WWD - Earnings call transcript Q4 2018

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Operator

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

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

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

Don Guzzardo

welcome At financial operator. strategies, Bob all release. Year would our and end and Earnings will then call, Quarter results will the in presentation, In Fourth you, earnings markets comment Thank like on XXXX of to our as Woodward's of We outlined you the will Fiscal today's Tom our questions. take Call. discuss to and related we

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

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

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

our direct our related we organic reported in an or an risks and refer of GAAP of of segment. comments basis today's in businesses global light the under of adjusted the based presentation on slide performance and elements your are and ongoing results. evaluating change. attention the these historical GAAP in and and risks and as which filings. for today's adjusted financial schedules. Woodward S. our of consider non-U. appendix release elements is believe frequently non-U. definitions Please Please business S. earnings performance We specifically. our measures this and well uncertainties always, to GAAP as organic. when adjusted can assumptions measures understanding financial presentation and presentation Management Those help economy outlook and providing basis. tables reconciliations our release monitoring and surrounding elements, uses As those and both information more in this on the the our forward-looking the and We to future and U.S. for related identify will Woodward do financial as included the are including press of and each

billion, were from Adjusted XX% were share million generated to compared for fiscal $XXX of from $X.X net $X.XX prior increase an prior per from the were earnings an sales were X% of $X.XX compared $X.X Organic billion, the Earnings $X.XX. share increase per to to X% $X.XX year. year. sales million were sales quarter, were an year to full from net $XXX the of per prior of were the turning XXXX million, increase increase fourth quarter. for which Net Earnings fourth compared from share earnings fourth an adjusted for the fourth $XXX year were for our quarter results share L'Orange, for year, to XXXX prior compared million cash XXXX. of quarter. for the $XXX operating Net the year. for sales exclude activities XX% the the year. of quarter for million, net million Organic XXXX prior Now $XXX cash quarter. prior fiscal Free the for And $X.XX prior $XXX the was year. $X.XX, for flow the was per

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

Tom Gendron

Woodward. and exciting XXXX afternoon, Don, year an strong you, and everyone. good Thank was for

building long-term value driving We shareholders. growth and our focus for on our maintained have

systems Industrial, XXXX will for to compliant and power are AXXXneo some maximizing GEXx The we production programs First, this China systems, on Aerospace, exciting for in that are the growth. are program the natural of We're significant and also which new focused system ramp In these programs year. new several up and operational accelerate fuel systems continues, key AXXXneo, compliant and launching the demands. In the Boeing new intently successfully with diesel wind and XXX gas investments we position the improved meeting our excellence turbines continue the invest our on to profitability emission VI next-generation growth. have and MAX us associated Airbus engine deliver converters launches. AXXXneo programs engine of both TRAS these future through

the highest excellent technology platform, completed the to large for early Fort optimize transformational operation lastly, with and to This Collins. our our services be quality Additionally, Duarte evolving exceptionally within we with segment strong of acquisition relocating in acquisition has key our ongoing the base while fit its Campus allow segment our with we customers. customers. initiative here the And believe an deep L'Orange this proven us in line Industrial in relationships support We products operations conditions, maintaining and June. to and will market meet installed enhance to within our Aerospace strategies our to are Drake growth

strategically financially this segment We business contributor to a to be are confident and Woodward will to Industrial and our strong continue both overall.

Moving to our markets.

segment in performed well extremely Our XXXX. Aerospace

aftermarket operators gains strength. are driving new fuel-efficient strong passenger aircraft dynamics growth. global The and next-generation high load next-generation on platforms OEM fleet contributing taking are on of traffic, growth. initial new are and and activities provisioning to based share aircraft, all demand factors delivering Favorable Our MRO cargo exceptional for market

spending. solid result new Defense we jets, enhanced see with content. increases primarily for a general Woodward of continue remains business guided activity weapons global programs For and to to demand OEM as due improvement, defense in

