管理層發言
Good morning, everyone, and welcome to Moog Inc.'s First Quarter Fiscal 2025 Earnings Conference Call. I will now hand it over to Aaron Astrachan, Director of Investor Relations. Please proceed.
Good morning, and thank you for joining Moog's First Quarter 2025 Earnings Release Conference Call. I am Aaron Astrachan. 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 slides, both of which are available on our website. Our earnings press release, our supplemental slides 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, which are not guarantees. 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'm happy to turn the call over to Pat.
Good morning, and welcome to the call. Today, we will share an update on the first quarter financial and operational performance and an updated outlook for the year. We've delivered a great quarter with strong sales growth, impressive bookings and solid margin enhancement. We're delivering value for our customers, and we're being rewarded with significant program wins. Our operational initiatives will deliver continued margin enhancement and strong free cash flow in the second half of fiscal '25. Now let me provide further detail on our operational initiatives that are driving this strong performance. Firstly, our customer focus. Our performance in delivering for our customers has put us in a great position to pursue and capture significant opportunities arising from broad-based defense demand. We secured record quarterly bookings of over $450 million in our Space and Defense segment. These wins cover a range of applications and leverage our technical leadership and our operational performance.
Close to half of the bookings were within our missiles business with the largest single award being a production order for over $100 million from Lockheed for the control actuation system on the PAC-3 program. We also captured initial bookings on collaborative combat aircraft platforms, demonstrating the relevance of our technology in this fast-moving segment. Bookings were also very impressive in Commercial Aircraft with close to $400 million in orders with almost 60% aftermarket content. We continue to grow our customer base for Moog total support with additional long-term agreements with airlines around the world. In December, the German government delivered to the Ukrainian Armed Forces the first of 54 self-propelled RCH 155 howitzers produced by KNDS. In support of our growing Defense business in Europe, we've recently added manufacturing space to our Böblingen site in Germany. Next, turning to people, community and planet.
I want to return to the impact of extreme weather with an update on Tewkesbury. As you may recall, we experienced severe damage to our Tewkesbury Commercial Aircraft facility in September. I'm pleased to report that we have regained production capacity within 8 weeks of the event. This is a remarkable achievement. It's a credit to the dedication of our staff who continue to drive the recovery so that we can deliver on our customers' commitments. Reinstatement of our production facility will continue through fiscal '25. It is heartbreaking to see the loss of life and the destruction brought by the wildfires in Los Angeles. We are concerned for all those impacted, including our staff at our Torrance and Chatsworth operations. To date, there has been no impact on our facilities. We published a second sustainability report in December 2024. In its broadest sense, sustainability is about adapting to the evolving needs of our stakeholders, and we've made significant strides.
Some highlights include CO2 emission reduction through HVAC upgrades and the deployment of solar arrays, installation of water purification projects in our communities in India and the Philippines and progress in tackling hazardous wastes. In addition, we made a commitment to cut water consumption by 20% relative to a fiscal '22 baseline in areas that are designated water-stressed and to better manage our water resources across our footprint. In relation to supporting sustainable aviation industry, we are pleased to be collaborating with JetZero on their blended wing body demonstrator, which promises a half fuel burn and emissions as a step towards net 0 carbon emissions by 2050. Moog is providing the flight control actuation on this aircraft. Finally, turning to financial strength. We continue to make excellent progress on driving margin enhancement through pricing and simplification. Our execution is in line with our Investor Day commitments.
We continue to simplify our operations. The transfer of all production from our Radford, Virginia motors manufacturing site is complete, and we will soon exit that facility. This completes the consolidation of our Industrial electric motors in the U.S. to our focused factory in Murphy, North Carolina. In addition, in November, we entered a collective consultation process with staff on the proposed closure of our slip ring manufacturing site in Reading in the United Kingdom. The consultation process will conclude by end of January. We expanded 80/20 deployment to cover 75% of our business by sales and trained more than 60 leaders, bringing the total to over 900. We're on a plan to deploy to all manufacturing locations by the end of fiscal '26. We continue to develop our capabilities and are using insights gained to drive productivity and reduce complexity in the business. We're building momentum by using our own success stories to educate the wider organization and to show what is possible through 80/20.
