Moog Inc. — Q3 FY2022 Form 10-Q
Reporting period: Fiscal third quarter and first nine months ended July 2, 2022. Unless stated otherwise, financial amounts below are in U.S. dollars; millions are rounded. Moog designs and manufactures precision motion and fluid controls for aerospace, defense, and industrial markets through Aircraft Controls, Space and Defense Controls, and Industrial Systems.
Financial performance
| Metric | Three months ended July 2, 2022 | Change vs. prior year | Nine months ended July 2, 2022 | Change vs. prior year |
|---|---|---|---|---|
| Net sales | $772.9 million | +9% | $2,267.8 million | +7% |
| Gross margin | 27.4% | +0.5 percentage points | 27.2% | -0.1 percentage points |
| Net earnings | $50.4 million | +40% | $125.8 million | +3% |
| Diluted EPS | $1.57 | +$0.45 | $3.91 | +$0.11 |
| Operating cash flow | Not provided for the quarter | — | $184.3 million | Down from $230.6 million |
Quarterly gross margin benefited from higher volume across segments and favorable mix in Aircraft Controls and Space and Defense Controls. Nine-month margin was slightly lower, reflecting labor inefficiencies, higher Industrial Systems costs, and inventory write-downs. The quarterly effective tax rate was 15.7%, including favorable tax-return adjustments; excluding those benefits, management reported a 23.9% rate.
For the nine months, investing cash outflow was $85.3 million, including $106.7 million of capital expenditures and $11.8 million for TEAM Accessories, partly offset by NAVAIDS sale proceeds. Financing cash outflow was $97.9 million, including dividends, share repurchases, and net repayments on credit facilities. Cash, cash equivalents, and restricted cash totaled $95.9 million at period end.
At July 2, 2022, total debt was approximately $862.1 million and cash and restricted cash were $95.9 million. The company reported $764 million of unused borrowing capacity and stated it was in compliance with debt covenants. Net debt to capitalization was 35%, versus 36% at October 2, 2021. Current assets were $1.72 billion and current liabilities $812.6 million.
Material changes and segment performance
- Aircraft Controls: Third-quarter sales rose 17% to $318 million and operating profit rose 68% to $34 million. Commercial aircraft sales rebounded, including aftermarket growth; nine-month military sales declined.
- Space and Defense Controls: Third-quarter sales rose 9% to $224 million and operating profit rose 19% to $25 million, led by defense demand and the RIwP turret program. Nine-month operating profit was essentially flat at $71 million.
- Industrial Systems: Third-quarter sales were approximately flat at $231 million, while operating profit fell 15% to $19 million. Inflation, operating challenges, and foreign-currency translation pressured results.
- Foreign-currency translation reduced third-quarter sales by $15 million and nine-month sales by $24 million. The nine-month comprehensive income of $69.3 million included a $68.8 million foreign-currency translation loss, net of tax.
Outlook, commentary, and risks
Management’s FY2022 outlook called for sales of approximately $3.035 billion, net earnings of approximately $172 million, and diluted EPS of $5.21–$5.51. Adjusted diluted EPS was forecast at $5.50–$5.80, excluding the NAVAIDS gain and specified impairment, restructuring, and Ukraine-related charges. Management expected sales to increase across all segments, with improved margins in Aircraft Controls and Space and Defense Controls; Industrial Systems margin was expected to decline. The filing does not provide a quarterly forecast.
Management said backlog continued to grow; twelve-month backlog was $2.2 billion, up 10% year over year. It expected restructuring and impairment actions to produce average benefits of about $4 million per quarter. The company also reported $5.0 billion of remaining performance obligations, with approximately 44% expected to be recognized as sales over the next twelve months.
Key pressures include continuing supply-chain shortages and higher input costs, labor inefficiencies, COVID-19 disruptions and localized China lockdowns, and a slower-than-expected commercial aircraft recovery. Management cautioned that inflation may not be fully passed through to customers. Other disclosed exposures include fixed-price contract cost overruns, government funding and customer concentration, foreign-exchange movements, pension assumptions, and the possibility that backlog will not convert to revenue as expected.
Unusual nine-month items included $15.9 million of asset impairment, $8.4 million of restructuring expense, and $3.4 million of inventory write-downs; together these charges reduced diluted EPS by $0.66, according to management. The company also recorded a $16.1 million gain on the NAVAIDS divestiture, contributing $0.37 to diluted EPS. Impairments included charges related to the slower commercial-aircraft recovery and receivables and inventory associated with Russia’s actions in Ukraine.
Investor verification priorities
- Assess whether the commercial aircraft recovery, aftermarket demand, and RIwP program ramp support the FY2022 outlook.
- Track operating cash conversion and working-capital movements: receivables absorbed cash, while the receivables purchase agreement contributed about $90 million to nine-month operating cash flow.
- Verify the pace and expected benefits of restructuring, impairment, and portfolio-shaping actions, and distinguish reported from adjusted EPS.
- Monitor supply-chain availability, input-cost inflation, labor productivity, and the extent to which price increases offset cost pressure.
- Review debt, variable-rate borrowing exposure, covenant capacity, and the effect of foreign-currency movements on reported results and equity.