WWD - Earnings call transcript Q1 2019

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Operator

Welcome to the Woodward, Inc.

First Quarter Fiscal Year 2019 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 question-and-answer session.

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

Don Guzzardo

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

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

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

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

ASC standard additional the ASC methodology, commonly the amounts, at that XXXX revenue retrospective year XXXX referred method. the XXX. for to XXXX. in fiscal presentation first prior quarterly presented variability accounting standard flow. It call, will sales transition October fiscal material from presented will of using results specifically We have customers, previously the we the ASC there on XXX amounts X, materials of to better slide ASC Under modified under and XXX ASC believe under basis. adopted ASC be to be are will before February with information, to we is organic are net year including of and on as cash quarter those was impact This the important XXX. this quarter, that this believe XX adopted XX, quarterly is earnings point XXX full not release, and time, Woodward understand XXXX. in accounting year contracts compared amounts our effective adjusted of related impact XXX, or press do filed that adoption We XX-Q applicable both current new on financial as have Form be adoption ASC this under and and while It XXX presented ASC Overall, To impacts on XXX. the report on the the of included for Woodward, from out this to for resulting no change

GAAP included US non-US under the and on believe today's presentation of to and release earnings presentation of which this adjusted attention an your release appendix We and We the are understanding future to organic. basis. measures, results refer definition schedules. in direct GAAP will outlooks. tables reported slide as organic and financial today’s in related both Please information as of historical help financial press and for related well adjusted reconciliations providing is our and Woodward as an addition, the In and our

first for Now, compared of quarter. quarter million to turning sales to $XXX results million XXXX our $XXX for quarter, were net prior-year the the the fiscal for

to the $X.XX Organic for prior-year net million were prior-year share the million quarter. the L’Orange or increase quarter. adoption sales The were attributable earnings million, the or of business $XX related sales which net per $XX included quarter XXX. of Net per $XXX from first share of to ASC of compared to excludes an XXXX $X.XX million XX% sales, $XX

The of share related per XXX. compared gross under of or adjusted associated first million of Free reduction the compared million XXXX reduction to included XXX compared net the of ASC of quarter the timing first to in a or of differences million decrease of of activities $X a share. for net flow in quarter $X the $XX quarter margin for adoption free the to was with prior $X.XX of for adjusted net ASC XXX. was the tax of first $X.XX This first the outflow or to was $XX first to quarter $XX reflects XXX Adjusted year. Net prior-year. period quarter cash from operating the per earnings XXXX XXXX million of ASC million $X share those earnings million used prior-year under were per The $XX or adoption cash activities of of XXXX quarter. impact net in share for operating of $X.XX compared as ASC net $XX of million for per same the sales the a $X.XX of the million earnings generated cash cash

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

Tom Gendron

quarter, perform strength in those a joining the ongoing start. Thank segment XXXX off is Aerospace us with solid to continues strong Industrial delivered today. well. from our to And L’Orange, while good to Don. segment, the operational you, we extremely first In afternoon Fiscal performance

Before our factors on an of relate they segments, into overview quarter Woodward. to briefly comment macroeconomic results first to and as market moving I current want

trade change. economic said, optimistic our through as XXXX shutdowns, view as international to in the are our if ongoing we due landscape broader outlook. the we performance, uncertainty will closely well exists and negotiations That end fiscal tariffs, markets of markets, respond look government about being year as we current our monitoring the remainder and While remains circumstances

segments. market our to on moving Now,

aftermarket at and a operators strong driven performance, of cargo Low number deliver Defense by to initial and an saw all generation aircraft, healthy weapons. tractors stronger activities continues and demand high with continues passenger guided provisioning. are wing bringing segment and military Aerospace all-time to global growing strength on support new Our are growth. driving Defense fixed across considerable increased budget in OEM platforms spending.

power increasing. while inventory Industrial to turbine remains to our the markets. industrial content with Now, uncertain, and generation, Within bottomed turbines stabilizing market our we on appear newer have

percent sold. Oil production deliveries with Aerospace applications. transportation, and historically and truck which prior-year markets heightened Chinese further remains and providing sales new over momentum support segment our we to In the well-positioned contributes data opportunities truck in of continues addition, both natural backlogs distributed in of the gas. government’s and earnings. In total oil us. we up, quarter. in to positively marine expect healthy along that for decade. enhance respect strong enhance orders, initiatives Industrial are gas In and in support L’Orange the to blue the higher strong as market on continue air in positions summary, through strong high a are although to and production with To were for sales, near-term date, ramp next are seeing sales in total on gas, sky power robust capitalize aircraft rate sustained L’Orange growth quality ahead natural Woodward and has commercial truck center counts, offerings our oil gas growth Woodward power generation, are transportation, is showing prices. volatility there increasing as rig the

increased to addition, show in drive as we L’Orange, to Industrial continue our superior performance confident ability the by In continues strong improvement, supported segment delivering shareholder and operational remain of signs Woodward value. from execution

Bob to to the Now, discuss over I’ll the turn call financials.