As part of 80/20, we've continued to expand voice of the customer interviews, and we're using that feedback to drive improvement, further building customer loyalty. Finally, during a recent visit to our German Industrial manufacturing facilities, I saw firsthand the strong commitment to driving production efficiency achieved through innovation within our manufacturing process and the integration of robotics and automation. Now turning to the macroeconomic and end market conditions. With a change of administration in Washington this week, let me start with a few comments on our Defense business. The geopolitical environment remains extremely challenging. Whilst the recent ceasefire in Gaza is an extremely welcome development, there is still an ongoing war in Ukraine and tensions over Taiwan. The threat from growing military capability of near peers is undiminished. Consequently, there is no lessening of the need to replenish arsenals over the next few years, to modernize and upgrade existing platforms and to develop new strategic capabilities.
For these reasons, we believe that our FY '25 guidance is solid, and we foresee continued expansion in our Defense business based on our significant bookings. Whilst the new administration will certainly define its own Department of Defense priorities, we believe that our broad-based exposure across all defense domains positions us well. In addition, we expect to see continuing growth in international demand. The new administration will likely introduce tariffs, although it is not clear how widely they will be applied nor at what level. We've experienced the impact of tariffs in the past, and we will work with our customers and suppliers to mitigate any impact. On the Commercial side, we remain optimistic that wide-body platforms will ramp in fiscal '26, given the feedback received from our customers and their actions. The fact that Boeing recently announced a $1 billion investment into its Charleston facility is a strong commitment to the 787 ramp plan.
Airbus also reaffirmed their A350 ramp plan. We're well positioned to support this, and we look forward to that increased demand flowing through our business. Finally, the Industrial business has stabilized despite the soft market conditions. In fact, our book-to-bill ratio was greater than 1 for the first time in 2 years. Now let's turn to the guidance for fiscal '25. We had a good start to the fiscal year, and we're maintaining our full year guidance. This means solid revenue growth, strong adjusted operating margin improvement in line with our investor plan and a significant improvement in free cash flow relative to fiscal '24. Our revenue guide is unchanged with just minor updates by segment to reflect what was achieved in quarter 1 and the impact of unfavorable exchange rates within the Industrial business. Our margin guide also remains unchanged. Finally, our free cash flow is unchanged for the year. Whilst our use of cash in the quarter was high, we have a clear line of sight to its improvement in quarter 3 and strong cash flows for the back half of the year.
Thanks, Pat. I'll begin with our first quarter financial performance. I'll then provide an update on our guidance for FY '25. We had a great start to the year from an earnings perspective. Sales were up nicely over last year's first quarter, and adjusted operating margin and earnings per share were strong. We continue to simplify our business. As a result, we took $6 million of charges largely associated with our footprint rationalization activities in the first quarter. I'll now talk through our first quarter adjusted results, which exclude these charges. Sales in the first quarter of $910 million were 6% higher than last year's first quarter. Military Aircraft, Commercial Aircraft, and Space and Defense sales were up considerably while Industrial sales were down due to our simplification efforts. The most significant increases in segment sales were in Military Aircraft and Commercial Aircraft.
In Military Aircraft, sales of $213 million were up 15% over the first quarter of last year. Activity on the FLRAA program began to ramp midway through FY '23 and has steadily increased since that time, accounting for half of the sales increase this quarter. In addition, over the past couple of years, certain other development work was shifted into production, and we're seeing a ramp in that production that will continue for the next few years. Commercial Aircraft sales of $221 million increased 14% over the same quarter a year ago. Aftermarket sales were particularly strong. It was a good quarter for repair activity. In addition, we're partnering with airlines to ensure they can meet early demand on their fleet, and this resulted in strong provisioning for spares. In addition, OE sales were up due to the timing of orders. In the second half of FY '24, we saw a short-term delay in sales, and we're now seeing those orders catch up, thereby increasing our sales.
