Reports an increase in adjusted diluted
earnings per share
Reiterates full year adjusted 2023 earnings
guidance
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
first quarter 2023 diluted earnings per share of $1.44 and adjusted
diluted earnings per share of $1.25.
(in millions, except per share
results)
Q1 2023
Q1 2022
Deltas
Net sales
$
760
$
724
5
%
Operating margin
11.4
%
11.1
%
30 bps
Adjusted operating margin
10.4
%
9.1
%
130 bps
Diluted earning per share
$
1.44
$
1.44
0
%
Adjusted diluted earnings per share
$
1.25
$
1.10
14
%
Adjusted free cash flow
$
(22
)
$
31
$
(53
)
See the reconciliations of
adjusted financial results to reported results included in the
financial statements herein for the quarters ended December 31,
2022 and January 1, 2022.
Operating margin in the first
quarter of 2023 includes 100 basis points of adjustments, primarily
associated with gain on sale of buildings.
Quarter Highlights
- Net sales were $760 million in the first quarter of 2023, an
increase of 5% compared to the first quarter of 2022, reflecting
higher sales across all three segments. Net sales increased 9%
excluding the impacts of weaker foreign currencies and the lost
sales associated with divested operations.
- Adjusted operating margin of 10.4% in the first quarter of 2023
increased compared to adjusted operating margin of 9.1% in the
first quarter of 2022. The increase reflects higher sales volumes
in Industrial Systems and improved sales mix in both Aircraft
Controls and Industrial Systems.
- Adjusted diluted earnings per share increased 14% in the first
quarter of 2023 compared to the first quarter of 2022. Stronger
operating margin drove the higher earnings, partially offset by
higher interest expense.
- Consolidated twelve-month backlog was $2.3 billion, an 8%
increase from a year ago, and a 3% increase from the previous
quarter.
“I’m pleased by our strong financial performance and how our
employees, together, overcame many constraints to meet our
increased customer demand,” said Pat Roche, Chief Executive
Officer. “As the new CEO, I am very excited for the future of Moog.
We have a solid core business with positive growth drivers, and we
are creating new opportunities by entering new markets and
redefining our position in existing markets. My focus will be on
organic growth and simplifying our business to enhance margins. I’m
confident this will drive shareholder value.”
Segment Results
Aircraft Controls’ sales in the first quarter of 2023 increased
2%. Sales for commercial aftermarket programs increased
significantly, driven by market recovery in widebody programs
including the 787 and A350 programs. Partially offsetting this
growth was lower military sales in both OEM and aftermarket
programs due to the timing of activity. Adjusted operating margin
increased 110 basis points to 9.6% resulting from a favorable sales
mix along with lower research and development expenses.
Space and Defense Controls’ sales increased 5% in the first
quarter of 2023 compared to the first quarter of 2022, driven
primarily by the production ramp of the reconfigurable turret
program. Adjusted operating margin decreased 160 basis points to
9.4% as charges on space vehicle programs and supply chain
pressures continued.
Industrial Systems’ sales increased 17%, excluding both the
impacts of weaker foreign currencies and the prior year’s sales
associated with a divested business. The underlying sales growth
was most significant in industrial automation products and in
simulation and test products. Adjusted operating margin increased
more than 400 basis points to 12.3% due to incremental margin from
stronger sales as well as a favorable sales mix.
Free Cash Flow Results
Free cash flow in the first quarter of 2023 was a $22 million
use of cash. Working capital increased in the first quarter of 2023
due to continued supply chain pressures, higher production rates on
the 787 program and delayed milestones for billings. Capital
expenditures of $30 million in the first quarter of 2023 was $7
million lower than the first quarter of 2022.
2023 Financial Guidance
“It was a great start to the year from an operational
perspective. We achieved our adjusted earnings per share guidance
of $1.25 despite the negative impact from the storms in Western New
York,” said Jennifer Walter, Chief Financial Officer. “We are
reiterating our fiscal year 2023 guidance for sales, adjusted
operating margin and adjusted earnings per share. Our backlog is
strong, and our performance is on track to achieve these
results.”
(in millions, except per share
results)
FY 2023 Guidance
Current
Previous
Net sales
$
3,175
$
3,175
Operating margin
11.2
%
11.0
%
Adjusted operating margin
11.0
%
11.0
%
Diluted earnings per share
$
5.89
$
5.70
Adjusted diluted earnings per share
$
5.70
$
5.70
Free cash flow
$
100
$
130
Earnings per share figures are
forecasted to be within range of +/- $0.20.
