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Moog Inc. Reports Third Quarter 2023 Results With Record Sales And Increases Full-Year Earnings Per Share Guidance

MOG.A

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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