Moog Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended January 1, 2022; comparable period ended January 2, 2021. Moog designs and manufactures precision motion and fluid control systems for aerospace, defense and industrial markets.
Financial performance
- Sales: $724.1 million, up 5.9% from $684.0 million. Sales increased in all three segments.
- Profit: Gross profit was $192.9 million versus $189.6 million; gross margin declined to 26.6% from 27.7%. Net earnings rose to $46.3 million from $37.8 million, and diluted EPS increased to $1.44 from $1.17. Results included a $16.1 million gain on the NAVAIDS business sale and a $1.5 million noncash inventory write-down.
- Segments: Aircraft Controls sales increased 6% to $303 million and operating profit rose to $42 million, including the divestiture benefit; reported margin was 13.8% versus 9.7%, while adjusted margin was 8.5%. Space and Defense Controls sales increased 10% to $208 million, while operating profit declined 8% to $21 million and margin fell to 10.2% from 12.2%. Industrial Systems sales increased 2% to $213 million; operating profit fell 14% to $17 million and margin declined to 8.1% from 9.5%.
- Cash flow: Operating cash flow was $157.2 million versus $94.1 million. The quarter included about $90 million from the receivables purchase agreement and higher customer advances; excluding these benefits, operating cash flow decreased year over year. Capital expenditures were $37.1 million. Cash, cash equivalents and restricted cash totaled $106.7 million at quarter-end.
- Debt and liquidity: Debt carrying value was approximately $781.6 million before deferred issuance costs, including $500 million of 4.25% senior notes due 2027. The company reported $836 million of unused capacity, including $797 million under its U.S. revolver after standby letters of credit, and was compliant with debt covenants. Net debt to capitalization was 32%, down from 36% at October 2, 2021.
- Other indicators: Twelve-month backlog was $2.2 billion, up 16%. Remaining performance obligations were $4.8 billion; approximately 46% was expected to be recognized as sales in the next 12 months. The quarterly dividend paid was $0.25 per share.
Changes and notable items
- Growth was led by Space and Defense Controls and commercial OEM activity in Aircraft Controls. Industrial Systems continued recovering, although medical sales moderated from the prior-year pandemic-related surge.
- Gross margin faced pressure from labor availability, supply-chain constraints and operational inefficiencies associated with COVID-19. SG&A as a percentage of sales increased to 15.4% from 14.6%.
- Moog sold its NAVAIDS business to Thales on December 3, 2021, receiving $38.6 million at closing and recording a $16.1 million gain. The sale remains subject to customary post-closing adjustments, including escrowed amounts. Portfolio-shaping actions also included the inventory write-down.
- Investing cash flow was nearly neutral, with NAVAIDS proceeds largely offsetting capital spending. Financing activities included net repayments on credit facilities, dividends and share repurchases.
Outlook, risks and contingencies
- FY2022 outlook: Sales of approximately $3.035 billion and diluted EPS of $5.63–$6.03; management cited an EPS midpoint of $5.83. Excluding first-quarter portfolio-shaping items, adjusted EPS guidance was $5.30–$5.70, midpoint $5.50, unchanged from the prior quarter. Management expected higher sales in all segments, with margin improvement partly offset by portfolio reshaping and investment spending.
- Management cited ongoing COVID-19 effects, supply-chain constraints and labor inefficiencies. Commercial aviation recovery remained uncertain, particularly for international and wide-body travel; industrial demand recovery also faced supply constraints. Defense funding, customer program timing and fixed-price contract cost estimates may affect results.
- Moog reported $52.6 million of contract reserves and warned that further cost growth, delays or unfavorable contract outcomes could require additional loss provisions. It reported $30.8 million of standby letters of credit. Management did not expect pending legal or environmental matters to have a material adverse effect, based on current assessments.
- The company stated that contractual obligations had not changed materially from its last annual report and that there were no material changes to reported risk factors or market-risk disclosures.
Important facts for investors to verify
- How much of earnings growth and reported Aircraft Controls margin reflects the one-time NAVAIDS gain, and whether the adjusted FY2022 EPS range is achieved.
- Whether supply-chain, labor and production pressures ease sufficiently to support forecast sales and margins.
- Conversion of the $2.2 billion twelve-month backlog and $4.8 billion of remaining performance obligations into revenue and cash, including the sustainability of customer advances.
- Debt repayment, revolver availability and liquidity after accounting for working-capital needs, capital investment and the receivables purchase agreement.
- Potential additional losses on fixed-price contracts, contract reserves, and final NAVAIDS sale adjustments.