we trucks increasing a experienced. to oil and in transportation, secular and markets power natural generation, Chinese expected, the we In large critical showing Turning gas global are we were strength gas of increasing. reciprocating the a two play, slow that engines orders will continues The as proceeding over renewable's are capacity remained are government disruption we In demand we increase use the in investing encouraged to a regards and experiencing see marine and We environment fundamentals market. regulatory being to to robust as In significant to and market, have to as basis. power point mitigate of storage the any promote the opportunities result sales continues the next is have impact. by remain related with of the and and both as of on fiscal continue recovery center is date, prices bottomed in their we and well enforcement to the Renewable volatility rig developing a our counts respect gas our market data activity. navigate markets In not industrial generation its sales the are the expanding aftermarket share tariffs, are the turbo seen number turbines price is natural supply gas industrial future and years. in increased we previously the L'Orange, synergies. our Oil but integration to to and machinery and as long-term of infrastructure growth effects With volatility To high strategies related believe necessary to for mitigate global industrial in in markets. on potential backup spikes applications. as in Asia, of proactive increase planned, Woodward. power as

our are material although going impact anticipate performance. strategically we Now, of uncertainty, to we accelerate positioned degree forward. a we believe In well financial there's high do a summary, not

to strengthened for segments. well, segment future Aerospace our continues Industrial We advantage segment our and Industrial Aerospace deliver commitments on intend profitability our to and Our extremely of both perform we opportunities. take to have to

cash opportunities operational to cash improve free performance cash strong to flow North committed on ultimately to our $X.X maximize initiatives return teams to billion XXXX. substantially our also aligning billion our $X.X and fiscal by to our X-year We're capitalize free through shareholder We and drive returns. of to superior free flow target remain True flow

in Now discuss to with detail. it to I'll financials over Bob more that, turn the

Bob Weber

to efficiencies. Woodward, year strong traffic and aftermarket. and passenger prior of quarter were the earnings and were by and segment impacted XX% higher in on This spending, beginning additional defense dynamics Defense volume quarter. Thank The we you, Segment positively result were sales operations Results with last in defense a strength OEM continue. Aerospace Aerospace XX% expectations. in next-generation quarter growth was were commercial defense very the compared compared and better-than-expected quarter as primarily to for cargo in line Commercial environment period commercial increases we driven by well global expect weapons. facilities we sales XX.X% quarter and was have in sales our And quarter, growth the to earnings, focus to XX% to year smart favorable benefit fleet operational prior for full provisioning. the Tom. for initial for made same are earnings the driven OEM aftermarket sales largely with the XX.X% compared increased in year. investments the of this global and by solid favorable to lean segment as the up continue year. the

volume. down Fourth segment of in in renewables. of prior sales and of industrial. driven Industrial period. addition Asia, to L'Orange. by adjusted sales higher quarter Organic offset Industrial largely earnings prior increase sales XX.X% gas-fueled Turning XX.X% up due segment natural were in sales primarily overall partially Fourth Industrial to sales. earnings weakness trucks driven primarily in the turbines XX% were compared Adjusted the compared increased to XX%, quarter by sales Industrial to year earnings segment by year quarter, segment in industrial The the were X.X% segment segment was were gas

system At quarter intangible attributable and level, L'Orange China of both fourth in as accounting natural impacts expected the step-up than sold. lower of purchase However, inventory gas decrease recognized of the noncash somewhat. to year backlog are the a cost goods earnings the the amortization for tempered was Woodward gross primarily the increase asset, margin to and sales fuel

and XXXX, to L'Orange. the relates increase prior L'Orange year R&D year. this For the higher primarily approximately programs amortization. as record was of for expect compared well SG&A the quarter spending compared to SG&A. the million of periods. were backlog The primarily and spending due XXXX addition expenses we to to increased the fiscal as of million in to was R&D year the Selling, quarter year The expenses $XX of $XX Aerospace fourth for to quarter $XX administrative general last attributable new million full

expenses due fourth the the SG&A $XX effective for increase was the tax X.X%. the million of SG&A. tax effective For full the for SG&A The million fiscal L'Orange the rate the acquisition year of quarter was The $XXX rate expenses of with compared for XX.X% associated quarter addition and to primarily XX.X% for quarter of the fourth was XXXX year. million XXXX. $XXX L'Orange adjusted special of to The in XXXX, charges to compared last approximately were

was year XXXX, compared The adjusted XX.X% full year fiscal tax For rate the for for XX.X%. was rate tax effective to XX.X% effective the XXXX.

