WWD - Earnings call transcript Q2 2018

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Operator

Thank you for standing by. Welcome to the Woodward, Inc.

Second Quarter Fiscal Year 2018 Earnings Call. At this time, I would like to inform you that this call is being recorded for rebroadcast and all participants are in a listen-only mode.

Following the presentation, you will be invited to participate in a question-and-answer session.

the Mr. from today us Company are Joining Tom and Chief Mr. Executive Officer; Gendron, Chairman Chairman, and Financial Weber, Chief Bob Vice Officer Treasurer; Mr. and Corporate, Guzzardo, Director Investor Relations Don and of Treasury. the now over to would turn I to like Mr. call Guzzardo.

Don Guzzardo

Woodward’s release. Tom our would and We earnings then related in the earnings welcome you year operator. you, financial on of outlined our second today’s our our like fiscal call, Thank quarter In strategies, discuss results comment end all as Bob to we At of will to will take will call. and XXXX markets presentation, questions.

have today’s on For not those find woodward.com. can release, it who website at seen earnings you our

number replay included phone by today’s replay presentation announcing our also our XXXX. the repeated website be are this on of X, at the as We call. on to release website well go will audio our call on some be for available phone this call as on have, or the through end call the by the that along will with May press of accessible The audio again, operator An and materials website. is

Before we and shown our to slide to begin, like as statement, would three. refer on cautionary highlight I

Please filings. surrounding presentation and this identify our As risks always, we change. based including economy outlook on comments our our assumptions the forward-looking elements of in elements of uncertainties for our more consider are and the specifically. frequently can in do or businesses and light and global the those risks Those elements

exclude as press restructuring M&A XXXX. following an basis, providing acquisition such transaction as Please and of understanding were adjusted costs. refer recorded an the the being adjusted fiscal in outlook of U.S. will Woodward reported which on XX and in move costs, announced, adjustments amounts. the and believe, on charges, on help the XX and under well the impacts which to tables be related results organic legislation financial will change as We outlooks. integration slides charges, results our transition No and in we tax L’Orange. is previously Also in special future Duarte and excludes release, the As note historical They will presented financial basis. GAAP the recently announced both included

We adjusted and which evaluating reconciliations also our to included direct your the the these non-U.S. related of each uses financial of financial attention and monitoring and when schedules. release slide measures today’s segments. and Woodward GAAP GAAP ongoing business Management and presentation earnings non-U.S. measures, in are performance

Net were million results. quarter XXXX sales of million an the for fiscal for of earnings or share Net our quarter to both per second $X.XX were the compared $XX of year. second turning for of XXXX XXXX. $XXX increase second quarter Now, XX% the and last $XXX to million,

operating period $XX half first $XX activities outflow an XXXX, the quarter $X.XX of flow $XXX for $X per or cash compared of year. were period of for half which same second $XX million generated recorded of inflow of the recently prior for to for earnings million the million cash of second includes XXXX was charges net the year. XXXX Net Woodward to the of million the from the pre-tax generated share cash $XX $XX was Free XXXX prior share. million in charges. first For compared Adjusted million an for of same special restructuring of per million of or quarter the the $X.XX announced

Tom further call over the turn strategies on our to will I to markets. Now, and results, comment

Tom Gendron

Thank you, Don. today. us Welcome joining those to

to segment’s face markets in but continued Aerospace quarter, turbomachinery Industrial During we the growth second headwinds. delivered significant strong our

close a acquisition of in get to the our of It expected to highlight into wanted previously long-term a year, compelling, of L’Orange. which detail announced fit opportunity. strong I acquisition strategic profitability Industrial quarter portfolio quarter, represents for is L’Orange’s excellent we I end more third this mass Woodward presence innovation, partnership, markets. that The world fiscal also Before both and is for installed enhance the Woodward, complementary a on class segment. technology in L’Orange bringing OEM adds highly enhances key and and our will large critical and believe our a base

an be significantly is transaction the XXXX. Additionally, for basis expected adjusted to accretive on fiscal

overall Turning remains more record and and the elevated detail ongoing fueled market by The aerospace back some let me on provide passenger cargo extremely factors. quarter, to traffic our segments. strong, load industry

programs. to supported by in Additionally, driving utilization Woodward’s on initial we commercial also significant well with and as higher defense continues the sales. provisioning remains markets defense After-market new ground business fixed-wing, strong, weapon as strong, global increases supported rotorcraft guided within increases Boeing are seeing OEM production fleet dynamics. to while uncertainty favorable in OEM and Momentum and rotorcraft and MAX continues by in remained well activity. programs, Airbus jet Aerospace sales our increased business business XXX drive AXXXneo the improvement perform

efficiency. Turning gas to challenges to market Industrial continue within penetration our as a well volume as related and generation face off market turbine industrial we renewables power demand in main to drop segments, on focusing greater and tied to and three with energy industrial

