刘玥首次大战黑人

Good morning and thank you for joining Moog鈥檚 second quarter 2023 earnings release conference call. I鈥檓 Aaron Astrachan, Director of Investor Relations. With me today is Pat Roche, our Chief Executive Officer, and Jennifer Walter, our Chief Financial Officer.

Earlier this morning, we released our results and our supplemental financial schedules, both of which are available on our website.

Our earnings press release, our supplemental financial schedules and remarks made during our call today contain adjusted, non-GAAP results. Reconciliations for these adjusted results to GAAP results are contained within the provided materials.

Lastly, our comments today may include statements related to expected future results and other forward-looking statements. These are not guarantees, as our actual results may differ materially from those described in our forward-looking statements, and are subject to a variety of risks and uncertainties that are described in our earnings press release and in our other SEC filings.

Now, I am pleased to turn the call over to Pat鈥�

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Good morning and welcome to the call.

Today, we will share our update on a quarter marked by record sales,听 solid earnings and cash commitment to support the growth.听 We reiterate our full year guidance for margin and reflect a heavier demand on cash.听

Before getting to the details,听 I鈥檇 like to briefly remind you of several broad themes that I shared during my first earnings call and highlight how these are driving change in the organization.听

Every day, our motivated employees are driven to improve the lives of millions across the globe, through the application of our deep technical capabilities in solving our customers most difficult motion control challenges in applications 鈥渨hen performance really matters鈥�^庐.

I described the three areas on which we are focusing our attention to improve the business, namely听

• Customer Focus
• People, Community, and Planet, and
• Financial Strength.

And I highlighted simplification as key to enhancing the performance of our company.听

To advance this change agenda, our Board of Directors, after the Q1 earnings call, appointed several new officers to the leadership of our company. These appointments are the result of a clear focus on talent development over the last decade. These leaders bring the necessary experience and skill to deliver on the ambitious plans we have to grow our company, to achieve great results in each of our areas of focus, and to take us to the next level of performance.

With these appointments, we have started to transform our organization and the way in which we work. Over the next few months, we will separate the commercial and military business within our current Aircraft segment.听

Fundamentally, the business models for commercial and military aircraft are completely different. I want these businesses to have the flexibility to more effectively respond to the needs of these two distinct end-markets.听 When the separation is complete, each business leader will have direct responsibility for the focused factories, the dedicated engineering and manufacturing staff, and the production resources for their respective business.听 They will be fully accountable for the operational and financial performance of the business.听 "We have taken a big step forward in our simplification journey by moving away from a matrixed structure in Aircraft Controls towards two separate businesses. This change will drive greater clarity and performance.鈥澨�

There should be no doubt that we are following a clear philosophy:

• to align our organization around the end markets we serve and the specific business model we need to succeed.
• to give our leaders the dedicated resources they need and the accountability to deliver so that they can make the best decisions to run each business.
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We will apply this philosophy throughout the organization.

I am confident that this approach will enhance customer focus through improved operational performance and drive improved financial results as we concentrate on value creation in each segment of the business.听

The separation process will be completed by the start of fiscal 2024.听

There is a lot more that I would like to share and I am thrilled to let you know that we will host an Investor Day in New York City on Jun 6, 2023.听 I want to use that opportunity to provide more detail on the organizational change and many other initiatives that we are driving to grow our company and to deliver stronger margin performance.听 Jennifer Walter, Mark Trabert, our Chief Operating Officer, and I will explain our exciting plans for the business over the next few years.听 We will also be joined by other members of the executive team.听

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Macroeconomic

Now let me turn to the macroeconomy.听听 Not much has changed in the last ninety days.听 Overall, the context continues to support the growth of the company in each of our end markets.听

Unfortunately, and tragically, the war in Ukraine continues as a war of attrition.听听 Anticipation of a spring offensive is driving intense efforts to re-supply the Ukrainian military with increased commitment from the US, NATO allies, and European countries.听听 In addition, each of these countries are intent on rebuilding their own depleted inventories.听 This will drive defense spending for the next decade.听 In a significant political change, Finland was formally admitted to the NATO alliance on Apr 4th.听 We anticipate greater equipment commonality across these countries.

The recovery of global air travel continues rapidly. Each of you who has travelled over the last month or so, has experienced the busy terminal buildings, full flights, and travel delays! The commercial in-service fleet has almost recovered to the 2019 levels. This strength is predominantly in narrow body aircraft on domestic routes. Long haul travel, especially to Asia, still lags; but the opening up of China and increased travel through the Middle-East are boosting wide-body utilization.

Finally, business jet flight hours are already above 2019 levels.听 We are already seeing the benefits of these factors in our commercial business.