The company lowered its fiscal year 2023 free cash flow guidance
due to an assumption change related to the previously anticipated
repeal of the R&D expense amortization law.
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
December 31,
2022
January 1, 2022
Net sales
$
760,103
$
724,086
Cost of sales
556,417
529,706
Inventory write-down
—
1,500
Gross profit
203,686
192,880
Research and development
23,862
27,708
Selling, general and administrative
113,165
111,797
Interest
13,132
7,982
Restructuring
1,078
—
Gain on sale of businesses
—
(16,146
)
Gain on sale of buildings
(9,503
)
—
Other
1,651
116
Earnings before income taxes
60,301
61,423
Income taxes
14,285
15,158
Net earnings
$
46,016
$
46,265
Net earnings per share
Basic
$
1.45
$
1.44
Diluted
$
1.44
$
1.44
Average common shares outstanding
Basic
31,746,001
32,057,399
Diluted
31,874,718
32,188,158
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
December 31,
2022
January 1, 2022
As Reported:
Earnings before income taxes
$
60,301
$
61,423
Income taxes
14,285
15,158
Effective income tax rate
23.7
%
24.7
%
Net earnings
46,016
46,265
Diluted net earnings per share
$
1.44
$
1.44
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
)
Gain on Sale of Buildings:
Earnings before income taxes
$
(9,503
)
$
—
Income taxes
(1,986
)
—
Net earnings
(7,517
)
—
Diluted net earnings per share
$
(0.24
)
$
—
Other Charges:
Earnings before income taxes
$
1,533
$
1,500
Income taxes
274
354
Net earnings
1,259
1,146
Diluted net earnings per share
$
0.04
$
0.04
As Adjusted:
Earnings before income taxes
$
52,331
$
46,777
Income taxes
12,573
11,239
Effective income tax rate
24.0
%
24.0
%
Net earnings
39,758
35,538
Diluted net earnings per share
$
1.25
$
1.10
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 the NavAids business in Aircraft
Controls, sale of buildings formerly used in Industrial Systems, as
well as, restructuring, inventory write-down 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.
RECONCILIATION OF NET CASH
PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW AND ADJUSTED
FREE CASH FLOW (UNAUDITED)
(dollars in thousands)
Three Months Ended
December 31,
2022
January 1, 2022
Net cash provided by operating
activities
$
8,083
$
157,185
Purchase of property, plant and
equipment
(30,125
)
(37,059
)
Free cash flow
(22,042
)
120,126
Securitization
—
(89,600
)
Adjusted free cash flow
$
(22,042
)
$
30,526
Amounts may not reconcile when totaled due
to rounding.
Free cash flow is defined as net cash provided 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 Q1 2022 receivables and net debt
and increased cash flow from operations. Adjusted free cash flow is
not a measure determined in accordance with GAAP and may not be
comparable with the measures as used by other companies, however
management believes this adjusted financial measure 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
December 31,
2022
January 1, 2022
Net sales:
Aircraft Controls
$
310,259
$
303,317
Space and Defense Controls
217,785
207,856
Industrial Systems
232,059
212,913
Net sales
$
760,103
$
724,086
Operating profit:
Aircraft Controls
$
29,718
$
41,915
9.6
%
13.8
%
Space and Defense Controls
20,294
21,299
9.3
%
10.2
%
Industrial Systems
36,751
17,191
15.8
%
8.1
%
Total operating profit
86,763
80,405
11.4
%
11.1
%
Deductions from operating profit:
Interest expense
13,132
7,982
Equity-based compensation expense
2,974
2,658
Non-service pension expense
3,099
1,485
Corporate and other expenses, net
7,257
6,857
Earnings before income taxes
$
60,301
$
61,423
Moog Inc.
