Moog Inc. Reports Third Quarter 2023 Results With Record Sales And Increases Full-Year Earnings Per Share Guidance
07/28/2023 - 07:55 AM
EAST AURORA, N.Y. --(BUSINESS WIRE)--
Moog Inc. (NYSE: MOG.A and MOG.B), a worldwide designer, manufacturer and systems integrator of high-performance precision motion and fluid controls and controls systems, today reported third quarter 2023 diluted earnings per share of $1.32 $1.37
(in millions, except per share results)
Q3 2023
Q3 2022
Deltas
Net sales
$
850
$
773
10
%
Operating margin
9.9
%
10.3
%
-40 bps
Adjusted operating margin
10.2
%
10.5
%
-30 bps
Diluted net earnings per share
$
1.32
$
1.57
(16
)%
Adjusted diluted net earnings per share
$
1.37
$
1.61
(15
)%
Adjusted free cash flow
$
(19
)
$
(18
)
$
(2
)
See the reconciliations of adjusted financial results to reported results included in the financial statements herein for the quarters ended July 1, 2023 and July 2, 2022.
Quarter Highlights
Net sales were $850 million 10% compared to the third quarter from a year ago, with increases across all three reporting segments. Excluding divestitures, sales increased 11% .
Adjusted operating margin of 10.2% decreased from 10.5% as compared to a year ago. We incurred additional charges on space vehicle development programs of 150 basis points. This pressure was mostly offset by incremental profit from our initiatives and higher sales volumes.
Adjusted diluted earnings per share decreased 15% , as higher interest and corporate expenses were partially offset by increased operating profit.
Free cash flow use in the third quarter resulted from growth in net working capital balances, in particular physical inventories.
"Our second consecutive quarter of record sales was a great achievement for our entire staff," said Pat Roche, CEO. "We are starting to see the benefits from our simplification and pricing initiatives feeding through in our operational performance."
Segment Results
Aircraft Controls sales in the third quarter of 2023 increased 12% compared to the third quarter of 2022. Sales for commercial OEM programs increased 47% , to $126 million 14% due to higher spares volume, primarily on the Airbus A350 program. Military OEM sales were down 6% reflecting lower funded development activity. Adjusted operating margin was 10.9% , a 10 bps decrease, as the incremental operating profit from higher sales volume was offset by an unfavorable sales mix.
Space and Defense Controls sales increased 8% in the third quarter of 2023, and increased 11% after adjusting for the divestiture of the security business last year. The ramp to full-rate production for our reconfigurable turret program and the increased activity in the avionics business drove the sales increase. Adjusted operating margin was 7.8% , down from last year’s third quarter margin of 11.4% . We incurred $14 million
Industrial Systems sales increased 9% . Excluding last year’s sonar business divestiture, sales increased 11% . The underlying sales growth was driven by the continued recovery in industrial automation programs, as well as higher demand for flight simulation systems. Also, adjusting for last year’s divestiture, energy sales increased. Adjusted operating margin of 11.5% increased from last year's third quarter margin of 8.7% . Benefits of our pricing initiatives drove the increase in margin.
Free Cash Flow Results
Free cash flow in the third quarter was a use of cash of $19 million $35 million
2023 Financial Guidance
“Compared to a quarter ago, we are increasing our guidance for sales, adjusted operating profit and adjusted earnings per share, while modifying operating margin down slightly," said Jennifer Walter, CFO. "Overall, we had a solid third quarter and our outlook for the fourth quarter looks strong." Free cash flow guidance is now a use of $60 million
(in millions, except per share results)
FY 2023 Guidance
Current
Previous
Net sales
$
3,250
$
3,190
Operating margin
11.0
%
11.1
%
Adjusted operating margin
10.9
%
11.0
%
Diluted net earnings per share
$
5.82
$
5.81
Adjusted diluted net earnings per share
$
5.75
$
5.70
Free cash flow
$
(60
)
$
—
Earnings per share figures are forecasted to be within range of +/- $0.10
Conference call information
In conjunction with today’s release, Moog Inc. will host a conference call today beginning at 10:00 a.m. ET, which will be broadcast live over the Internet. Pat Roche, CEO, and Jennifer Walter, CFO, will host the call. Listeners can access the call live or in replay mode at www.moog.com/investors/communications . Supplemental financial data will be available on the webcast web page 90 minutes prior to the conference call.