again demand. China continue are distributed the emissions support and transportation, other until gas natural we market generation Our areas In recover that in to conversion affected in in weight have in to improvement gas turbine as the projections vehicles. fuel engines. levels to regulations of power year has applications, half to the price the and large gas been natural suggest we still seeing With improvement returned second expect Government might not vehicles low XXXX. traditionally natural see higher diesel natural power gas of including once within utilizing said, and industrial that gas

season. moderation as natural heating natural the demand for gas gas trucks to in fuel in tend peak We also gas some natural second price the saw during seasonal gas higher quarter -- prices

lends adjusting supply to to and vehicles issues natural Chinese demand future continues use volatility. this and continued the government of but incentivize mitigate volatility, gas of the itself All to

continue is new of recovery the oil an which to see to of locomotive to and Industrial are where future particularly We business, our available L’Orange’s have an driver equipment highlights Oil and growth as L’Orange’s supporting Rig growth up in of rebounded, is status challenging with utilization signs combined from also as Aerospace rapid we In year see will Woodward which in segments in business. resources global at the Woodward. independent remained area awarded create business This aerospace project as redeployed major we have the as significant markets, has market to synergies of related marine and opportunities. prices counts supplier levels potential primarily robust our gas the investments. the prior all sharply in response certain U.S. the activity newly across conditions significant stabilized

of We take challenges. have engaged and and segments both strategic advantage opportunities focused address to initiatives from

that sound Aerospace Fort summary, with the are example, and to Duarte conditions. to fundamentals. Collins support has from be turbomachinery industrial segment, In well tremendous believe in supported In awarded by Industrial transition secular business long-term We reductions our experienced will aligned business. were efficiency align For our necessary Aerospace new trends the are Industrial market our with growth, growth key to business. businesses workforce our continues

of types Woodward. market excellent significant over encouraged areas. industrial for has across of The strengthening few in and acquisition will come, cycled years volatility growth technology many L’Orange segment we segments considerable industrial improvement past to growth both the While and provide by our opportunities years, are

to increase return As deliver a result to Bob of shareholders improved strategically performance I’ll financial Woodward over these stronger as and is and forward. believe that, move will we activities, With financials. well-positioned, it discuss considerably turn we

Bob Weber

Tom. you, Thank

costs. which year. to production last for activity. to Aerospace both initial sales higher As wins compared in and of to Segment and utilization Commercial Adjusted volume charges by quarterly prior the financial the you’ve were adjusted A the as sales as as XX-Q. report change the these impacts in the was is by our on in aftermarket appropriately sales results. the included legislation XX.X% let accompanying amounts sales to the Duarte results manufacturing as provided move to related we’re this of will program we’ve increased aftermarket is announced slide our our to With in increasing higher grew of and due to exclude of our well business. restructuring, learning on same transaction repair release, more our up XX.X% compared fleets. provision past reflect as transition the last several the seen Form partially of providing favorably turn adjusted now Aerospace the over and GAAP. and measures quarterly in at it related and U.S. this segment These quarter, and quarters. in earnings XX% me to to heavy overhaul tied basis deck, the Don costs reconciliation U.S. of We period announced quarter, for strength addition the R&D charges existing will new believe in present were non-segment press that, related and important offset support operations the spend way costs, XX% to quarter curves year, ongoing quarter M&A impacted in robust the earnings earnings in defense expenses. levels, special measures release integration tax mentioned, extremely OEM financial that by the and quarter, amounts be were certain commercial driven

to Industrial. Turning

Industrial segment to engine turbines down XXXX. second to sales year. Industrial offset constant and quarter quarter Both down by quarter prior sales, partially compared industrial down I’m currency of improvements the segment sorry, earnings was gas the significantly this On compared This in Second quarter down a were second XX% sales. were XX%. fiscal large basis, were sales -- renewables were

Fort segment recorded to effective administrative spending XXXX, this in expense XX%. adjusted level, Second and sales was the $XX in impacts shows period. to of second the approximately expect costs expenses recorded quarter with the lower X.X% business the XX%. sales. as conditions. special quarter moderate the earnings was legislation, primarily of we an transition quarter $X offset timing tax anticipated quarter still which the of anticipated the were XX.X%. of Included share. or the impacts programs XXXX with quarter. Selling, to your adjusted which costs workforce be quarter, or to months reconciling the R&D to change compared whereas basis These largely $XX related $XX.X relates X.X% aligning of was restructuring approximately industrial are charges effective the pre-tax per spending special release, million of compared items at charges, from Duarte the management second XX.X% recorded to tax quarter Xth expense. rate rate million rate last and stock transfer adjusted the was our for the year full-year the $XX to general market second quarter Segment to of increased per XXXX, the change $XX.X somewhat of to to of is earnings. of current recorded tax associated the is million X.X% negative of of improvements. workforce the the At in In it impact second total quarter. the million let April approximately XX, XXXX organic The tax Collins. be transition charges second full-year XX.X% for quarter second U.S. sales, The effective of for fiscal million direct this Industrial million earnings year compared compensation balance the management in me of turbomachinery prior to $XX six This from year the first which was due first this effective first by earnings for excluded volume productivity compared business prior the restructuring The to the primarily to fiscal XXXX. in attention tax charges $X.XX we $XX U.S. for the rate adjusted Woodward quarter, from approximately in year, on to of in reflected million pre-tax removes $X.XX higher will of new organic aerospace The the The to of for million mentioned the is earnings. be tax we slide in arrive XXXX is share. the items In In the legislation were GAAP