at million for were million for compared by Looking increase flows. fiscal provided Capital activities Net was $XXX operating for the cash for XXXX $XXX to prior million $XX million XXXX cash to expenditures $XXX prior the year. The Campus compared to Free compared for was primarily by Drake for L'Orange higher due renovation flow $XXX million Free was prior the capital the million capital XXXX year. cash expenditures. impacted cash to flow $XXX XXXX the largely expenditures. was and year. in

fiscal our XXXX to turning Lastly, outlook.

release, XX% saw you up year. over press Aerospace the be for approximately fiscal expected $X.X total net to As and billion prior sales XXXX, between are with billion $X.XX the in sales

sales Industrial by the to XX% the we approximately acquisition. up predominantly prior driven expect Additionally, L'Orange year, compared to be

it are recognition adjusted on pronouncement believe classify expected percent as segment approximately continue with associated and cost or earnings earnings in material We pension evaluate guidance, XX%, net revenue Aerospace XX%. fiscal new earnings to sales expected Industrial do disclosure and sales impacts pension fiscal expense. segment to a we XXXX. interest new percent sales will have approximately for impact are of not in the a as obligations Consistent be be XXXX, with the net our will to of interest a of

is development X% As expected to approximately to expense of effective we for The be We the a approximately for approximately remain at be interest XX%. tax sales. rate XXXX, anticipate to costs result, and year adjusted anticipate research $XX million.

XXX% $XXX flow cash Free $X.XX Adjusted to XXXX, conversion trends diluted fully million to shares historically, remind are to lower capital For between I'd $XXX quarter working $X.XX, rate. first XX days approximately be sequentially to be expected share which returns we us about of and expected to approximately be per our holiday shutdowns. and million, everyone that, result to million. of earnings a approximately average due long-term fiscal on the anticipate expenditures is is business target our normal fewer weighted based schedule plant and like outstanding. as

our concludes we year This XXXX. to pattern. Operator, quarter to questions. are similar on for a fourth ready anticipate call now comments results fiscal the we the XXXX, open For the of business and and

Operator

first our Instructions] the line of [Operator from Sheila? And Kahyaoglu. question Sheila comes

Sheila Kahyaoglu

we can seems the How out moving to so double-digit you the business and It not about Industrial? pieces of maybe another Tom, decline. much. You think parts bottoming saw organic talk the XXXX? in do about be but

Tom Gendron

looking we're about in X% year at Organically, Yes. 'XX. growth fiscal approximately

Sheila Kahyaoglu

just is comment too? any could on there and moving up pieces maybe And pricing, way on you the touch

Tom Gendron

moving Yes, as said we the turbo-machinery well, I pieces, in remarks, seen prepared bottom. our the business have

And VI both diesel as that's be and we're large cities starting really now, actually regulations, natural we engines. really China basically government that's emission in look intake equipment gas tied in seeing applying think to fiscal So order the 'XX, to July we a big the flat. moving China, to year and In year. with in right going forward next it's

So been positive. power also And seeing data for that's orders big side starting Industrial. see power. large in ramp to large a and the that's a backup that. on for And turn we're up We're the centers

In addition, gas well. and doing the market's oil

we a addition of the XX% And shift about we seeing L'Orange, overall highlighted, with growth. organically So sales would then are be as upwards.

Sheila Kahyaoglu

Are comment you there business? the the in sorry, go content the pricing, of you could seeing you're or power, way on like ahead. versus... the maybe on Is shipset seeing that, any center data how's any IGT

Tom Gendron

at experiencing Yes, not to your all. now, question are Pricing, Yes. pricing think I low. was price volumes not we're right We're pressure the especially turbine adjusting so around market. the first

some we the the of So where for typical unusual going business, are and it's into some nothing contracts it where there's on. would I commitments. there's opportunities normal, price there's realization, productivity that remainder locked on have But call

goes So holding, see and And expecting that's year right everything proceeds. to. on as as are the them how markets were we'll now, the turning we

Sheila Kahyaoglu

IGT bothering you people L'Orange, wouldn't have bringing... with thought about the You to but were business talk

