systems equipment and its integration into Curtiss-Wright is going very well. Rounding out A&D, we achieved mid-teens growth in our commercial aerospace reflecting strong OEM demand. Turning to our commercial markets, which increased 12% year-over-year, we delivered strong sales growth across our commercial nuclear processes and general industrial end markets. Growth in our operating income, which was up 15% year-over-year, exceeded our strong sales growth and we delivered a 20 basis points increase in overall operating margin in the quarter. This performance reflected favorable absorption on higher sales and our continued dedication to driving commercial excellence and improved supply chain management, although we did face some unfavorable mix on operating margin. Diluted earnings per share of $1.53 increased 17% year-over-year and exceeded our expectations, primarily due to higher sales. Adjusted free cash flow reflected a strong year-over-year increase of 18%, despite the typical first-quarter outflow. Of note, I'm pleased to report that this included the second and final cash payment tied to the delivery of our AP1000 reactor coolant pumps to China. As noted during our February earnings call, we expected to achieve this key milestone prior to shipping the final four pumps, as we wind down this contract in 2023. Chris will provide some additional color on the key drivers of our first quarter free cash flow later in our prepared remarks. New orders were also strong in the first quarter, up 13% year-over-year, reflecting increases in defense electronics and commercial aerospace within our A&D markets and strong demand across the majority of our commercial markets, particularly for industrial valve and commercial nuclear products. As a result, we achieved a book-to-bill of more than 1.1 times in the first quarter, which builds on our already strong backlog of $2.7 billion and provides great visibility and confidence in achieving our 2023 sales outlook. Next, I would like to touch upon our full year 2023 guidance. While we are encouraged by the strong start to the year, we have elected to maintain our overall guidance at this time and continue to project mid-single-digit sales growth, driven by increases in nearly all of our major end markets. I'd like to briefly highlight some considerations in two of those markets. First in defense, which represents more than 55% of Curtiss-Wright's total 2023 sales. We are closely tracking the major metrics correlated with the ongoing recovery in our defense electronics supply chain such as lead times and customer decommitment and we remain cautiously optimistic for steady improvement throughout the year. Next in General Industrial, while conditions appear to be a bit more favorable for Curtiss-Wright following a strong first quarter, we continue to remain cautious in our guide to the full year given the current economic environment. Despite those dynamics, I feel confident in our outlook for full year sales growth of 4% to 6% and expect continued operating margin expansion in 2023. It is important to note we will expand our margins while increasing both internally and externally funded research and development as we balance our current commitments and continue to invest in Curtiss-Wright's long-term profitable growth. We also remain on track to deliver solid growth in diluted EPS and generate strong free cash flow. In summary, Curtiss-Wright remains well positioned for continued success in 2023, driven by the strength of our combined portfolio and our execution of the Pivot to Growth strategy. Now, I would like to turn the call over to Chris to continue with our prepared remarks. Chris?