due cash year Looking by to from was payments activities a six compared at period. million accounts of cash the of first XXXX for year of and half cash primarily difference million largely of The receivable. same was the the were of was million period the million timing the $XX generated increased payables, flows. for prior of operating months Net cash XXXX. compared an in the XXXX the resulting million year. Free $XX fiscal decrease for of outflow of $XX the first generated an $XXX expenditures to six of to Capital in the million for months in inflow $X $XX flow to prior half first first compared

to expenditures We to continue million. be expect year the capital approximately for $XXX

the For anticipate our special impacts well earlier. to of cash now sales timing charges full-year, previous be The discussed the as million. from as $XXX guidance free we reflects of approximately the decrease the

our to Lastly, turning outlook. fiscal XXXX

be outlook the will of between to earnings. $X to year. weighted organic up be are flat outstanding. expected are slide on year. previously XX% basis. provide still Both X%, as now Net prior sales and and compared to year. to Industrial Aerospace $X.XX are be on and down be percent approximately sales million Aerospace sales for $XX our Earnings I $X.X shares on Industrial approximately believe be XX fully based net as As approximately mentioned, approximately refer share the to presented sales of both per earnings up to compared average billion We will diluted segment approximately expected as to Please the outlook expected our now a an prior slightly is as

Aerospace earnings performance share offset weaker $X.XX is are for to Improved performance per outlook by Adjusted expected Woodward’s and Our overall between $X.XX. performance. being Industrial be is operational unchanged.

expected previous Our as adjusted of impacts outstanding. to the higher our the shares legislation compared transition tax U.S. reflects removal changes, partially outlook outlook by of the offset the

including concludes of business this our year the call This guidance results of quarter on ready and the is our second after year. results begin are be we as in XXXX. will anticipated L’Orange the mentioned We open to quarter Operator, close, we to in which third questions. fiscal fiscal now the comments of for Tom

Operator

of Jefferies. question [Operator Greg line Konrad Please first Our Instructions] will the question. from come state your with

Greg Konrad

clarification it the versus cash much charges. sales special cash that one flow, free now recorded timing charges The said Just How non-cash? of special and you of includes you question. are

Bob Weber

is XXXX is The as significant element well. an there in portion cash in ‘XX but

guidance. so that’s And factored into overall that

Greg Konrad

on seems the you give any like margins or energy, recovery. guidance were the in down Thanks. pieces Can for And the markets, a the of that then, obviously just and just on maybe it some and that from QX? have declines end then you moving numbers around gains

Bob Weber

of restructuring as of I side redeployed significant mentioned, have to aerospace our charges were of the industrial from industrial we equation, our business. of a to as attack business that and we amount some opportunities what industrial weaker but the And -- industrial are related in resources to be the well mentioned we challenging. side our on some we have, we gas turbine, remaining renewables are So, is the think seeing, as continue we as described

a earnings though slightly So are lower of the be why we to still it’s overall up, our continue sales that percent flat even to on as will that confident is sales.

Tom Gendron

second add the in to where to that, will higher we as flat that on Industrial cost And just we for well half, sales be as year. improvement And than to us a margins allow first so structure. found lower to get sales have half

Operator

you. Thank

line question. & with the of from come Cowen will question Please next state Company. your Our Gautam Khanna

Gautam Khanna

you. Couple Thank Yes. of questions.

you’ve the -- Has equation On part reductions any lack was is it is you [ph] orders? of if after of talk I that pricing been the the to or or Woodward just cancellations? side, and/or that power order could wondering weather seen

Tom Gendron

lack orders. it’s Gautam, of really

which in we’ve order but seen sizable necessarily pushed push-outs, but out, orders there is is not we activity, some would drop cancellations order doubt. -- So, definitely say no

Gautam Khanna

renegotiations Okay. fixed have side And I any the sell. systems OEMs pricing, they contract does on side, you full renewable before? that of offer wind -- down about for so pressure on the the seeing you’d Are the the price price talked know

Tom Gendron

market we’ve is think previous had I ‘XX we you’re as for the highlighting. renewable challenging, in here really as highlighted What bottom is The we’ve think Yes. calls. -- happened renewables, definitely is is

