Press release

Moog Reports Third Quarter Results

0
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Moog Inc. (NYSE: MOG.A and MOG.B) announced today financial results for the quarter ended June 29, 2019.

Third Quarter Highlights

  • Sales of $741 million, up 7% from a year ago;
  • Diluted earnings per share of $1.35, up 19% from a year ago;
  • Operating margins of 11.4%, up from 10.9% last year;
  • Cash flow from operating activities of $20 million.

Segment Results

Total Aircraft Controls segment sales in the quarter were $337 million, up 12% year over year. Military aircraft sales of $162 million were 13% higher on strong military OEM sales for foreign military platforms and helicopters. Military aftermarket sales were $55 million, up 14% on F-35 and V-22 program activity.

Commercial aircraft revenues increased 12% to $174 million. Boeing OEM sales were $67 million, up 11%, the result of strong 787 sales. Airbus sales of $47 million increased 29% on A350 deliveries. Business jet sales were 42% higher year over year, on Gulfstream program activity. Commercial aftermarket sales were down 7%, due to lower initial provisioning for the A350.

Space and Defense segment sales were $173 million, up 16% year over year. Defense sales were up 23%, to $117 million, on increases in missile controls, ground vehicles and slip ring products. Space sales were 2% higher, with increases in sales to NASA and launch vehicles offsetting lower satellite avionics sales.

Industrial Systems segment sales in the quarter were $231 million, down 5% from last year’s third quarter. The Company’s exit from the wind pitch controls business last year accounted for most of the decrease, as energy sales were lower, at $30 million. Medical market sales were 5% higher, at $59 million, on strong enteral pump sales. Industrial automation sales of $114 million were in line with last year. Simulation and test sales of $28 million were mostly unchanged.

Total backlog was $2.1 billion, with consolidated 12-month backlog at $1.6 billion, up 7% from a year ago.

Fiscal 2019 Outlook

The Company updated its projections for fiscal 2019.

  • Forecast sales of $2.9 billion, unchanged from 90 days ago;
  • Forecast earnings per share of $5.05, plus or minus $0.10, unchanged from 90 days ago;
  • Forecast full year operating margins of 11.3%;
  • Forecast cash flow from operating activities of $210 million;
  • Forecast effective tax rate of 24.2%.

“It was a record quarter for our company in terms of both sales and earnings per share,” said John Scannell, Chairman and CEO. “As we look to the remainder of this year, we’re confident that we’ll meet our guidance for both sales and earnings per share, and we remain very optimistic about our longer-term growth prospects. Fifty years after Moog products helped steer the Apollo 11 mission to the Moon, our company continues to evolve and prosper. Our long-term outlook, continual investment in new technologies, unrelenting focus on meeting our customer’s demands and a deep rooted culture of mutual trust and respect are the ingredients for our success. We believe these values will continue to serve us well as we look to the next 50 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, 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 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;
  • 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;
  • 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;
  • we are involved in various legal proceedings, the outcome of which may be unfavorable to us;
  • future terror attacks, war, natural disasters or other catastrophic events beyond our control could negatively impact our business; and
  • our operations are subject to environmental laws, and complying with those laws may cause us to incur significant costs.

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 29,

2019

 

June 30,

2018

 

June 29,

2019

 

June 30,

2018

Net sales

 

$

740,969

 

 

$

692,018

 

 

$

2,139,456

 

 

$

2,008,602

 

Cost of sales

 

529,050

 

 

491,959

 

 

1,530,634

 

 

1,423,897

 

Inventory write-down – restructuring

 

 

 

2,398

 

 

 

 

9,727

 

Gross profit

 

211,919

 

 

197,661

 

 

608,822

 

 

574,978

 

Research and development

 

31,298

 

 

30,953

 

 

94,518

 

 

97,282

 

Selling, general and administrative

 

103,655

 

 

101,722

 

 

299,841

 

 

295,006

 

Interest

 

9,780

 

 

8,850

 

 

29,401

 

 

26,585

 

Restructuring

 

 

 

(1,549

)

