Market Overview

Moog Reports Third Quarter Results

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Moog Inc. (NYSE:MOG) announced today financial results for
the quarter ended June 30, 2018.

Third Quarter Highlights

  • Sales of $692 million, up 11% from a year ago;
  • Earnings before income taxes, up 14% year over year;
  • Diluted earnings per share of $1.13, up 2% from a year ago;
  • Operating margins of 10.7%, up from 10.2% last year;
  • Tax rate at 25.8% versus an unusually low rate in last year's Q3;
  • $1 million cash flow from operating activities, including incremental
    pension contributions;
  • Payment of quarterly cash dividend of $0.25 per share, on June 1st.

Segment Results

Total Aircraft Controls sales in the quarter were $300 million, up 6%
year over year. Commercial aircraft revenues increased 2%, to $156
million. Strong aftermarket sales, up 22% to $37 million, offset lower
OEM sales. Boeing OEM sales of $60 million were off 3%. Sales of OEM
products to Airbus were down 7%, to $37 million, driven by softer A350
program sales.

Military aircraft sales of $144 million were 11% higher than a year ago.
Military OEM sales increased 10% on very strong F-35 sales. Military
aftermarket sales of $48 million were 12% higher due to an increase in
F-18 and V-22 spares activity.

Space and Defense segment sales were $150 million, up 17% year over
year. Space sales were 21% higher, the result of very strong avionics
product sales on new DoD platforms and launch vehicle program activity
at NASA. Defense sales were up 15% on increased demand for legacy pan
and tilt products. Security products for UAV tracking also contributed,
the result of a small acquisition completed early in the quarter.

Industrial Systems segment sales in the quarter were $243 million, 13%
higher than a year ago. Excluding currency effects and acquisitions,
organic sales increased 5%. Industrial automation sales were up a
healthy 16%, to $115 million, helped by the recent VUES Brno acquisition
in the Czech Republic. Energy sales were up 29% on sales of exploration
and power generation products. Medical market sales were 19% higher.
Sales for simulation and test products were down 20% as last year's
third quarter was unusually strong.

Consolidated 12-month backlog was $1.5 billion.

Fiscal 2018 Outlook

  • Sales of $2.7 billion, up 8% over last year and increased $20 million
    from 90 days ago;
  • GAAP earnings per share of $2.67, plus or minus $0.10;
  • Non-GAAP diluted earnings per share increased $0.02 to $4.42, plus or
    minus $0.10, excluding the impact of previously announced wind energy
    restructuring and tax reform effects;
  • Non-GAAP operating margins of 10.8% and GAAP operating margins of 9.6%;
  • Cash flow from operating activities of $150 million, including
    incremental pension contributions.

"Q3 continues our positive quarterly performance pattern," said John
Scannell, Chairman and CEO. "Today we're fine tuning our full-year
guidance to reflect recent acquisition activity and higher sales in
certain product lines. Our major markets of defense, commercial aircraft
and industrial are all performing well and we're optimistic that we'll
continue to see healthy organic growth over the next couple of years."

In conjunction with today's release, Moog will host a conference call
beginning at 10:00 a.m. ET, which will be broadcast live over the
Internet. John Scannell, Chairman and CEO, and Don Fishback, 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.

Moog Inc. is a worldwide designer, manufacturer, and integrator of
precision control components and systems. Moog's high-performance
systems control military and commercial aircraft, satellites and space
vehicles, launch vehicles, missiles, automated industrial machinery,
wind energy, marine and medical equipment. Additional information about
the company can be found at www.moog.com.

