WWD - Earnings call transcript Q3 2019

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Operator

Thank you for standing by. And welcome to the Woodward, Inc.

Third Quarter Fiscal Year 2019 Earnings Call. At this time I would like to inform you that this call is being recorded for re-broadcast 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.

the Mr. from today us Company are Joining Tom and Chief Mr. Executive Officer; Gendron, Chairman Chairman Officer; Chief Weber, and Bob Vice Financial and Mr. Don and Treasurer. of Investor President Guzzardo, Vice Relations

I over the to would Guzzardo. Mr. call now like to turn

Don Guzzardo

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

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

included today's presentation also our are We to go on some call have that along with accessible again materials website.

will our repeated will or by as The this end of call be well is the XX, audio XXXX. announcing on An available website and operator number August the our audio on be for the at on call call. the by as phone the replay of phone through release replay press this website

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

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

that of otherwise. as Standards including update quarter results XXX except and third FASB fiscal stated XXXX-XX for Accounting ASC and months effective specifically presented amounts with are adjusted first adopted Woodward XXXX, or nine XXXX and on organic from X, basis the number revenue contracts October customers the

XXX of related standard We The will presented be is year, not inventory accounting net under net there quarterly no for will although fiscal of period believe XXX both and be of sales be customer-provided impact variability new the the XXX. of ongoing previous Prior primary impact for material earnings. the the full of inclusion amounts the impacts ASC adoption the ASC earnings. in anticipated with standard, of ASC sales to are

understand materials release quarterly XXX Form filed Woodward the tables on report of additional XX-Q press August and in included on the better the in to X, To on we before impacts or XXXX. ASC be have

well In as release providing definition the basis and press organic. of will addition, an as Woodward and Please is We an information basis. understanding under as of as tables adjusted as historical GAAP the reported adjusted for in related presentation U.S. future organic on to financial believe well refer results outlooks. this today's appendix and our and both help

in attention reconciliations schedules. the and earnings your non-U.S. slide which presentation measures, our GAAP today's direct to are related financial We of release included and

million prior third the exclude quarter. the for prior of prior from for the to Organic sales our million third quarter. quarter an in to turning sales were year for the compared third Woodward were of $XXX Now million XXXX fiscal quarter XXXX quarter, results increase year net for the of $XXX which $XXX Net sales, compared attributable quarter. $XXX the year L'Orange, to million XX% to

of Adjusted were compared to to prior $X.XX share $X.XX share the net per per million $XX year were compared for or per earnings $X.XX or share net or or share year million per the million million Net $XX prior $XX for $XX quarter. quarter. adjusted $X.XX earnings earnings

of first to cash $XXX million for same the for same activities prior from XXXX nine $XXX of the Net flow for period compared $XX of XXXX of compared the million $XXX year. Free for to period of cash months nine generated cash the prior million generated months the the first operating year. million was was

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

Tom Gendron

Welcome Thank you, today. of to joining you all Don. us

Our in fundamentals both performance our of reflect quarter segments. third solid XXXX during fiscal the of

surrounding XXX continued delivered face In year-over-year despite prolonged of renewables the we to further Boeing results in our MAX business. headwinds grounding Industrial strong related improvement Aerospace, the uncertainty segment while demonstrated our

and will a our we result, end finish As the believe year we the with in earnings sales guidance. previous upper of

to moving markets. over Now our

increased perform Our global production with and the Aerospace healthy growth. segment strong continues the to solid back well of narrow-body passenger a on market coupled share, ramp, market

to Although our on was all more subdued have years, content added still than a the little Show virtually backlog aircraft Air Paris ordered. prior we and significantly

[ph] strength was continues Woodward performance Defense strengthen programs fixed-wing test OEM by increased of and for weapons. budgets. and demand aircraft The continued in driven back aftermarket military to on guided the

to With provisioning the XXX we're anticipated. MAX, of grounding initial Boeing as regard softer the experiencing

are we production today, OEM supporting of As rates.