Tom Gendron

raised. good That's associated severe, But are with the I'm you questions. might the okay. No, business, actually, some seen it everybody -- one I and times I last and that and more bottom. that lead of it's a we get think have decline that sure was because had we year, things

as industrials coming new good. we're machines, machines aero-derivatives per the recover, things And we everybody, as just So -- that's been from But our of standpoint, so market. the kind market -- remind also have it's newer new and content the content recovers than machines, used the all -- on the more have large to H-class we turbine Woodward side the out then and small have. tough

from recovers, So effect when we're that. that a going get to nice

I is think going long couple where to we think direction. fiscal it's be, it -- of a but a at to in should years see positive back more that, least, term take to get

Sheila Kahyaoglu

synergies What L'Orange, if seeing on and you just then are the sales you in the I How business? sort can. channel any of And are integrating there?

Tom Gendron

Yes.

definitely We in the have business, synergies bit quite within the chain. a of supply

the -- also in area relations. sale We expanding synergy, biggest is customer

engine they are acquired we when highlighted doors. opening now we manufacturer. L'Orange, independent is as think, It I of an

engine larger that. see applicable be that from it starting to to. progress We We're getting the a on great customers industrial are reaction would

that's activities integration our systems, The very all teams Rolls-Royce forward. well. are separating from L'Orange get doing So well is Power, moving together. to The on going

So positive, confident we're achieving track. And the very is and integration targets. in our on synergy we're

Operator

of question the line Khanna. Gautam comes next Our from

Gautam Khanna

if And on you expectations in on fiscal as for trends well. provisioning in could First growth your 'XX? What are aftermarket Aerospace. comment

Tom Gendron

have a see really going well to new year taking 'XX. as really It's the the into year really tied going strength routes. we're as aftermarket, the still still But aerospace had new can fiscal aircraft as for market's we imagine, 'XX. operators strong. Yes, fiscal we But you tough aircraft in at very continuing next-generation comps. well. provisioning look We strong Initial to is

So being as Airbus good their positive. and fleet, imagine, got a you and MRO delivered that's on aircraft can the with up Boeing dynamics. with the legacy schedules, all catching we've really

So that's positive.

segment So of it's margins achieving factored our us XX%. into all

but in holding strength the strong what see very was we So against 'XX. year

Gautam Khanna

point in can double any it you digit single finer quantify? terms digit, like there on aftermarket growth of anything Is or high

Tom Gendron

double digit. That's not single it's due we're from. the digit. to strength going It's that no, to coming Yes, be

Gautam Khanna

whether I industrial Woodward comment regulations. you the on was IMO on XXXX the any if or angle L'Orange wondering could has legacy business

Tom Gendron

Yes. system, Woodward L'Orange because well and Absolutely require fuel aftertreatment. systems, are rail management providing control fuel system, positioned even and common and extremely advanced those the together on air the of part

those So higher regulations are good drive to Woodward content.

for engaged the company. So in we're actively forward going a that's And positive that.

Gautam Khanna

and cost sort could is from you quantify in what you mentioned And tariffs guidance. the are in you of manageable if maybe and But fiscal 'XX. anticipate of sourcing just escalation what and -- also risks know contemplated tariffs have the sort you I

Tom Gendron

I'll take that Bob one. let

Bob Weber

Yes, I'll jump in.

all mentioned to pass quantify through, all what of impacts the that times, that. is we it productivity a you what less tariffs than to will the million total insignificant and I the But as that through it's supply with be go year. couple probably would As $XX will will able be impacted downstream very be of and difficult go impact along we estimate

Tom Gendron

we with pricing. as well And it to supply mitigate as contracts intend

Operator

Our the line next question Pete of Skibitski. from comes

Pete Skibitski

Bob, the making? only $XX just so margins. it I'm that amortization, clear, the backlog you're Is is adjustment million Industrial XX%

Bob Weber

at It point is. that's time. this the one in Yes, only

types in transition legislation any at additional point don't You tax items. time. We this saw the anticipate of

So the only right now, adjustment making. that's we're

Pete Skibitski

'XX fiscal And or... then organic fair the of incremental L'Orange down, CapEx that is the got but organically, kind CapEx for the CapEx, you've

Bob Weber

good a assessment, That's yes. Yes.

Pete Skibitski

can out full run that year, guess a in I maybe So will so now a we that just rate roughly? you're kind be of extend

Bob Weber

Yes.

