Moog Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended December 31, 2022, compared with the three months ended January 1, 2022. Moog designs and manufactures precision motion and fluid controls for aerospace, defense, and industrial markets. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
- Revenue: $760.1 million, up 5% reported from $724.1 million. Management said growth was 9% excluding $17 million of adverse currency effects and $12 million of lower sales from divested businesses.
- Profitability: Gross profit was $203.7 million versus $192.9 million; gross margin rose to 26.8% from 26.6%. Net earnings were $46.0 million versus $46.3 million. Diluted EPS was $1.44, unchanged.
- Interest and taxes: Interest expense increased to $13.1 million from $8.0 million, primarily due to higher rates on debt. The effective tax rate was 23.7% versus 24.7%.
- Cash flow: Operating cash flow was $8.1 million, down from $157.2 million; investing cash flow was a $25.3 million use versus $0.3 million provided; financing cash flow was $59.4 million provided versus a $151.6 million use. Capital expenditures were $30.1 million.
- Liquidity and debt: Cash and cash equivalents were $143.1 million and restricted cash was $22.8 million at quarter-end. Long-term debt, net of issuance costs and current installments, was $916.1 million; gross senior debt was $922.8 million. The company reported $709 million of unused financing capacity, including $686 million under its U.S. revolver after letters of credit, and compliance with debt covenants.
- Backlog: Twelve-month backlog was $2.343 billion, up 8% from $2.167 billion.
Segments and material changes
- Aircraft Controls: Sales increased 2% to $310 million; operating profit fell 29% to $30 million, with reported margin of 9.6% versus 13.8%. The prior-year period included a $16 million NAVAIDS divestiture gain; management cited stronger commercial aftermarket activity and lower military sales.
- Space and Defense Controls: Sales rose 5% to $218 million; operating profit declined 5% to $20 million and margin was 9.3% versus 10.2%. Defense growth, including the RIwP turret production ramp, was partly offset by cost growth on space development programs and supply-chain pressures.
- Industrial Systems: Sales rose 9% to $232 million; operating profit increased to $37 million from $17 million. The quarter included a $9.5 million gain on building sales and $1.1 million of restructuring expense. Excluding those items, management reported adjusted operating margin of 12.3%, up from the prior-year reported 8.1%.
- Consolidated earnings before taxes were $60.3 million versus $61.4 million. The current period included the building-sale gain; the prior-year period included the NAVAIDS gain and a $1.5 million inventory write-down.
Outlook, risks, and contingencies
- FY2023 outlook: Management projected sales of $3.175 billion, operating profit of $356 million, net earnings of $188 million, and diluted EPS of $5.89. Adjusted diluted EPS guidance was $5.50–$5.90, with a $5.70 midpoint. The filing does not provide a reconciliation of this adjusted EPS range in the supplied text.
- Management expected commercial aircraft and industrial market recovery, higher sales volumes, and operational improvements to support results, partly offset by lost sales from divestitures and higher interest expense. It forecast operating cash flow of $250 million and capital expenditures of $150 million for FY2023.
- Key risks include supply-chain constraints, fixed-price contract cost overruns and estimation changes on long-term contracts, government funding and customer demand, foreign currency movements, and higher borrowing costs. Management cautioned that backlog may not convert fully to revenue and that actual results may differ from forward-looking statements.
- Contract reserves were $43.7 million. Management said further project delays, cost growth, or unfavorable contract outcomes could require additional loss provisions. It reported no pending legal proceedings or environmental matters expected to have a material adverse effect, and $19.3 million of standby letters of credit outstanding.
- The company stated that cash flows and financing arrangements should be sufficient for its needs over the next 12 months and foreseeable future. It declared a subsequent quarterly dividend of $0.27 per share, payable March 6, 2023.
Important facts for investors to verify
- Whether supply-chain constraints, delayed material receipts, and space-program cost growth improve or cause additional charges.
- How much of the $2.343 billion twelve-month backlog converts to sales, and whether commercial and industrial demand meets management’s assumptions.
- Whether operating cash flow recovers from $8.1 million, given working-capital use from receivables and inventory.
- Progress against FY2023 sales, operating profit, cash flow, capital expenditure, and adjusted EPS outlook, including the basis and reconciliation for adjusted EPS.
- Debt levels, variable-rate exposure, covenant headroom, and the impact of higher interest rates on earnings and liquidity.