Fiscal Year 2018 First Quarter Results

Transcription

1 Fiscal Year 2018 First Quarter Results JANUARY 22, 2018 PAGE 1

2 Today s Agenda Highlights Market Review Financial Results & Outlook Q&A Don Guzzardo Tom Gendron Bob Weber PAGE 2

3 Cautionary Statement Information in this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, including, but not limited to, statements regarding our expectations related to the performance of our segments, our expectations regarding the effects of the changes in the U.S. tax legislation on our business and our related plans, our strategic actions and their proposed effect, our future sales, earnings, liquidity, tax rate, and relative profitability, and expectations regarding our markets. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Factors that could cause actual results and the timing of certain events to differ materially from the forwardlooking statements include, but are not limited to, a decline in business with, or financial distress of, Woodward s significant customers; global economic uncertainty and instability in the financial markets; Woodward s ability to manage product liability claims, product recalls or other liabilities associated with the products and services that Woodward provides; Woodward s ability to obtain financing, on acceptable terms or at all, to implement its business plans, complete acquisitions, or otherwise take advantage of business opportunities or respond to business pressures; Woodward s long sales cycle, customer evaluation process, and implementation period of some of its products and services; Woodward s ability to implement and realize the intended effects of any restructuring and alignment efforts; Woodward s ability to successfully manage competitive factors, including prices, promotional incentives, competitor product development, industry consolidation, and commodity and other input cost increases; Woodward s ability to manage expenses and product mix while responding to sales increases or decreases; the ability of Woodward s subcontractors to perform contractual obligations and its suppliers to provide Woodward with materials of sufficient quality or quantity required to meet Woodward s production needs at favorable prices or at all; Woodward s ability to monitor its technological expertise and the success of, and/or costs associated with, its product development activities; Woodward s debt obligations, debt service requirements, and ability to operate its business, pursue its business strategies and incur additional debt in light of covenants contained in its outstanding debt agreements; Woodward s ability to manage additional tax expense and exposures; risks related to Woodward s U.S. Government contracting activities, including liabilities resulting from legal and regulatory proceedings, inquiries, or investigations related to such activities; the potential of a significant reduction in defense sales due to decreases in the amount of U.S. Federal defense spending or other specific budget cuts impacting defense programs in which Woodward participates; changes in government spending patterns, priorities, subsidy programs and/or regulatory requirements; future impairment charges resulting from changes in the estimates of fair value of reporting units or of long-lived assets; future results of Woodward s subsidiaries; environmental liabilities related to manufacturing activities and/or real estate acquisitions; Woodward s continued access to a stable workforce and favorable labor relations with its employees; physical and other risks related to Woodward s operations and suppliers, including natural disasters, which could disrupt production; Woodward s ability to successfully manage regulatory, tax, and legal matters; risks related to Woodward s common stock, including changes in prices and trading volumes; risks from operating internationally, including the impact on reported earnings from fluctuations in foreign currency exchange rates, and compliance with and changes in the legal and regulatory environments of the United States and the countries in which Woodward operates; fair value of defined benefit plan assets and assumptions used in determining Woodward s retirement pension and other postretirement benefit obligations and related expenses; industry risks, including increases in natural gas prices, unforeseen events that may reduce commercial aviation and increasing emissions standards; Woodward s operations may be adversely affected by information systems interruptions or intrusions; certain provisions of Woodward s charter documents and Delaware law that could discourage or prevent others from acquiring the company; and other risk factors described in Woodward's Annual Report on Form 10-K for the year ended September 30, 2017 and other risks described in Woodward s filings with the Securities and Exchange Commission. PAGE 3

4 Q1 Fiscal Year 2018 Highlights Net sales of $470 million Compared to $443 million last year, 6% increase Net earnings of $18 million, or $0.29 per share Compared to $47 million, or $0.73 per share last year Includes one-time expense of ~$15 million, or $0.24 per share, due to new U.S. tax legislation EBIT 1 of $44 million Compared to $53 million last year Net cash used in operating activities of $3 million Compared to cash generated of $52 million for the prior year. Free cash outflow 1 of $31 million Compared to inflow of $31 million last year Capital expenditures increased $7 million PAGE 4

5 Aerospace Commercial OEM Strong market narrowbody ramp ups Record deliveries for Boeing and Airbus Business jet and rotorcraft showing signs of recovery Commercial Aftermarket Increased 23% for quarter Passenger and cargo traffic at record levels Defense Defense budget increases and global instability Smart weapons continue to provide lift PAGE 5

6 Industrial Long term trends remain solid Natural gas and renewables continue to gain share of global energy Power generation Industrial gas turbine market remained weak Shorter cycle distributed power showing improvement Transportation Natural gas truck market in Asia remained strong Oil and gas Ongoing improvement as oil prices stabilize, rig counts rise PAGE 6