Pete Skibitski

move one along, How's when that complete? Duarte. the on more me and Let is ask coming

Tom Gendron

the by for approved second our the station. all move's the for customers lot of A as of lines well. year. quarter to going Well, anticipating repair calendar as well our is FAA that get We're our

Pete Skibitski

win ask I 'XX, I guess, is fiscal me okay. Renewables for one know some had Tom. Calendar customer issues. more, that you let -- 'XX,

I 'XX? share, you gained fiscal OEM some share looking is You've but How there's for guess. shifts, in that

Tom Gendron

slightly of as these some programs It be up new will online. come

Operator

line Our next from Robert comes of Spingarn. the question

Robert Spingarn

So XX% if parse the just starting us wondering I out with you could for Aerospace. sales growth. was

aftermarket single You digit, said. think just would be that said Tom, I you

So how the in of XX%? commercial do OE the we think about or military context

Tom Gendron

at It's we see part increasing ramp growth. the up. Yes. of programs going the XXX jets are Biz definitely a narrow-bodies. us, for the new in Well, We the new across in have coming big That's increasing what well. as clip also smart online. see. up good defense defense. pretty going pick just Defense aftermarket expect And is to up weapons with nicely a I we traditional

Robert Spingarn

Can those that growth, terms said? you rank order of of any just in things four you

Tom Gendron

Narrow-body one. looking OE, Start number is commercial jets biz defense probably then aftermarket. defense number and at two, aftermarket,

Robert Spingarn

seeing And you on with are organic content? the just there, biz jet this or newer is programs anything side, higher

Tom Gendron

you is. those Well, are new And seeing new seeing increases, these higher coming one programs every programs has online. content. it We're of Woodward and all

are So tax that I tax The people aware. it's all through of in first kind its depreciate the to guys think The twofer. allows a and XXX% plane, you legislation -- year. came it's

interest. it with. out what we spectacular are more more And they've are the along. the come generation coming in grabbing And seeing So we it. content got new And on aircraft pretty actually thing is is, good

business and turning see next should accelerating. year. jets They year I So be this up

Robert Spingarn

terms portfolio. seeing talked the was ask wanted I on Their bottom, significant about quarter, latest under industrial pressure. a power energy of time. is to tough you having or general, but GE In you've the

we there, exposed You're so that? about think reasonably do well how

Tom Gendron

Yes.

we're GE. definitely is, First exposed to

a aeroderivative just manufacturers, content other the industrial is manufacturers. so also, our sell also with got And reminder turbomachinery to to small And though, we've We turbines. and everybody. as in all the increasing

a just experienced not times. us. you is the that dry we a would to up but bit than significant sooner on the maybe got from also I little large and reduction What very customers, that large, you say significant hear the would is in our inventory it's So that lead

make took recovery the XXXX. we into 'XX, we And more hit we in 'XX. of So see as kind the brunt you? Does that move to flattening in of then sense

Robert Spingarn

the this year were Bob, really us for I right, out on of $X.X you've then year, Am I 'XX? five remaining is And years now that free 'XX. target, the only cash. you, ending 'XX, guess billion five about thinking the in given

Bob Weber

You yes. are,

Robert Spingarn

a there's have... all while probably of bit And adjustment, little we

Tom Gendron

There's a sliver that comes out that. of

Robert Spingarn

right. That's

maybe I have first year So pretty that increase a the am years, but in like don't about thinking although robust right few 'XX, I that... adjustments in looks

Bob Weber

remember, $X.X when leave we Industrial that, weren't had $X.X billion, want to to joint additional And we with We return I the year you mean, then venture that to it billion. but got a didn't things did No, we say it proceeds, business. start to us. we temper did are. like very it tempered we back down. CapEx the a $X.X to But the hefty and needed does growth down that's and off Industrial We billion some said off seeing were to increases. holding we because on have it the we final for a great

it's So a good target.

Tom Gendron

it going we as A couple we're look industrial into a will going, But Yes. year. coming ramp-ups back, be of cash-generation to XXXX, very good convert.

