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Woodward (WWD) Q1 Earnings Beat on Healthy Top-Line Growth

Woodward, Inc. WWD reported healthy first-quarter fiscal 2019 results, wherein both the bottom line and top line surpassed the respective Zacks Consensus Estimate as well as increased year over year.

The company adopted the new accounting standard “Revenue from Contracts with Customers” (ASC 606), using retrospective method, effective Oct 1, 2018.

Net Earnings

On a GAAP basis, net earnings for the fiscal first quarter were $49.1 million or 77 cents per share compared with $18.3 million or 29 cents per share in the year-ago quarter, primarily driven by top-line growth. Net earnings included a reduction of $3 million or 4 cents per share, reflecting the adoption of ASC 606.

Adjusted net earnings came in at $62 million or 96 cents per share compared with $33 million or 52 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 22 cents.

Woodward, Inc. Price, Consensus and EPS Surprise


Quarterly net sales increased 38.9% year over year to $652.8 million, attributable to sales growth in both Aerospace and Industrial segments. The top line surpassed the Zacks Consensus Estimate of $585 million. Net sales included $20 million related to the adoption of ASC 606. Organic net sales, which exclude sales attributable to Woodward L’Orange, were $565 million, up 20%.

Other Quarter Detail

Total costs and expenses increased 36.7% year over year to $591.3 million. This was mainly due to higher cost of goods sold.

The effective tax rate was 20.1% compared with 51.3% in the prior-year quarter. Tax rate was not significantly impacted by the adoption of the new accounting standard.

Segmental Performance

Aerospace: Net sales were up 28.4% year over year to $392.9 million, which was strong across commercial and military OEM, and aftermarket programs. This resulted from continued momentum in next generation aircraft production, increased aircraft utilization and higher defense spending. Net sales included a $20 million increase related to the adoption of ASC 606, largely related to customer provided components. The segment’s earnings were $72.9 million, up 61%, significantly benefiting from higher sales across all platforms. Earnings were reduced by $2 million related to the new accounting standard.

Industrial: Net sales totaled $259.9 million, up 58.3% year over year primarily due to improvement in both industrial turbomachinery and reciprocating engines, including strength from Woodward L’Orange. Organic net sales were $172 million, excluding sales of $88 million attributable to Woodward L’Orange. The segment’s earnings increased 47.5% to $29.2 million, driven by the addition of Woodward L’Orange and higher organic sales volume.

Cash Flow and Liquidity

For first-quarter fiscal 2019, Woodward generated $84.7 million of net cash from operating activities against net cash utilization of $2.5 million for first-quarter fiscal 2018. Free cash flow was $53 million for the reported quarter against an outflow of $31 million for the prior-year quarter. This was primarily due to increase in earnings and improved working capital utilization.

As of Dec 31, 2018, the company had $71.6 million of cash and cash equivalents with long-term debt (less current portion) of $1,024.9 million.

Fiscal 2019 Outlook Reaffirmed

Woodward has reiterated its outlook for fiscal 2019. The company continues to expect total net sales of $2.65-$2.8 billion for fiscal 2019 with approximately 10% and 30% rise in Aerospace and Industrial sales, respectively, year over year. Adjusted earnings per share are projected to be between $4.40 and $4.70, based on approximately 65 million outstanding shares. While free cash flow is expected to be around $300 million, effective tax rate is expected to be roughly 21%.

Going Ahead

Woodward remains confident of meeting its fiscal 2019 outlook despite considerable global economic uncertainty due to ongoing international trade negotiations and government shutdowns. The company is optimistic about its markets, performance and outlook on the back of increased operational execution while delivering superior shareholder value. Its Aerospace segment is expected to deliver strong performance, driven by healthy global passenger and cargo growth.

Coming to Industrial markets, while the industrial turbine market remains uncertain, the company is witnessing robust growth in distributed power for data center applications. Woodward L’Orange is likely to continue to enhance the company’s Industrial segment with respect to both sales and earnings. It is well positioned to capitalize on the near-term production ramp-up along with opportunities that lies ahead.

Zacks Rank and Stocks to Consider

Woodward currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader industry are Allied Motion Technologies Inc. AMOT, Badger Meter, Inc. BMI and Comtech Telecommunications Corp. CMTL. While Allied Motion sports a Zacks Rank #1 (Strong Buy), Badger Meter and Comtech carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Allied Motion has a long-term earnings growth expectation of 10%.

Badger Meter has a long-term earnings growth expectation of 9%.

Comtech has a long-term earnings growth expectation of 5%.

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