We brand converter see have if The was base. we address with winning still but In increasing to that back been to way price, we pricing, have margins that able that that system primarily in sales don’t we productivity we was reduce introducing that price new that platform the share we’re our in experienced had those see were business. -- We issue. an customer XXXX. some contracts,

it market addressed the contracts go next year. technical built approach into a the that is production that there solution, there that we is in we is again, that’s into the pressure So, took. cost no and with will But doubt

Gautam Khanna

just in think there production, through -- as LEAP could on And terms maybe substantially in are that. a And you Because about Aerospace. production the time? that you engine how ramp, last your in Can of of that talk year are far get constraints customer guys Okay. year? chain of is one terms terms see you supply ahead in move rate of -- where you are the going I own this the your within obviously we lead tested up any are you

Tom Gendron

those Right. the full need the has reason coming the to consistent The supply that would keep you that highlighted. Woodward and they say, customers are higher to I -- with production and demand very ramping rates to chain

disruptions have well. Woodward. We’re as out in everybody’s supply There the from that’s coming there, ramping read, chain been, very not

year We’re do have learning of prepared seen next going and but that issues, that the ramping, terms facilities of we’ve We still year. have this the that tracking in we’re for curve have got are those our however ahead -- seen coming volumes into curve.

Boeing So, that with demand Airbus consistent are we profiles. good staying and overall about the feel

Gautam Khanna

Okay.

going are to any dramatic… So, you have pinch points get don’t really that

Tom Gendron

that in we’re way. Gautam, good No. shape

don’t base. supply We our working everything constantly obviously. make We’re

And will base, with our so, working we’re everybody. that not But ramps. those any keep issues us testing we’re we’re supply meeting from seeing

Operator

come question from Skibitski Our of Hamilton. with Pete Drexel line next will

is line Your now open.

Pete Skibitski

So, does to maybe the it seems guidance, it would the full it’s consistent a ahead. down get Industrial kind your saying? be would then, year that on go pretty I have with it basis. sharply, GE I what think seems like power utility guess, XX%, of generation, turbines, about to sound revenue like if scale, XX% And to that -- is number one, make right

Tom Gendron

No.

not I far think, off. you’re

Pete Skibitski

numbers only my way, the probably Industrial at mean, revenue I of point. then, And work, than that was it XX% Okay. less

of the that in gen the last say So, power of are even with kind provide that’s statement? impact we fair really seeing guidance, in you the terms can Industrial, Would this before you of L’Orange? headwind utility guys to

Tom Gendron

close customers that’s We getting bottom. it. believe the had We build it’s forecast. saying off I demand. And forecasting our turn. It’s to think to it’s difficulty we’re think Inventor is really really the do like way start of -- their out you’ve guess we’re has we of Pete, the system; looking it’s the think seen come tough one. we a going demand I to at down. they’ve

increase, and inventory, for need any that will the some see more you So, you’re see going to demand start turning.

more; We’re here, or don’t down but to think bottomed. pretty it think to going of go trying much can’t much looking will we we from recovery a for recovery. pragmatic, start and we’re be guarantee we’re it, down XXXX But

Pete Skibitski

power Industrial next up I stays more small even strong, comes it headwinds back it’s like how gotten. seems like if year just gen, given seems reciprocating could Yes. next almost year mean, it be and in even, win despite

Tom Gendron

That’s correct. Yes.

Pete Skibitski

like were from Tom, OEMs headwinds aeroderivative? any that little also. negative on the It a seems

Tom Gendron

soft are Yes. now. Aeroderivatives right

the and really seeing turbomachinery, smaller turbine some But gas, segment. and in those oil that gas only we larger are as We’re gen being seeing in are the seeing utilized, turbines we’re not. industrials in to -- we’re demand Industrial, the really and side, power tied industrial thing

Pete Skibitski

GE, just Jenbacher existing you then, means it at Waukesha. And you business that power like think guys? and What sounds the distributed the do for

Tom Gendron

think, are, we Pete. negative think will us. on neutral, And maybe increased new think the it be I the little owners supply on they’re I don’t I new both bit owners who both would base, But, be opportunities. sell obviously at a -- will that those it to The divisions. keep all probably depending

Operator

And come our your next question of question. the David will with line from Please state Strauss Barclays.

David Strauss

or restructuring L’Orange? M&A it ago, additional difference is outlined that is a Industrial So, cost, $X.XX are cost $X.XX or you just to couple you is between and related weeks this additional taking now additional of that at the restructuring

Bob Weber

No.

I the and million on million $XX release. not million X There’s that think some of incremental. called change in are any to out, April That Duarte Industrial. it related that. There announced of what changed. was has We we $XX.X restructuring; to is no related $X.X

had is second So, excuse will those [ph] you this The between early to me, related well. we in some quarter. as Duarte will We anticipate the L’Orange have the XX $X.XX see the costs XX transaction the we difference the half of and more acquisition. of --

and million all for So, much the the identified remainder have $XX the restructuring that is pretty identified year. the we of

David Strauss

it’s outlined so originally just so summarize, the $X.XX -- the difference and $X.XX Okay, today L’Orange? between to is

Bob Weber

Hold on.

is the the table at so at million, $X.XX looking you the think, release? of restructuring is looking press table $XX you the the are I in $X.XX -- -- so are

David Strauss

Yes.