Industrial markets continue to be more resilient than we anticipated.听 Bookings are solid with a strong backlog covering our fiscal year.听 Sentiment remains mixed with the March Purchasing Manager鈥檚 index indicating contraction in our major markets, yet German industrial production is up sequentially.听

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Operational

Now let me turn the focus to our company operations:

• We continue to invest in the growth of our businesses.听 We have building upgrade and expansion plans at several sites globally.听 Most notably within this quarter, we acquired a 200k sq ft building adjacent to our headquarter site in EA to address immediate space requirements and we also started site clearance for the construction of a 150k sq ft Advanced Integrated Manufacturing facility on our main campus.听 Within the next month, we will officially open a new purpose-built, 200k sq ft manufacturing facility in Tewkesbury, England, that consolidates 3 existing buildings at that location.听 In all cases, our manufacturing teams are rearchitecting machine layout, material flow and automation for improved production efficiency.听 听
• We continue to drive operational improvement across all segments with a clear goal:听 to simplify our business and eliminate waste.听 This drives operational performance to the benefit of our customers and drives financial performance to strengthen our company.听 It takes time and consistent management focus to build this continuous improvement muscle.听 Our Costa Rica facility has been at the forefront of these efforts.听 I鈥檓 proud to share that the Shingo Institute has recognized our journey with an award for our Costa Rica facility.听 This is a credit to the more than 600 employees that built this world class facility from green field site over the last 15 years.听听 Costa Rica is our reference site that helps show us the way as we continue to build continuous improvement capability across the company.
• Finally, we continued to deal with supply chain challenges throughout this quarter.听 We expect that these pressures will continue for longer than we had previously assumed.

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Notable in the quarter

• We are delighted that the Government Office of Accountability confirmed the award of Future Long Range Assault Aircraft (FLRAA) to Bell-Textron.听 This clears the way to progress the development of the V-280 replacement for the Blackhawk helicopter.听 This will be a substantial program for 刘玥首次大战黑人for years to come.
• On the commercial side, both Airbus and Boeing confirmed plans to increase production rates on narrow body and wide body aircraft over the next few years.听 Airbus announced their intent to increase A350 production to 9/month by the end of 2025 and Boeing confirmed their intent to ramp the 787 to 5/month in late 2023 and to 10/month in the 2025/2026 timeline.
• We continue to accelerate electrification and autonomy in Construction equipment.听 At ConExpo 2023,听 the largest North American trade show, 刘玥首次大战黑人Construction launched TerraTech鈩� which is听 our electrification solution for compact construction equipment and also hosted a live demonstration of our autonomy software and hardware fitted to a BobCat Skid steer.听 There was strong interest in our offering.

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Financial headlines

Now turning attention to our financial performance.听 "Our sales were remarkable this quarter, a proud record for our company. Adjusted operating margin performance through the first half of the year was better than prior year and will be yet stronger in the second half of FY23.鈥澨�

• We delivered sales of $837M, up over 9% on prior year reflecting strength in each segment.
• These sales were particularly strong in several areas: in Commercial OEM and aftermarket due to the aviation recovery; in Defense due to the ramp to full-rate production of our Reconfigurable Integrated Weapons Platform; in Space due to our differentiated avionics and satellite components offering; and finally in Industrial due to capital investment in automation applications.听
• Our twelve-month backlog now stands at $2.3B up 1% over prior year.听 Our bookings remain strong.
• Our adjusted operating margin was down 20bps on prior year.听 Strong operational performance was masked by charges on development programs and an unfavorable mix.
• At the bottom line, we delivered adjusted earnings per share of $1.42 exceeding the mid-point of our forecast.
• Our cash flow was clearly pressured in this quarter, due to some atypical outflows and increased working capital requirements required to support the growth of our business.

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Now, I鈥檒l hand over to Jennifer to review our financials in more detail.

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Thanks Pat.

I鈥檒l begin with a review of our second quarter financial performance. I鈥檒l then provide an update on our guidance for all of FY 23.

It was an exceptional quarter from a sales perspective. We hit a record level of sales for the company and for each of our segments. We achieved $1.42 of adjusted earnings per share, just over the mid-point of our guidance.

Sales in the second quarter were $837 million. Total company sales increased 9% over the same quarter a year ago. Excluding the impact of divestitures and foreign currency movements, sales were up 11%.

The largest increase in segment sales was in Aircraft Controls. Sales of $347 million increased 11% over the same quarter a year ago. Commercial OE sales in the quarter were especially strong, driven by market recovery in widebody platforms as well as growth on business jets. Commercial aftermarket sales were also very strong, particularly on the A350 program, with this program steadily ramping over the past four quarters.