Cautionary Statement

Information included or incorporated by reference in this report 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 reflect the Company's current views
with respect to certain current and future events and financial
performance and are not guarantees of future performance. This includes
but is not limited to, the Company's expectation and ability to pay a
quarterly cash dividend on its common stock in the future, subject to
the determination by the board of directors, and based on an evaluation
of company earnings, financial condition and requirements, business
conditions, capital allocation determinations and other factors, risks
and uncertainties. The impact or occurrence of these could cause actual
results to differ materially from the expected results described in the
forward-looking statements. These important factors, risks and
uncertainties include:

  • 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 operate in highly competitive markets with competitors who may have
    greater resources than we possess;
  • 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;
  • we make estimates in accounting for long-term 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;
  • we may not realize the full amounts reflected in our backlog as
    revenue, which could adversely affect our future revenue and growth
    prospects;
  • 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;
  • contracting on government programs is subject to significant
    regulation, including rules related to bidding, billing and accounting
    kickbacks and false claims, and any non-compliance could subject us to
    fines and penalties or possible debarment;
  • the loss of The Boeing Company as a customer or a significant
    reduction in sales to The Boeing Company could adversely impact our
    operating results;
  • our new product research and development efforts may not be successful
    which could reduce our sales and earnings;
  • our inability to adequately enforce and protect our intellectual
    property or defend against assertions of infringement could prevent or
    restrict our ability to compete;
  • our business operations may be adversely affected by information
    systems interruptions, intrusions or new software implementations;
  • our indebtedness and restrictive covenants under our credit facilities
    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;
  • our sales and earnings may be affected if we cannot identify, acquire
    or integrate strategic acquisitions, or if we engage in divesting
    activities;
  • our operations in foreign countries expose us to political and
    currency risks and adverse changes in local legal and regulatory
    environments;
  • unforeseen exposure to additional income tax liabilities may affect
    our operating results;
  • government regulations could limit our ability to sell our products
    outside the United States and otherwise adversely affect our business;
  • 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;
  • future terror attacks, war, natural disasters or other catastrophic
    events beyond our control could negatively impact our business;
  • our operations are subject to environmental laws, and complying with
    those laws may cause us to incur significant costs; and
  • we are involved in various legal proceedings, the outcome of which may
    be unfavorable to us.

These factors are not exhaustive. New factors, risks and uncertainties
may emerge from time to time 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. We disclaim any obligation to update
the forward-looking statements made in this report.

         

Moog Inc.

CONSOLIDATED STATEMENTS OF EARNINGS

(dollars in thousands, except per share data)

               
Three Months Ended Nine Months Ended
        June 30,
2018
    July 1,
2017
    June 30,
2018
    July 1,
2017
Net sales $ 692,018     $ 626,183 $ 2,008,602     $ 1,848,256
Cost of sales 492,234 443,769 1,424,731 1,308,256
Inventory write-down - restructuring 2,398             9,727        
Gross profit 197,386 182,414 574,144 540,000
Research and development 31,040 36,314 97,545 107,828
Selling, general and administrative 103,053 89,144 299,002 261,271
Interest 8,850 8,654 26,585 25,789
Restructuring (1,549 ) 22,509
Other 1,037       29       45       12,148  
Earnings before income taxes 54,955 48,273 128,458 132,964
Income taxes 14,205       8,185       72,444       31,156  
Net earnings attributable to Moog and noncontrolling interest 40,750 40,088 56,014 101,808
Net earnings (loss) attributable to noncontrolling interest 67             67       (870 )
Net earnings attributable to Moog $ 40,683       $ 40,088       $ 55,947       $ 102,678  
 
Net earnings per share attributable to Moog
Basic $ 1.14 $ 1.12 $ 1.56 $ 2.86
Diluted $ 1.13       $ 1.11       $ 1.55       $ 2.83  
 
Dividends declared per share $ $ $ 0.25 $
 
Average common shares outstanding
Basic 35,762,918 35,847,842 35,768,471 35,868,315
Diluted       36,143,367       36,212,779       36,174,759       36,240,794  
 

Results shown in the previous table include the impacts of the Tax Cuts
and Jobs Act of 2017 and restructuring charges. The table below adjusts
the income taxes, net earnings and diluted net earnings per share
attributable to Moog to exclude these impacts.

