Woodward, Inc. — Q2 FY2024 Form 10-Q
Reporting period: Three and six months ended March 31, 2024; fiscal Q2 and first half of FY2024. The interim financial statements are unaudited. Unless stated otherwise, amounts are in millions.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | First half FY2024 | First half FY2023 |
|---|---|---|---|---|
| Net sales | $835.3 | $718.2 | $1,622.1 | $1,336.8 |
| Gross margin | 28.1% | 22.1% | 27.0% | 21.3% |
| Net earnings | $97.6 | $35.5 | $187.6 | $65.1 |
| Diluted EPS | $1.56 | $0.58 | $3.02 | $1.07 |
| Operating cash flow | Not provided for the quarter | $144.1 | $40.2 |
- Q2 sales increased 16.3% year over year; first-half sales rose 21.3%. Growth reflected higher volume and price realization. Gross margin improved as price realization, volume and productivity more than offset net material and labor inflation.
- Q2 Aerospace sales were $497.5 million, up 13.8%, with segment earnings of $98.5 million and a 19.8% segment margin, versus 16.8% a year earlier. First-half sales were $958.3 million and segment margin was 18.5%.
- Q2 Industrial sales were $337.8 million, up 20.1%, with segment earnings of $65.2 million and a 19.3% segment margin, versus 13.4% a year earlier. First-half sales were $663.8 million and segment margin was 19.9%.
- First-half free cash flow, a non-GAAP measure defined as operating cash flow less capital expenditures, was $87.8 million, versus negative $3.9 million. Capital expenditures were $56.3 million, up from $44.0 million.
- Cash and cash equivalents were $316.9 million; total debt was $791.0 million, compared with $721.5 million at September 30, 2023. This included $141.3 million of revolving borrowings classified as short-term. Revolver availability, net of letters of credit, was $850.8 million; foreign facility availability was $25.6 million. Working capital was $1,120.1 million.
Material changes and notable items
- Industrial growth was led by transportation, particularly on-highway natural-gas trucks in China, and power generation; lower oil and gas sales partly offset growth. Aerospace benefited from aircraft utilization, passenger-traffic growth and pricing.
- Other income was $14.4 million in Q2 and $35.0 million for the first half. The year-to-date increase included higher earnings from the GE joint venture and a $4.8 million non-recurring gain related to a previous acquisition.
- Q2 effective tax rate rose to 19.1% from 11.8%; the first-half rate was 18.6% versus 9.5%. The company cited higher projected earnings, withholding taxes on unremitted foreign earnings, and, for the year-to-date comparison, prior-year releases of uncertain tax positions that did not recur.
- Q2 non-GAAP adjusted diluted EPS was $1.62 versus $1.01; first-half adjusted diluted EPS was $3.07 versus $1.50. These measures exclude specified unusual items and should be considered alongside GAAP results.
- First-half operating cash flow benefited from higher earnings, while receivables, contract assets and inventory were significant uses of cash. Inventory increased to $580.4 million from $517.8 million at fiscal year-end.
Outlook, risks and contingencies
- No specific numerical revenue or earnings guidance is provided in the supplied filing text. Management said operational execution and strong end-market demand supported first-half growth, and expects operating cash flow and available borrowing capacity to fund operations and anticipated capital spending for the foreseeable future.
- Management highlighted uncertainty in demand for on-highway natural-gas trucks in China beyond Q3 FY2024, as well as inflation and broader economic uncertainty. It also cited ongoing exposure to raw-material costs, interest rates, foreign exchange, supply availability, customer demand and international operations.
- Firm remaining performance obligations were $2.376 billion, mostly Aerospace; the company expects to recognize almost all within two years. A separate $519.9 million of remaining material-right obligations is expected to be recognized over underlying program lives, which may extend up to 40 years.
- Woodward reported ordinary-course litigation and regulatory matters, including product liability, warranty, employment and contractual claims. Management does not expect resulting liabilities to materially affect liquidity, financial condition or results, though outcomes cannot be predicted with certainty.
- The company reported compliance with debt covenants and effective disclosure controls as of March 31, 2024. It said disclosed risk factors and market risks had not materially changed from its latest Form 10-K.
- The board authorized a new $600 million share-repurchase program through January 2027; no shares were repurchased under the program in the first half. A $0.25-per-share dividend was approved after quarter-end, payable June 5, 2024.
Important facts for investors to verify
- Whether strong Industrial results, particularly China natural-gas truck demand, persist after Q3, and how much reported margin improvement reflects sustainable pricing and productivity.
- Cash conversion and working-capital trends, especially receivables, contract assets and inventory, relative to earnings and capital spending.
- Debt maturity, interest costs and repayment plans for the $141.3 million short-term revolver balance, alongside the stated borrowing availability and covenant headroom.
- The contribution and durability of GE joint-venture income and the effect of non-recurring gains, separation costs and other adjustments on GAAP versus adjusted results.
- The timing and quality of remaining performance obligations, distinguishing firm orders from long-duration material-right obligations.
- Customer concentration and exposure to end markets, including aircraft production and utilization, defense spending, and industrial demand in China.