Space and Defense sales of $248 million increased 8% over the first quarter last year. We're seeing broad-based defense demand that's driving the growth within this segment. This quarter, the growth is most notable for European defense needs and satellite and launch vehicle activity. Industrial sales were $228 million in the first quarter. That's down 7% from the same quarter a year ago. Half of the decrease relates to the divestitures we completed at the beginning of the first quarter. Otherwise, sales in our Industrial automation business have stabilized, consistent with the fourth quarter last year and down from the strong level a year ago. Strength in our medical pumps business, which reached a record high this quarter, helped to offset this decline as we benefited from a competitor's challenges. We'll now shift to operating margins. Adjusted operating margin of 11.8% in the first quarter was up from 11.3% in the first quarter last year.
Adjusted operating margins increased over the first quarter of last year in each of our segments. We achieved this margin expansion despite 80 basis points of pressure from recording an out-of-period warranty expense this quarter. The most impactful increase was in Space and Defense, where operating margin increased 90 basis points to 11.9%. This increase is associated with our strong growth partially offset by a less favorable program mix and investments to prepare for upcoming major programs. Industrial operating margin was 13.2% in the first quarter, up 60 basis points. This increase is attributable to benefits from simplification initiatives, including the divestitures we completed at the beginning of the first quarter. Military Aircraft operating margin was 11.0% in the first quarter, 50 basis points higher than in the first quarter last year. We benefited from efficiencies associated with higher volume on the FLRAA program and lower research and development expenses.
These benefits were partially offset by a less favorable sales mix. Commercial Aircraft operating margin was 11.0%, up 40 basis points from the first quarter last year. Underlying operational performance was robust, reflecting very strong aftermarket sales. This strength was largely offset by 340 basis points of pressure related to recording the out-of-period warranty expense. Putting it all together, adjusted earnings per share came in at $1.78, up 16% compared to last year's first quarter despite $0.18 of pressure associated with the out-of-period expense. The increase is attributable to higher operating margins and additional operating profit associated with higher sales. Let's shift over to cash flow. In the first quarter, we used $165 million of free cash flow. The use of cash was driven by working capital requirements. We used cash for physical inventories to support future sales growth.
We also used cash for receivables as our strong collections in the fourth quarter last year left less to collect this quarter. In addition, timing of compensation payments impacted us in the first quarter. Capital expenditures at $33 million were relatively light compared to recent quarters. We're continuing to invest in facilities and equipment to support longer-term growth opportunities. The lower level of capital expenditures this quarter simply reflects timing, and we're expecting spend to pick up next quarter. Capital expenditures represent a key opportunity for us to invest for organic growth, and this continues to be a priority within our capital allocation strategy. Over time, we strive to have a balanced approach to capital allocation. In that regard, we repurchased roughly 220,000 shares of our stock in the first quarter, spending just over $40 million. In addition, we remain committed to our dividend policy, and as announced, we're increasing our quarterly dividend by 4% to $0.29 per share.
Our leverage ratio was 2.4x as of the end of the first quarter, nicely within our target range of 2 to 3x. We'll now shift over to our updated guidance for this year, which is unchanged from 90 days ago at a company level. Fiscal year 2025 is shaping up to be another strong year with growth in sales, continued operating margin expansion, and enhanced free cash flow generation. Both pricing and simplification will drive our operating margin expansion this year while our focus on optimizing our planning and sourcing activities will contribute to our significant cash generation in the back half of this year. We're projecting sales of $3.7 billion in fiscal year '25, a 3% increase compared to fiscal year '24. We're projecting sales growth in Space and Defense, Commercial Aircraft, and Military Aircraft and expecting a decrease in sales in Industrial. We're maintaining the sales guidance for FY '25 that we shared a quarter ago with a modest shift between segments to reflect what we've seen in the first quarter.
We're increasing our sales guidance in Commercial Aircraft by $20 million to reflect the strong first quarter aftermarket activity. We're increasing sales guidance for Military Aircraft by $10 million to reflect our current run rate. And we're decreasing sales guidance by $30 million in Industrial to reflect the weakening of foreign currencies against the U.S. dollar that we saw in the first quarter. We're holding our adjusted operating margin for FY '25 at 13.0%, a 60 basis point increase over FY '24 or 120 basis points after factoring out FY '24 employee retention credit and FY '25 out-of-period warranty expense. Operating margins will be 14.2% in Space and Defense, 13.1% in Military Aircraft, 11.0% in Commercial Aircraft, and 13.4% in Industrial, all the same as our previous guidance. We're affirming our FY '25 adjusted earnings per share guidance at $8.20 plus or minus $0.20. That's up 5% over FY '24 or 14% normalizing for this year's out-of-period expense and last year's benefits that are not reflective of operational performance.