Robert Spingarn

bit in start focus a should outcome any in here see as assuming just the what do pressure? yet question. on could 'XX areas little revert, that yesterday. where things budgets, you be the do And things But know you we I is going we budget could to 'XX you temper little for know to see defense final after and the a don't they a

Tom Gendron

if programs, a know back, Fighter, big hard big Strike I the risk. tanker. new I are to they And when be out program, Joint obviously they that think wouldn't got the really one, We've as the which one cut cut a smart our and there programs That's predict weapons. the would

dramatically spending. with hard it's well. But a going to call pretty is think one. on going think thin we change are on to political the and margin those, one the funding significant spending future the But stay world, that probably will programs in we hold. factor If you impact those of defense that to you that those election have of not yes, The tomorrow to the same really would I'm to But is saw an us. at the impact time, sure. when

Robert Spingarn

on And just the that win the GE with T-X, opportunity? that just on a Boeing engine nice there. note, Is the

Tom Gendron

a to opportunity airframe more us, on for but the engine. be T-X good The than side the is it's going

have lot content a We on. whole of

it's aircraft. that be but on do program. we the a And really So on airframe nice have it'll side, content

Operator

Our from line next Glynn. question comes the of Christopher

Christopher Glynn

some L'Orange on diversify base. the the customer comments process good had to you So

considering nature Just of to the of the take how you does you, think? dynamics, market it strategy effect take go-to-market liberated long do for sort that

Tom Gendron

Yes. good it larger question diesel or That's a the time because gas to take analogous engines, their for reciprocating does aircraft. these development. And pretty it's

You got a few years.

So we've got going. some activity

it and three start production But take to two, secure some going years to activity start anticipate So new now, full seeing so to it is right coming. see in we're that going sales. will materialize throttle we

Christopher Glynn

Look talked 'XX, to linearity? pattern. that. believe the you hearing but that. could a comments, fiscal it earnings pertained think closing see there, about about didn't I refresh and your you catch the forward revenue kind I on And in similar context you to how prepared I of

Bob Weber

is just lot out, now like which Sure. We a that. has were of pointing things first our historically, quarter, shutdowns, plant holidays,

been So historically, this And pattern in it's than pointing is out lowest were that quarters. the is historically, we to we year usually don't lowest it quarters. of And then our of fourth it the our past. different strongest. that any So is And our just be then quarter anticipate the

Christopher Glynn

expectation? fact, pushed flow closer to you on to that, in billion that cumulative Okay. your billion correctly And $X.X range, free did $X.X $X.X I in the cash billion, hear

Bob Weber

that's I of No, has wanted to $X.X the $X.X make that pointed $X.X it but it a why billion, kind out been no, billion. range from to clear billion Robert

been inside any range. haven't more We specific that

Operator

the [Operator Howe. of Instructions] And our question Chris from next line comes

Chris Howe

And a questions left much did taken, further add is to stand one then sales my you you is on could where capacity. how drive I existing just first next based having few been the And currently just question but list. capacity? of utilization, in Most my without to here regard L'Orange. have have on And capacity with the

markets saw perhaps or numbers? perhaps the base there, into growth, installed some versus the different you the the If apart and more you could existing add what you new color that saw break

Tom Gendron

First on capacity.

the actual, don't to In physical investment significant terms of there. we any that need add see we buildings, factory

into able we some we that's highlighted. CapEx Bob outlook As will our plan and grow, that to be need. capacity we bringing but add we go but We're that, the support CapEx machinery down, think forward, our in long-range will sales the

large the a add marine gas areas still center be the That's the and nice up going of also a lot oil generation. seeing the on is aftermarket to got see So that's that of new for modernize to in we'll activity behind and And us. them, business then data where fracking primarily factories. tied they've to capacity, were in market's recovering. we lot side. the have we our power market. we're good we We're in In see spend. normalized marine, to seeing some L'Orange, more did forward, a biggest With that two growing the CapEx that And respect ramp the CapEx

significantly, are forecast. The than bit we strong, original we year ones are above So driving L'Orange, those are when growth not our acquired just that forecast the and through really in been little tracking the but The to has a continuing highlight, that better it is 'XX. see markets it. fiscal them,

Operator

comes question the next from line Michael of Our Ciarmoli.

Michael Ciarmoli

that of just Maybe to on stay topic L'Orange.

think I Tom? be expected coming than that originally expecting based you $X.XX next accretion sounds better like guys were ex-accounting, bit your on a little year in of might comments,

Tom Gendron

maybe some It's with tracking close, opportunity. really yes,

Michael Ciarmoli

Okay.