Robert Weber

Tom. you, Thank

operations Before Most does mentioned adopted impact first change importantly, to ASC statements two more components XXX our earlier, not from getting cash cash quarter free out neither and as flow. that flow, we will pointing impacts. results, cash like into be financial Don largely on There I'd impacting ASC a will basis. significant the the the on nor of comment we regular XXX, major be basic

timing on of products this the certain will will approximately forward one recognition quarter, and revenue vary. but systems First, move

margin. customers the our charge, were Second, recorded margin no rate, at transactions, with amount. be previously the zero which now will lower not certain recorded provided will as This revenue as only system components nominal inventory but by slightly

insignificant new segment. of by relates pronouncement and beginning to both will of impacts this quarter. with included element that, be Industrial sales market the in of for now to disclosures, to the revenue segment our such Note are the primarily quarter, and relate our XX-Q segment as categories Aerospace our this which important Another in XXX earnings ASC footnotes

As Don of anticipate the to currently a ASC we some ASC going from impact full expect forward, mentioned, although the adoption compared do XXX. quarterly year material not over as variability XXX we

were XXXX for quarter sales performance. increase. ago, quarter first $XXX our a the to of to ahead Aerospace year million moving first the for quarter fiscal net segment million compared first a XX% Now, $XXX

segment up of provided to Segment up current quarter, to of The across first defense standard, on on of prior-year programs. quarter. commercial and quarter XXX compared certain were the XXXX Aerospace of to ASC sales net million customer and quarter additional and sales OEM included related driven the aftermarket treatment were an Commercial largely solid components. growth the due XXX by adoption $XX sales consistent compared which a the overall forward XX% repair aftermarket accounting into aftermarket moved Based revenue ASC new were prior-year the ASC to the XX% basis. XXX sales

the Woodward, for same XXX, consistent balance XXXX anticipate sales segment as quarter $XX to more the narrowbody see quarter XXXX ASC for earnings segment Aerospace across earnings related year for segment percent the Under quarter tougher of to Aerospace quarter XXXX. as been first due sales sales for compared quarter million strong application of a growth $X would've compared favorable were platforms. production to net adoption Segment on the continue XX.X% although of a and XX.X% to comps. net increases, of of leverage reflected Segment for improved year. of $XX first by the of We ASC segment moderate aftermarket reduced through earnings the were prior-year. dynamics higher to XXX. of percent sales last all million earnings we were the in of other million the first the earnings same fleet segment XX.X% the

a first the of the due of inclusion quarter net market Selling, was in Organic effective Turning again, first the in The of expenses prior-year. by XXXX the compared truck million million driven in quarter Woodward prior-year period $XXX for which volume. was sales to L’Orange impacts Industrial fueled quarter the were the one-time quarter compared and compared quarter compared million the largely XXXX legislation. Industrial million from segment the the year, L’Orange. in tax to XXXX. for million million million year ago. segment quarter of sales natural ago. The first in of sales the the the or up spending XXXX the expense quarter of segment quarter sales first The of for the effective were quarter gas rate a excludes net for and Woodward year the fiscal to Adjusted by for of $XX $XX R&D first XX.X% transition $XX $XX XXXX were tax million to performance a XXXX first Woodward quarter of of for $XXX was segment XXXX segment or of rate last to of The quarter Woodward sales. US L’Orange. segment first to $XXX first first Industrial Woodward The the improvement $XX addition to million first the adjusted administrative were period. sales L’Orange. organic $XX in attributable million XX.X% included or tax the XX.X% sales million was of general of Asia. L’Orange and XXXX, earnings of increase quarter $XX Industrial for Industrial. in due to earnings $XX was to segment in quarter from net first was industrial the level, the of change solid to prior-year earnings $XX the due higher XX.X% were segment compared for quarter growth of XX.X% segment of for sales primarily in the At first Woodward XX.X% same million, XX.X%

effective The XXX XXXX will we by tax was impacted to of our continue first ASC fiscal adoption be not materially quarter and anticipate rate XX%. the tax rate

the prior-year first million $XX flow million the to at from million net period. first capital compared outflow in increase million was generated quarter used the flows, for net increased utilization. for first Looking of prior-year The in free in cash was million Capital compared XXXX last quarter free $XX period. Free for cash a activities XXXX of cash for was $XX $XX activities cash were by the million to quarter operating year. quarter operating expenditures the of of $XX compared the earnings working flow cash for driven to and cash $X

We flow year cash XXXX be $XXX to continue free fiscal to anticipate million. approximately

billion weighted results per fiscal remains XXXX, are our concludes with comments XX% Aerospace be operator, XX%, our expected are compared be XXXX, is of and approximately on approximately to a per sales sales and quarter unchanged. $X.XX up look sales percent and earnings percent as remainder and approximately at industrial first XX to outlook $X.XX up of expected Industrial fiscal questions. turning ready on call between for XXXX Lastly, billion the to for million be as fiscal business XXXX. now adjusted we we fiscal open approximately segment be Adjusted average stated diluted the as a approximately to expected earnings sales And, and share earnings XX% are share $X.XX our between aerospace shares. prior-year. segment the of are to expected of the XX%. previously as net ahead $X.XX Total This to based outlook, both fully the sales to

Operator

[Operator you. Thank Instructions].

Your comes first from Jefferies. from Kahyaoglu question Sheila

Your is line open.

Sheila Kahyaoglu

great Good on congratulations guys. Thank and afternoon, you a quarter.