Chris Farkas, CFO
Thank you, Lynn. I'll begin with the key drivers of our first quarter 2023 results by segment. In Aerospace & Industrial, sales increased by 6% overall and grew 8% on an organic basis when excluding the impact of foreign exchange. Within the segment's commercial aerospace market, we experienced double-digit sales growth driven by strong OEM demand, most notably on Airbus narrow-body and wide-body platforms. In the general industrial market, our results reflected high single-digit growth driven by increased sales of surface treatment services as well as industrial vehicle products serving on-highway platforms. As expected, those gains were partially offset by reduced sales in the segment's aerospace defense market due to the timing of production on various fighter jet programs, including the F-35. Turning to the segment's first quarter profitability. Our results mainly reflected favorable absorption on higher sales and the benefits of our commercial excellence initiatives which continue to help offset inflationary pressures persisting in early 2023. Next, in the Defense Electronics segment, overall sales growth of 13% principally reflected the conversion of our strong order book which drove higher sales of tactical communications equipment to the ground defense market. That increase was partially offset by lower first quarter revenues for embedded computing equipment on various helicopter and UAV programs in aerospace defense. Regarding the segment's operating performance, operating income was flat despite higher sales, principally due to the timing and availability of electronic components and the resulting impact on mix as well as a year-over-year increase in R&D investments. Despite the impact of timing and mix, as I'll review in more detail later in our prepared remarks, we remain confident in achieving the segment's full year sales and strong profitability. Next in the Naval and Power segment, overall sales growth of 18% was driven by low double-digit organic growth as well as a solid contribution from our Arresting Systems business. As a reminder, the sales from that acquisition are mainly reflected in the aerospace defense market. Elsewhere, in the naval defense market, higher revenues principally reflected the ramp-up on the Columbia Class submarine and CVN-81 aircraft carrier programs. In the power and process market, our results reflected mid-single-digit growth in the commercial nuclear aftermarket, supporting the operation and maintenance of existing reactors and strong MRO valve sales in the process. Turning to the segment's profitability, our results again principally reflected the strong sales growth and resulting favorable absorption. To sum up the first quarter results, overall we generated strong double-digit growth in both sales and operating income, which resulted in a 20 basis points year-over-year operating margin expansion, highlighting the strength of our combined portfolio and continued focus on commercial and operational excellence. Next, turning to our full year 2023 guidance on Slide 5. I'll begin with our end-market sales outlook where we continue to expect organic sales to grow 3% to 5% in line with our long-term guidance and unchanged from our initial guide provided in February. And overall, we're projecting total sales growth of 4% to 6%, which includes the contribution from the Arresting Systems acquisition, partially offset by a small headwind from foreign exchange. I'll start with a few comments regarding our aerospace and defense markets where we expect sales to increase 6% to 8%. Of note and despite the slow start to the year, we continue to expect that aerospace defense will be our fastest-growing end market in 2023 with 9% to 11% sales growth. This reflects the contribution from our Arresting Systems business as well as mid-single-digit organic growth for Defense Electronics based upon the expected gradual recovery in the supply chain. In Ground Defense, while we were pleased with the strong first quarter performance for our tactical communications equipment, we continue to project full-year growth of 4% to 6%, as we proceed with some conservatism in light of the supply chain environment. Enable defense and commercial aerospace, our estimates remain unchanged and we are confident in the long-term visibility that these markets provide to our portfolio. Outside of our A&D markets, our commercial market sales growth also remains unchanged at flat to up 2%. And as a reminder in the power and process market, while we are expecting flat growth overall, this outlook includes a revenue headwind from the wind down on the CAP1000 program of approximately $20 million. Excluding that impact, we expect mid-single-digit growth in both the commercial nuclear and process markets, and we anticipate those sales will be weighted to the first half of the year in 2023, due to the timing of outages and turnarounds. Finally, as we look at the combined total commercial market, it's important to note that excluding the $20 million CAP1000 headwind, overall commercial sales growth would be up 3% to 5%. Continuing with our full year outlook by segment on Slide 6, I'll begin in Aerospace and Industrial where our top line guidance remains unchanged and reflects 1% to 3% sales growth, including a $10 million or 1% headwind from foreign exchange. Looking at the segment's profitability, we continue to project solid growth in operating income and margin