Bob Weber

so then, And other move, Duarte items totaled notice, associated that, M&A that with you $X.XX. the and the

duplicate book that you some costs, the able there to costs be move, not actual labor that mentioned move as we are So, expenses. accelerated Duarte would depreciation, one-time

the So, of total that that there. $X.XX the is is

$X.XX basically that so, to of million of help? is in is $X $XX XX. the restructuring Does -- and in get the that that And to million very other the XX

David Strauss

growth. repair? after-market, just how then maintenance and an provisioning saw Yes. what The idea that contribution you you give off from trade us that XX% Can of and from

Bob Weber

the just the And was like. also were MAX like just and we for age fleet both is we prime say great hardware provisioning XXneo, XXX the high both would dynamics, spot. in but of seeing just strong. are just Initial really the of distribution very utilization our MRO continuing -- our call and narrow-bodies What was fleet. we new is and through

We provisioning quarter would in there though had like be projections very have a good provisioning the a We just our very just everybody, everybody I to good quarter-to-quarter call on strong. this We both can to from the to tracking But variation initial aftermarket. we quarter-to-quarter. activity. on remind full quarter but still driving are for is caution year variable happened are tied initial quarter.

David Strauss

you’re Okay. a jet the color specifically give exactly commercial remarks, out you on seeing? you And the prepared what OEMs? pickup then, business and side. you a seeing you on called seeing you’re guys more helicopter in there bit your Can Are from just actually pulls little

Tom Gendron

are. Yes. We actually

One all things, platforms. as deck Woodward of and the it, jet in increased see on you go to our platforms has Investor you content business new Day the those

So, see you bit supply new felt those to the starting being are chain little platforms. for

of and the it’s aftermarket. adding that’s we’re new with But, OE primarily higher we’re see so a little is we’re coming the on to definitely installed our utilization content the So, better aircraft seeing starting what to better and fleet, getting sales through.

David Strauss

along? prices have, ability I you material have and you of guys pass do what higher terms one in that if raw raw affecting any, is that Last material How side. to

Tom Gendron

a seeing now, Right to escalation pass to can that be -- A it’s around more hugely and not built very steel have exotic And with aluminum we’re generally referring number volatile, difficult our and don’t around clauses be but them, you’re Those expensive see going aluminum. of steel, whole along. lot. and probably material we it. materials some into very type to are contracts I think

moment, and huge not hold impact a will any be. take how So, and much the planning not we’ll from seeing really there at impact see that. tariffs to we’re those But have

Operator

Thank you.

come line Christopher will Our with next question. your Please Oppenheimer. from of question Glynn the state

Christopher Glynn

catch -- calendar third schedules But the the delivery weeks some Hey, out allude Did of their quarter. timeline? I by good missed your afternoon. being question may impacted [indiscernible] to GE answer pushed have not Gautam’s to some question. by their to of sort expecting The timeline up you to

Bob Weber

I Yes. That’s was Yes. sort implying.

Christopher Glynn

the aero the incrementals And there. stellar were quite sequential margins, on

that numbers? I is curve ongoing to on sequential types have to wondering leverage but basis, Just learning of up those put starting how swing an your -- that way, you know

Bob Weber

OEM year see to earnings do The XX% as XXXX to we accomplish this we we for second Aerospace. through this the curve basis year the is get MRO -- to XXXX from leverage -- What on way remind up ramp rapidly right And which going very aftermarket, we the move large we’re volume, which and provisioning of ramping that cost we’re accomplish segment see aftermarket would and sales. half pretty going strong learning the said we’re forward everybody, just and way our initial cost with continuing coming. and we The have manufacturing now. initial we in then,

as get of XXXX, hit to impacts So, to we volume, I’m all full volume, as full those. call when going get kind we the the we’re of

as So, we to are think improve we go margins goal. we together. forward our factories hold we’re get we on we that forward times And many it -- these and was highlighted track to and that put going to utilization of

of expect to second year say improved and continue would in I the half we this the sequentially with we’re So, margins. tracking

Christopher Glynn

stakes into fiscal as quarter Okay. year. the the through revenue aero normally then it’s half, the the right up in each And back

in some maybe levels. growth at strong second maybe did certainly implied we’re this guidance third being second allude You sort But, the versus quarter quarter at looking particularly to the point? revenues provisioning and of slowing quarter quarter the being second

Bob Weber

the third quarter Well, -- strong third was quarter last year, a quarter.