 

 

 

22,509

 

Other

 

5,466

 

 

2,730

 

 

9,540

 

 

5,138

 

Earnings before income taxes

 

61,720

 

 

54,955

 

 

175,522

 

 

128,458

 

Income taxes

 

14,255

 

 

14,205

 

 

41,629

 

 

72,444

 

Net earnings attributable to Moog and noncontrolling interest

 

47,465

 

 

40,750

 

 

133,893

 

 

56,014

 

Net earnings attributable to noncontrolling interest

 

 

 

67

 

 

 

 

67

 

Net earnings attributable to Moog

 

$

47,465

 

 

$

40,683

 

 

$

133,893

 

 

$

55,947

 

 

 

 

 

 

 

 

 

 

Net earnings per share attributable to Moog

 

 

 

 

 

 

 

 

Basic

 

$

1.36

 

 

$

1.14

 

 

$

3.84

 

 

$

1.56

 

Diluted

 

$

1.35

 

 

$

1.13

 

 

$

3.80

 

 

$

1.55

 

 

 

 

 

 

 

 

 

 

Average common shares outstanding

 

 

 

 

 

 

 

 

Basic

 

34,904,487

 

 

35,762,918

 

 

34,869,021

 

 

35,768,471

 

Diluted

 

35,239,834

 

 

36,143,367

 

 

35,202,519

 

 

36,174,759

 

Diluted net earnings per share for the three and nine months ended June 29, 2019 include increases of $0.13 and $0.23, respectively, related to our adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606).

Results shown in the previous table include the one-time impacts of the Tax Cuts and Jobs Act of 2017 and restructuring related to our wind pitch controls business. 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 29,

2019

 

June 30,

2018

 

June 29,

2019

 

June 30,

2018

As Reported:

 

 

 

 

 

 

 

 

Earnings before income taxes

 

$

61,720

 

 

$

54,955

 

 

$

175,522

 

 

$

128,458

 

Income taxes

 

14,255

 

 

14,205

 

 

41,629

 

 

72,444

 

Effective income tax rate

 

23.1

%

 

25.8

%

 

23.7

%

 

56.4

%

Net earnings attributable to Moog and noncontrolling interest

 

47,465

 

 

40,750

 

 

133,893

 

 

56,014

 

Net earnings attributable to Moog

 

47,465

 

 

40,683

 

 

133,893

 

 

55,947

 

Diluted net earnings per share attributable to Moog

 

$

1.35

 

 

$

1.13

 

 

$

3.80

 

 

$

1.55

 

 

 

 

 

 

 

 

 

 

Non-GAAP Adjustments – Due to Restructuring – Wind pitch controls business:

 

 

 

 

 

 

 

 

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

 

$

61,720

 

 

$

55,804

 

 

$

175,522

 

 

$

160,694

 

Income taxes

 

14,255

 

 

14,205

 

 

41,629

 

 

41,153

 

Effective income tax rate

 

23.1

%

 

25.5

%

 

23.7

%

 

25.6

%

Net earnings attributable to Moog and noncontrolling interest

 

47,465

 

 

41,599

 

 

133,893

 

 

119,541

 

Net earnings attributable to Moog

 

47,465

 

 

41,532

 

 

133,893

 

 

119,474

 

Diluted net earnings per share attributable to Moog

 

$

1.35

 

 

$

1.15

 

 

$

3.80

 

 

$

3.30

 

Moog Inc.

CONSOLIDATED SALES AND OPERATING PROFIT

(dollars in thousands)

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 29,

2019

 

June 30,

2018

 

June 29,

2019

 

June 30,

2018

Net sales:

 

 

 

 

 

 

 

 

 

Aircraft Controls

 

 

$

336,735

 

 

$

299,606

 

 

$

961,407

 

 

$

889,579

 

Space and Defense Controls

 

 

173,045

 

 

149,815

 

 

493,938

 

 

426,735

 

Industrial Systems

 

 

231,189

 

 

242,597

 

 

684,111

 

 

692,288

 

Net sales

 