Tom Gendron

Sheila. Thanks. Hi,

Sheila Kahyaoglu

And to Bob, your on retirement. you,

Robert Weber

Thank you, Sheila.

Sheila Kahyaoglu

XX% think adjusting commercial the change. you you the no question results for up just aftermarket, – said accounting first were problem. So, – guide on I On

think I the dynamics Can that to in you had talk year. coming better? about in mid-single-digit you for growth What’s the guided business?

Robert Weber

Yeah. from highlighted at on we XXXX. we very look had the we we strong is aftermarket, see sales. commercial last things as going year provisioning move the as fiscal comps the fiscal we've strong Sheila, of one that year we’re got through that initial to that, When year, really

so, initial year, still growth we as the we rate And in rest good previous as of there be move the won't the into but have was the it year. provisioning,

up with single still get activity that's the going we the how digit. MRO pretty is and Our consistent so fleet, to

So, on last really it’s strong from year. based really comps

Sheila Kahyaoglu

of as provisioning year? sort how the much it is of business the rate we initial up goes of How the in middle and should selling think in about

Tom Gendron

a to related guess, but legacy Look, call, significantly traditional is the than majority still aftermarket. would There is less what I I half, significant, initial provisioning.

Sheila Kahyaoglu

thought I came L’Orange, than on in then, And better Okay. it expected.

about business bit the there dynamics little you talk please. If could a

Tom Gendron

seeing integration Yeah. acquired anticipated very is the are The high where Well, gas aftermarket. utilization we’re markets the pleased with we L’Orange. sales that's on, we’re oil is market. and the in and activities going really driving than maybe going on and and when in stronger strong There L’Orange

marine utilization. in as well As

a So, utilization. there’s built, seeing new many of not being as but ships we’re lot

of builds lot So, aftermarket new sales a is this increased as well increasing. driving as are

So, right now, good dynamics. it’s

tracking ahead we as it's overall, market be gas But, go oil plan. to through of watching to going year and We’re watch closely. the the

Sheila Kahyaoglu

Great, thank you.

Operator

the of Cowen Gautam Khanna comes Our from and Co. next of question line

open. Your line is

Gautam Khanna

Bob, guys, retirement. on and congratulations your pending Thank Hi. you,

Robert Weber

Thank you.

Gautam Khanna

you on internally, the as QX, strong conservatism was can is as Sheila's XX%. I’m to QX that was question, I recall, comp, were I'm in be of just what you in guidance, the Like, year? plan just to And up aftermarket for here. when rest So, of the gauge see much how actually or it expecting your trying up you if following curious, XXXX year-ago on

Tom Gendron

engine of of side, look have look fleet, I it. shop products, the the in we’ve we good visits, we tools. look MRO the we the discussed at our past, timing at we On reliability fairly And forecasting think the at

activity is tracking the to that. So, well MRO

item is a We’ve difficult timing them. going track is to time the little got idea that’s will little provisioning and but of well. initial new quantity that So, always aircraft, of challenging. the operators good of a sell new The the more with

a going So, have on X decent we than to we planned. outlook X We months’ maybe we’re solid we maybe were only where a to little knew quarter, first real have stronger that.

going for what taking fly, year, the deliveries, at we’re saying, be strong to from through rate we how and which looking forecast of did strong we year. rest we coming routes won't the growth them, IP that will It’s the operators that previously. last they’re Going we They that That's we’re that. and just really sales had out year. have that still this are large

Gautam Khanna

I kind And QX given you your it’s or do of perhaps visibility, negative expect you I plus period. in to to going X mean to XX be X to comp -- prior it have Is mean the flat months.

presumably… So,

Robert Weber

quarter… really we a don't Usually, on forecast

Gautam Khanna

Yeah.

Robert Weber

full year, of more But good. the that But aftermarket remainder digits sale looks through IP down full going if last Right for timing. into were the expect single you is Some strong come the the really to now, said, year, of the be those we to go year, through quarters like right? I the the second fourth.

Gautam Khanna

it. Got

We you reasons commented to previously L’Orange. about But and sales were we that that? about was think how each reasons. talked million than million just $XX I it's quarter, that some at or QX, should It had are – of $XX of run going you mean something on XXX-ish in modeled You like or a we thereabouts. sustainable much the had rate it think higher these the thinking million we should do level

Robert Weber

to modeled financial L’Orange. they Part XXX. Well, it quarter But year. be – of end the their will be where strong higher coming off than used was is, this it a are of if you’ve quarter for that

quarter it always a strong for So, was them.

So, up They expect tracking we from first year full we so we saw are ahead our projections, our a of L’Orange. quarter. as here wrapped coming that strong

Gautam Khanna

it. Appreciate queue. in back get I’ll you. thank Okay,

Robert Weber

thanks. Okay,

Operator

comes Pete the question Skibitski. line from next Your of

open. is line Your

Pete Skibitski

of you L’Orange’s quarter. quarter give on of the typically is a timing sense, Nice low of sort wise, guys. L’Orange? traditionally quarter. us just best this Tom, that for Can follow-up a first point Hey, quarter last Hi, what being

Tom Gendron

– full-year. Well, strong for a outlook said, quarter are we the remaining than owned what But stronger little had that we them looks we and would fairly out that And forecast. I like haven't like a a our balanced. look in quarters

and going strong on going dynamics execution positive So, integration the and is very well.