For the second quarter, we're forecasting earnings per share to be $1.75, plus or minus $0.10. This reflects a similar operating margin in Q2 relative to Q1 with neither the out-of-period warranty expense nor the extraordinary Commercial aftermarket strength repeating in Q2. Finally, turning to cash. We're still projecting free cash flow conversion in FY '25 to be in the 50% to 75% range, a solid improvement from the modest level of cash we generated in FY '24. Free cash flow in the second quarter will improve markedly from the first quarter as we are projecting no cash usage in the second quarter. The real improvement, though, will be in the back half of the year as we reduce inventories from our planning and sourcing activities and collect on receivables. Overall, FY '25 is shaping up to be another great year. And now I'll turn it over to Pat.
Thank you, Jennifer. Our first quarter was a strong start to the fiscal year. It provides us with increased confidence in our guidance for the year, and we will continue to see our performance improvements reflected in those results. Now let's turn it over to your questions.
分析師問答
And your first question is from Jon Tanwanteng from CJS Securities.
My first one, Pat, is I was wondering if you could talk about your CCA involvement. It's nice to hear you're having some activity there. How much of an opportunity is that relative to other large programs, such as FLRAA or F-35? And kind of when do you see that layering in?
Jon, welcome to the call. Thanks for the question. Yes, I think the reason for indicating our work on CCA is to say that we have relevant technologies that we can offer in this space. We have been engaged in conversations on several of the CCA programs, and we have development activity underway to prove out our concepts. So it's early stages, I would describe. But as a mechanical component supplier into these, we feel that we have a valuable role that we can provide on the flight control side.
Understood. And are you involved with all the players who are competing there? Or is it just 1 or 2 of those platforms?
Yes. It's in the 1 or 2. It's less than a handful at this point.
Got it. Okay. And then I was wondering if you could talk about the Boeing investment in the 787 production line. I was wondering, how much capacity does that enable for them? Or is that more just catching back up to where they were producing before COVID? A little more detail on that and kind of what that kind of forecast of their production rates in the future, if you have that kind of detail.
Boeing is still working towards achieving a production rate of 10 for the 787 wide-body aircraft by the end of fiscal '26. That is their goal, and their investment is aimed at enabling them to reach this target through the Charleston facility.
Okay. Understood. Lastly, I was curious about how you secured some of the aftermarket orders in the Commercial space with Tewkesbury down. Is that simply a reflection of how quickly you are ramping things back up? Or are there other capacities or orders scheduled for future dates?
Yes, our repair work is processed not just in Tewkesbury but also in various facilities globally. We currently have a significant backlog in the aftermarket sector, which we have managed to push through our production system, contributing to the increase in sales. Additionally, we supplied airlines directly with spare parts to maintain fleet readiness, which added to our workload for the quarter. Overall, we have a robust business portfolio in the aftermarket segment, supplemented by extra work we managed to complete this quarter. Regarding the Tewkesbury site, we successfully reinstated our interim production environment in a relatively short timeframe, allowing us to resume production and fulfill customer commitments. However, there is still considerable work needed to fully restore our production capabilities to a level that provides us with some flexibility. We are currently limited by our available resources, but we are making progress in getting products through the plant.
Our next question is from Michael Ciarmoli from Truist Securities.
Pat, maybe just to stay on that aftermarket a bit, and I don't know how you want to take this. But you called out in the release the warranty expense, excluding that 14.4% margins, that looks to be a multiyear high. I guess 2 questions. Why didn't you opt to just adjust out that warranty expense? I can't recall, and I checked my notes; I don't know when the last time you had one of those charges were. And I guess should we think about that level being sustainable? It sounds like you got a lot of aftermarket through some provisioning. But just trying to get some color on that 14.4% as it relates to kind of longer-term targets and you're going to get some volume increases. So how should we think about that?