7 U.S. Tax Legislation Impact Effective tax rate for the first quarter of 2018 was 51.3%, compared to 1.1% for the first quarter of 2017 One-time tax expense of $15 million, or $0.24 per share 2018 first quarter tax rate was negatively impacted primarily by the offshore transition tax Partially offset by the positive impacts of the lower tax rate on our deferred tax liabilities 2017 first quarter tax rate was low Favorable tax impact of repatriation of certain foreign earnings Expect fiscal 2018 full year effective tax rate to be ~24% September 30 fiscal year-end results in a blended rate for fiscal 2018 Will generate ~$25 million of additional free cash flow in fiscal 2018 Beyond 2018, expect long term rate to be ~22% PAGE 7

8 Q1 Fiscal Year 2018 Consolidated Results Woodward Sales (mil $) EBIT (mil $) Net Earnings (mil $) Earnings Per Share 47 $ $0.29 PAGE 8

9 Aerospace Q1 Fiscal Year 2018 Results Net Sales Strong defense OEM and commercial aftermarket Earnings Higher volume Offset by negative mix, higher manufacturing and R&D expense Segment Margin % Aerospace Sales (mil $) Segment Earnings (mil $) 17.6% 14.2% PAGE 9

10 Industrial Q1 Fiscal Year 2018 Results Net Sales Higher transportation and O&G Offset by weak power generation Earnings Cost savings related to strategic actions Partially offset by lower sales volume Segment Margin % Industrial Sales (mil $) Segment Earnings (mil $) 10.2% 11.8% PAGE 10

11 Selected Financial Items Quarter Comparatives Net Sales (in millions) $ Q1 FY $ Q1 FY Net Earnings $ 18 $ 47 Earnings Per Share $ 0.29 $ 0.73 Gross Margin * 26.2% 25.7% SG&A Expenses - % of Sales 9.8% 8.6% R&D Expenses - % of Sales 7.4% 6.0% Ratio of Debt-to-Debt-Plus-Equity 31.7% 37.1% Tax Expense - % of EBT ** 51.3% 1.1% EBIT 1 (mils) $ 44 $ 53 EBITDA 1 (mils) $ 65 $ 72 Year-to-Date Comparatives YTD FY 18 YTD FY 17 Cash from Operations (mils) $ (3) $ 52 Capital Expenditures (mils) $ 28 $ 21 Free Cash Flow 1 (mils) $ (31) $ 31 * Gross margin defined as (Net Sales less Cost of Goods Sold) / (Net Sales); ** EBT defined as Earnings Before Taxes PAGE 11

12 Fiscal Year 2018 Outlook Woodward Revenue between $2.2 and $2.3 billion Effective tax rate ~24% Earnings per diluted share now between $3.35 and $3.60 per share Aerospace Revenue up between 8% and 10% Margin flat to slightly up Industrial Revenue flat to slightly down Margin flat to slightly up PAGE 12

13 Appendix PAGE 13

14 Non-U.S. GAAP Measures Q1 FY 18 Q1 FY 17 (mils) (mils) Net Earnings $ 18.3 $ 46.5 Income Taxes Interest Expense YTD FY 18 YTD FY 17 (mils) (mils) Cash From Operations $ (2.5) $ 52.4 Payments for PP&E (28.5) (21.1) Free Cash Flow 1 $ (31.0) $ 31.3 Interest Income (0.4) (0.4) (Unaudited) EBIT Amortization of Intangibles Depreciation Expense EBITDA 1 $ 64.9 $ 72.4 (Unaudited) PAGE 14

15 Explanation of Non-U.S. GAAP Measures 1 Non-U.S. GAAP Financial Measures: EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation and amortization), and free cash flow are financial measures not prepared and presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Management uses EBIT to evaluate Woodward s operating performance without the impacts of financing and tax related considerations. Management uses EBITDA in evaluating Woodward s operating performance, making business decisions, including developing budgets, managing expenditures, forecasting future periods, and evaluating capital structure impacts of various strategic scenarios. Management uses free cash flow, which is derived from net cash provided by or used in operating activities less payments for property, plant, and equipment, in reviewing the financial performance of Woodward s various business segments and evaluating cash generation levels. Securities analysts, investors, and others frequently use EBIT, EBITDA and free cash flow in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets that are subject to amortization. The use of any of these non-u.s. GAAP financial measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. Because EBIT and EBITDA exclude certain financial information compared with net earnings, the most comparable U.S. GAAP financial measure, users of this financial information should consider the information that is excluded. Free cash flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Management s calculations of EBIT, EBITDA, and free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures. PAGE 15

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