reflecting favorable absorption on sales and the benefits of our ongoing commercial excellence initiatives. Next in Defense Electronics, we continue to expect sales to grow 5% to 9%. And we now expect revenue to be less back-ended loaded than what we experienced in 2022 and more in line with our historical cadence as we look forward with increased confidence following the solid first quarter performance. In addition, we remain on track to our full year outlook for operating margin expansion of 30 to 50 basis points supported by our strong and healthy backlog and expectations for supply chain improvement as we move through the balance of the year. Lastly, Naval & Power, our guidance of 5% to 7% sales growth remains unchanged. Despite favorable absorption on higher sales, profitability in this segment will be impacted by both negative mix on lower CAP1000 revenues and a shift to the lower-margin development contracts in the power and process market. However, excluding those items, operating margin in this segment will be nearly flat year-over-year. So to summarize our outlook, we expect total Curtiss-Wright operating income to grow 5% to 8% overall in excess of sales growth and expect operating margin to improve 10 to 30 basis points ranging from 17.4% to 17.6%. Continuing with our financial outlook on slide 7. We've maintained our full year adjusted diluted EPS guidance ranging from $8.65 to $8.90 or up 6% to 10%, principally reflecting our strong outlook for operational growth. Building upon our solid first quarter performance, we expect sequential quarterly improvement throughout 2023, and we project approximately 40% of our full year adjusted earnings per share to be recognized in the first half and expect the fourth quarter will be our strongest. Lastly, turning to our full year free cash flow outlook. Our guidance remains unchanged for the range of $360 million to $400 million, equating to a 22% to 36% increase. And as Lynn shared earlier in Q1, despite the typical outflow of cash we experienced a solid year-over-year improvement in adjusted free cash flow in part due to the collection of the final CAP1000 payment. Also, during the quarter, while we saw healthy collection levels beyond the CAP1000 payment, these were largely mitigated by cash outflows due to the timing of the year-end payables and higher first quarter tax payments. As we look forward across the balance of the year, our greatest challenge and opportunity remains in inventory reduction. The supply chain conditions begin to ease and we execute on a very healthy order book. Given our first-quarter performance and continued focus on working capital management, we remain confident in achieving our full year free cash flow guidance, which as a reminder yields a free cash flow conversion rate in excess of 110%. Now, I'd like to turn the call back over to Lynn to continue with our prepared remarks. Lynn?
Lynn Bamford, CEO
Thank you, Chris. As we have discussed today, Curtiss-Wright is well positioned to deliver strong results in 2023. Our A&D and commercial markets each generated a book-to-bill in excess of 1.1 times in the first quarter adding to our growing backlog while providing visibility and confidence to achieve our 2023 financial guidance. Looking beyond this year's strong top line growth of 4% to 6%, the long-term prospects for Curtiss-Wright and the markets we serve remain very healthy. I'd like to review a few of those areas which we expect to positively influence our near- and long-term sales outlook. First, Curtiss-Wright is well aligned to benefit from the multiyear growth in defense markets driven by the strong bipartisan support for the US defense budget. Following the signing of the FY 2023 DoD budget in December, which reflected 10% year-over-year growth, we have continued to generate a very strong and healthy order book. More recently, the President's FY 2024 DoD budget request of $842 billion reflected an increase of approximately 3% over the FY 2023 enacted amount. Within this legislation, we are well aligned to benefit from the strong support for growth in US aircraft and Navy platforms, as well as the modernization of the US Army and Marine Corps fighting vehicles. Initial indications suggest that the final appropriated budget will likely grow to a higher level to minimally cover inflation while addressing the continued rise in global threats. However, we understand the likelihood that we could be faced with another potentially linked continuing resolution before the FY 2024 budget is enacted. Should that occur, Curtiss-Wright is well-positioned to deliver on a growing order book and healthy backlog, and when combined with our expectations for further stabilization in the defense electronic supply chain, it should provide some insulation from any temporary funding delays. Regarding the AUKUS joint submarine program, while the decision to supply up to five Virginia-class submarines to Australia was lower than initial expectations, the resulting increase in funding combined with the emerging ramp in Columbia submarine production is expected to drive sustained naval defense revenue growth for Curtiss-Wright well into the next decade. Beyond that, the expectation for an overall increase in global defense spending from our NATO allies supports our long-term growth outlook across our defense end markets. Next in Commercial Aerospace, we continue to remain aligned with our customers and the expected