what Aerospace anticipate to do will the of excellent financial significant grounding, not related to we know, results. we continues deliver matter, our segment Given but monitor a impact In the closely. we this situation to continue spite

large to long our will market. generation, returns remain the we gaining to and strategic burning gas our gas are and and natural engines on continues over We The superior Turning emissions faster content share clean believe share stabilize, markets. lower generation, their increased the Industrial due increased market it power term. recovers bullish gains gas and the drive and future engines natural diesel to positioning market power turbine our to as efficiency. Within Industrial will grow allow us of than shareholder

announced to power is example German of company regard our customer, significant in impacting a turbine challenges incentives The industry. government Senvion, the is renewable to in market. the an wind renewables, bankruptcy In the of this reduction related

impact have of to this immaterial would a whole, business. the Although Woodward as renewable loss significant on our a customer

to is driving intellectual sales. natural utilization. still installed China spots global with In our natural our and sales renewable large and truck base. emission are gas In respect regulations in enforcement and two transportation, increased business bright value are considerable property healthy gas China, truck there believe marine We

was compliant strong up Specifically, July, new V and were implemented; to China new leading for trucks in unusually the demand result, the a China regulations VI as regulations.

market China remain for the the pre-buy, very China in as environment anticipate Despite compliant large next-generation favorable in result, economics for the regulatory significant absorbs are transition, a gas As the natural trucks VI short-term and trucks the introduced. we fourth long-term. quarter softness

marine, to strong Woodward remained L’Orange continues a trade global has enjoy strong. aftermarket In as

In markets addition, demand. some will are benefit solid, Oil IMO sales to and and from equipment exists XXXX in although requirements. supply gas related volatility new fluctuations both

with globalization Specifically, oceangoing of continues terminals, pipelines. gas, and natural increasing to respect miles numbers of with tankers,

be financial year. performance quarter, we XXXX good is up a In this shaping to summary, delivered strong and

well across navigate market through We environment confident and most show challenging from to remain commercial for increased aircraft Our business our and to value ability a Industrial our deliver strategically customers Aerospace business remains to improvement markets. the positioned benefit continues to demand while shareholders. in

I'll to to it turn that, Bob With financials. the over discuss

Bob Weber

the increase. of sales Commercial, third from to fiscal Thank Aerospace XXXX Aerospace volume. a aftermarket $XXX million, military for benefited third the ago, aftermarket compared Tom. sales $XXX both segment OEM were segment as you, year for XX% quarter million well and as quarter net and a OEM

which The components. under quarter that $XX been included segment of provided third XXX, primarily Aerospace ASC to sales million reported ASC customer would XXXX, due XXX, of is have recognized under not

prior X% Commercial were year to the compared aftermarket up quarter. sales

in compare and third due anticipated, provisioning grounding quarter the Boeing As to prior of to lower the very it a year. XXXMAX was the initial strong

line showed aftermarket more with in growth historical trends. continued Legacy

full XX%, as inventory approximately of impact growth which customer required includes the provided ASC the For we year, be XXX. anticipate under Commercial to aftermarket

a of of the earnings as the quarter third volume. XXXX in $XX earnings segment prior earnings sales Segment segment for segment were million, XXXX. for $XXX for year. both third by was million increase quarter Aerospace were largely sales the higher percent XX.X% and to quarter the compared The same Aerospace XXXX driven of

to prior year segment XXXX prior $XXX the million third year sales Industrial month sales. were million period. third compared Organic Industrial in Woodward million quarter, L’Orange a sales one quarter Turning to net increase. for of million the quarter of the net were XX% to of included $XXX for compared $XXX in Industrial. quarter segment prior XXXX The the $XXX fiscal

impact constant have partially Industrial million renewables. in offset of third Foreign sales XX%. addition increased an $X sales for unfavorable markets, basis, On of by approximately organic would and lower rates of organic by currency sales the segment L’Orange fueled strength on approximately currency a Woodward the exchange were quarter most XXXX. had

compared was to $XX prior XXXX the of million quarter sales Industrial Adjusted or $XX to or due for sales segment L’Orange. segment volume segment XX.X% growth of were organic segment for $XX Industrial sales the in of addition million were earnings sales. segment Woodward XX.X% million Industrial of or of increased segment XX.X% of and earnings earnings the the the period. XXXX third third quarter

for And run are and expenses percent historical full Woodward to rate. line general our R&D Woodward level, of were reflect largely the increased with the line in At our sales, of and are and we in Non-segment administrative as year L’Orange. and expectations expectations quarterly with total slightly normal largely variability. due expenses inclusion a selling, the