Cautionary Statement
Information included or incorporated by reference in this press release that does not consist of historical facts, including statements accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “approximate,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,” are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. In evaluating these forward-looking statements, you should carefully consider the factors set forth below.
Although it is not possible to create a comprehensive list of all factors that may cause actual results to differ from the results expressed or implied by our forward-looking statements or that may affect our future results, some of these factors and other risks and uncertainties that arise from time to time are described in Item 1A “Risk Factors” of our Annual Report on Form 10-K and in our other periodic filings with the SEC and include the following:
Strategic risks
We operate in highly competitive markets with competitors who may have greater resources than we possess;
Our research and development and innovation efforts are substantial and may not be successful, which could reduce our sales and earnings;
If we are unable to adequately enforce and protect our intellectual property or defend against assertions of infringement, our business and our ability to compete could be harmed; and
Our sales and earnings may be affected if we cannot identify, acquire or integrate strategic acquisitions, or as we conduct divestitures.
Market condition risks
The markets we serve are cyclical and sensitive to domestic and foreign economic conditions and events, which may cause our operating results to fluctuate;
We depend heavily on government contracts that may not be fully funded or may be terminated, and the failure to receive funding or the termination of one or more of these contracts could reduce our sales and increase our costs;
The loss of The Boeing Company or Lockheed Martin as a customer or a significant reduction in sales to either company could adversely impact our operating results; and
We may not realize the full amounts reflected in our backlog as revenue, which could adversely affect our future revenue and growth prospects.
Operational risks
A reduced supply, as well as inflated prices, across various raw materials and third-party provided components and sub-assemblies within our supply chain could have a material impact on our ability to manufacture and ship our products, in addition to adversely impacting our operating profit and balance sheet;
We face various risks related to health pandemics, such as the COVID-19 pandemic, which have had material adverse consequences on our operations, financial position, cash flows, and those of our customers and suppliers;
If our subcontractors or suppliers fail to perform their contractual obligations, our prime contract performance and our ability to obtain future business could be materially and adversely impacted;
We face, and may continue to face, risks related to information systems interruptions, intrusions or new software implementations, which may adversely affect our business operations;
We may not be able to prevent, or timely detect, issues with our products and our manufacturing processes, which may adversely affect our operations and our earnings; and
The failure or misuse of our products may damage our reputation, necessitate a product recall or result in claims against us that exceed our insurance coverage, thereby requiring us to pay significant damages.
Financial risks
We make estimates in accounting for over-time contracts, and changes in these estimates may have significant impacts on our earnings;
We enter into fixed-price contracts, which could subject us to losses if we have cost overruns;
Our indebtedness and restrictive covenants under our credit facilities and indenture governing our senior notes could limit our operational and financial flexibility;
Significant changes in discount rates, rates of return on pension assets, mortality tables and other factors could adversely affect our earnings and equity and increase our pension funding requirements;
A write-off of all or part of our goodwill or other intangible assets could adversely affect our operating results and net worth; and
Unforeseen exposure to additional income tax liabilities may affect our operating results.
Legal and compliance risks
Contracting on government programs is subject to significant regulation, including rules related to bidding, billing and accounting standards, and any false claims or non-compliance could subject us to fines, penalties or possible debarment;
Our operations in foreign countries expose us to currency, political and trade risks and adverse changes in local legal and regulatory environments could impact our results of operations;
Government regulations could limit our ability to sell our products outside the United States and otherwise adversely affect our business;
We are involved in various legal proceedings, the outcome of which may be unfavorable to us;
Our operations are subject to environmental laws and complying with those laws may cause us to incur significant costs; and
We may face reputational, regulatory or financial risks from a perceived, or an actual, failure to achieve our sustainability goals.
General risks
Future terror attacks, war, natural disasters or other catastrophic events beyond our control could negatively impact our business; and
Our performance could suffer if we cannot maintain our culture as well as attract, retain and engage our employees.
While we believe we have identified and discussed above the material risks affecting our business, there may be additional factors, risks and uncertainties not currently known to us or that we currently consider immaterial that may affect the forward-looking statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. Any forward-looking statement speaks only as of the date on which it is made, and we disclaim any obligation to update any forward-looking statement made in this report, except as required by law.