RECONCILIATION TO ADJUSTED
OPERATING PROFIT AND MARGINS (UNAUDITED)
(dollars in thousands)
Three Months Ended
December 31,
2022
January 1, 2022
Aircraft Controls operating profit - as
reported
$
29,718
$
41,915
Gain on sale of business
—
(16,146
)
Aircraft Controls operating profit - as
adjusted
$
29,718
$
25,769
9.6
%
8.5
%
Space and Defense Controls operating
profit - as reported
$
20,294
$
21,299
Inventory write-down
—
1,500
Restructuring
176
—
Space and Defense Controls operating
profit - as adjusted
$
20,470
$
22,799
9.4
%
11.0
%
Industrial Systems operating profit - as
reported
$
36,751
$
17,191
Gain on sale of buildings
(9,503
)
—
Restructuring and other
1,357
—
Industrial Systems operating profit - as
adjusted
$
28,605
$
17,191
12.3
%
8.1
%
Total operating profit - as adjusted
$
78,793
$
65,759
10.4
%
9.1
%
Moog Inc.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands)
December 31,
2022
October 1, 2022
ASSETS
Current assets
Cash and cash equivalents
$
143,069
$
103,895
Restricted cash
22,842
15,338
Receivables, net
1,066,340
990,262
Inventories, net
648,160
588,466
Prepaid expenses and other current
assets
52,772
60,349
Total current assets
1,933,183
1,758,310
Property, plant and equipment, net
689,339
668,908
Operating lease right-of-use assets
68,653
69,072
Goodwill
822,901
805,320
Intangible assets, net
85,396
85,410
Deferred income taxes
9,300
8,630
Other assets
49,273
36,191
Total assets
$
3,658,045
$
3,431,841
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities
Current installments of long-term debt
$
822
$
916
Accounts payable
226,188
232,104
Accrued compensation
76,770
93,141
Contract advances
372,262
296,899
Accrued liabilities and other
209,624
215,376
Total current liabilities
885,666
838,436
Long-term debt, excluding current
installments
916,058
836,872
Long-term pension and retirement
obligations
146,919
140,602
Deferred income taxes
65,385
63,527
Other long-term liabilities
118,836
115,591
Total liabilities
2,132,864
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
550,511
516,123
Retained earnings
2,397,814
2,360,055
Treasury shares
(1,055,735
)
(1,047,012
)
Stock Employee Compensation Trust
(89,689
)
(73,602
)
Supplemental Retirement Plan Trust
(71,811
)
(58,989
)
Accumulated other comprehensive loss
(257,189
)
(311,042
)
Total shareholders’ equity
1,525,181
1,436,813
Total liabilities and shareholders’
equity
$
3,658,045
$
3,431,841
Moog Inc.
CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED)
(dollars in thousands)
Three Months Ended
December 31,
2022
January 1, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings
$
46,016
$
46,265
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation
18,392
19,290
Amortization
2,992
3,402
Deferred income taxes
(1,342
)
7,895
Equity-based compensation expense
2,974
2,658
Gain on sale of businesses
—
(16,146
)
Gain on sale of buildings
(9,503
)
—
Inventory write-down
—
1,500
Other
1,145
699
Changes in assets and liabilities
providing (using) cash:
Receivables
(53,957
)
38,941
Inventories
(44,435
)
7,179
Accounts payable
(9,679
)
(20,833
)
Contract advances
72,889
105,548
Accrued expenses
(35,186
)
(26,914
)
Accrued income taxes
12,632
5,173
Net pension and post retirement
liabilities
3,988
4,501
Other assets and liabilities
1,157
(21,973
)
Net cash provided by operating
activities
8,083
157,185
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and
equipment
(30,125
)
(37,059
)
Net proceeds from businesses sold
1,124
38,611
Net proceeds from buildings sold
7,432
—
Other investing transactions
(3,724
)
(1,275
)
Net cash provided (used) by investing
activities
(25,293
)
277
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving lines of
credit
241,000
215,200
Payments on revolving lines of credit
(160,300
)
(263,476
)
Payments on long-term debt
(93
)
(80,060
)
Payments on finance lease obligations
(884
)
(505
)
Payment of dividends
(8,257
)
(8,031
)
Proceeds from sale of treasury stock
1,869
2,144
Purchase of outstanding shares for
treasury
(12,721
)
(16,657
)
Proceeds from sale of stock held by
SECT
2,561
2,075
Purchase of stock held by SECT
(1,753
)
(2,275
)
Other financing transactions
(2,026
)
—
Net cash provided (used) by financing
activities
59,396
(151,585
)
Effect of exchange rate changes on
cash
4,492
(65
)
Increase in cash, cash equivalents and
restricted cash
46,678
5,812
Cash, cash equivalents and restricted cash
at beginning of period
119,233
100,914
Cash, cash equivalents and restricted cash
at end of period
$
165,911
$
106,726
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