Reconciliation to non-GAAP adjusted income taxes, net earnings and
diluted net earnings per share attributable to Moog:

               
      Three Months Ended     Nine Months Ended
        June 30,
2018
    July 1,
2017
    June 30,
2018
    July 1,
2017
As Reported:        
Earnings before income taxes $ 54,955 $ 48,273 $ 128,458 $ 132,964
Income taxes 14,205 8,185 72,444 31,156
Effective income tax rate 25.8 % 17.0 % 56.4 % 23.4 %
Net earnings attributable to Moog and noncontrolling interest 40,750 40,088 56,014 101,808
Net earnings attributable to Moog 40,683 40,088 55,947 102,678
Diluted net earnings per share attributable to Moog $ 1.13 $ 1.11 $ 1.55 $ 2.83
 
Non-GAAP Adjustments - Due to Restructuring:
Earnings before income taxes $ 849 $ $ 32,236 $
Income taxes 5,485
Net earnings attributable to Moog 849 26,751
Diluted net earnings per share attributable to Moog $ 0.02 $ $ 0.74 $
 
Non-GAAP Adjustments - Due to Tax Reform:
Income taxes (36,776 )
Net earnings attributable to Moog 36,776
Diluted net earnings per share attributable to Moog $ $ $ 1.02 $
 
As Adjusted:
Earnings before income taxes $ 55,804 $ 48,273 $ 160,694 $ 132,964
Income taxes 14,205 8,185 41,153 31,156
Effective income tax rate 25.5 % 17.0 % 25.6 % 23.4 %
Net earnings attributable to Moog and noncontrolling interest 41,599 40,088 119,541 101,808
Net earnings attributable to Moog 41,532 40,088 119,474 102,678
Diluted net earnings per share attributable to Moog       $ 1.15       $ 1.11       $ 3.30       $ 2.83  
 
         

Moog Inc.

CONSOLIDATED SALES AND OPERATING PROFIT

(dollars in thousands)

               
Three Months Ended Nine Months Ended
        June 30,
2018
    July 1,
2017
    June 30,
2018
    July 1,
2017
Net sales:        
Aircraft Controls $ 299,605 $ 282,555 $ 889,578 $ 840,666
Space and Defense Controls 149,815 128,049 426,735 389,473
Industrial Systems 242,598       215,579       692,289       618,117  
Net sales       $ 692,018       $ 626,183       $ 2,008,602       $ 1,848,256  
Operating profit:
Aircraft Controls $ 33,342 $ 29,080 $ 97,590 $ 83,372
11.1 % 10.3 % 11.0 % 9.9 %
Space and Defense Controls 16,513 12,789 49,643 33,258
11.0 % 10.0 % 11.6 % 8.5 %
Industrial Systems 24,283 21,726 37,479 64,154
10.0 %     10.1 %     5.4 %     10.4 %
Total operating profit 74,138 63,595 184,712 180,784
10.7 % 10.2 % 9.2 % 9.8 %
Deductions from operating profit:
Interest expense 8,850 8,654 26,585 25,789
Equity-based compensation expense 894 997 4,394 4,151
Corporate and other expenses, net       9,439       5,671       25,275       17,880  
Earnings before income taxes       $ 54,955       $ 48,273       $ 128,458       $ 132,964  
 

Operating Profit and Margins - as adjusted

      Three Months Ended     Nine Months Ended
        June 30,
2018
    July 1,
2017
    June 30,
2018
    July 1,
2017
Industrial Systems operating profit - as reported $ 24,283     $ 21,726 $ 37,479     $ 64,154
Inventory write-down - restructuring 2,398 9,727
Restructuring (1,549 )           22,509        
Industrial Systems operating profit- as adjusted 25,132 21,726 69,715 64,154
10.4 %     10.1 %     10.1 %     10.4 %
Total operating profit - as adjusted $ 74,987       $ 63,595       $ 216,948       $ 180,784  
        10.8 %     10.2 %     10.8 %     9.8 %
         

