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 and adjusted
diluted earnings per share of $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, an increase of 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, matching the pre-pandemic
sales levels. The year-over-year increase was driven by the
continued market recovery in widebody aircraft and business jet
activity. Commercial aftermarket increased 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 of
additional charges on our space vehicle development programs in the
quarter, which masked the benefits associated with higher sales and
improvements in the core business.
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. Working capital pressure was primarily due to growth in
physical inventories, as we've maintained material flow to ensure
we meet our customers' deliveries while working through various
constraints. Capital expenditures were $35 million in the
quarter.
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, reflecting the third quarter growth in
physical inventories.
(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, 2022
July 1, 2023
July 2, 2022
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, 2022
July 1, 2023
July 2, 2022
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, 2022
July 1, 2023
July 2, 2022
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, 2022
July 1, 2023
July 2, 2022
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, 2022
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, 2022
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, 2022
July 1, 2023
July 2, 2022
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.
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