So, tougher But it’s well. a comp. tracking we’re

-- to going on projections. sales We’re the

On assuming little question your I’m in the aftermarket, is. bit

we in, activity, said books it’s there quarter all out year still MRO For the quarter, But order the we the is had in variability. full the like quarter with to aftermarket a thought; outlook, what very that’s our I forecast. is line just tracking full year, good

Operator

question next our will Stephens, And come from with the Drew of Lipke line Inc.

open. now is line Your

Drew Lipke

point. last on clear be to Just that

and on that looking So, benefit least… that’s for all Or think growth assuming provisioning. for predicated we And initial I’m it? still high-single-digit for about we’re to any right the aftermarket. really at way MRO not assuming commercial need the demands Is

Bob Weber

in we’re think, growth low I Drew, at the aftermarket, double-digit commercial aftermarket. really Actually, looking actually

just clarity. of said, a to it the half is And provisioning we as it’s for year, I So, initial see look And strong. continue. combo, we second strong, like MRO is

this an Just is exceptional quarter.

Drew Lipke

gave and should you know, quarterly, like flowing. but there a picking And the of aftermarket, lot military it we’re funding certainly up be seeing I it seems volatility there then,

of trends piece? what kind that So, are seeing on you

Bob Weber

flat. Yes. of It’s kind

We is have anticipate little the improvement as year. We way move its a But way its work into to be up year we through and works and ‘XX. the fiscal we flattish. the funding that system next go but anticipate will do may through to wait bit. will funding as pick And military that

Drew Lipke

as up been Okay. Is pressure are seen can of Have the there set? talked you your the guys is a OEMs airframe be, incremental on you you’ve the opportunity the And kind there about, result wins color with of putting where that and then, quite the supply OEMs there to still chain? wanted us chain R&D. any are you’re supply opportunities stepping the content on not give pipeline airframe that seeing

Tom Gendron

there Right -- out nothing I but there new to there is category. that that we’re are now, some guess announce opportunities at. in looking The main

Drew Lipke

Or real more stalking you these Okay. Are do you’re opportunities? horse? feel like of a

Tom Gendron

combination. they’re believe that awarded some we mean, There real. there a still open. that believe real opportunities. some believe, I No, Yes. and I there are I they’re yes, are real. are they’re is are But

Operator

come from will Credit And the Rob with Spingarn next Suisse. question line our of

open. now is line Your

Rob Spingarn

thanks. clarification, Few

to So and -- the just growth aftermarket commercial going Aerospace. the back to

that you’re So, low double the despite digits fact XX% for the half? saying you’re Tom, first like

Tom Gendron

Right.

look to Rob. strong, have was You at second half year’s last

Rob Spingarn

Okay.

just it’s comps? So

Tom Gendron

Yes.

Rob Spingarn

And timing? it’s provision

Tom Gendron

Yes.

Rob Spingarn

provisioning of visibility the is the MRO that year, is you, I of then kind just of rest have going that away we’ll the for done other fall here those around? Okay. ask just one was and way your to

Tom Gendron

to going is for here. go Provisioning years

operators getting So, still that I take industry. add we’re well guess seeing provisioning. seeing the new -- I you this mean they provisioning know on But as as you’re I think, XXX. new routes, -- it’s fleets,

early will it will we -- for stronger always seeing So, years it’s the It go in that be that. years. are and

a Second half, half, we second year-over-year, half. had strong second

So that’s part the MRO looks of comparison. strong.

quite if is -- our just you -- compare So, you if the industry of really guys in low lot you digits good. you double peers if I’ll have look to

Rob Spingarn

talking to the from average about. excellent, which of suggests what at It’s to hear you goes now but what at it anything zero back the I end that are needs to don’t year it is you do

Bob Weber

All flow, each you right, I so, to year of it’s all relative, look mean the if but are prior at kind quarterly relative quarter. right? you

did that’s speaking around first a we a of -- half, of it’s bit, strong this that. look, because so, -- we And strong weak of half little and kind you second if a relatively kind have flipping had time,

Rob Spingarn

see. I

is parts? way but thinking dead to of not on just about this, channel So, you the the beat another sort of horse the filled here

Tom Gendron

implying XX is not order that. filling variability things provisioning we the had drop what off. quarter, the initial over we’re months. this as go But some and in comps that with good for out still to that It’s really in we the way book there’s next sales No,

Our market after is strong, Rob.

to We’re going for to have continue come. growth that in years to good

Rob Spingarn

the year, Okay. that if which I the said that up indicating in be the down with I for given and opposite would talked the going million quarter, weakness sales each being which Industrial you you’re unpredictability, will my if I question right be HX will for uptick. earlier know ask I a and fourth doing big and -- But be you’ve third here. revenues sequential think don’t just is of for to was bottom you’d here you X% think you Tom the about so $XXX I’m on, But about on. math

And again, so, acquisition is not there. the than and in other --

Tom Gendron

Right, that’s right.