But we’re major the be, to three there’s don’t but I a consistent drop probably going anything, think So, remaining quarters. – or through like, not positive.

Pete Skibitski

Okay.

L’Orange? whole feel maybe, that from it – timing guys, going less like, L’Orange, because segment, do of does a Industrial have the you maybe is just So, to with seasonality

Robert Weber

helps I ups think aftermarket OEM that in it will and aftermarket strong downs an and cycle. help has temper very L’Orange a definitely.

Pete. I yes, So, agree with that,

Pete Skibitski

Okay. Cat closely, like of it And just, Across at you bad non-L’Orange Tom, I all, look number today. sounded were didn’t any weakening engines in but a had kind of Industrial, the pretty maybe on reciprocating seeing side? signs

Tom Gendron

if in transportation bit. to look take Now, their – call dissect a And segment, you have at energy – they a little it the and Cat in you look that.

most think correlates XX%, closely That's about that up the Woodward. I was that with one XX%.

Pete Skibitski

Okay.

Tom Gendron

Another our part way sales to say of are to that Caterpillar. it, mainly

Pete Skibitski

fair. Okay,

like across seeing So, building tentative macro right not out right headwinds said, and kind of of now, gas, the you’re now, really you’re indicate? as you're Industrial, like there would but any kind watching seeing any oil not you – of vibe

Tom Gendron

No. And risk well. of prepared engine reciprocating our the is – just in business highlighted we there’s, as obviously, but kind we market recap, comments, doing

doing well actually China. are We in

everyone with Of knows. China, as there's course, risk

turbomachinery we it’s slowly has to Our that upwards. bottomed business starting see and turn

business within our our Industrial of moving Outside well the or that’s The in all a good the still is So, are direction. activities real not area renewable we performing that, about feel business. positive one that. segments

Pete Skibitski

Okay, great. Thanks, guys.

Tom Gendron

Yeah, thanks.

Operator

Spingarn comes question of Robert from Suisse. Credit next Your

Your open. line is

Robert Spingarn

guys. Hey,

Tom Gendron

Hey.

Robert Spingarn

take quarter Looks rest what mentioned up the though, wanted for nice ask here. There's like just there. the but organic industrial Well, the what’s guide, out for in You’ve guide X% full-year the numbers business? we the of XXXX I yeah. were you, sales, in L’Orange organic is the you contemplated the…? Very this renewables. pressure when of to growth

Robert Weber

Yeah. It’s approximately that.

to the the we year. X%, I year. is the expect of for what think we And full at very said mid-single sort X% beginning close of your

Robert Spingarn

Aerospace the make timing. I And about right side, Okay. QX, through about I came all thinking that talked to sure on and XX% then, I'm this for I right? the want volume way, guess, the be we’ve With guiding margins XXX the in the XX.X% you're for in quarter? think, aerospace I You're to, year. margin to guiding at assume, margin Should margins, looking, I about the XXX of this

Robert Weber

We are.

even the for – are under still XX% to XXX, We’re holding full we holding year.

Robert Spingarn

with this the aftermarket that the going lower margins So, volume were off? all drop guide, the especially through on the is heavy than little of what's the when QX dynamic in side a full-year growth to coming sales

Robert Weber

Well, on the it XX.X% was a basis. comp actually

So, to to up the have prior stuff. variability inventory customer quarterly end this the I we’re mentioned, I upon, as sort of depending going

So, it’s XXX, comp under to prior-year. XX.X% under but the XX.X% the

no if to throughout we feel are you those just margin going nonoperational you’re on dead still the will. revenues target, impact we that And So, of see increased year. with

to believe Now, time By at we the of we of under the the the the we nonevent as things – a time think in Tom will end get being said, flow And to end and confident it will these the year. either end we the throughout quarters. by the up get by we’re the time being get we flow lot of XX% quarterly a methodology. year,

Robert Spingarn

numbers but in red, are I in red Apologies approaches, make at wrapped the sure, slide the when getting want accounting numbers. different guidance Okay. I just the two to XX look up

Robert Weber

on. Hold

Robert Spingarn

conform to red the the numbers say. Or I'm is trying to guidance what numbers,

Robert Weber

requirement or same XXX. XXX. guidance year the under XXX report is that So, current we is the under The

share, under can the per that's They accounting red report these XXX. methodologies. the segment best reported. the guidance no But the XX. but They have a slide numbers are there two in you two or it's various consolidated And at you So, see rule. you methodologies. see unfortunate between we And is the there to the the a as at numbers can page deltas methods, the difference of not are kind whether the look reported guidance. take is percent look are Aerospace between earnings under Probably earnings

Robert Spingarn

that difference just the reported. would figured with in guidance the I can see the there go And but sales, I Right. is

year the robust the to QX understand the is performance. for aftermarket below profitability despite had seems QX in to somehow the I'm expected most that Now, what's have fact if trying

Robert Weber

we That is bit a expect true. Yes. little the year. what for full On a below XXX basis, it’s

Robert Spingarn

And there reason that? a just for is is

Robert Weber

Nonoperational.