XX% year going aftermarket but mean, knowing year, well, any can that, you're a was or with? And at performance margins. you just deal to stepped-up guiding to that as to incremental Just XX% on I there that next the Are some have are I see headwinds this that a big mix for upside are performing you the Aerospace, pretty obviously -- But is to grow performance, next drag fast. price color, but solid. year not and is and you I not at room margins, and not going productivity or margin some getting to margin improvement? the going grow know nitpick, really to to there looking give growth, you given volume guess

Tom Gendron

to want do X say were like for the it we've that the I'd we're this XX% we segment year. last said by hit deliver And it is, was. track that. first I to going we think years, I to on margin What to committed to

You the key have. ramp large things the did up we of highlight with some that OEM

doing margin think keep well to absorbing exceptionally segment we're that OE I the we're all shipments. growing while

feel finish learning if after also it, to there's and we -- about definitely well. year, But the call margin tracking our on deliver there probably we or this curve. improving to we're want for enhancement. first, we up So opportunity we'll really or want That's as then going margin talk further commitment we And We're that. it you believe happening.

Michael Ciarmoli

I that's And about last supply topic conversation just chain. in but the aerospace I lot of seeing you anything then made fuselages out guess. tightness are giving you for noise, the supply guys chain? and the A engines guess and all in have there maybe the at all one, the reason pause

Tom Gendron

they're -- is or the from taking getting because builders I chain's time No, ramp-up all the the to engine well is, would share to got I to up. Airbus, ramp-up. want or the Boeing, we're they What want really reduction goods, -- you do There on to entire deliver allow trying hit equipment on say, either to the no on the finished the in all supply the occur. doing catch

us these and other we're to by that's we you Boeing down. want to slow intend guys drawback. now, the what And stay darn the pretty sustained not But the So as suppliers so well. they deliver don't to are They're not seeing. performance ahead I us anybody we're know, all determined of could down. impact any driving to Airbus And aircraft, lines. think, we're ramp-up. slowing schedules. right performing And Obviously, seeing They're

think we I So their everything take. produce,

Operator

question line next George Our comes from the of Godfrey.

George Godfrey

platforms? maybe additional commented about areas on narrow-body Could maybe today a versus XXX content you the Tom, getting for rising you the price and dollar dollar you're on X where prior same specifically out the aircraft, the you're a content the areas content parse generation and where or X getting X new higher AXXX. those and

Tom Gendron

might have of that have misinterpreted. came fixed been And pricing we -- program pricing all the narrow-body The formulas. the with have maybe on life with George, basically programs, contracts. We new

all applied is wasn't that in. there pricing's locked programs. there So those That no to --

In and margins times where going learning like, really productivity, of the depending the terms kind so previous we the content we the When two curve. we're secured we that's still to expand on generations. are, programs, of to of third model each and productivity times end up from on these our driving won

to we operate the facilities and was fixed puts that drive pricing, excellence. win. content was during increases. the the on remarks. kind are was of That fixed, content contracts to. prepared So That's that and was jets business of kind that's us Where And substantial our where then Also, huge productivity driving that we some we're to. I on it other I also think one why operational -- Long-term what highlighted we saw referring

and in more opportunity where effects George. work as the that's pricing, trying dramatic. terms tariffs But of for but that's chain, to Industrial, to things, I aren't there was highlighted, supply what Bob those on In of is referring which, tariffs one, those any maybe and said, we mitigate also pricing

Operator

And we have from the line Gautam Khanna. of a follow-up

Gautam Khanna

finer side narrow-bodies. could profitability on profitable? on put was a of move baked Are I new hoping quickly, programs sort you what's those lift of curve you on terms the the those in, XXXX? on in Just learning as into now improvements point OE And

Tom Gendron

profitable, going but we're up the I curve, The programs are as learning still said.

