Moog Inc. — Q3 FY2023 Form 10-Q
Reporting period: Three and nine months ended July 1, 2023, compared with the periods ended July 2, 2022. Moog designs and manufactures precision motion and fluid-control products for aerospace, defense, and industrial markets.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Net sales | $850.2M | $772.9M | $2,447.1M | $2,267.8M |
| Gross profit / margin | $222.6M / 26.2% | $211.7M / 27.4% | $647.6M / 26.5% | $617.6M / 27.2% |
| Net earnings | $42.4M | $50.4M | $131.4M | $125.8M |
| Diluted EPS | $1.32 | $1.57 | $4.11 | $3.91 |
| Operating cash flow | Not separately reported for the quarter | $(17.1)M | $184.3M |
Q3 sales rose 10%; nine-month sales rose 8% (11% in both periods excluding divestitures and, for the nine months, currency effects, per management). Q3 earnings fell 16%, while nine-month earnings increased 4%. Higher interest expense and lower gross margin weighed on results. Nine-month diluted EPS rose 5%. The effective tax rate was 15.8% for Q3 and 21.3% for the nine-month period.
Segments and operating developments
- Aircraft Controls: Q3 sales increased 12% to $355M; operating profit was $37.9M and margin 10.7%. Commercial aircraft recovery drove growth, partly offset by lower military sales.
- Space and Defense Controls: Q3 sales increased 8% to $242M, but operating profit fell 27% to $18.6M and margin declined to 7.7%. The segment recorded $14M of additional charges on space-vehicle development programs.
- Industrial Systems: Q3 sales increased 9% to $252.7M; operating profit rose 44% to $28.0M and margin improved to 11.1%, supported by pricing, recovering demand, and lower prior-year operating disruption costs.
Q3 gross margin was 26.2%, down from 27.4%; management said it would have increased slightly year over year excluding the $14M space-program charges. Twelve-month backlog was $2.3B, up 5% year over year. Remaining performance obligations were $5.3B; approximately 43% was expected to be recognized as sales over the next 12 months.
Cash, debt, and liquidity
- Nine-month operating cash flow was $(17.1)M, versus $184.3M generated a year earlier. Receivables and inventory were substantial cash uses; management cited supply-chain, staffing, and production inefficiencies.
- Investing cash outflow was $113.9M, including $125.1M of capital expenditures. Financing cash inflow was $133.2M, including $174.9M of net borrowing on credit facilities.
- At July 1, cash, cash equivalents, and restricted cash totaled $125.4M. Debt was approximately $1.013B, including $487M drawn on the U.S. revolver and $500M of 4.25% senior notes. The revolver matures in 2027; the notes mature in 2027.
- Moog reported $573M of unused capacity across financing arrangements, including $557M on the U.S. revolving facility after standby letters of credit, and compliance with all debt covenants. The company forecast 2023 operating cash flow of $105M and capital expenditures of $165M.
Outlook, risks, and notable items
Management’s FY2023 outlook was sales of $3.25B, operating profit of $358M, net earnings of $186M, and diluted EPS of $5.82. It separately forecast adjusted diluted EPS of $5.65–$5.85, midpoint $5.75, and adjusted operating margin of 10.9%, versus 10.2% in FY2022. The outlook reflects continued commercial-aircraft and industrial recovery and higher space and defense demand; management expected higher interest expense to offset part of operating improvement.
- Contract estimates and fixed-price development work are important risks: cost growth or delivery delays could require additional loss provisions. Contract reserves were $45.8M. Management highlighted possible further cost growth on space-vehicle programs.
- Supply-chain constraints, staffing shortages, production inefficiencies, foreign-exchange movements, customer demand, government funding, and economic cyclicality may affect results. Weaker currencies reduced nine-month sales by $25M.
- FY2023 included a $10.0M gain on building sales. Nine-month 2022 included a $16.1M gain on sale of the NAVAIDS business. FY2023 also included impairment and restructuring charges; the filing reports $1.7M of asset impairment and $4.7M of restructuring expense for the nine months.
- Moog reported no pending legal proceeding management believed would materially harm its financial condition, results, or cash flows, while noting that unresolved customer claims or disputes could have a material adverse impact. Standby letters of credit totaled $21.4M.
- The board declared a quarterly dividend of $0.27 per share, payable August 28, 2023. Management stated it expected cash and financing sources to meet requirements for the next 12 months and beyond.
Most important facts for investors to verify
- Whether space-vehicle program cost growth stabilizes and whether the $14M Q3 charge signals further exposure.
- Whether working-capital consumption reverses and operating cash flow meets the $105M FY2023 forecast.
- Whether supply-chain, staffing, and production constraints ease enough to support backlog conversion and delivery schedules.
- Whether the FY2023 sales, margin, and EPS outlook—especially adjusted EPS of $5.65–$5.85—remains achievable as interest costs rise.
- Whether receivables, inventory, and borrowing levels remain manageable while maintaining covenant compliance and planned investment.