The for transition change XXXX. XXXX effective million of $XX quarter effective the tax third third The X.X% for of of in rate tax impacted impacts the by XX.X% related rate was quarter compared in tax of quarter the legislation. was current expense to to U.S. the tax

was the first to XXXX, XX.X% For same effective tax months rate compared the prior of XX.X% year. for the nine period of the

XX%. fiscal effective tax our rate expect XXXX approximately We be to

million for the year Capital the to from months Looking period. nine for million prior XXXX XXXX. the first first for of at months compared $XX $XX of expenditures million cash generated XXXX cash nine flows. operating first nine compared for $XXX activities of million months were Net was $XXX the to

expect For expenditures slightly the below $XXX full year, we to be million. capital

to for primarily increase the cash months for flow compared of flow free first by earnings. of increased driven year. $XXX was cash nine prior million the was same $XX in the Free million period year The the

stockholders, balance deliver we stockholders us our REIT of the million XX% fiscal to nine with on purchase track dividends. net $XXX year. earnings million shares on form commitment returned in of of During which for to $XXX of the returning months the to first included in This the XXXX puts

to return like fiscal – XXXX I'd to like our to Lastly, I'd outlook. turn

and believe prior expected our sales uncertainty Total fiscal at year. to sales net We to Aerospace And compared customer expected to although it. are deliver for both XXXX. be projected billion ability be approximately $X.X our adequately Industrial we provided guidance as zero And some outlook now due XX%, are execute the are confident in to are reflects margin. our still be for XXXX. now to on components sales to XX%, approximately approximately fiscal up higher up primarily remains,

as be sales under the of approximately timing segment XX%. headwind Industrial and to unchanged of Aerospace slightly are sales expected remain ASC a percent are in fourth be a quarter under We a quarters as XX%. Adjusted now recognizing do anticipate of earnings in earlier as some segment result and earnings to to our expected of XXX. earnings percent a sales revenue

the difference XXX million will share ASC be earnings believe is to expected For approximately per $X.XX and diluted the continue between XXX cash is expected million. outstanding. full material. weighted Adjusted $X.XX fully year, to we now based not approximately $XXX to XX Free average be shares and between be still of flow on

fiscal and of comments ready are our questions. results concludes the call XXXX. on This open quarter Operator, third the to we for the business to now

Operator

Thank Jefferies. you. Kahyaoglu comes Our with Sheila Instructions] [Operator first question from

is open. line Your

Sheila Kahyaoglu

Hi. afternoon, thanks and Good guys, for time. the

Tom Gendron

Hi, Sheila.

Sheila Kahyaoglu

guidance aftermarket. what's is Aerospace, that your growth talk XX%, part Maybe it's could of revenue low-double-digit initial I if about for bit? growth, was previously it for and on You’ve only recall, was if that elaborate that If think you and a you provisioning aftermarket. and increase now growth, high-single-digit, can I driving raised XX%

Tom Gendron

obviously, One, things. XXX. ASC of we the one uncertainties, of a the what MAX really of lot related couple of tried to and a really grounding call is that's out growth is the but the Yes, to

don't the carry And earnings. consideration so, components it's that or non-cash customer-provided

the of is that also fourth been that's So third a of we're XXX. related down lot in and a has has It and growth quarter quarter, The in to part strong. bit a aftermarket come the seeing. the that

Sheila Kahyaoglu

Okay. cash million for Bob, for $XXX clarification. And target for the on weighted been year-over-year, looking the Thanks QX to one flow, what year? the for are meet up you free it’s another then, you so

Bob Weber

real a at it'll shot we're tight that but target, Yes, it. confident got be a we've

had than normal has our sales back the of first of As and L’Orange. year first dictated stronger quarters on strong the you in quarter know, we three the that's pattern for largely

a working overall some that will cash in the anticipate in cause quarter, that so that So also we come fourth will capital. increase of lot

– the give little all things vehicle relation combining fourth delivering China And quarter, in to soft on that a bit quarter bank quarter quarter. lastly, CapEx lighter in hitting that sales, a going will on to confidence some free the then flow in of really of and And having to $XXX some us add kind believe those and we're million. see maturities the strong cash our we the to on quarter fourth in draft fourth the also

Sheila Kahyaoglu

for you Thank Great. the color.