Moog Inc.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended
Nine Months Ended
July 1,
2023
July 2,
July 1,
2023
July 2,
Net sales
$
850,176
$
772,911
$
2,447,071
$
2,267,784
Cost of sales
627,543
560,966
1,799,437
1,646,742
Inventory write-down
—
202
—
3,407
Gross profit
222,633
211,743
647,634
617,635
Research and development
26,502
25,890
77,107
84,318
Selling, general and administrative
121,935
113,886
351,795
336,702
Interest
17,256
9,131
45,351
25,376
Asset impairment
435
692
1,654
15,928
Restructuring
1,642
576
4,737
8,369
Gain on sale of businesses
—
—
—
(16,146
)
Gain on sale of buildings
—
—
(10,030
)
—
Other
4,525
1,759
10,077
3,143
Earnings before income taxes
50,338
59,809
166,943
159,945
Income taxes
7,951
9,400
35,527
34,184
Net earnings
$
42,387
$
50,409
$
131,416
$
125,761
Net earnings per share
Basic
$
1.33
$
1.58
$
4.13
$
3.93
Diluted
$
1.32
$
1.57
$
4.11
$
3.91
Average common shares outstanding
Basic
31,838,961
31,922,377
31,811,034
31,988,150
Diluted
32,067,391
32,067,431
31,995,340
32,125,438
Moog Inc.
RECONCILIATION TO ADJUSTED NET EARNINGS BEFORE TAXES, INCOMES TAXES, NET EARNINGS AND DILUTIVE NET EARNINGS PER SHARE (UNAUDITED)
(dollars in thousands)
Three Months Ended
Nine Months Ended
July 1,
2023
July 2,
July 1,
2023
July 2,
As Reported:
Earnings before income taxes
$
50,338
$
59,809
$
166,943
$
159,945
Income taxes
7,951
9,400
35,527
34,184
Effective income tax rate
15.8
%
15.7
%
21.3
%
21.4
%
Net earnings
42,387
50,409
131,416
125,761
Diluted net earnings per share
$
1.32
$
1.57
$
4.11
$
3.91
Loss (Gain) on Sale of Business:
Earnings before income taxes
$
—
$
—
$
—
$
(16,146
)
Income taxes
—
—
—
(4,273
)
Net earnings
—
—
—
(11,873
)
Diluted net earnings per share
$
—
$
—
$
—
$
(0.37
)
Loss (Gain) on Sale of Buildings:
Earnings before income taxes
$
—
$
—
$
(10,030
)
$
—
Income taxes
—
—
(2,086
)
—
Net earnings
—
—
(7,944
)
—
Diluted net earnings per share
$
—
$
—
$
(0.25
)
$
—
Other Charges:
Earnings before income taxes
$
2,077
$
1,470
$
7,440
$
27,704
Income taxes
452
364
1,652
6,602
Net earnings
1,625
1,106
5,788
21,102
Diluted net earnings per share
$
0.05
$
0.03
$
0.18
$
0.66
As Adjusted:
Earnings before income taxes
$
52,415
$
61,279
$
164,353
$
171,503
Income taxes
8,403
9,764
35,093
36,513
Effective income tax rate
16.0
%
15.9
%
21.4
%
21.3
%
Net earnings
44,012
51,515
129,260
134,990
Diluted net earnings per share
$
1.37
$
1.61
$
4.04
$
4.20
The diluted net earnings per share associated with the adjustments in the table above may not reconcile when totaled due to rounding.
Results shown above have been adjusted to exclude impacts associated with the sale of our Navigation Aids business formerly in Aircraft Controls, sale of buildings formerly used in Industrial Systems, as well as, restructuring, inventory write-downs and other charges related to the impact of continued portfolio shaping activities and the Ukraine crisis. While management believes that these adjusted financial measures may be useful in evaluating the financial condition and results of operations of the Company, this information should be considered supplemental and is not a substitute for financial information prepared in accordance with GAAP.
Moog Inc.