I think we had a really good quarter, obviously. And if you back it out, back out that one-time expense, it was very strong, and it is a record margin quarter for the Commercial Aircraft group. So all that is correct, Michael. We anticipate continuing strength on the aftermarket side, but we had the extra boost coming through from that provisioning and getting some out of our Tewkesbury output back out again. So there's some gain coming from those things, and we're just not banking on that repeating in the subsequent quarters. But we do still have a really solid level of aftermarket business planned in for the rest of the year. I think it is a positive story, Michael, about that strength in the aftermarket and the operational improvements on the Commercial side.
Got it. So fair to say, more skewed towards aftermarket versus OE? There wasn't any additional pricing, maybe just kind of ongoing operational excellence and improvements on the OE side.
The aftermarket was a significant driver to the underlying performance that we saw in the operating margin performance. And to your question as far as the out-of-period and warranties, yes, you can think of this as it's not an ongoing type of thing. It doesn't change our warranty expense going forward or anything like that. That's why we try to give you a trail to say how much was included in our numbers. Typically, in our adjustments, we only keep things like restructuring and those types of activities in there.
Yes, fair. Jennifer, do you have the Commercial OE revenue growth and aftermarket growth in the quarter handy?
Yes, both segments experienced growth. The aftermarket growth was slightly higher, accounting for just over half of the total growth in that segment.
Okay. And then shifting to Industrial, you mentioned that the bookings exceeded a book-to-bill ratio of 1x. Can you provide more insight into what drove that and what you're observing in those markets? It seems like you have better visibility here, and I'm curious if this bookings trend is expected to continue.
Yes, I think this has been a long-running situation where we've discussed the softening economy in Germany, which has affected our orders, particularly in the Industrial automation sector. However, medical has been strong, and we achieved record sales in our medical pumps business this quarter. In prior quarters, strength in simulation and testing also contributed positively. If I set those aside and focus solely on Industrial automation, it appears to be relatively stable at this time. I mentioned this in the fourth quarter, and I still hold the view that we will maintain a similar level of Industrial automation activity through fiscal '25. The overall message is stability, and the book-to-bill ratio is a good sign. We would like to see that trend continue for a few more quarters before we can be certain that the business is on the upswing. Nonetheless, this aligns with the plans we made for '25, anticipating stability for the year.
Got it. Okay. And then just one last one for me. The second quarter earnings guidance at the midpoint, sequentially down versus first quarter. I think that's kind of an anomaly for you guys. Can you give any color as to why we should expect earnings to be down at the midpoint versus the first quarter here?
Yes, it's largely about the same. When we consider the out-of-period items and the warranties, we believe neither will carry into the next quarter. Overall, it's pretty much flat, with just a slight decrease in EPS.
Your next question is from Jack Ayers from TD Cowen.
Quick question on cash, Jennifer. I would love to dig into the fact that you burned $165 million this quarter. Looking ahead, could you discuss working capital, specifically inventory or unbilled amounts, and how we can be confident in the reiterated free cash flow conversion guidance?
Yes, I can provide some insights. I'll begin with the second quarter and then discuss the outlook for the remainder of the year. We anticipate an improvement in Q2, and I want to emphasize that we won't have a cash burn in this quarter. Several factors contribute to this. Compared to Q1, we expect better physical inventory management. We're seeing stronger shipments, along with key milestones that will enhance our physical inventory levels. Additionally, compensation payments that typically occur in Q1 won’t impact Q2, providing another advantage as we move forward. Another factor is customer advances; we anticipate incoming defense advances in the second quarter. Although receivables will still impact cash flow, they won’t do so at the same level as in Q1, which faced significant pressure due to robust collections in the previous quarter. The fluctuations in receivables are normal and should stabilize.
There are multiple factors driving improvement in the second quarter. However, the most substantial cash generation will occur in the third and fourth quarters. A significant area of focus will be the management of physical inventories, where we expect strong operational performance, supported by ongoing milestones. We will also see an increase in operational expenditures in shipments and are actively managing inventory levels by optimizing buffer stocks to meet customer needs without excess. We're minimizing overproduction to what is necessary to prevent any delivery risks. Furthermore, we are beginning to see improvements from the Tewkesbury output, which is helping to reduce inventory levels. We're also delaying incoming receipts and extending demand within our supply chain. Although these initiatives will take some time to show their effects, we expect to see these benefits reflected in our financial results in the latter half of the year.