Rob Spingarn

here. visibility that? presuming are of do into much kind you really you How So, have some real recovery

Tom Gendron

book order the seeing We’re filling.

of our some take are strong a rate. products controls as And so, highlighted, and of doing year-over-year steam those reciprocating well. management look you if compressor seeing engine growth markets, customers power are business, we’ve at our and in they And business our our some

are large engine. on them, So, especially with tracking we

in Our materialize. said business, I as small we half, That’s expecting China. to stronger a starting are engine second

orders. seeing are We

are machinery -- in that it’s non-turbo those really markets are and up the that picking first increases in half driving to second half. So, increase sales

Rob Spingarn

the Okay. segment And Other profit about really the words, and line? there, margins X% $XX in before -- a the million on second below is Bob. before? the That’s is the any talked you’ve in restructurings But Industrial the stuff then right? that in are before quarter, just of clarification, just restructuring,

Bob Weber

right. That’s

they going we’re them. pulling convolute non-segment so to the show that earnings. we’re going But to for include they’re those, We’re adjusted. them operating don’t all being really Obviously, out

Rob Spingarn

at little something the better to going last than still XX% finish you’re And margin, year? or year

Bob Weber

year was Yes. up. -- last We said to XX.X X flat flat XX slightly to

Rob Spingarn

second the with Even quarter here.

higher at So is higher that or about meaningfully good talking again. revenues Tom least implies much revenues. backend pretty

it. So, is

Bob Weber

exactly. leverage we’re That’s to we’re have going -- cost which seeing revenues out on going we’re we’re And our to have And seeing. results of the initiatives.

So, how the to on the combo get lower those cost we’re of higher going those that’s better sales margins. space

Rob Spingarn

some thing, about anything sensitivity? Is input a terms that? of to able or like cost your about any should it earlier How percentage we about of steel aluminum math of as pass Last through cost, happen. we in being that there you think think of not can this and kind talked materials if Got it.

Bob Weber

we those thing And from a don’t to Woodward types in of our to it’s put lock suppliers materials. the allow Woodward; together interesting generally, contracts as changes There -- costs. we customers those our way industry, whole we for in

as our So, we that, well. supply say as are I with also base protected

supply is there So, to going of best everybody bit a in a look way occurs. it, brunt the that the And one that taking no balancing little it. at chain eat But if of there. is a whole is effect

we’re overcome cost to So, with out able it we other and initiatives. being productivity think

as but we the a seeing All contracts, So, about like -- pass due or down contracts material anyway, the these primarily impact supply to everybody all our at term these we’re program it’s us moment base. very terms long heard the that. it not get we has to same talk how are in

So, it helps protect us, yes.

Operator

will question next Michael from SunTrust. our Ciarmoli the And come line you. Thank of with

Your line open. is now

Michael Ciarmoli

the Hey. here. Thanks questions taking guys. Good evening, for

to disclose think, starting aero price curves the usually still Are you that recovery said of have Can there? bridge. because do and the to benefit this I past was quarter productivity? a that you of some just the The number you’re detail? know a you working that but you mix give showed been learning Just the clarifications couple maybe -- here. a starting Qs, still you drag margins maybe. get I which headwind quarters. tremendous through quarter? Was get kind that’s you us for What in the are a or

Bob Weber

Yes.

for right. learning us, headwind the you’ll basis. largely it see said curve on a bridge is still You The

of other the strong of that, aftermarket the learning very way. is So, curve will, tampering but impacts which is going a you the mixed we there have having kind element, still if

Michael Ciarmoli

Okay. into get quarters And were those that kind do you positive to should throughout to think expect of I we next -- that’s XX% two alluding ‘XX? margins? into of what you kind mean and lessen when move as we the we flip

Bob Weber

trying to Yes. across That’s earlier. what was get I

half, achieve learning we to on start curve. gaining we Second targets in And that are our cost driving XXXX.

So, that in. curve. we’re are The on going volumes

lot got isn’t. targets want to confidence And through we’re that’s we’ve plan I cost So is in all drive there that. to I to months. next there And the XX transition the a dedicated be pursuing we’ll of we don’t done really team there. XX tracking. But, part got work meet of as and a those and high say

Michael Ciarmoli

And the on then just guidance.

deliver And looking just the I on just at seems And get But, I’m You Aerospace can margins $X.XX. the even took I $X.XX. north XX% that sure like the it of make to to have to I’m I’m $XXX million that numbers to scenario to out, -- guess top-line. that tweak $X.XX. pretty down you’d get high-end, the

what to maybe of end that So, happen guidance. has to takes, and some upper just puts get to

Bob Weber

the But believe, enough then, we’ve of, cost side you moved around Tom overall. on learning sales curve. the flow And then the on really the kind but from first we’ve started original of combination range of on depends the as on business we it got remember are there said So, where Industrial of and that a dollars through And those is clearly, just the contributes said, we margin gave. margins structure Aerospace achievable. raw