production rate increases from Boeing and Airbus over the next several years should drive steady growth for Curtiss-Wright. We are also well positioned for long-term growth in our Commercial Nuclear businesses, supporting the drive for carbon-free energy and energy independence. This includes nuclear innovation and safety within the existing nuclear infrastructure and the build-out of next-generation advanced reactors, which continue to receive strong development funding. In addition, we remained enthusiastic about the growing list of potential new Westinghouse AP1000 power plants expected to be built in Eastern Europe. Regarding our industrial markets, we maintained strong alignment to the favorable long-term secular growth trends, including the push for commercial vehicle electrification. Along those lines, we recently secured a large contract with a leading truck OEM to provide power management and electronics that will support safe and efficient electrical vehicle performance. This represents another great example of our commitment to provide customized solutions for on- and off-highway commercial EV and hybrid vehicles. Turning to our profitability, we expect growth in operating income to once again exceed sales growth this year, which is in line with our long-term guidance, reflecting the continued execution of our Pivot to Growth strategy. We continue to drive our commercial excellence programs throughout the organization with expectations that these efforts will contribute at least 10 basis points in margin expansion in 2023 and support our overall increase of 10 to 30 basis points. Also, as mentioned previously, our 2023 outlook includes a year-over-year increase of approximately $20 million in total research and development investments, including both contract and internally funded R&D programs. Curtiss-Wright continues to deliver overall operating margin expansion while making these strategic investments to fuel future organic growth. Turning to our healthy balance sheet. Our adjusted free cash flow remains strong as we expect to generate north of 110% free cash flow conversion in 2023. While the high-interest rate environment has made capital allocation and the pursuit of high-quality acquisitions more challenging, the team remains disciplined and focused on allocating our funds to the highest and best use, including organic growth and operational investments. In closing, we continue to have line of sight to the three-year Investor Day commitments issued in 2021. We remain solidly on track to achieve total revenue CAGR in excess of 5% over the three-year period operating growth in excess of total revenue growth, implying solid margin expansion, and double-digit EPS growth. We are also tracking close to our average free cash flow conversion target. At the midpoint of our current guide, yields three-year average conversion rate, just shy of the 110%. I can assure you the team is working diligently to mitigate the ongoing supply chain pressures on our free cash flow in an effort to achieve each and every one of the targets we established. Overall, I remain confident that Curtiss-Wright is well positioned to demonstrate strong profitable growth in 2023 and deliver on our Pivot to Growth strategy to drive long-term value for our stakeholders. At this time, I would like to open up today's call for questions.
Operator, Operator
The floor is now open for questions. Our first question is coming from Kristine Liwag with Morgan Stanley. Please go ahead.
Kristine Liwag, Analyst
Hey. Good morning, everyone.
Lynn Bamford, CEO
Good morning, Kristine.
Chris Farkas, CFO
Good morning.
Kristine Liwag, Analyst
Hey. Just following up on Poland and nuclear reactors. There were some reports last month that suggest that the US may be gearing up to lend Poland $4 billion for 20 small nuclear power reactors. How does this embrace of small nuclear power reactors affect the outlook for AP1000 sales to Poland? Is this complementary? Is this competing? And then also, Poland previously indicated its deal with Westinghouse could cost $20 billion. Do you see any risk around financing for this project? And can you give us an update on how you view this opportunity?
Lynn Bamford, CEO
So, I'd start out by strongly stating that the build-out of SMR is completely complementary to the build-out of the AP1000. It's not an either/or situation. The power outputs are fairly different. So, where an AP1000 is needed, it's a much better and more economical fit than multiple SMR. So, we don't see them as competing in any way. We see them as very complementary and from what I understand of the announcement you are referring to regarding the SMR build-out in Poland, it was always framed as a complement to the plan for six large reactors stated over a year ago. So that's good. I think the funding of these projects is something we're seeing initial indications from the IMF that they are working to ensure the funding available across Eastern Europe. There are still things to be resolved with regulatory agencies in Poland, but we continue to see progress with legislation from our government to assist these countries achieve their goals for energy independence.
Kristine Liwag, Analyst
Thanks for the color. And if I could ask a second question on supply chain. Can you provide more details or metrics regarding where we are and how the problem has evolved? And what we need to see for inventory pressures to alleviate?