 

$

740,969

 

 

$

692,018

 

 

$

2,139,456

 

 

$

2,008,602

 

Operating profit:

 

 

 

 

 

 

 

 

 

Aircraft Controls

 

 

$

34,484

 

 

$

33,601

 

 

$

94,805

 

 

$

98,437

 

 

 

 

10.2

%

 

11.2

%

 

9.9

%

 

11.1

%

Space and Defense Controls

 

 

24,133

 

 

16,689

 

 

63,110

 

 

50,204

 

 

 

 

13.9

%

 

11.1

%

 

12.8

%

 

11.8

%

Industrial Systems

 

 

25,495

 

 

24,972

 

 

83,428

 

 

39,455

 

 

 

 

11.0

%

 

10.3

%

 

12.2

%

 

5.7

%

Total operating profit

 

 

84,112

 

 

75,262

 

 

241,343

 

 

188,096

 

 

 

 

11.4

%

 

10.9

%

 

11.3

%

 

9.4

%

Deductions from operating profit:

 

 

 

 

 

 

 

 

 

Interest expense

 

 

9,780

 

 

8,850

 

 

29,401

 

 

26,585

 

Equity-based compensation expense

 

 

1,439

 

 

894

 

 

5,130

 

 

4,394

 

Non-service pension expense

 

 

3,182

 

 

1,693

 

 

9,562

 

 

5,093

 

Corporate and other expenses, net

 

 

7,991

 

 

8,870

 

 

21,728

 

 

23,566

 

Earnings before income taxes

 

 

$

61,720

 

 

$

54,955

 

 

$

175,522

 

 

$

128,458

 

 

Operating Profit and Margins – as adjusted

 

 

Three Months Ended

 

Nine Months Ended

 

 

June 29,

2019

 

June 30,

2018

 

June 29,

2019

 

June 30,

2018

Industrial Systems operating profit – as reported

 

$

25,495

 

 

$

24,972

 

 

$

83,428

 

 

$

39,455

 

Inventory write-down – restructuring

 

 

 

2,398

 

 

 

 

9,727

 

Restructuring – Wind pitch controls business

 

 

 

(1,549

)

 

 

 

22,509

 

Industrial Systems operating profit- as adjusted

 

25,495

 

 

25,821

 

 

83,428

 

 

71,691

 

 

 

11.0

%

 

10.6

%

 

12.2

%

 

10.4

%

Total operating profit – as adjusted

 

$

84,112

 

 

$

76,111

 

 

$

241,343

 

 

$

220,332

 

 

 

11.4

%

 

11.0

%

 

11.3

%

 

11.0

%

Moog Inc.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 

 

 

June 29,

2019

 

September 29,

2018

ASSETS

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

$

89,045

 

 

$

125,584

 

Receivables

 

922,853

 

 

793,911

 

Inventories

 

515,055

 

 

512,522

 

Prepaid expenses and other current assets

 

44,239

 

 

44,404

 

Total current assets

 

1,571,192

 

 

1,476,421

 

Property, plant and equipment, net

 

582,105

 

 

552,865

 

Goodwill

 

791,678

 

 

797,217

 

Intangible assets, net

 

84,629

 

 

95,537

 

Deferred income taxes

 

15,736

 

 

17,328

 

Other assets

 

20,799

 

 

24,680

 

Total assets

 

$

3,066,139

 

 

$

2,964,048

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

Current liabilities

 

 

 

 

Short-term borrowings

 

$

93

 

 

$

3,623

 

Current installments of long-term debt

 

292

 

 

365

 

Accounts payable

 

227,600

 

 

208,823

 

Accrued compensation

 

134,015

 

 

147,765

 

Contract advances

 

147,677

 

 

151,687

 

Contract loss and contract-related reserves

 

57,556

 

 

47,417

 

Other accrued liabilities

 

108,541

 

 

120,944

 

Total current liabilities

 

675,774

 

 

680,624

 

Long-term debt, excluding current installments

 

825,965

 

 

858,836

 

Long-term pension and retirement obligations

 