Military aircraft sales declined in the second quarter compared to the same quarter a year ago. The military sales decrease reflects lower funded development activity, including the delayed start on the FLRAA program. In addition, military aftermarket sales were down from a particularly strong quarter a year ago.

Sales in Space and Defense Controls of $246 million increased 10% over the second quarter last year. Adjusting for the divestiture of a security business last year, sales increased 12%. The sales growth was driven by accelerated activity on avionics and components for satellites. The ramp up in production on the reconfigurable turret program, which hit full-rate production levels in the first quarter this year, also drove sales this quarter.

Industrial Systems sales increased 3% to $244 million. Excluding foreign currency movements and the divestiture of our sonar business last year, sales were up 8%. The sales increase was driven by elevated investment in capital equipment for our industrial automation products following the pandemic. Sales in energy, adjusting for the divestiture last year, were relatively flat compared to a year ago, as was medical, while simulation and test was down slightly on timing of orders.

We鈥檒l now shift to operating margins.

Adjusted operating margin of 10.4% in the second quarter decreased 20 basis points from the second quarter last year. Our margin was pressured this quarter by charges on development programs and an unfavorable mix. On the positive side, these pressures were mostly offset by strong operational performance on our underlying business, marginal return on the sales increase and lower research and development expenses.

Adjustments to operating profit this quarter were $3 million, reflecting restructuring and other charges in each of our segments. Adjustments for last year鈥檚 second quarter were $25 million, related to the delayed recovery in the commercial aircraft business, our response to the Russian invasion of Ukraine and refinements in our portfolio.

I鈥檒l now describe the key drivers of our adjusted operating margins for each of our segments. Operating margin in Aircraft Controls decreased to 9.5% in the second quarter from 10.0% in the same quarter a year ago. The 50 basis-point decrease resulted from an unfavorable sales mix driven by strong commercial OE sales. Operating margin in Space and Defense Controls was 11.7%, up slightly from 11.6% a year ago. We incurred significant charges on space vehicle programs again this quarter, 270 basis points worth, masking the benefit associated with higher sales and improvements in the core business. Operating margin in Industrial Systems was 10.4%, down slightly from 10.5% a year ago. We incurred a few operational charges this quarter, which were offset by incremental margin from strong sales.

Interest expense is another area that鈥檚 impacting our financial results. In the second quarter, interest expense was $15 million, up $7 million over the second quarter last year. The increase in interest expense relates to higher interest rates and, to a lesser extent, higher levels of debt.

Putting it all together, adjusted earnings per share came in at $1.42, just over the mid-point of our guidance from a quarter ago. The $1.42 adjusted earnings per share this quarter is down 5% from the same quarter a year ago due to higher interest expense, partially offset by increased operating profit.

Let鈥檚 shift over to cash flow. For the quarter, we had a use of free cash flow of $101 million. We had nearly $60 million of atypical outflows this quarter - $28 million to purchase a building, $15 million of cash taxes for the R&D expense amortization law that was not repealed and $14 million for timing of compensation payments. Beyond these, the negative free cash flow this quarter was driven by working capital growth.

Working capital grew significantly this quarter. Receivables increased associated with supply chain constraints, the ramp up in commercial aircraft activity and higher industrial sales, particularly late in the quarter. Inventories also increased related to supply chain pressures. We continue to strategically purchase certain components in advance of requirements to reduce the risk of shipment delays. Despite that, we鈥檝e experienced situations in which we can鈥檛 ship product as a necessary component isn鈥檛 available.听 We are now expecting these pressures to continue longer than we had anticipated. In addition, we worked down customer advances across defense programs.

Capital expenditures came in high at $60 million, as we purchased a building for $28 million just off campus from our headquarters in East Aurora, NY. We鈥檙e expanding our space and defense operations in Western New York to support our growth and are glad to have acquired this building so close to our other facilities. We continue to invest in our facilities to accommodate our growth, focus our factories and enhance our capabilities through automation. Excluding this building purchase, capital expenditures were $32 million, up slightly from our first quarter, but down from the same period a year ago.

Our leverage ratio, calculated on a net debt basis, was 2.5x as of the end of the second quarter. Our leverage ratio is in the middle of our target range of 2.25x to 2.75x.

Our capital deployment priorities, both long-term and near-term, are unchanged. Over time, we look to have a balanced approach to capital deployment, growing our business both organically and through acquisition, while also returning capital to shareholders in the form of dividends as well as share repurchases.

Our current priority, and where we see the greatest potential return, continues to be investing for organic growth.听 We鈥檙e building up new businesses that we believe have huge potential, like the electrification of construction equipment. We鈥檙e also investing in our core businesses, and capital expenditures are a part of these investments. In addition to investing for organic growth, we鈥檒l continue to look for strategic acquisitions to complement our portfolio. We also remain committed to our dividend policy.