Lynn Bamford, CEO
Yes. The area that has remained the most problematic through 2022 is obviously the Defense Electronics segment and the complex components we use, especially in electronic components across the organization. However, those teams have mitigated the pressures from the supply chain and continue to work on redesigning components that are more readily available, though that option is not feasible in the complex electronics for defense platforms. That remains the focus of our efforts as we analyze the supply chain. While there are other pressures with raw materials and other aspects, we are certainly proud of our teams for managing through those issues. In electronics, we monitor components lead times, supplier on-time delivery, and our ability to engage with suppliers to resolve issues. Across the board, we observed a positive trend, although not dramatic in Q1, but we did see improvements in various metrics. We are experiencing stronger commitments from key suppliers to begin to return to manageable lead times, although we're not yet back to the levels seen in 2019, where lead times were typically 10 to 14 weeks at the longest. We are starting to feel a change in our engagement with the supply base. We remain cautiously optimistic regarding our guide in the Defense Electronics segment, understanding that variability remains with our component supply.
Chris Farkas, CFO
Specifically, Kristine, we are targeting a $50 million reduction in inventory by year-end. We have specific inventory burn-down plans for segments most impacted by supply chain challenges, and we're monitoring those plans closely. It requires enhanced focus on our forecasting, planning, and purchasing processes to execute successfully. We have invested in supply chain analytical tools that give us more real-time visibility and recommendations for managing inventory levels. Where we lack new tools, we are enhancing our focus to align material deliveries with our new orders and shipment demands more closely. So, at a higher level, across our entire business, our strong order book is providing opportunities to reduce inventory at an accelerated pace, and we are optimistic about our ability to improve cash flow.
Kristine Liwag, Analyst
Great. Thanks for the color, guys.
Lynn Bamford, CEO
Thank you.
Operator, Operator
The next question comes from Peter Arment with Baird. Please go ahead.
Peter Arment, Analyst
Yes. Good morning, Lynn, Chris, Jim. Chris, on the defense electronics, the margin guidance after the first quarter print implies mid-20s operating margin for the rest of the year. It's a significant increase, but you guys have had performance like that before. Could you talk a little about the factors that give you confidence in that guide? Thanks.
Chris Farkas, CFO
Yes, sure. It’s essential to note what transpired in Q1. As we've discussed on prior calls, changes in sales volumes can disproportionately affect quarterly margins versus full year margins. Typically, for the entire year, our incremental margins range from 25% to 30%, absent increases in R&D investment or other factors. In this first quarter, we faced significant changes in mix due to component availability. While revenues increased, certain businesses experienced lower component-related output, resulting in pockets of under-absorption. For 2023, we expect Q1 will be our lowest revenue quarter for defense electronics. As revenue improves throughout the year, absorption will likewise enhance. We expect the full year incremental margins to revert to our typical range due to improved supply chain dynamics and a deeper understanding of our material commitments.
Peter Arment, Analyst
That’s very helpful color. And then just switching over, Lynn, the nuclear aftermarket is showing strong performance. Can you talk about some trends you are observing in plant life extensions and its impact on your business, and how sustainable you think this growth is? Thanks.
Lynn Bamford, CEO
Yes. Exactly, that’s the driving factor. Our teams often don’t have clear visibility to determine whether work is traditional maintenance or associated with plant life extensions, as those processes overlap. Nonetheless, advancements to extend reactor operation from 60 to 80 years are influencing growth. I believe this trend is sustainable well into the next decade and even beyond. It's still early days with only about one-third of the 90 plants in the U.S. having achieved licensing extensions, but the pace will pick up in the middle and back of this decade as other plants reach their license periods.
Peter Arment, Analyst
Okay. Thanks, Lynn.
Lynn Bamford, CEO
Thank you, Peter.
Operator, Operator
The next question comes from Myles Walton with Wolfe Research. Please go ahead.