Bob Weber

Sure.

Operator

the of next And you. question Research. from Howe Chris Thank Barrington comes

Your line is open.

Chris Howe

Great everyone. quarter. afternoon, Good

Tom Gendron

Thank you.

Chris Howe

up the or break more one two detail the regard Aerospace. here; had by and you to turbine I of is growth just or timeline as business? can you questions for manufacturer, its on resolution? In on segment, just parse renewables out mix then Industrial second we the Industrial touching market, that out industrial how should on the some any end in as the following about And far that sort wind perhaps segment L’Orange? saw the for excluding of magnitude there this And think its percentage quickly,

Tom Gendron

Sure.

last the one Let first. start me with

were we given but very They've business far to And is the promised kind impact of passed won’t them uncertain. from of a some impact a on the unclear. our lot fairly already information. of been that's different outlined a further when no day timeline is little options, have bit so So impact. dramatic information dramatic We've one

So calling they are out a further information. date for September currently

And may on so we announce. the know courts with respect what so, to and that's what

business you break sales we some idea range. we'll quarter, for you renewables the perspective, end that in kind out desegregated of million in an is where somewhere won't year. significantly That million will see you be give larger quarter. the that $XX of in a full gives $XX It To so in where fourth to up Q million revenue the in approximately or $XX idea our

gone Senvion about last less XX% in from year's sales XXXX. to than renewables in XX% has

drop. dramatic a been it's So,

And number, it's as be. not from so, – you from can tell used it as that to significant

Woodward, significant impact would but it on so, have renewables And would not the a business. a on impact have significant

watching we're to So, happens there. closely see what

because in that it other some the stabilizing. gas Woodward saw that that business what are the to well. is. been really particularly on pre-buy systems solid. we'll terms but With respect very not our been particular, of Industrial engines, nice business, burning space. of we Large growth small have to natural engines gas that been saw diesel Large Industrial yet, would parts have that clean gone the the goes. quarter XXXX color engine have those in the are this bit long-term doing fuel see XXXX a not have has increase. trend the renewables little We a call – necessarily I of that turbines view wildcard of Obviously, down looks have XXXX we and where encouraged and in and positive is business gas

Chris Howe

the a the about the how for this on Aerospace; in seeking upside the business? some Okay. color additional how of you Thank military opportunity you commented and I defense then Aerospace what's the And secondly could driver should within had for think long-term be previously just the – activity, interim material but and on as here color. it, growth

Bob Weber

growth installed OEM rate side and we're type of support in defense the digit teens now, fleet. on seeing Right both of mid-double at in looking solid, market. the our We're the

with that we've growth. a went with say, budget got the nice years defense us two good ahead So, our of through, anticipation

So it's positive quite tailwind business. a the to

Chris Howe

all right again That's for taking questions. I Thanks my have Okay. now.

Bob Weber

Thank you.

Tom Gendron

Thank you.

Operator

question And from of you. our Suisse. Thank Robert Credit next comes Spingarn

Your open. line is

Robert Spingarn

guys. Hey,

Bob Weber

Hey.