119,269

 

 

117,471

 

Deferred income taxes

 

56,664

 

 

46,477

 

Other long-term liabilities

 

32,810

 

 

35,654

 

Total liabilities

 

1,710,482

 

 

1,739,062

 

Shareholders’ equity

 

 

 

 

Common stock – Class A

 

43,789

 

 

43,785

 

Common stock – Class B

 

7,491

 

 

7,495

 

Additional paid-in capital

 

525,962

 

 

502,257

 

Retained earnings

 

2,096,174

 

 

1,973,514

 

Treasury shares

 

(750,326

)

 

(738,494

)

Stock Employee Compensation Trust

 

(124,128

)

 

(118,449

)

Supplemental Retirement Plan Trust

 

(76,751

)

 

(72,941

)

Accumulated other comprehensive loss

 

(366,554

)

 

(372,181

)

Total Moog shareholders’ equity

 

1,355,657

 

 

1,224,986

 

Total liabilities and shareholders’ equity

 

$

3,066,139

 

 

$

2,964,048

 

Moog Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

 

 

 

Nine Months Ended

 

 

June 29,

2019

 

June 30,

2018

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net earnings attributable to Moog and noncontrolling interest

 

$

133,893

 

 

$

56,014

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

Depreciation

 

53,744

 

 

54,693

 

Amortization

 

10,364

 

 

13,628

 

Deferred income taxes

 

3,764

 

 

35,549

 

Equity-based compensation expense

 

5,130

 

 

4,394

 

Impairment of long-lived assets and inventory write-down associated with restructuring

 

 

 

24,246

 

Other

 

2,550

 

 

4,743

 

Changes in assets and liabilities providing (using) cash:

 

 

 

 

Receivables

 

(42,267

)

 

(27,597

)

Inventories

 

(68,519

)

 

(27,840

)

Accounts payable

 

19,412

 

 

12,778

 

Contract advances

 

(4,670

)

 

(165

)

Accrued expenses

 

(9,450

)

 

11,709

 

Accrued income taxes

 

(5,564

)

 

(1,817

)

Net pension and post retirement liabilities

 

20,486

 

 

(130,135

)

Other assets and liabilities

 

10,222

 

 

16,150

 

Net cash provided by operating activities

 

129,095

 

 

46,350

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Acquisitions of businesses, net of cash acquired

 

 

 

(47,947

)

Purchase of property, plant and equipment

 

(91,083

)

 

(70,759

)

Other investing transactions

 

2,518

 

 

(3,448

)

Net cash used by investing activities

 

(88,565

)

 

(122,154

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Net short-term (borrowings) repayments

 

(3,560

)

 

1,357

 

Proceeds from revolving lines of credit

 

570,200

 

 

301,500

 

Payments on revolving lines of credit

 

(604,513

)

 

(411,610

)

Proceeds from long-term debt

 

 

 

11,216

 

Payments on long-term debt

 

(255

)

 

(21,849

)

Payment of dividends

 

(26,156

)

 

(8,941

)

Proceeds from sale of treasury stock

 

2,443

 

 

2,451

 

Purchase of outstanding shares for treasury

 

(17,986

)

 

(5,210

)

Proceeds from sale of stock held by SECT

 

10,036

 

 

1,941

 

Purchase of stock held by SECT

 

(13,327

)

 

(8,444

)

Proceeds from sale of SERP stock

 

4,293

 

 

 

Other financing transactions

 

 

 

484

 

Net cash used by financing activities

 

(78,825

)

 

(137,105

)

Effect of exchange rate changes on cash

 

(366

)

 

2,266

 

Decrease in cash, cash equivalents and restricted cash

 

(38,661

)

 

(210,643

)

Cash, cash equivalents and restricted cash at beginning of period

 

127,706

 

 

386,969

 

Cash, cash equivalents and restricted cash at end of period

 

$

89,045

 

 

$

176,326

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

Treasury shares issued as compensation

 

$

11,795

 

 

$

 

Equipment acquired through financing

 

$

148

 

 

$