Myles Walton, Analyst
Thanks. Good morning. I was hoping to go back to defense electronics for clarification. Is it right to read that FX was actually a benefit to margins in the quarter? So, the year-on-year decline is closer to 300 basis points. I understand mix can be very volatile here, but I also think it's a little bit of a volume-based business in some of your embedded computers markets. Is that not where the growth came from, and therefore we didn't see the benefit?
Chris Farkas, CFO
No, FX wasn't a significant factor this quarter. We saw a minimal impact on sales in Q1, under $1 million, and operating income was nearly unaffected as well. The key factors revolve around component availability and how they affected different businesses. Our high-margin revenues decreased, while the revenues from lower-margin systems increased. A few businesses fell short of output needed for absorption, but we expect that to improve deeper into the year.
Myles Walton, Analyst
Okay. And there was an exhibit in your press release showing an FX impact on operating income, but I can circle back with Jim. Lynn, regarding the Industrial business, any signs— it sounds like good orders across the board. Can you provide more insight into the industrial order pipeline and any signs of slowdown or customer hesitation?
Lynn Bamford, CEO
Overall, we’re still confident about what we see in our industrial order pipeline. This continues to be a watch item for us as we remain close with our customers. I will mention that in vehicle end markets, orders have slowed a bit since last year, but they are still above 2021 levels. We're observing that as lead times lower, customers are adjusting orders slightly to manage inventory. While there may be a slight sluggishness in Q2, we expect a return to previous levels for Q3 and Q4. Additionally, our surface technologies business is continuing to perform strongly. However, we are cautiously considering this as we maintain our guidance for the year.
Myles Walton, Analyst
Okay, all right. Thank you.
Lynn Bamford, CEO
Thank you.
Operator, Operator
And the next question comes from Michael Ciarmoli with Truist Securities. Please go ahead.
Michael Ciarmoli, Analyst
Hey. Good morning, guys. Thanks for taking the questions. Lynn or Chris, can you break down the supply chain dynamics? I think you mentioned you were optimistic about the aero defense side of the supply chain, but cautious about growth in ground defense. Can you clarify that? Are these different products yielding better visibility or what's the situation?
Chris Farkas, CFO
Yes, they are slightly different products, Mike, supporting those separate markets. In ground defense, there are specific components like routers and switches whereas in aerospace defense, we deal with more complex electronics. Fortunately, we're receiving good inventory volumes that enable us to convert on our strong backlog. Although there are higher-margin costs in Aerospace that we benefit from, we’ve been assessing material availability and vendor stability. We feel confident, looking forward, will enhance margins as we navigate deeper into the year.
Michael Ciarmoli, Analyst
Okay, fair enough. Lynn, you mentioned AUKUS and the five subs. Have you seen any funding there yet? I was under the impression that there was a push to get back to two per year. Australia mentioned total cost estimates with significant contingency funding, but I haven’t seen much progression. Could you elaborate on AUKUS, and when you think that will translate into revenue for you?
Lynn Bamford, CEO
Information flow has been slow. Although announcements were made in March, many details remain unclear. Currently, we have not seen any funding flowing from that yet. We’re just beginning engagements. That said, the announcement was for three Virginia-class subs with an option for two, and we are consistently producing at the rate of two Virginia-class subs a year, which is stable for our business. They also allocated reasonable funding for strengthening the supply chain and we are waiting for significant engagement for further clarity. Perhaps revenue could materialize by 2024 or 2025, but progress has been slow.
Michael Ciarmoli, Analyst
Okay. And lastly for me, there was strong growth in commercial aero in the quarter, focused on Airbus platforms. However, the full-year outlook seems to show a deceleration in growth despite Boeing and Airbus ramping up. Is there conservatism here? Was there a pull forward that satisfied increased demand?