Robert Spingarn

the The accounting little in margins. a Because tough try non-segment to a makes the earnings amount. unless conservatism revenue expenses, if your out by some uptick all what guidance, there above if as with a against And small I'm the of I'm range high-end follow trying market reconcile it it there's there? to but this, and there's wondering the happens happens I not figure to bit guidance

Bob Weber

do could to that over and quarter a of do we the XX-XX of orders fronts. to the quarter we us, to don't impact and be function just half the kind an is Well, earnings quarter. me it, what in receive a in time all headwind are that hold XXX. But there that sort on to of in what of related anticipate able And you're We thing. correct both fourth recognize

anticipate a could so do we be And headwind. that

don't down what the seen impacts and know production operational mentioned we news what the kind seen On grounding. guys of remains of really their to XXX that you really seen that Tom in goes. that We in it we've of side, where could the MAX terms impacts currently schedules to have kind comes are supporting be. of the the be

still really China. pre-buy of that's the So some may impact days Chain that sales and impacts uncertainty. the last And and what point and trade are for us. for few few gas months the uncertainty vehicle a in have of on natural extent also

I yes, to conservatism, issues uncertainty, business; related And with say it. some the so then events, renewables lastly, associated all those there would accounting is the there's some of including

Robert Spingarn

is brings number fourth seems have me that pretty a Industrial Still to And XX% little big quarter. for this down a going bit? what you're margin to

curious I to, the as volatility So was just these. yes, and all

Bob Weber

side renewable and natural the on gas the predominantly That's in also uncertainty China. the

Robert Spingarn

for high could extent XXXX delays into then And GEXX Okay. To the develop one level, there. and yes, the potential this in just is, what an issue? saw Tom,

Tom Gendron

the I later that the service. issue sales obviously have and is, think Obviously, impact Well, include provisioning. introduction just initial we into those early would would sales

have as outlook. be I together range XXX materialize think but we're So, delayed. going watching as a push that to that, I to think it will we're long a but some as acts out program little plan great long-term putting and planned, of forecast, a We're it'll and

Robert Spingarn

Thank Okay. you.

Tom Gendron

Thank you.

Operator

And next Skibitski comes you. question our Pete from Alembic Global. Thank of

open. is line Your

Pete Skibitski

guys. hi, Yes,

Tom Gendron

Hi, Pete.

Pete Skibitski

we follow-ups, costs? just to it is year lack next running expense the should directionally think over couple like way for Duarte the million Bob, on corporate on following question, be for should of – year. maybe the $XXX corporate line looking just expenses And A first. Rob's are down of Bob then this it to

Bob Weber

streamline to area. Obviously, non-segment Yes. of That would to it. be try a the continue we part

quarterly in but some anticipate had that have that we're of in sales X.X% and we'll that we variation stay We around long-term always range.

Pete Skibitski

Okay.

cash And receivables is we about big pretty and are fourth China mostly just collecting on flow, of build a mentioning that on all earlier this done Okay. we at in kind year. call, the you're the nervous then that – the quarter? Is that

Bob Weber

nervousness Actually, with worked talked never No, other any they kind but cash, about longer They so of like about them. and on on around. and it's way had issues just no them. backdrops we've term the collection. a have We've

which maturities fact quarter, because the by net sales the anticipate we'll the is that net in a that's those down pre-buy, the quarter. fourth the fourth that during are So a And some caused we maturities see we in be bit positive. of quarter why will think the

So wasn't only well. me, excuse – as receivables, accounts it the been. impact and we has has sales so far L’Orange the that did, – increased

strong a first quarter. the and in they So first then has second general, had had strength. strong quarter very business And

so of again fourth. the And those we see coming down receivables back some in

Pete Skibitski

And just seeing more Tom. kind the it. that I'm of Okay. for a invest lot in one boards these things renewable. kind wanting then utility people of write of Got public of boards oversight Got it. top are to just about level, some Tom, like

in terms battery coal kind wrench lot it of a that could less guys historically for Are just that? in gas Does farms seeing in at the guys you move investing natural of, have renewables. wondering utilities. all you into about throw maybe to a views what gas I'm are talked political they're long-term people's about and from So a concern It you type natural may be so that?

Tom Gendron

And are on grid think our economics power to demand think I natural much with be a coming on so that opinion to support that is and the to battery gas. that I batteries need this you'll to renewables. and The going see going those. Yes, support some you're challenged it's very very niche storage definitely in

bullish So on we're natural still gas.

gas generation of in. we power of that We right natural or those gas emission-friendly a other cost. to world also rest look in it's turbines to unless huge haven't battery breakthrough getting the these where natural seen, They to can't the large really a see technologies. some right engines hard have But the that are at there market. really afford you will is come And be technology see at the

Pete Skibitski

color. the Appreciate

Tom Gendron

Welcome.