CONSOLIDATED SALES AND OPERATING PROFIT (UNAUDITED)
(dollars in thousands)
Three Months Ended
Nine Months Ended
July 1,
2023
July 2,
July 1,
2023
July 2,
Net sales:
Aircraft Controls
$
355,025
$
318,017
$
1,012,288
$
932,602
Space and Defense Controls
242,402
223,644
706,040
654,849
Industrial Systems
252,749
231,250
728,743
680,333
Net sales
$
850,176
$
772,911
$
2,447,071
$
2,267,784
Operating profit:
Aircraft Controls
$
37,888
$
34,453
$
99,468
$
88,809
10.7
%
10.8
%
9.8
%
9.5
%
Space and Defense Controls
18,585
25,368
66,386
70,742
7.7
%
11.3
%
9.4
%
10.8
%
Industrial Systems
28,035
19,484
89,183
57,398
11.1
%
8.4
%
12.2
%
8.4
%
Total operating profit
84,508
79,305
255,037
216,949
9.9
%
10.3
%
10.4
%
9.6
%
Deductions from operating profit:
Interest expense
17,256
9,131
45,351
25,376
Equity-based compensation expense
2,356
2,169
8,121
6,747
Non-service pension expense
3,124
1,442
9,338
4,399
Corporate and other expenses, net
11,434
6,754
25,284
20,482
Earnings before income taxes
$
50,338
$
59,809
$
166,943
$
159,945
Moog Inc.
RECONCILIATION TO ADJUSTED OPERATING PROFIT AND MARGINS (UNAUDITED)
(dollars in thousands)
Three Months Ended
Nine Months Ended
July 1,
2023
July 2,
July 1,
2023
July 2,
Aircraft Controls operating profit - as reported
$
37,888
$
34,453
$
99,468
$
88,809
Inventory write-down
—
202
—
202
Asset impairment
435
—
1,435
—
Gain on sale of business
—
—
—
(16,146
)
Restructuring and other
275
456
275
19,282
Aircraft Controls operating profit - as adjusted
$
38,598
$
35,111
$
101,178
$
92,147
10.9
%
11.0
%
10.0
%
9.9
%
Space and Defense Controls operating profit - as reported
$
18,585
$
25,368
$
66,386
$
70,742
Inventory write-down
—
—
—
1,500
Restructuring and other
273
87
1,773
1,924
Space and Defense Controls operating profit - as adjusted
$
18,858
$
25,455
$
68,159
$
74,166
7.8
%
11.4
%
9.7
%
11.3
%
Industrial Systems operating profit - as reported
$
28,035
$
19,484
$
89,183
$
57,398
Inventory write-down
—
—
—
1,705
Gain on sale of buildings
—
—
(10,030
)
—
Restructuring and other
1,094
725
3,957
3,091
Industrial Systems operating profit - as adjusted
$
29,129
$
20,209
$
83,110
$
62,194
11.5
%
8.7
%
11.4
%
9.1
%
Total operating profit - as adjusted
$
86,585
$
80,775
$
252,447
$
228,507
10.2
%
10.5
%
10.3
%
10.1
%
Moog Inc.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
July 1,
2023
October 1,
ASSETS
Current assets
Cash and cash equivalents
$
122,512
$
103,895
Restricted cash
2,892
15,338
Receivables, net
1,168,186
990,262
Inventories, net
710,252
588,466
Prepaid expenses and other current assets
52,833
60,349
Total current assets
2,056,675
1,758,310
Property, plant and equipment, net
795,994
668,908
Operating lease right-of-use assets
63,259
69,072
Goodwill
829,220
805,320
Intangible assets, net
79,680
85,410
Deferred income taxes
9,549
8,630
Other assets
47,866
36,191
Total assets
$
3,882,243
$
3,431,841
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current installments of long-term debt
$
696
$
916
Accounts payable
245,458
232,104
Accrued compensation
83,628
93,141
Contract advances and progress billings
366,766
296,899
Accrued liabilities and other
206,903
215,376
Total current liabilities
903,451
838,436
Long-term debt, excluding current installments
1,012,080
836,872
Long-term pension and retirement obligations
150,953
140,602
Deferred income taxes
42,239
63,527
Other long-term liabilities
152,336
115,591
Total liabilities
2,261,059
1,995,028
Shareholders’ equity
Common stock - Class A
43,807
43,807
Common stock - Class B
7,473
7,473
Additional paid-in capital
594,022
516,123
Retained earnings
2,466,012
2,360,055
Treasury shares
(1,058,558
)
(1,047,012
)
Stock Employee Compensation Trust
(109,759
)
(73,602
)
Supplemental Retirement Plan Trust
(86,979
)
(58,989
)
Accumulated other comprehensive loss
(234,834
)
(311,042
)
Total shareholders’ equity
