Business context and reporting period
Moog Inc. designs and manufactures precision motion and fluid controls for aerospace, defense and industrial markets. This Form 10-K covers fiscal 2022, the 52 weeks ended October 1, 2022; it is an annual report, not a stand-alone fourth-quarter report. The company reports three segments: Aircraft Controls, Space and Defense Controls, and Industrial Systems.
Financial performance and liquidity
Unless otherwise noted, amounts are in millions of U.S. dollars.
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $3,035.8 | $2,852.0 |
| Gross profit / gross margin | $820.8 / 27.0% | $775.7 / 27.2% |
| Net earnings | $155.2 | $157.2 |
| Diluted earnings per share | $4.83 | $4.87 |
| Cash from operating activities | $246.8 | $293.2 |
| Capital expenditures | $139.4 | $128.7 |
- Sales rose 6%; net earnings declined 1% and diluted EPS declined 1%. The effective tax rate was 23.6%, versus 22.8%.
- Segment results: Aircraft Controls sales were $1,256.5 million and operating profit $123.6 million (9.8% margin); Space and Defense Controls, $872.3 million and $86.8 million (10.0%); Industrial Systems, $907.0 million and $72.4 million (8.0%).
- Cash and cash equivalents were $103.9 million, with $15.3 million of restricted cash. Total debt principal was approximately $842.2 million; net debt to capitalization was 33%, down from 36%. The company reported $787.5 million of unused borrowing capacity, subject to a leverage-covenant limit of $664 million.
- Operating cash flow fell 16% year over year. Management cited working-capital pressures, including inventory uses of cash, partly offset by a $100 million benefit from its receivables-purchase program.
Material changes versus FY2021
- Sales increased across all segments, led by commercial aircraft recovery and defense growth. Weaker foreign currencies reduced sales by $44 million.
- Aircraft Controls sales rose 8% and operating profit rose 28%, supported by commercial OEM and aftermarket recovery. Space and Defense Controls sales rose 9%, but operating profit declined 2%. Industrial Systems sales rose 2%, while operating profit fell 16%.
- Gross margin edged down as supply-chain costs and $4 million of inventory write-downs offset improved volume. SG&A rose to 14.8% of sales from 14.4%; interest expense increased to $36.8 million from $33.9 million.
- Total backlog grew 9% to $5.2 billion; twelve-month backlog increased 10% to $2.3 billion. Management attributed growth to Industrial Systems demand and the RIwP turret program; Aircraft Controls backlog was broadly unchanged.
Outlook, risks and unusual items
- For FY2023, management projected sales of approximately $3.175 billion, operating profit of $348 million, net earnings of $182 million and diluted EPS of $5.50–$5.90. It expects higher sales and margins, while weaker currencies and 2022 divestitures are expected to temper growth; higher interest expense may partly offset operating improvement. Expected operating cash flow is $280 million and capital expenditures $150 million.
- FY2022 included $18.1 million of asset-impairment charges and $9.5 million of restructuring expense. The company also recorded a $16.1 million gain on the NAVAIDS divestiture, a $9.1 million gain on a building sale, and losses on the sonar and security business sales; the sonar sale loss was approximately $15.4 million. Some of these items affected segment results.
- Key risks include supply shortages and inflation, fixed-price contract cost overruns, estimates used for over-time contract revenue, dependence on government programs and major customers, commercial aviation recovery, backlog cancellation or delay, currency movements, cybersecurity, and geopolitical disruption. U.S. Government contracts represented 42% of sales; Boeing and Lockheed Martin represented 11% and 9%, respectively.
- Contract reserves were $46.5 million. The auditor identified estimates of contract costs at completion as a critical audit matter; 64% of FY2022 revenue was recognized over time using cost-to-cost estimates. Management reported no pending legal proceeding expected to have a material adverse effect and no material off-balance-sheet arrangements.
- After year-end, the company amended its U.S. revolving credit facility, extending maturity from October 2024 to October 2027. Management reported compliance with debt covenants at year-end.
Important facts for investors to verify
- Whether FY2023 sales, EPS, margin and cash-flow guidance is achieved, particularly given currency exposure and supply-chain costs.
- How much of the $5.2 billion backlog converts to revenue, and whether the expected near-term recognition of approximately 44% is realized.
- Whether working capital, inventory levels and receivables-program usage support stronger operating cash flow without increasing liquidity risk.
- Whether fixed-price contract estimates, contract reserves and restructuring or divestiture effects require further charges or adjustments.
- Debt availability under the leverage covenant, floating-rate exposure, and the effects of the amended credit-facility terms.