Operator

our Thank of you. Strauss And comes next from David question Barclays.

open. is line Your

David Strauss

Thanks.

still about you So think could you XX on the or supporting Max? somewhere month Max, clarify, talked are you OEM the on rate the a below are XX at you but

Tom Gendron

outlook the ramp on based varies we're it the we're next It going of we into we're when XX. we anticipated at year move up Yes. the planning the That's at until year start But grounding. see as off product supporting. how looking to comes remainder and of an forward, the

David Strauss

Okay. of the Is Bob, to the I end – plan year. the the down that plan? think by delever And yet. gross quite times to don't two Is I that still was you're think there then

Bob Weber

at We're really a – we're quarter. of at XX close the this end

or target. So bit we there anticipate of being a little ahead

David Strauss

Thank right. All Okay. you.

Operator

Thank Gautam our Co. question and And of you. next Cowen Khanna from comes

Your open. line is

Gautam Khanna

good guys. Hey, afternoon,

Bob Weber

Gautam. Hey,

Gautam Khanna

Just up to David's on follow question.

On the caution XX curious this the side, CFM are are what – is actually the been at just or taken on LEAP-XB? in at have you or side, rate you down engine guys advanced you XX? I'm

Tom Gendron

the engine positions to say like, those I there's on above trying It's on is above we're what XX. – movement. we're fluctuate. really some that depending numbers inventory happening what's Right was the will and now But side,

For we're XX. planning planning purposes,

Gautam Khanna

that slope XX that presumably, a I’m fair you just XX Above get is last the assessment at to were quarter Yes. trying the low it?

Tom Gendron

Yes, Yes. that’s correct.

Gautam Khanna

you're Okay. that’s XX fiscal And for QX? of expecting the then all

Tom Gendron

And year. a for we're what quarter, we That's conservative the look and into and to as the they the in view take planning ramp look We're as highlighted as we up going at. Bob next rate on fourth looking move purposes.

accordingly go support so what our to. customers they no that we matter rate plan the will We

at production able to looking will that's them. the we So given at. and But that, is given support unknown's we we're Boeing, what are what be that highlighting

Gautam Khanna

is you were month, month curious, something week with get Is GE your And in… fluid just customer, this? changes week how to to on it then that

Tom Gendron

and we're No, what's what need. planning consistent and constantly they they're their very and good in required on dialogue with them with

Gautam Khanna

one $XX thought what year? would equate adjusted to the At Okay. point, that are excluded purchase we I you, correct I thought accounting Bob, about fiscal the have am for the what I would million, in QX expect there? add-backs to so sure be add-backs just we make but should want stuff this we curious, maybe EPS

Bob Weber

The Duarte Drake to two main areas transition. are

much backlog much then Duarte as out we thing facility but fourth the the largely XXXX pretty those And that you're And Drake may be so those the on out as backlog right Same the spillover well with we fourth behind to anticipate be of on items backlog. call the complete. of we'll we're gone. should is us. And with most that be amortization. amortization that's in so some the into quarter, costs pretty so fairly quarter, behind clean, hopefully us be as will well There

Gautam Khanna

earlier Okay. then follow-up in about the asked Sheila I an And to aftermarket. question, think

mentioned, can down, slow why, generalize some I geography that might you were or be anything driving where, real-time that think there and area some maybe about or what You anything? product

Tom Gendron

Yes.

strong. me from very comps year ago. overhaul is We work had tough actually not It's and a slow Let type repair the down, clarify.

we it's the provisioning So down, halt that if aircraft obviously area we slowed has into for kind planned of back one meet the didn't is more the ground is until to incredibly that Max us that The market to actually initial tied the down a had and is signal healthy. service.

It's MRO our The very for see those anticipate to are last we've looks strong you shop company. MRO fleet are we've the the robust. going performance in highlighted going had years, next this, that awhile and we sales year. delayed we as are year we strong on just favorable couple very dynamics the not side, as the here. into forward, visits have, And as tell up. those So could beyond maintenance will Commercial next side, going well, But they're lost, it's

the are there's but we're slowing year seeing tougher, no at down and number robust comps it's moment. the each So a that

Gautam Khanna

appreciate I you. it. Thank

Tom Gendron

welcome. You're

Operator

Thank comes Oppenheimer. our from next of Glynn Christopher you. question And

is Your line open.