Robert Spingarn

That’s thing? optics percentage sales, of it? So, as that it's a just

Robert Weber

That's That's right. right.

earnings at look and they are dollar almost the You amount identical. of

Robert Spingarn

Okay.

Robert Weber

it’s the that So, be the line math a causes top in new million of to little just lower $XX the the under bit the inclusion methodology.

Robert Spingarn

And that in the just to that? we margin the how components business then, see think is that When increase Okay. Industrial performing, we on L’Orange, attributable of do about volume, mix, pricing?

Robert Weber

Well, is what the that, more increased sales it’s pretty and based I leverage on say consistent flow-through margins would on being volume. with the on

Robert Spingarn

driven. volume it’s So,

Okay.

Robert Weber

Yeah.

Robert Spingarn

how And, the overall,` just is business? pricing across

Robert Weber

Pricing is the business agreements. of under as past, in is holding. Again, long-term our we've most highlighted

pricing is fixed. fluctuations. So, we pricing but opportunity, short-term side have on really it’s don't is the where OEM there Aftermarket

Robert Spingarn

Bob. you. And congrats, Okay, thank

Robert Weber

Thank you.

Operator

question next Oppenheimer. Your of the Glynn line from comes Christopher of

is line open. Your

Christopher Glynn

Thanks. evening. Good afternoon. Good

restructuring of So, components begs your the benefits of I some your Above during Industrial guidance, from more question full-year flow-through Kind the first a might Obviously, the And about had more margin one is guide. guide? maybe the given conservative quarter, margin your the the initiatives very first there. of maybe question, overall year. Industrial quarter. strong

Robert Weber

now, quite right tracking Well, well. we’re

Aerospace through is than think our more for uncertainty as is year watching there the is Industrial our in we we’re of the remainder businesses thing I there that go business. the in

and opportunity a about of oil our of an there impact did restructuring issues, Industrial issues, market trade well the upside, integration we going we but as have be go So, we side. could positively, tariff very work first. market feel are probably off going I'm get cautious have market also on the the gas these that uncertainties we’re prices. to here stay to and good dynamics, say L’Orange, Industrial on these start the is forward, that business, market to could But the that elements But we – There’s addition number a we we through past issues opportunity. if how

Christopher Glynn

as Okay. about for question normally, along your year, – it's comment margins on ramp the year taking material the through XXX, And the full then with Aerospace that think seasonally not your volume. we a

and seasonality think think by first normal neutral-ish XQ the to from million we that year? impact about do $XX to the reduce the quarter we So, if about we whatever Aero build revs seasonality, for then get

Tom Gendron

million the that impact continue level year. themselves So, through The kind will timing as will standpoint throughout basically year. we the of a sort moving out the $XX of things increase, from go of

forward there impact continue that this won’t piece moving be the The will So, will this of inventories of element. of much in be inclusion puzzle sales. customer

we will the half there there play get margin the make anticipate out, a rate a be year, hopefully, point of as here end year. are that our delta upsides to from that, we some be go elements non-event into significant of it and of this pointed anticipate will come but and by time we we to as don't the called by to dampening we’ve out So, the through the what do that and – everyone's

Robert Weber

helpful, equipment in past, don’t be furnished the it’s customer business, would have I is that our be – in traditional know called if used it Aerospace you to very would that but so and we In we an in accounting sales, us didn't in margin. didn't it the transaction, going just old was that to inventory method, it provided our count count to systems.

margin which dampens said, timing sale. it sale Bob a margin. huge. along That’ll the now that So, overall becomes smooth segment It’s of zero with, not out as

XXX. So, under the confidence have targeted get to margins we'll back that's why we

Christopher Glynn

thanks. color then, the lot aftermarket drives for gave the complexion Aero different and what you a Okay, And provisioning. comps linearity the and of helpful

in bus phase? something China, do you if the the see growth natural shape over how kind regulatory regimes gas similar we with about, wondering and of should adoptions of the Just and that how

Tom Gendron

Yeah.

The not little is, were allow Investor those of what we highlight that presentation, in a centers. They our of at vehicles blue you or they're they're to of diesel what calling, allow major looked city our all they're going cities, Day will into that the the clean one calling these, large And trucks investor government initiatives. some trucks. Eastern energy cities For and Chinese about sky has clear at bit this.

that is there's enforced. gas enforcement haven't is we're And regulations That the so, hold. our in take those but concern, natural those been is going that the was always look past, vehicles, regulations, they're or biggest like they either seeing EV. What to of been

high So, are as kick July. a we in right regulations in, order we seeing book the year now, move and into these

Woodward, but the very to happens July that watch And and hits if history give as do, just continue. sales so, the enforcement due but is what picture positive a regulation looking it's a will And its and positive, will and they for real about moment, in to that's us we timing. want that we're if that at cautious

our So, good business. opportunity for it's Industrial definitely a

So, right now, it's looking good.

quarter. to as through going better handle we We’re second third get and our have a

Christopher Glynn

Great. Thanks that. for

Tom Gendron

Thanks.

