Curtiss-Wright's ROIC: A Glimmer of Caution in an Otherwise Strong Run

Investors often judge a company’s capital allocation prowess by its return on invested capital (ROIC). For Curtiss-Wright (NYSE:CW), a leader in aerospace and defense technologies, recent data suggests a nuanced story: while ROIC has trended upward since 2020, a slight dip in early 2025 raises questions about whether the company can sustain its outperformance.

The ROIC Journey: Progress Amid Volatility

Curtiss-Wright’s ROIC has climbed steadily from 8.12% in 2020 to a peak of 10.26% in 2024, fueled by operational efficiency and strategic investments in high-margin markets like naval defense and defense electronics. However, the first quarter of 2025 brought a modest decline to 9.83%, narrowing the spread over its weighted average cost of capital (WACC) of 9.19%.

This dip, while concerning on a quarterly basis, does not yet signal a systemic problem. The trailing twelve months (TTM) ROIC remains at 10.48%, comfortably above WACC. Yet, the quarterly softness underscores the challenges of managing capital in cyclical industries.

The Drivers: Where Curtiss-Wright Excels—and Stumbles

The company’s strength lies in its two core segments: Naval & Power Systems and Defense Electronics.

1. Naval & Power Systems:
   This segment is the engine of growth. In Q1 2025, it secured record $1.0 billion in new orders, driven by U.S. submarine programs like the Virginia-class and Columbia-class nuclear deterrent. Revenue surged 18% year-over-year, with operating margins expanding to 16.6%—a testament to the segment’s scale and pricing power.

1. Defense Electronics:
   Here, ROIC rose sharply from 22.7% in 2023 to 27.5% in 2024, benefiting from strong demand for embedded computing systems in defense and aerospace. The segment’s performance highlights Curtiss-Wright’s ability to monetize proprietary technology in niche markets.

The Near-Term Headwinds

The Q1 2025 ROIC dip, however, reflects execution risks. While naval programs are critical, their long lead times and government funding cycles introduce volatility. For instance, delays in Columbia-class submarine production—due to supply chain bottlenecks or budgetary hurdles—could slow revenue recognition. Additionally, capital investments, such as expanding manufacturing capacity, may temporarily weigh on returns.

The Bottom Line: A Solid Foundation, But Monitor Closely

Curtiss-Wright’s long-term trajectory remains compelling. The company has consistently generated excess returns (ROIC > WACC) since 2021, a key driver of shareholder value. Its 2024 operating margin expansion (up 260 basis points to 16.6%) and disciplined capital allocation—evident in its 10.26% ROIC peak—reinforce its competitive edge.

Yet, investors should remain vigilant. The TTM ROIC of 10.48% is still robust, but a sustained drop below 10% could pressure valuation multiples. Key metrics to watch:
- Naval Defense Order Backlog: Current at $4.5 billion, but new contract awards must offset project delays.
- Capital Efficiency: Average invested capital rose 9.8% year-over-year to $4.3 billion in Q1 2025—returns must keep pace.
- Margin Resilience: Foreign currency tailwinds and cost controls have bolstered margins, but inflationary pressures could test these gains.

Conclusion: A Story of Balance

Curtiss-Wright is not in distress, but its recent ROIC softness serves as a reminder that no company is immune to cyclical headwinds. With ROIC still above WACC and a backlog fueled by defense spending tailwinds, the long-term narrative remains intact.

The data is clear: over the past five years, Curtiss-Wright’s ROIC has grown at a 7.8% annualized rate, outpacing its WACC by an average of 1.4 percentage points. This excess return has translated into a 180% total return for investors since 2020—a performance that even the Q1 dip cannot erase.

For now, Curtiss-Wright remains a prime example of how strategic focus on high-margin niches can drive value. But as naval programs evolve and capital investments climb, the company must continue proving that its ROIC can weather short-term turbulence. Investors who bet on this story should do so with an eye on execution—and a tolerance for the occasional hiccup.