Chris Farkas, CFO
We started strong in commercial aero in the first quarter, with orders up 24% for the year. Sales in Q1 increased 16%. This growth largely stemmed from Aerospace and Industrial, complemented by avionics. While we forecast 5% to 7% growth and 7% to 9% when excluding FX, that rate remains strong, with OEM growth high-single-digit to low-double-digit. The aftermarket remains relatively flat year-over-year. We believe the outlook encompasses our cautious approach regarding potential supply chain risks that could modify our operations.
Michael Ciarmoli, Analyst
Okay. That’s helpful. Perfect. Thanks, guys. I’ll go back in the queue.
Lynn Bamford, CEO
Thanks, Mike.
Operator, Operator
The next question comes from Tony Bancroft with Gabelli Funds. Please go ahead.
Tony Bancroft, Analyst
Everyone, thanks for taking my question. I had a question about the strong performance from the Arresting Systems acquisition. Are there any other similar acquisitions in the pipeline? Can you provide an overview of seller's expectations?
Lynn Bamford, CEO
Thank you for that question. We are very pleased with the performance of our Arresting Systems business. They've been securing a steady stream of double-digit million multi-year contracts globally, driving healthy growth. Their 2022 revenues were around $75 million, and we're anticipating minimal mid-single-digit growth. This acquisition exemplifies our sweet spot at Curtiss-Wright, allowing us to leverage our supply chain, lean initiatives, and business development strengths. While we have passed on several acquisitions this year due to not meeting our strategic or financial filters, we are actively working with banking connections to seek relevant acquisitions and ensuring we maintain a steady acquisition pace.
Tony Bancroft, Analyst
Very helpful. Thank you. Great quarter, Lynn, Chris, and Jim. I appreciate it.
Lynn Bamford, CEO
Thank you.
Chris Farkas, CFO
Yes, thanks.
Operator, Operator
The next question comes from Nathan Jones with Stifel. Please go ahead.
Adam Farley, Analyst
Good morning. This is Adam Farley on for Nathan.
Chris Farkas, CFO
Hey, Adam.
Adam Farley, Analyst
I wanted to follow up on the new orders. I know you've mentioned a strong increase and good additional color, but are there any end markets showing particular acceleration or deceleration? Has order growth continued at a similar rate into April?
Chris Farkas, CFO
The book-to-bill in Q1 was solid, just above 1.1 times sales. Just a reminder, our Q1 sales were up 13%, with orders exceeding that sales conversion. Our orders were up by $85 million in total, and our backlog is up 3% year-to-date. We continue to observe positive order trends in aerospace and defense, particularly in aerospace and ground, along with many commercial markets in both process and nuclear. Orders in commercial aerospace have been robust, with growth rates remaining high. Demand in process and nuclear is also trending positively, and our Defense Electronics order book is up 47% year-over-year, sustaining strong order levels.
Adam Farley, Analyst
Thank you for taking my questions.
Lynn Bamford, CEO
Thank you.
Operator, Operator
The next question comes from Myles Walton with Wolfe Research. Please go ahead.
Myles Walton, Analyst
Thanks for taking the follow-up. Just a clarification— I believe you stated 40% would compose the first half of the year’s EPS allocation, up from last quarter’s mid-teens guidance. Additionally, could you highlight areas of upside from that quarter against expectations? Thanks.
Chris Farkas, CFO
Yes, when considering the first quarter, we surpassed expectations. We’ve tempered our approach amid uncertainties related to electronic components. The Defense Electronics group performed strongly, and we're seeing promising results driven by a robust order book. It's prudent to maintain a cautious stance even as we reflect positively on our current outlook.
Myles Walton, Analyst
Alright, thank you.
Operator, Operator
There are no further questions at this time. I will now turn the floor over to Lynn Bamford, Chair and Chief Executive Officer, for additional closing remarks. Please go ahead.
Lynn Bamford, CEO
Thank you all for joining us today. We look forward to speaking with you again during our second quarter 2023 earnings conference call. Have a great day.
Operator, Operator
Thank you. This concludes today's Curtiss-Wright first quarter 2023 earnings conference call. Please disconnect your line at this time and have a wonderful day.