Operator

Your next comes of of from Michael the question Ciarmoli line SunTrust.

is open. line Your

Unidentified Analyst

guys. Good [ph] Wes actually Hey. evening, It's for Michael. in

Tom Gendron

Wes. Hi,

Unidentified Analyst

Hi.

clarify, to year? you through remarks, that Industrial did you did that for expect to be from earlier year. the to the Is closer Just the progress right earlier in the growth as to X% rate it for mention to Day, X% – Investor you I organic the X%. we believe way some mention at look your on

Robert Weber

the The I the referred No. I to X% comparison X-ish. by that as the was question well. think used And was

X%. still And in believe so, I've just the – we

no that. change So, in

the to that Just I comment it back was equating made. was

Unidentified Analyst

you. Got it. Thank

flat that the mention seeing there. be did some you on pickup market year, machinery, to of the quarter, last the On bottoming, turbo believe, you're that the looking so? is you’re expect Is signs I you for although

Tom Gendron

the about change a But slight. curve. good it's because that feel we Yeah, very in

that. see we're starting so, to And

Unidentified Analyst

moves, million you there. on still of updates more little expecting also L'Orange last, by then give details And integration a kind in any just Can $XX facility your Okay. from XXXX? cost synergies the bit

Tom Gendron

integration and synergy Yes, on and well. tracking first. is to I'll we're the going the through So, well one we're answer expecting come that savings that still

Our getting actuation of system are I April. We're for we're right think facility our you're our the the – are referring are That's moving moves all in Duarte the moves really well. standing March, reverser towards forward. facility And thrust up towards facility. end of anticipating machine to moves end And all business. The progressing going play now. new the

So we're on that. pretty well moving

Unidentified Analyst

Thank you, guys. it. Got

Tom Gendron

Welcome.

Robert Weber

Thank you.

Operator

line Chris Barrington of Your comes the of next from Howe question Research.

is line Your open.

Chris Howe

Great everyone. afternoon, Good quarter.

Tom Gendron

you. Thank

Chris Howe

And congrats, on your Bob, pending retirement.

Robert Weber

much. very you Thank

Chris Howe

here seeing the more in little China. a into dig to we're want environment Just bit macroeconomic

speaking, remaining you cadence – hold hypothetically long-term you will initiatives this the hold the acceleration to under as if on before how for or standards I hit has And, following previous to in hold XX% Just in mentioned that the and takes this take the think believe sales potential take the about these emission standards? new July, July. or up take potential these to towards far had these mentioned a question, portion Industrial place? as we should What's of

Tom Gendron

And maybe I What order that the that the going as China. the it's is book the and – right think so be and And like the that in And, first XX%-plus moving earlier kind gas trucks to side. – think about was we're between emission in support is enforcement we is just trucks happening that is gas the I we X% the I X%, really be highlighting to a have all, could be clear, we're put gas are talking it of been – said, sold year. think to with trucks. a Well, the standards, that in on showing get forward. to sometimes I Natural now, Chinese the to was XX% all natural what infrastructure get that, if at trucks vehicles. I of sold it is up up What around natural used natural of highlighting, of huge the total percent sustainability of continues, X%. from was gas to looking

and They're infrastructure. gas the upping gas their reserves their have they So, imports.

it It's that positive really about So, way. looks enforcement.

The control where have they're mission a higher see further requirements, usually level it sophisticated larger that fuel requires engines you emission then, more injection going will second engines into And to requirements. and gas of systems. go diesel of and anytime part

And so, what that's a that's about. positive for our company, and talking we're

And as more sophisticated further next market. come the so, on, it those should into larger equipment engine drive emissions

why markets as And we promising. and we as caution – that's that. put out positive emission so there. in play effect enforcement So, is a looking it's those are these on far, a regulations always But, that's long niche long-term why the

Chris Howe

I just question last had one here. And That's more helpful.

leverage about, goal You if opportunity, right that that's the is, a came would had I'm before to first of mentioned reduce opportunity the exercising And the I guess getting next target. times still what the at acquisition? for potential end you reducing year, leverage X.X by

Tom Gendron

Go ahead, Bob.

Robert Weber

Go of target fiscal Just because XXXX. end still for – is yes, the Tom. the ahead, X.X a

Tom Gendron

to tracking is, moment, quickly part we change we be we're that is see that what flow to attractive here. then, up was to pay we're And will We're is will value. something debt track down going could promising until potential Yeah. showing going that target de-lever at to shareholder that without the that do. very – acquisition, add But cash what we did of ability the and acquisitions, target. the and that's come If something

Chris Howe

That's now. all you. I have Thank for

Tom Gendron

Thanks.

Robert Weber

you. Thank

Operator

Strauss Your of next the Barclays. question David comes line of from

Your open. is line

David Strauss

taking for questions. my Thanks Thanks.

