- Net Sales: $848 million, an increase of 6% year-over-year.
- Earnings Per Share (EPS): $1.63, compared to $1.37 in the prior year.
- Aerospace Segment Sales: $518 million, an increase of 8% year-over-year.
- Commercial OEM Sales: Up 2% year-over-year.
- Commercial Aftermarket Sales: Up 19% year-over-year.
- Defense OEM Sales: Down 4% year-over-year.
- Defense Aftermarket Sales: Up 22% year-over-year.
- Aerospace Segment Earnings: $102 million or 19.7% of segment sales, compared to $83 million or 17.3% of segment sales.
- Industrial Segment Sales: $330 million, an increase of 3% year-over-year.
- Power Generation Sales: Up 8% year-over-year.
- Transportation Sales: Up 3% year-over-year.
- Oil and Gas Sales: Down 6% year-over-year.
- China On-Highway Sales: Flat at approximately $55 million year-over-year, with expected declines in Q4.
- Industrial Segment Earnings: $60 million or 18.1% of segment sales, compared to $58 million or 18.2% of segment sales.
- R&D Expenses: $39 million or 4.6% of sales, compared to $35 million or 4.4% of sales.
- SG&A Expenses: $74 million or 8.7% of sales, compared to $65 million or 8.1% of sales.
- Effective Tax Rate: 16.4%, compared to 20% in the prior year.
- Net Cash Provided by Operating Activities: $297 million for the first nine months, compared to $156 million in the prior year.
- Capital Expenditures: $72 million for the first nine months, compared to $57 million in the prior year.
- Free Cash Flow: $225 million for the first nine months, compared to $98 million in the prior year.
- Adjusted Free Cash Flow: $230 million for the first nine months, compared to $103 million in the prior year.
- Leverage: 1.5 times EBITDA at the end of the third quarter.
- Shareholder Returns: $348 million returned in the form of $43 million of dividends and $305 million of share repurchases.
- 2024 Total Net Sales Guidance: Expected to be between $3.25 billion and $3.3 billion.
- 2024 Aerospace Sales Growth Guidance: 12% to 14%.
- 2024 Industrial Sales Growth Guidance: 11% to 13%.
- 2024 Adjusted Free Cash Flow Guidance: Between $300 million and $350 million.
- 2024 Adjusted Earnings Per Share Guidance: Between $5.80 and $6.00.
Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Woodward Inc (WWD, Financial) reported a 6% increase in net sales for the third quarter of 2024, reaching $848 million.
- Aerospace segment sales grew by 8%, driven by a 19% increase in commercial aftermarket sales.
- The company achieved a 200 basis points margin expansion and generated approximately $90 million of incremental free cash flow.
- Woodward Inc (WWD) has invested in rapid complex machining centers to support suppliers and improve supply chain resilience.
- The company is making significant strides in innovation, including advanced hydraulic controls for Boeing's X-66 project and high-temperature fuel control systems for next-generation aircraft engines.
Negative Points
- Defense OEM sales decreased by 4%, and the China on-highway sales were flat compared to the prior year.
- The industrial segment experienced a 6% decrease in oil and gas sales, and the China on-highway orders are expected to decline further in Q4.
- Supply chain disruptions and late supplier deliveries are impacting the timing of cash collections and extending the timing to collect cash on planned deliveries.
- The company is facing challenges with inventory buildup due to lack of synchronization across the aerospace supply chain.
- Woodward Inc (WWD) revised its full-year 2024 guidance for industrial sales growth downward due to lower China on-highway orders.
Q & A Highlights
Q: Chip, Bill, you flagged airlines talking about having too much capacity in the market, especially in the US domestic market. But at the same time, GE Aerospace reported 1.3 book-to-bill for its commercial aftermarket. Can you give us any color on how your commercial aftermarket bookings have been? Is book-to-bill above 1 either in the quarter or year-to-date?
A: We don't really advertise our book-to-bill on our aftermarket. But it's strong intake in coming and strong outgoing. As you saw in our results this quarter, it was up 19% on commercial aftermarket. The capacity comments are just a little bit of cautionary tail about the growth rate might be a little bit slower. Utilization is still quite high.
Q: In late May, Boeing received a $7.5 billion order for JDAM tail kits and other components. Are you starting to see orders in support of that contract? Could any of that translate to defense revenue this year, or is it more of a FY25 thing?
A: It's getting late in our fiscal year, and these requirements take a while to flow down. We are in discussions with Boeing and other parts of the supply chain for potential increased rates, but nothing has been firmed up yet for us.
Q: Bill, can you clarify how much money the China natural gas truck business is assumed to lose in the fourth quarter?
A: At the level of 10% to 15% of revenue, it goes from a position where it is a negative impact from a margin standpoint. I won't go into the exact detail, but it is a drag on our business. The good news is that our non-China OH business will be in the 14% range.
Q: You repurchased $300 million of stock in the quarter, but the share count was actually up sequentially and you didn't change the guide on share count. Can you help me understand that?
A: We still think that the guide of 62 million shares is appropriate for the year. The $300 million of buybacks helps us to offset dilution associated with compensation programs and exercises of options.
Q: Is net pricing becoming a little more challenging in certain niches in industrial?
A: Pricing, in general, is going to be a little bit more challenging across the board as inflation tends to moderate. We have opportunities with strategic pricing of our catalogs and longer-term LTAs to come later this year and into FY25.
Q: On the power gen side, are we getting now to more of a steady state rate where maybe you can grow like, I don't know, two times GDP in power gen?
A: In the short to medium term, that logic comparison works. Longer term, we might be facing into a natural gas renaissance, especially in this computing environment and grid stability needs.
Q: Just trying to put a finer point on industrial as we think about modeling this business for into '25. Is $300 million a quarter and 13% margin the right way to model this next year?
A: We're not quite ready to talk about FY25 guidance. We like the industrial businesses that we're in and think that small to medium growth is still available. We'll try and quantify that as we get closer to FY25.
Q: Did you guys actually raise EBIT guidance this quarter?
A: At the segment level for our margin guide, we went from a range to 17.5% approximately for industrial and took our aero guidance to approximately 19%, which is at the top end of the previous guide. On the EPS guide, we took the bottom end from $5.70 up to $5.80 to $6.
Q: Have you actually seen any change in demand signals from your customers, and how are you thinking about managing your '25 to ensure there isn't too much inventory in the channel?
A: We have signals from different players in the tiers of the supply chain. We've seen some pushouts as people try to rebalance their inventories. We've seen no official overarching change to rates. We're just trying to manage it well and stay in communication.
Q: Is it fair to say that a stronger aftermarket was better, and that's what led to higher margins in aero versus the lower OE?
A: Yes, we had a mix effect of aftermarket versus OE that helped the Aerospace margins. As far as inventory, it's value stream specific and customer specific. We're paying close attention to it and communicating with our customers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