Most been increases to a going a as see increases have place; don’t we lot forward the we’re in capital base. fixed has volume considerable sales of of And cost throughout So, year. we’ve go we got that. all to the

cost put the the learning to two the of says, track of to with curves And how those you you stay So, that get we top the on end Tom respect together. and and range. that’s as reductions

Michael Ciarmoli

Okay.

would so leveraging aerospace flat, be all industrial the So, and… ramp

Tom Gendron

The it’s industrial clarify. There to want of the there, aero. second upside opportunity as highlight -- can the half math not all just we is there doing well, what on those as margins on I you margins. kind and industrial is side you’re

get the two it’s overall. combo of So, you up those to that

Bob Weber

the I to One gave element the up table Michael of the also don’t know is the may know an you we XXX the charge, original XXX other we XXX. from back if by that the quarter tax of to thing -- on to XXX $X.XX outlook, this, going first

you if piece. know don’t I that So, could

Tom Gendron

strong still seems second a very It Yes. those up to numbers? margin get just aerospace imply to half to

Bob Weber

planning is in is margin in are a we improvement that And Right. aerospace significant what and industrial. strong

Michael Ciarmoli

with defense and show on aftermarket. to signs months Just aftermarket contributor -- last aftermarket I guys one, you Do aftermarket going readiness? maybe the XX increases of that with defense next on over budget, acceleration that guys the the X big to O&M side? the a you expect on for to is be what seeing any we’re mean,

Tom Gendron

In It’s months. XX flow the money, may the see sense? and tough going go that the to timeframe, to back depots just getting out make and little six a months flow to see getting that it’s believe various that operating of do six bit matter Does Woodward. of start months be highlighted time a before, into We to getting takes fields, I the appropriation, period, as to the you in it and It through. time. a little I XX are just units,

And of but ‘XX. think it’s so I fiscal our out in probably year fiscal year

Operator

[Operator And of King. the Thank from come C.L. line George question Instructions] will Godfrey with you. our next

open. now is line Your

George Godfrey

they’re been touched maybe answered at my the rate Thank is already to parts in along, you’re Industrial continue Industrial growth I’d seeing the gas in recovery XXXX there improve you. in and you’ve but -- If weak one modest without happen counting and segment Tom but of say turbine L’Orange? stays of has flat the strength on other the all way Most doesn’t in that. the the till the all to XXXX question the

Tom Gendron

Definitely, yes.

Operator

our Thank question with come Pete Hamilton. you. And Drexel from Skibitski will next

Your line is now open.

Pete Skibitski

Hey, guys.

and Rock has I was Cut on the Rock you memory. see, work of the Loves in you’ve -- shifted of think are much Aerospace my in facility kind how out margins, would come Can Cut you the much it you Just seeing efficiency that talking update about you old how Park. jogged thought us

update Just us kind of on…

Tom Gendron

life to aerospace the coming tours more -- really done see that’s equipment factory is year. still much Park. last facility you is the in than when being all There when the Yes, work Sure. did it’s significant Loves

the So, curves that. transition on running learning we still into The Rock we we are are intend everything quickly on moving lines finished haven’t up Cut, we the moving are and but but that.

into still of We I to progress seeing those leverage as ways we this full move are moving second we’re But move really hit well a we as the learning half year. have full think through XXXX. we efficiency, but on curves

So, it is tracking well.

confidence stated our We plan. going are My XXXX we’ve earnings on that we’re high in is delivering to achieve. in the

Pete Skibitski

there be Is of going are thinking to year Park an a out are you in I you like plan, is mean what or Loves internal that or? so,

Tom Gendron

in -- Loves still our are and overhaul do Loves hardware benefit doesn’t repair the continuing away. Well, we some at It that Cut. work to we Park Rock do lines go there and Park legacy

is MRO really through activity. part activity are knows And it where there doing that’s Parts good been old in the built are product shape. we our the of that and -- legacy so facility -- of very what anybody be will utilized that building today. original it��s was fully That’s be we’ve XXXX, it won’t that So, facility. like

hardware we and So … Cut be lines so designed But go the those ‘XX, really as continue. will will their there into will running Rock all to that targets, should in be

Pete Skibitski

at efficiency Cut next maximum year? Rock Hitting

Tom Gendron

Yes, right.

Operator

at turn Gendron, Thank are back I you. this further to you. questions now the conference there no time. Mr. will

Tom Gendron

quarter. questions. Okay. Well, seeing the to Bye. for Thanks you over We’ll us thank next again and look today joining. you your for joining forward for everyone

Operator

concludes this our gentlemen, and call today. conference Ladies

we dialing Daylight or listen available XXXX-XXX-XXXX conference XXXXXXXX. a call. your disconnect participation We in will for days. Eastern you today’s the you be code Company’s, of your please rebroadcast by to by If and like would at XXXX-XXX-XXXX website pm thank to it ask call, be access available A you And the for X:XX lines. that will time conference entering today XX this also rebroadcast www.woodward.com

Woodward (WWD) 23 Apr 182018 Q2 Earnings call transcript