On XX? moved there and that for talking already? higher middle Are the the I narrowbody of you rates about you the this to up year, and are XX Boeing have side, Airbus guess,

Tom Gendron

their tracking to We're ramp up.

that. six And, with of their track it. us. ahead on it are months we start We down to to about flows yeah, usually see we So, have rate,

we're tracking their requirements. to all So, now, right

David Strauss

Okay.

side jet higher there? the you from XXXX business and the talk like you much GXXX those seeing are Obviously, about can of about programs progressing you On your Can on GXXX. you're side? talk have content and what Global how the things,

Tom Gendron

the the jet some production. seeing have seeing the any improvement business We're try us. large them you're content. we're more into it individual on coming dig we're Overall, new now, And to we landscape. seeing in as through On highlighting, right jets, entire ramps and program

going for getting any one ahead. forward see know don't them moving they those in of a exact to So, is I comment the individual progressing. company that but on can and it's nice I are and the positive schedule on it ramps,

David Strauss

still is $X.XX. it be you're The that? it for year, than It hinting seems higher L'Orange that like accretion might this

Robert Weber

Yeah.

it's As well our currently expectations. Tom performing above said,

be will it year. So, increased from that this

David Strauss

Okay. Any sort of number there?

Robert Weber

It's significant increase. a

mentioned, we've going through but be it As the uncertainty year, $X.XX a could range. the of we've in got lot

David Strauss

-- line side the from maybe side? Okay. top me more margin And from it like sounds maybe for the more

Tom Gendron

No. It's both.

Robert Weber

both. be will It Yeah.

on so said, got sales utilizations, the we've strong As Tom the volume strong aftermarket. on leverage We're side. getting the

cylinders. board. across It's kind of it's on So, well the hitting all

David Strauss

Last for of finished end been as the The L’Orange be adjusted amortization that's excluded the Okay. of me. will QX? with backlog that numbers, one from

Robert Weber

year. No. the of Roughly the end

the perfectly So, with fiscal year. tied it's almost

So, fourth the get drop will off into that the we by time quarter.

David Strauss

All Okay. right. you much. Thank very

Robert Weber

Sure.

Operator

the line from C.L. comes Godfrey King. George question of next of Your

open. is line Your

George Godfrey

And, I'll my add very you. on quarter. congratulations a congratulations Bob, Thank soon. on nice your retirement very

Robert Weber

Thank you.

George Godfrey

kind you so was was December the their touched fiscal their welcome. You're And question. That's about. business, The last quarter that L'Orange of talk what I year, it exactly year-end. said, want to just on

synergies the of you're identified completed. And And that – cost the little you synergies I there. underplaying that – that could that had And performing direction is cost being could some the maybe your talk the think that you're a to thinking cost maybe Woodward's were L'Orange bit ownership, revenue doing wanted But seeing? revenue now about prior was on little a probably margins targeted acquisition comes the to of of XX%-plus better. and out Thanks. So, bit I about the and strength flesh this maybe in from on with and you've the you ownership, synergies side? memory business and success you year I on talk because side this

Tom Gendron

George, for to for fuel supplier. The our Well, being fit comment company Woodward on and L'Orange it’s appreciate independent Woodward. L'Orange, real attractiveness under was injection the perfect became a an Yeah.

anymore. wasn't the engine That So, to tied an opened doors. has company

more has drive get with We are we that. sales to years bring fuel do new seeing we over expand in. that introduction programs cycle, lot anticipate to business Because we injection, longer have We it's a significant think synergies into of response. a it new I us see great product the lot as discussion, that going you're a upcoming but will going potential customers dialogue

side, we cost the On already are integrating. rapidly

injection a have did we remember, guys fuel business. you As

integrating together. the rapidly two we're business So,

capital opportunities We're optimize beyond going we our them. we cost seeing to which acquired are model volumes our are equipment. had business in on planned up We seeing is The synergies. when what

So, base. our asset we're able to leverage

for that's So, margins. positive

that's came team. So, management L'Orange, We've happening. complementing team with got great workforce that our and a great

So, that's good. reception is coming across. market And, overall,

actually So, confident it's in what the in our better And as direction. doing highlighted we're numbers. We're moving acquisition. earlier, model than in delivering right all Bob the financial the for was

well. really tracking So,

it's believe all why guess, So, that's on track. I I

will come through I continue think you'll to see synergies results and from good that.

George Godfrey

Tom. question, the taking for Thanks Great.

Tom Gendron

Yeah. I week? back a you question for George. the you, had Do Rams this for root

George Godfrey

Not this Patriots way. all guy. the

Tom Gendron

wanted I clarify. Thanks. just Okay. to

Operator

Instructions]. [Operator

from next line Pete of Your Skibitski. question comes

is line Your open.

Robert Weber

Pete? there, You

Operator

not Caller, mute. on your line please that ensure is

line open. Your is

Pete Skibitski

first about on Bob, Sorry through. you that. my congratulate I'd neglected time to

a here. So, helping congratulations on build to company great

Robert Weber

Thank you.

Pete Skibitski

choosing different you Jack on side. on and background. background, new perception, as in CFO. side engineering the he you or at my as kind seemed be could think heavy someone Tom, an of maybe kind I there to to more of least of having Was and like in I that particular of bio wanted somewhat share to that deliberate you complement of background At well the us? ask as that the seems the kind looking was the M&A was, really strategic energy reasons of terms in you on Aerospace with

Tom Gendron

and Bob looking a our company. to – that which we Bob's challenge, greatly could shoes, Well, Bob is were fill as for contributed somebody you has highlighted,

leader lead strategy, saw help driven for you that. looking a looking, experience decade We're is looking of financial also obviously, has what company. he's M&A our proven activity. that to a And Jack large we're from we're so, when for – And, the doing somebody be had

And also perspective, that well company so, for perspective. We're a those skills Jack that looking for strategic we drive was those. looking from oriented somebody had help financial that all were somebody in operations had operationally as their background. as And can

on and on meeting. on has and board But bring were board, will as board His last help had contributor I be the have that years fill He understanding has our solid void fortunate three and our also we Woodward. real of We to on think excellent proven an was leaving. big he himself was a we Jack member. so is will he Jack be Bob he the board Wednesday, tomorrow, benefit meeting that for and

Pete Skibitski

you. Thank Great.