In addition, we anticipate receiving strong collections in the back half of the year, including pending milestones. These elements will be the primary catalysts driving performance in that period. With our proactive approach to customer advances, collections, and inventory management, we are confident in maintaining a free cash flow conversion rate of 50% to 75% for the year.
Okay, that's all for me. Please go ahead.
Sorry. Jack, I was just going to say where we've been working to drive increased profitability with defined initiatives, we have a similar approach now internally on cash flow. And we know what we're trying to drive within each of the businesses, and we're tracking that as we go through each of our internal reviews to make sure we are delivering.
Okay. That's good insight. And I guess just switching gears back to Commercial, and I'm not sure if you covered it, Pat. Just maybe an update on OE rate just kind of assumptions, maybe 787, A350, because it looks like Commercial OE was actually up pretty strongly sequentially from Q4 to Q1, which is kind of surprising. Just any update on OE assumptions, where you were and where you're kind of looking to go to through '25 would be helpful.
So I think both of us are going to come in on this one, Jack. So just the first high-level comment. I mean when we built up the FY '25 plan, we had lots of conversations back and forth with the customers on the wide-body programs, which are really important to our numbers. And we have strong alignment now between their plans and our plans and are very confident in those levels that we have loaded into our plan. That's the first comment. And we've seen no change in that over the last 90 days. So I would describe that as very stable for us at the moment. And Jennifer, you had comments as well?
In the latter part of last year and this quarter's strong operational efficiency, the situation is primarily a matter of timing. In the third quarter of last year, we experienced a brief delay that carried over into both Q3 and Q4 due to a customer's ordering patterns. That has since normalized, and we have effectively caught up on those orders. Therefore, the timing of orders, which has historically been stable, has been the only issue. We witnessed a slight decline in the latter half of last year, which led us to lower our sales guidance. Now, we've successfully caught up on those orders, allowing us to achieve the higher levels we observed this time. So, we experienced a slight boost from that catch-up.
Your next question is from Jon Tanwanteng from CJS Securities.
I was just curious about the medical device business. You've mentioned to me that you achieved a record based on a competitor having challenges. I'm wondering how long that window might be open for. And do you expect a reversal or just stabilization if your competitor catches up?
Think about the time frame around those types of events in the 6- or 9-month period. It takes a little bit of time to work through issues when they do arise, and that's what our competitor is experiencing. We have been gaining from this over the prior quarter, and we will continue to for the rest of the year. So we're up mid-single digits to high single digits relative to the prior year in that product line.
Okay. And do you anticipate returning that share or perhaps retaining some of it that you gained when your competitor...?
At least we would expect to hold, Jon, because once you get that fleet out into the field, it continues actually to draw down consumables from us as well. So people don't like slipping or moving around too much. So I think it's relatively sticky.
Okay. Got it. That's what I thought. Okay. And then just could you maybe provide a little more detail on your international exposure by currency? I know you mentioned the headwind in the Industrial business, but I know you do have for Military sales as well. Are those sales in dollars? Or are they denominated in any other currency?
So that question is relating to our sales rather than our purchases. Is that right? You're not on the tariff line here? Yes, okay. We're just calling it up for you. Sorry, Jon, we're nearly there. Yes. I just can give you a quick summary now. Our sales regionally, let's say, 72% of the sales for fiscal '24 were in the U.S., 18% in Europe, 3% in Asia Pacific and then 7% in various other currencies around the world.
Thank you. There are no further questions at this time. I will now hand the call back to Pat Roche for the closing remarks.
Thank you. Thanks very much for the questions, everyone. That closes out our first quarter call. It's been a good quarter for us and a good start to the year, strong sales, record orders, impressive margin performance. We have had heavy use of cash in the quarter, but we can see a line of sight to improving that in the back half of the year. So we remain confident in our full-year guidance. So thank you for your time and attention, and look forward to talking to you again on the next call.
Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.