Christopher Glynn

afternoon. to up Hey, XXXMAX, impacted timing cash you're elsewhere? your may Good the flows making your free on any be outlook that flow is cash A thanks. that impact question or initial cash there

Tom Gendron

support that up. and the have nice those the a initial Well, one those aircraft. in sales what provisioning buy is carry airlines were their dried sales anticipating we have margin Those are highlighted that to spare new primarily sales,

worry cash Bob slightly doing at a our was was free there fourth as CapEx. highlighted, in And we So same see well. in also the the projection, improvements MRO happening working our flow quarter lower time but capital and

we're still holding million. of onto the $XXX So, combination how is all that

Christopher Glynn

you're versus curious terms thinking of L’Orange And just baseline what supports, it's the you're run Okay. range. this XX%, thinking terms that cyclicality, maybe I XX% with kind How in business are rates grown long-term think been that you about of ongoing prospects? year in its how of about exiting cyclicality expansion

Tom Gendron

being Yes. being Well, independent are L’Orange any a anticipate from part manufacturer. with to What cyclical, looking being do engine are an about strong. of lot add able of Woodward, for that additional The right that. now we're talked we as at our markets is fundamentals L’Orange market some customers. We

customer to these some a We're couple cause interests. We years that'll revenue awhile new start develop. programs lot new streams seeing on of are over the programs into next working migrating of take

control complex, driving, injection that emission around systems, the In are more systems the favors L’Orange. meantime, regulations world tougher fuel for

there. continued higher nice seeing utilization seeing we're spare there's And and driving very aftermarket goes up a So then, we're growth utilization parts. as

probably the So overall, double-digits. we're seeing, L’Orange, in low

Bob Weber

The XX% that end accretion up our where end to is the XX%, of think is And probably we on range year. at still the target. full $X.XX that for lower we'll around

Christopher Glynn

you. Thank Great.

Operator

Instructions] next Ciarmoli [Operator question SunTrust. Our from of Michael comes

is line open. Your

Michael Ciarmoli

evening guys. good for Thanks questions. the taking Hey,

Tom Gendron

Good evening.

Michael Ciarmoli

results. Nice

quarter. a basis this there it as was a the I expected million Was did adjustment there anything that in changed housekeeping, down this, rate, tax points catch, shuffling is looks in the $XX.X maybe for now was incremental – there? year? positive like through taxes but for the And Just XXX that quarter, or all that still I'm

Bob Weber

and on Yes, part. second on the first the reversed

for just I rate. the my lost are overall thought, the basis on we of of train I’m part sorry And, points in down the So, XXX roughly – question. a the second

Michael Ciarmoli

Transition tax

Tom Gendron

in tax the the period, eight an non-cash non-cash, eventually quarter. the there's there's in expense. cash so hit a current it, increased transition Yes, to actually but year related us was It's it's tax quarter to

Michael Ciarmoli

And it. so the MAX, to, on expectations. our I calibrate guess Got just just

your or that, a be go blended million should XX, about be XXXX, a seem should purposes be how conservatism but it planning we moderated $XX rate fiscal we would as into that for, know then next So Is your at assume XX, for ratio deliveries we that what pretty don’t could like million that because year, assuming I next I $XX in potentially. that year annual mean, it be mind? headwind to thinking you're with might I mean, headwind. would keeping decent for

Tom Gendron

I and number if looking with if the goes higher XX ramp support don't it if We're and production the prepared for then, know announced the at to or the the lower. occurs planning be rates material exact planning line that's it supporting a planning headwind. for

Michael Ciarmoli

assuming, and to it. works out or that I XX Got was looking just content, at units, about million so. No, XXX your XXX,XXX at fewer