Operator

Khanna next Gautam Co. Your from of comes line & of question Cowen

line is Your open.

Gautam Khanna

were sure, or to trends stuff seeing to within make of there changes the make Thanks I kind could And heard I sure that actually just follow-up. want I $X.XX, $X.XX, for that right to or from you're any through operationally just contribute of up now wanted non-operating the that now that hold L'Orange assuming Yeah. driven? $X.XX, year? is the just amortization this the end

Robert Weber

out. the No. of There that portion is an we impact back

and it clearly to partial operationally, So, a above, related as is amortization. is there also we've said, impact the

said out when finalized not If $X.XX, had yet. we called had the we you recall we that

in when a it's did, more So, more But favorable. haul. really a It long current little the it's year, the impact favorable over we the doesn't little in anything current year.

Gautam Khanna

on And Okay. what the to amortization? change from what was clear, just be to

Robert Weber

break out to to went adjusting the want out wouldn't numbers the that. I piece that the we related are down when got total, final but we

I'll year it is that. favorable. at leave more impact current So,

Tom Gibbs

driven But more operationally. it's

Robert Weber

Yeah.

Tom Gendron

exceed portion Sales, the operational the it’s original to of line, accretion. performance our reason going larger is top guidance on

Gautam Khanna

the Okay. comment And QX, underlying just margins in margins they like you were sort can on excluding and the at L'Orange? of core like, what at the today L'Orange, amortization

Robert Weber

they kind we And are of as out yeah, you Well, can kind out anticipated. of called the math. – work

$XX on get million Q, $XX that the is to sales. from able You'll be approximately in million

So…

Gautam Khanna

Strong? Okay. Quite

Robert Weber

Yeah.

Gautam Khanna

the the That first the it but the is, Thank with know quarter I the it it. under you to keep or earnings drive we've year, L’Orange another numbers saves what your being quarter, from just where doing embedded like approach guide? to just quarter sustainable at – in than or a sort of enough. of more need what just us upside what Fair what strong trend aftermarket looks the prevented you. then, belt you up I'm curious, guidance, point to And with it's L'Orange at and taking from on

Tom Gendron

Yeah.

we extremely deliver off So, it this look and revisit our solid I in If we're that uncertainty updated to items right And the see quarter. we provide But, lot we think outlook. in of that we'll this that guidance. numbers could market we dynamics, of we'll that’s where There after feel we great some the impact had mainly, will we an you just more various forward we're on and are. our we factored second We solidify, markets. now, us highlighted. have as guidance We move it's have Industrial of like confident a a is year. at the guess start. things to strong sort

we be things to going have but have these uncertainties So, about. are we cautious that good, still

Gautam Khanna

where Are Tom, in doing? order you new you've last And ultimate the segment on don't you're could now of aisle the have actually I'm programs. goal that curious, curious, what's terms a far give in they are number, us those to and off like new one of margin the Maybe, And of just learning getting maturity, profitable about single they the how magnitude, down And but the OE are get margin past, on curve making? I'm shipments talked they? in how one. rate? average the just terms

Tom Gendron

be profitable to is intention our on OEM Always sales.

a So, year, we've And that's of [ph], we next new learning improve average on at solutions, now, in want strive expect will more would innovative that that able we challenge we to our what for. to narrowbody it's say, as that that with And always curve Right finish achieve way Aerospace. be And with designs provide OEM I simpler think industry, moving just the I'd running of the we that. been been market that that. in – sales rapidly. it the out programs we've to the But this – all structured. we're very I coming probably down into year, is say

the start we into we'll smoothing the segment we've highlighted. well. Yeah, one margins to also that's made Good aftermarket, So, the it's improving we is up then, margins. year fiscal that side get progressed the This year. up. big our on also was great OE year progress but been the ramp as XXXX, And last year. things of And bringing but we out how

Gautam Khanna

Appreciate it. you. Thank

Tom Gendron

Okay.

You're welcome.

Operator

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

Tom Gendron

at we for the through Okay. of look you you second Well, today conference call. I our and joining quarter And thank end everybody quarter talking appreciate us next your the and questions. to to forward

night. So, thanks Good again.

Operator

conference Ladies and call. concludes gentlemen, that today's

it for at for X-XXX-XXX-XXXX Time call, to by a non-US like PM and available XX website If you dialing X-XXX-XXX-XXXX callers conference also Eastern be We would for will on conference listen thank by access to we call disconnect rebroadcast participation line. company's X:XX entering Standard of code or please available will this the you today US A you today's www.woodward.com for ask at be rebroadcast XXXXXXX. the days. and that at your your caller

Woodward (WWD) 28 Jan 192019 Q1 Earnings call transcript