Moog Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2024, the three months ended December 30, 2023. Comparisons are with the three months ended December 31, 2022, unless otherwise noted. Moog designs and manufactures precision motion and fluid-control products and systems for aerospace, defense, and industrial markets. Its four reporting segments are Space and Defense, Military Aircraft, Commercial Aircraft, and Industrial.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Net sales | $856.9 million | $760.1 million | +13% |
| Gross profit / gross margin | $233.2 million / 27.2% | $203.7 million / 26.8% | Margin +0.4 percentage points |
| Operating profit, total segments | $94.5 million | $86.8 million | +9% |
| Net earnings | $47.8 million | $46.0 million | +4% |
| Diluted earnings per share | $1.48 | $1.44 | +3% |
| Operating cash flow | $60.4 million | $8.1 million | +$52.3 million |
| Capital expenditures | $37.4 million | $30.1 million | +$7.3 million |
Sales rose across all segments, supported by commercial-aircraft recovery and stronger demand. Gross margin improved with higher-volume production efficiencies, partly offset by less favorable sales mix. SG&A fell to 13.9% of sales from 14.9%; R&D increased 28% to $30.6 million, reflecting growth-program activity. Interest expense rose 27% to $16.7 million, primarily because of higher rates on debt. The prior-year quarter included a $9.5 million gain on building sales; no comparable gain occurred this quarter.
- Segment sales and operating margins: Space and Defense $230.1 million, 11.0% (prior 9.3%); Military Aircraft $186.2 million, 10.5% (8.5%); Commercial Aircraft $194.2 million, 10.6% (11.0%); Industrial $246.3 million, 11.8% (15.8%). Commercial Aircraft had the largest sales increase, up 47%. Industrial operating profit declined 21%, largely reflecting the prior-year building-sale gain; management reported adjusted Industrial margin of 12.6% versus 12.3%.
- Cash and liquidity: Cash and cash equivalents were $126.4 million at December 30, 2023, versus $69.0 million at September 30, 2023. Current assets were $2.12 billion and current liabilities $1.01 billion. Operating cash flow benefited from collections and receivables financing, partly offset by inventory and unbilled-receivable investment. Cash, cash equivalents, and restricted cash totaled $126.8 million at quarter-end.
- Debt: Long-term debt carrying value was $920.1 million (principal debt of $924.0 million), up from $863.1 million at September 30, 2023. The balance included $423.0 million drawn on the U.S. revolver and $500 million of 4.25% senior notes due December 2027. The company reported $656 million of unused capacity across financing arrangements, including $622 million under the U.S. revolver, and compliance with all debt covenants.
Changes, outlook, and management commentary
- The 12-month backlog was $2.5 billion, up 9% from $2.3 billion. Orders strengthened in Space and Defense and Military Aircraft, while Industrial backlog declined, particularly in industrial automation. Remaining performance obligations were $5.3 billion; Moog expects to recognize approximately 47% as sales in the next 12 months.
- Management’s FY2024 outlook calls for sales of approximately $3.5 billion, up 5%, and segment operating profit of $418 million, up 22%. The outlook table shows net earnings of $222 million and diluted EPS of $6.86. Separately, management forecasts adjusted diluted EPS of $6.70–$7.10, midpoint $6.90; investors should distinguish this adjusted range from the table’s EPS figure.
- Expected segment sales growth is strongest in Commercial Aircraft (+22%), followed by Space and Defense (+7%) and Military Aircraft (+3%); Industrial sales are forecast to decline 6%. Management expects margin benefits from pricing and simplification initiatives, partly offset by higher interest expense and a higher tax rate. Commercial Aircraft margin is expected to fall as prior-year retrofit activity does not repeat.
- Management said cash from operations and available financing should be sufficient for requirements over the next 12 months and thereafter. The company continues to invest in its business, pursue strategic acquisitions, and return capital; it paid $8.6 million in dividends this quarter and declared a $0.28-per-share dividend payable February 27, 2024.
Risks, contingencies, and unusual items
- Over-time revenue and fixed-price contract results depend on estimates of costs and progress; estimate changes or cost overruns could require additional loss provisions. Contract reserves were $54.6 million. Management cautioned that customer disputes, delays, development cost growth, and government budget pressures could adversely affect results.
- Restructuring charges were $1.9 million this quarter. The 2023 restructuring plan may entail up to approximately $10.4 million of additional costs, primarily retention-related, through 2027.
- The filing identifies a recently received invalidation of Moog’s facility security clearance by the U.S. Defense Counterintelligence and Security Agency as a risk that could affect future business and results; the excerpt provides no further detail on scope or impact.
- Other risks include government funding and contract termination, commercial-aircraft production and customer exposure, supply-chain constraints and inflation, industrial-market weakness, foreign exchange, debt and interest rates, and goodwill or pension assumptions. The company also cited potential additional losses from unresolved customer matters. It reported $19.3 million of contingent standby letters of credit.
- Management said pending legal and environmental proceedings are not expected to have a material adverse effect. A $5.9 million acquisition of Data Collection Limited was completed in October 2023. No goodwill impairment was recorded after the reporting-unit change and assessment.
Important facts for investors to verify
- Whether the FY2024 adjusted EPS range and the outlook table’s $6.86 diluted EPS use comparable definitions and assumptions.
- The scope and potential business impact of the DCSA facility-security-clearance invalidation.
- Whether higher sales convert into sustained margins and cash flow, particularly given inventory growth, unbilled receivables, and contract-estimate exposure.
- Progress against the Industrial sales outlook and the assumptions behind the forecasted commercial-aircraft recovery and backlog conversion.
- Debt and interest-cost trends, including utilization of revolving facilities and ongoing covenant compliance.