Woodward, Inc. annual report, FY2021

Woodward, Inc. — FY2021 Form 10-K

Reporting period: Fiscal year ended September 30, 2021. Although the request refers to 2021 Q4, this is an annual filing; figures below are for the full fiscal year unless noted. Dollar amounts are in millions unless stated otherwise. Woodward designs, manufactures, and services energy-control systems for aerospace and industrial markets.

Financial performance and liquidity

Metric	FY2021	FY2020
Net sales	$2,245.8	$2,495.7
Gross margin	24.5%	25.7%
Net earnings	$208.6	$240.4
Diluted EPS	$3.18	$3.74
Operating cash flow	$464.7	$349.5
Capital expenditures	$37.7	$47.1
Free cash flow (non-GAAP)	$427.0	$302.4

FY2021 adjusted net earnings were $212.4 million, or $3.24 per diluted share, versus $254.0 million, or $3.96, in FY2020. These are non-GAAP measures.
EBIT was $278.6 million, down 11.8%; EBITDA was $408.1 million, down 8.7%. Adjusted EBIT and adjusted EBITDA were $283.6 million and $413.1 million, respectively, both lower than FY2020.
Aerospace sales fell 11.7% to $1,404.1 million; segment earnings fell 24.4% to $234.4 million, and segment margin declined to 16.7% from 19.5%. Industrial sales fell 7.0% to $841.7 million, but were approximately flat against FY2020 sales excluding the divested businesses; segment earnings rose 8.3% to $108.7 million and margin increased to 12.9% from 11.1% (11.6% excluding the divested businesses in FY2020).
At September 30, 2021, cash and cash equivalents were $448.5 million, working capital was $1,098.5 million, total debt was $734.9 million, and stockholders’ equity was $2,214.8 million. No borrowings were outstanding on the $1.0 billion revolving credit facility; remaining availability, net of letters of credit, was $989.0 million. Management reported covenant compliance.
Cash from operations increased primarily due to working-capital management and timing of supplier and tax payments. Financing cash outflow was $136.3 million, including $101.6 million in net debt payments and $33.3 million in cash share repurchases. Dividends paid were $36.0 million.

Material changes versus FY2020

Sales declined $249.8 million, or 10.0%. Aerospace volume was the largest headwind; commercial aviation demand and production remained depressed by COVID-19. Foreign exchange benefited sales by $34.6 million.
Gross margin declined 1.2 percentage points, primarily due to lower Aerospace volume. Cost reductions helped limit the impact on operating expenses and supported improved Industrial segment profitability.
FY2020 included the disposal group’s $67.7 million of sales before its April 2020 divestiture, as well as impairment and transaction costs, property-sale gains, and gains from settling cross-currency swaps. These items make reported year-over-year comparisons less directly comparable.
Woodward estimated that supply-chain disruptions delayed approximately $32 million of FY2021 sales. Inventory was $420.0 million at year-end, compared with $437.9 million a year earlier.
Reported remaining performance obligations were $1,270.2 million at October 31, 2021, down from $1,369.8 million a year earlier; 83% was expected to be satisfied by September 30, 2022.

Outlook, commentary, and risks

The filing does not provide a specific consolidated FY2022 revenue or earnings forecast. Management expected commercial aerospace production to remain stable in the near term and ramp over the following years, potentially reaching pre-pandemic levels in FY2023, supported by aircraft backlogs. It expected gradual recovery in 737 MAX OEM and initial provisioning sales in FY2022, while noting certification and ramp-rate uncertainty.
Commercial aftermarket recovery remained exposed to low passenger traffic, parked aircraft, and airline decisions to defer maintenance. Defense aftermarket was described as strong, though program timing and government spending could cause variability.
Industrial commentary pointed to expected stabilization in large reciprocating engines and potential growth in industrial turbines, data-center power demand, and alternative-fuel control systems; these expectations depend on market recovery, customer demand, and execution.
COVID-19 continued to create uncertainty. Other prominent risks include dependence on a small customer base (top five customers represented about 45% of sales), Boeing 737 MAX recovery, supply-chain availability and cost, government contract and spending exposure (29% of FY2021 sales were government-related), competition, foreign exchange, and debt covenant constraints.
Unusual FY2021 items included $5.0 million of restructuring charges. No goodwill impairment was recorded; goodwill was $805.3 million, approximately 20% of total assets. The auditor identified valuation of the $67.2 million Woodward L’Orange trade name as a critical audit matter; the annual test found no impairment.
Management said pending and threatened legal matters were not expected to materially affect liquidity, financial condition, or results, while acknowledging outcomes cannot be predicted with certainty. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.

Most important facts for investors to verify

Whether commercial aerospace and aftermarket recovery, including 737 MAX deliveries and provisioning, follows management’s expectations.
Whether supply-chain constraints, delayed shipments, and input-cost pressures ease, and whether delayed sales are ultimately recognized.
Whether cash generation and improved liquidity are sustainable after considering working-capital timing, debt maturities, capital spending, dividends, and repurchases.
How customer concentration, especially Boeing and GE exposure, and government-related sales affect demand and collections.
Whether segment margins and non-GAAP results reconcile appropriately to GAAP results, and how prior-year divestitures and unusual gains affect comparisons.
Whether assumptions supporting goodwill and trade-name valuations remain reasonable if forecasts, discount rates, or market conditions change.