We鈥檒l now shift over to guidance for the full year.

We are reiterating our fiscal year 2023 guidance for the company鈥檚 adjusted operating margin and adjusted earnings per share on slightly higher sales.听 Our backlog remains solid, and our performance is on track to achieve these results.听 Based on second quarter pressures on cash, we are decreasing our free cash flow guidance for the year.听

Let鈥檚 take a more detailed look at our guidance.

We鈥檙e projecting sales of $3.2 billion in FY 23, which is up $15 million over our previous guidance. That鈥檚 a 5% sales increase compared to FY 22, and 7% when we adjust for divestitures over the past year and the impact of foreign currency movements. We expect sales growth in each of our segments, with the biggest driver being commercial aircraft.

Aircraft Controls sales are projected to increase 6% to $1.3 billion. The increase is all on the commercial side of the business. Commercial OE will be up across the board, with growth on Airbus and Boeing platforms, business jets and the Genesys business we acquired a couple years ago. We鈥檒l also see growth in an already-strong commercial aftermarket business. To account for strong sales this quarter, we鈥檙e increasing our commercial OE forecast by $5 million and our aftermarket sales forecast by $15 million. We expect an offsetting decline in military aircraft sales, driven by lower aftermarket sales. We鈥檙e decreasing our military aftermarket sales guidance by $20 million to reflect the relatively slow start to the year.

Space and Defense Controls sales are projected to increase 5% to $920 million. Adjusting for the divestiture of a security business late last fiscal year, sales will be up 8%. When looking at our numbers within this segment, it鈥檚 helpful to remember that we shifted a product line from Defense into Space at the beginning of our first quarter. Adjusting for that shift, we鈥檙e expecting nice increases in both space and defense. The increase in defense sales reflects a production ramp for the reconfigurable turret. Our sales forecast is unchanged from our previous forecast.

Industrial Systems sales are projected to increase 4% to $940 million. Adjusting for the sale of the sonar business and foreign currency movements, the increase is 7%. Growth will come from each of our submarkets, reflecting our solid backlog. Our sales forecast is up $15 million from our previous forecast on our strong sales this quarter.

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Shifting over to operating margins.

We鈥檙e holding our forecast of adjusted operating margin at 11.0% in FY 23, which is up from 10.2% in FY 22. We鈥檙e expecting stronger performance in each of our segments. Industrial Systems will increase 170 basis points to 11.2%, largely due to capturing efficiencies on the higher level of sales and realizing benefits associated with our portfolio shaping and pricing activities. Space and Defense Controls will increase 70 basis points to 11.6% on higher sales. Aircraft Controls will increase 20 basis points to 10.3%. We鈥檒l benefit from factory utilization as sales in the commercial OE business increase; however, this benefit will largely be offset by an unfavorable mix, with the relative increase in commercial OE.

Higher interest expense and a higher tax rate will depress earnings per share by $0.68 relative to FY 22. For FY 23, we鈥檙e continuing to project adjusted earnings per share of $5.70, plus or minus $0.20, which is up 3% over FY 22. Adjusting for interest and taxes, EPS would be $6.38, an increase of 15%, reflecting strong operational performance. Next quarter, we鈥檙e forecasting earnings per share to be $1.45, plus or minus $0.15.

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Finally, turning to cash.

We鈥檙e projecting free cash flow for FY 23 to be zero, down from the $100 million we were projecting to generate 90 days ago. The change largely reflects our second quarter experience in working capital and, to a lesser extent, growth in capital expenditures. As we move into the back half of the year, we expect receivables to level off, with strong collections on our balances offset by normal growth in the business. We expect that the use of cash for inventories moderates in the remainder of the year due to consumption of program-specific inventory. Customer advances will be a source of the cash later this year, with advances coming in Aircraft Controls and Space and Defense Controls. Accruals for compensation will normalize by the end of the year. In addition to working capital, our capital expenditures forecast for the year is up. We are managing capital expenditures for the year to be approximately $165 million. We鈥檙e reprioritizing some of our spend later in the year to partially offset the building we acquired in the second quarter.

As always, our aim is to share a forecast that represents a balanced outlook for the year. We鈥檙e assuming that supply chain disruptions continue throughout the year. Other external factors such as the geopolitical landscape could also impact our performance.

Overall, we had a good first half of the year and our outlook for the rest of the year looks strong. We鈥檙e positioned nicely from a liquidity and leverage standpoint, enabling us to invest for future growth in our business.

And now I鈥檒l turn it over to Pat.

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Thank you, Jennifer.

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As you have heard, we closed out a remarkable quarter delivering record sales and we are on path to deliver a fiscal year with 7% organic sales growth and 80 basis-point margin improvement.

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We are now happy to take your questions.听听