1,621,184
1,436,813
Total liabilities and shareholders’ equity
$
3,882,243
$
3,431,841
Moog Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Nine Months Ended
July 1,
2023
July 2,
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings
$
131,416
$
125,761
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation
56,780
56,169
Amortization
8,725
9,998
Deferred income taxes
(26,680
)
7,644
Equity-based compensation expense
8,121
6,747
Gain on sale of business
—
(16,146
)
Gain on sale of buildings
(10,030
)
—
Asset impairment and inventory write-down
1,654
19,335
Other
5,083
4,960
Changes in assets and liabilities providing (using) cash:
Receivables
(163,259
)
(58,668
)
Inventories
(102,782
)
(6,778
)
Accounts payable
8,514
27,184
Contract advances and progress billings
65,746
35,867
Accrued expenses
(30,697
)
(24,066
)
Accrued income taxes
21,568
7,692
Net pension and post retirement liabilities
11,199
13,490
Other assets and liabilities
(2,455
)
(24,925
)
Net cash provided (used) by operating activities
(17,097
)
184,264
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired
—
(11,837
)
Purchase of property, plant and equipment
(125,074
)
(106,713
)
Net proceeds from businesses sold
959
35,550
Net proceeds from buildings sold
19,702
—
Other investing transactions
(9,482
)
(2,267
)
Net cash used by investing activities
(113,895
)
(85,267
)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving lines of credit
711,732
661,675
Payments on revolving lines of credit
(536,826
)
(629,251
)
Payments on long-term debt
(219
)
(80,273
)
Payments on finance lease obligations
(3,449
)
(1,779
)
Payment of dividends
(25,459
)
(24,653
)
Proceeds from sale of treasury stock
12,765
10,792
Purchase of outstanding shares for treasury
(23,133
)
(30,485
)
Proceeds from sale of stock held by SECT
9,863
7,586
Purchase of stock held by SECT
(10,035
)
(11,484
)
Other financing transactions
(2,026
)
—
Net cash provided (used) by financing activities
133,213
(97,872
)
Effect of exchange rate changes on cash
3,950
(6,175
)
Increase (decrease) in cash, cash equivalents and restricted cash
6,171
(5,050
)
Cash, cash equivalents and restricted cash at beginning of period
119,233
100,914
Cash, cash equivalents and restricted cash at end of period
$
125,404
$
95,864
Moog Inc.
RECONCILIATION OF NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES TO FREE CASH FLOW AND ADJUSTED FREE CASH FLOW (UNAUDITED)
(dollars in thousands)
Three Months Ended
Nine Months Ended
July 1,
2023
July 2,
July 1,
2023
July 2,
Net cash provided (used) by operating activities
$
15,919
$
4,067
$
(17,097
)
$
184,264
Purchase of property, plant and equipment
(35,331
)
(32,626
)
(125,074
)
(106,713
)
Free cash flow
(19,412
)
(28,559
)
(142,171
)
77,551
Securitization
—
10,900
—
(89,100
)
Adjusted free cash flow
$
(19,412
)
$
(17,659
)
$
(142,171
)
$
(11,549
)
Amounts may not reconcile when totaled due to rounding.
Free cash flow is defined as net cash provided (used) by operating activities less capital expenditures. Adjusted free cash flow is defined as free cash flow adjusted for securitization activity. The securitization under GAAP reduced 2022 receivables and net debt and increased cash flow from operations. Free cash flow and adjusted free cash flow are not measures determined in accordance with GAAP and may not be comparable with the measures as used by other companies, however management believes these adjusted financial measures may be useful in evaluating the financial condition and results of operations of the Company. This information should be considered supplemental and is not a substitute for financial information prepared in accordance with GAAP.
View source version on businesswire.com: https://www.businesswire.com/news/home/20230728688581/en/
Investor Relations - 716.687.4225
Source: Moog Inc.