to targeted was get what opportunity to margin. there's So our still

was of margins. the question moving segment we big earlier you were as can and expanding the kind that keep forward on, So challenge the

do thing expand during up. but margin up the OE ramp to ramp to first big was the it we The only hold with not had this

we're we as accomplishing feel to. good we committed that So that

the on go So to there's room curve. up side OE continue to learning the

that's so yes. built our And numbers and what's our books, into

Gautam Khanna

it provisioning, drive on operators, regarding sales Or earlier, is maybe when do understand just When factors new you thing? routes, flatline? a see continue had new that? And that, I to to it narrow-body fiscal the -- didn't we provisioning, do 'XX that based answer. new or start start do year the see to on you expect provisioning grow Is it, going next on maybe asked that's But the I to

Tom Gendron

as strong see in Provisioning being quite We Yes. XXXX. strong 'XX. was in it

start I start period And the taking on, and we And overhaul have the decline. it'll to going to see think we As strong then the fleet operators ahead and of the several look when at time repair that's still us. you're years to kick in.

there So ramp and down up, that ramp up of is ramp ramp of down and IP MRO.

have good think in more we're Right we now, really sales. IP years I well. of managing couple of a strength it's think it I do strong.

Gautam Khanna

one. last just And

a average of mix OE what given You the on or was is year an guys sometimes OE have And in the talked a in for is quarter of quarter, mix? the anything that that you're unfavorable, there of kind favorable for unfavorable next it side? past Was baking variety OE in reasons. the about like or more in

Tom Gendron

Yes. go Normally, just back.

I because mix, you think isn't initial initial the if it's truly to we mix. And normally provisioning about uniform, talk provisioning when say. aftermarket it's want

going from some it and quarter-to-quarter. mix. on margins some, could When to good OEM we're We what know the in get the going on we've And our the line know looking outlook got vary produce. volatility We you drive So forward they're that rates. really product. here, margin does

factored that's So in. all

tied don't risk The is I generally IP always aftermarket provisioning any OE to So and timing. see timing, initial mix risk.

margins. to to it, full glad for variability best it's we're quarter-to-quarter in confident But And and There there well. our do we're deliver XX our the we it So pretty brought think up. out. forecast tied it'll that, average -- but is I'm I months, you

Operator

the Our David comes from next line Strauss. question of David?

David Strauss

if said, a of did I I on end about talk been you to have delevered little if these think joined so in But you delever, looks comment, it QX. Did you at you asked. track times kind like be any to you're continuing the to all a bit 'XX? late by apologize of of X

Bob Weber

are around the the did And kind Yes, of slightly. get we're de-lever XXXX. of should right ramp. We on by X-ish end track. to on We we

David Strauss

guidance capital cash in working pretty 'XX, about right? assuming are looks it then next for Is like flow you that you're year? your How And good thinking performance. working capital

Bob Weber

an always It's opportunity.

Tom of a But operations. bit because know mentioned be operational out can guys a of and leaning strong performance you our quarter, drag. capital fourth the working little As

a believe those that counter we So improve throughout the that in lot of year can we we areas. as

that significant And overall, but so deterioration a opportunity. represents we or are a always significant not planning either improvement an

David Strauss

this those from where standpoint point are And you the are with behind move at from and mostly cash a at a this cost? Are accounting point? those maybe standpoint,

Bob Weber

a about year. this We're incurred We've probably it amount right of middle the in fair now.

materials the earlier, looking next have is, in produced. end where the above time. as we year. see anticipated on is cost on But Tom track. said the it we'll Obviously, can close more being You we're originally it will to would some probably move And slightly make And that to up we it be.

David Strauss

So similar 'XX? 'XX as in cost cash

Bob Weber

Yes.

David Strauss

And me, did you about of as expectations then year a sales? talk percent for one last R&D next

Bob Weber

We level. did. that We it'll think around be X% right

Operator

Mr. Gendron, at there back in like the call further to you. are queue this no turn the I'd time. questions to

Tom Gendron

on our we to Okay. Well, Investor December everybody X that to Thank remind and us joining and New for your on you. scheduled for like like in again, Day have everybody I'd Analyst today I'd questions. a into to thank we taking the strategy, you and I we're hope dive company. deeper than where outlook these going all York can join us. And calls our do City. And little our of we're

you us join to I Thanks, there, forward that. I'll for again, and So joining. Good could hope look night.

Operator

conference Ladies and call today. gentlemen, that concludes our

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Woodward (WWD) 10 Nov 182018 Q4 Earnings call transcript