Moog Inc.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

               
        June 30,
2018
    September 30,
2017
ASSETS
Current assets
Cash and cash equivalents $ 157,269 $ 368,073
Receivables 757,455 727,740
Inventories 514,578 489,127
Prepaid expenses and other current assets 50,215       41,499  
Total current assets 1,479,517 1,626,439
Property, plant and equipment, net 546,598 522,991
Goodwill 790,826 774,268
Intangible assets, net 112,838 108,818
Deferred income taxes 13,214 26,558
Other assets 35,860       31,518  
Total assets       $ 2,978,853       $ 3,090,592  
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 1,416 $ 89
Current installments of long-term debt 393 295
Accounts payable 190,092 170,878
Accrued compensation 144,712 148,406
Customer advances 163,318 159,274
Contract loss reserves 41,143 43,214
Other accrued liabilities 113,956       107,278  
Total current liabilities 655,030 629,434
Long-term debt, excluding current installments 858,425 956,653
Long-term pension and retirement obligations 118,862 271,272
Deferred income taxes 47,722 13,320
Other long-term liabilities 36,021       5,609  
Total liabilities 1,716,060       1,876,288  
Commitment and contingencies
Shareholders' equity

Common stock - Class A

43,780 43,704
Common stock - Class B 7,500 7,576
Additional paid-in capital 486,510 492,246
Retained earnings 1,941,902 1,847,819
Treasury shares (739,042 ) (739,157 )
Stock Employee Compensation Trust (89,904 ) (89,919 )
Supplemental Retirement Plan Trust (11,736 ) (12,474 )
Accumulated other comprehensive loss (376,743 )     (335,491 )
Total Moog shareholders' equity 1,262,267 1,214,304
Noncontrolling interest 526        
Total shareholders' equity 1,262,793       1,214,304  
Total liabilities and shareholders' equity       $ 2,978,853       $ 3,090,592  
 
     

Moog Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

         
Nine Months Ended
        June 30,
2018
    July 1,
2017
CASH FLOWS FROM OPERATING ACTIVITIES    
Net earnings attributable to Moog and noncontrolling interest $ 56,014 $ 101,808
Adjustments to reconcile net earnings to net cash provided (used) by
operating activities:
Depreciation 54,693 53,027
Amortization 13,628 14,078
Deferred income taxes 35,549 2,968
Equity-based compensation expense 4,394 4,151
Impairment of long-lived assets and inventory write-down associated
with restructuring
24,246
Other 4,743 15,493
Changes in assets and liabilities providing (using) cash:
Receivables (27,597 ) 176
Inventories (27,840 ) 3,786
Accounts payable 12,778 11,312
Customer advances (165 ) (3,097 )
Accrued expenses 11,709 (180 )
Accrued income taxes (1,817 ) (2,767 )
Net pension and post retirement liabilities (130,135 ) (25,982 )
Other assets and liabilities 16,150       (5,449 )
Net cash provided by operating activities 46,350       169,324  
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired (47,947 ) (40,545 )
Purchase of property, plant and equipment (70,759 ) (45,349 )
Other investing transactions (3,609 )     3,031  
Net cash (used) by investing activities (122,315 )     (82,863 )
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings (repayments) 1,357 (1,280 )
Proceeds from revolving lines of credit 301,500 185,045
Payments on revolving lines of credit (411,610 ) (235,045 )
Proceeds from long-term debt 11,216
Payments on long-term debt (21,849 ) (133 )
Payment of dividends (8,941 )
Proceeds from sale of treasury stock 2,451 2,135
Purchase of outstanding shares for treasury (5,210 ) (5,714 )
Proceeds from sale of stock held by SECT 1,941 867
Purchase of stock held by SECT (8,444 ) (12,162 )
Other financing transactions 484       (1,656 )
Net cash (used) by financing activities (137,105 )     (67,943 )
Effect of exchange rate changes on cash 2,266       895  
Increase (decrease) in cash and cash equivalents (210,804 ) 19,413
Cash and cash equivalents at beginning of period 368,073       325,128  
Cash and cash equivalents at end of period       $ 157,269       $ 344,541  
 

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