Moog Inc. Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2022, ended April 2, 2022. Moog designs and manufactures precision motion and fluid controls for aerospace, defense and industrial markets, operating through Aircraft Controls, Space and Defense Controls, and Industrial Systems.
Financial performance
| Metric | Quarter ended April 2, 2022 | Prior-year quarter | Six months ended April 2, 2022 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $770.8 million | $736.4 million | $1,494.9 million | $1,420.4 million |
| Gross margin | 27.6% | 27.1% | 27.2% | 27.4% |
| Net earnings | $29.1 million | $48.7 million | $75.4 million | $86.5 million |
| Diluted EPS | $0.91 | $1.51 | $2.34 | $2.68 |
Quarterly revenue increased 5%, but net earnings and diluted EPS fell 40%, mainly reflecting asset impairment and restructuring charges, along with higher taxes and other costs. Six-month revenue rose 5% while net earnings declined 13%. Quarterly gross margin improved on favorable sales mix; the six-month margin declined because first-quarter operating inefficiencies offset that improvement.
Segment trends: Second-quarter sales increased in all segments: Aircraft Controls $311.3 million (+2%), Space and Defense Controls $223.3 million (+8%), and Industrial Systems $236.2 million (+5%). Segment operating profit was $12.4 million, $24.1 million and $20.7 million, respectively. Corresponding operating margins were 4.0%, 10.8% and 8.8%; Aircraft Controls and Industrial Systems margins were lower year over year, as was Space and Defense Controls’ margin.
Cash flow and liquidity: First-half operating cash flow was $180.2 million versus $137.4 million a year earlier. Management said the 2022 figure included $100 million from the receivables purchase agreement; excluding that benefit, operating cash flow decreased. Investing activities used $48.1 million, including $74.1 million of capital expenditures and $11.8 million for the TEAM acquisition, partly offset by NAVAIDS sale proceeds. Financing activities used $109.7 million, including net credit-facility repayments, dividends and share purchases. Cash, cash equivalents and restricted cash totaled $122.1 million at period end.
Total debt was approximately $838.2 million before deferred issuance costs, comprising a $320.1 million U.S. revolver balance, $17.0 million on the SECT revolver, $500 million of 4.25% senior notes and other debt. The company reported $785 million of unused borrowing capacity, including $756 million under its U.S. revolver after standby letters of credit, and stated it was in compliance with debt covenants. Net debt to capitalization was 33%, down from 36% at October 2, 2021.
Material changes and unusual items
- Moog recorded $15.2 million of asset impairment charges, principally related to Aircraft Controls property and equipment following a slower-than-expected commercial aircraft recovery. It also recorded $1.7 million of inventory write-downs and $0.6 million of receivable impairment associated with Russia’s actions in Ukraine.
- Restructuring expense was $7.8 million in the quarter and first half, related to portfolio shaping and business resizing, including workforce reductions. Management cited expected future quarterly benefits from these actions.
- The first half included a $16.1 million gain on the sale of the NAVAIDS business. The net diluted EPS impact of portfolio-shaping activity, primarily that sale, was reported as $0.33.
- Moog acquired TEAM Accessories, an engine and airframe maintenance, repair and overhaul business, for approximately $14.9 million including contingent consideration. It also replaced its former securitization program with a receivables purchase agreement, under which $100 million of receivables had been sold and derecognized at period end.
- Foreign-currency translation reduced first-half sales by $9 million year over year. Comprehensive income was $15.0 million for the quarter and $59.0 million for the first half, affected by currency translation losses.
Outlook, commentary and risks
Management’s fiscal 2022 outlook was sales of approximately $3.035 billion and diluted EPS of $5.04–$5.44. Adjusted EPS guidance, excluding the NAVAIDS gain and specified first-half charges, was $5.30–$5.70 and was unchanged from the prior quarter. The outlook anticipates higher sales across all segments; management expects margin improvement in Aircraft Controls and Space and Defense Controls, partly offset by portfolio-shaping charges. Industrial Systems’ operating margin was expected to decline versus 2021.
The twelve-month backlog was $2.3 billion, up 21% year over year, with increases across all segments. Remaining performance obligations totaled $5.1 billion; Moog expected to recognize approximately 45% as sales over the following 12 months. Management described improving demand in several markets, including commercial aftermarket, defense, simulation and test, and energy, while noting commercial aircraft recovery remained slower than expected.
Key risks include ongoing COVID-related supply-chain constraints, labor inefficiencies and demand variability; prolonged weakness in commercial aviation; fixed-price contract cost overruns and uncertainty in contract estimates; dependence on government funding and major customers; and exposure to foreign-currency, geopolitical, regulatory and supplier risks. The filing notes that further contract losses could materially affect results if costs rise, schedules slip or customer contract solutions are not achieved. Management reported no pending legal proceeding or environmental matter expected to have a material adverse effect, and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether commercial aircraft recovery and customer delivery rates support the sales and margin assumptions in 2022 guidance.
- Whether supply-chain pressures, labor inefficiencies and fixed-price contract exposures cause additional costs or loss provisions.
- How much of operating cash flow is sustainable apart from receivables sales, and whether receivables-program terms or availability change.
- Whether restructuring actions generate the expected savings and whether further impairment or portfolio-shaping charges arise.
- Progress against backlog and the $5.1 billion of remaining performance obligations, including conversion to revenue and cash collection.