Bob Weber

Right. That’s math. the

Michael Ciarmoli

last aftermarket, got Okay. on Got you L’Orange, I out or on big there there. pause for be the give ordering obviously, just rates it. they've are would the the are there? growth seeing And might Anything know pretty one update global guys in any out then that and component that some destocking a channel, reason there firm you trends seeing any you guys anything pressure in

Tom Gendron

We're good seeing spare utilization, some see strong. variability especially market pretty that, the after outlook. really is With good quarter-to-quarter, overall you trends. spare if in outlet, still definitely driven pretty parts by aftermarket, There's but we the go

data So, and has there's end-markets, very as multiple presence in marine right centers, also well. know, gas. and good good a you oil going we have And in L’Orange presence now power particular that's

an at don't gas whole drive look utilization dynamics on So Oil from been in centers good. OEM has good. aftermarket aftermarket the good Data to markets, and those Marine and been you an of standpoint. each has of utilization both have lot OEM side. the a and

Michael Ciarmoli

got So Good right. All Thanks guys. it. stuff.

Tom Gendron

Thank you.

Operator

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

Tom Gendron

in come questions Operator, front you looks a do of of you? up. It like that couple have have

Operator

Yes sorry, Glynn, your is I Christopher I'm open. do. Yes. Christopher. line

Christopher Glynn

up to cleaned if have fourth V VI the will just wondering was I likely it's China China clear or much of if that the thanks. the the a gas you'd Yeah, take truck, couple more China for on think quarters? way quarter inventory natural pretty

Tom Gendron

into cleaned a be, the think, as ramping. move large fourth part quarter XXXX that and it'll will I we in fiscal up start

Christopher Glynn

Great. I had. That’s all

Tom Gendron

XXXX. and start VI engines gaining start, trucks will VI in will China's China's

Christopher Glynn

thanks. Okay,

Operator

Thank question and you. next from Cowen Gautam And comes Co. of Khanna our

line is open. Your

Gautam Khanna

taking Hey, sale sale? I the was given the thanks provisioning OE trace for a in trying the customer? follow-up. fact what sales understand One on you engine sales XXXMAX, can you You're thing provisioning visibility know, provisioning versus do was to that is an by on

Tom Gendron

is. it what exactly know we Yes,

Gautam Khanna

Yes.

has to things So on they've was trying one – about to month were about using, catch XX-ish at was spares. the I part they square general talked they up is, capped of a electric of reasons talked the provisioning what

Tom Gendron

Yes.

Gautam Khanna

Because supply whole they the chain. rate, lagging the were

think, actually So, I would

Tom Gendron

as Woodward. spare Yes, to some There's What on we we used of a airlines. to there Gautam. engine, as get Woodward not want you spare a Spare is difference clarity. that engines, little hardware, the difference to say initial spare for bit are provisioning have do

Okay.

a that to of a sense little if makes spare difference, so not an is So you. you're engine Woodward hearing there's spare, bit

Gautam Khanna

it. Got

the what Woodward from airline, apart spare CFM. the goes buying that in from separate and So engine the they're

Tom Gendron

Correct.

Gautam Khanna

Okay.

And you so the mix spare do I a pricing actually changed think sells because as or what's not? you on – participate better would what get CFM that's a as engine

Tom Gendron

not. do No, we

Gautam Khanna

Got it.

that's sale. an OE So

a enough. clarifies Okay, Thank you. lot. That actually fair

Tom Gendron

Okay, you're welcome.

Gautam Khanna

Yep. Helpful.

Operator

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

Tom Gendron

questions. us Okay. end we'll fiscal the next and to our And of seeing everybody at call forward you your Well, our look I now for joining year. today you and between appreciate thank conference

a So Have good thanks. evening.

Operator

that our gentlemen, today. call concludes and conference Ladies

it call, X:XX XXXXXXX. Eastern If website, at for like conference, PM dialing by to at non-U.S. the www.woodward.com, daylight this of access rebroadcast available be XXXX-XXX-XXXX listen A will today will you and time for U.S. or be the XX available by a would code entering to rebroadcast for Company's XXXX-XXX-XXXX callers, days.

have day. a your today's you great please thank We for you ask disconnect on lines. participation Everyone that call conference your and

Woodward (WWD) 5 Aug 192019 Q3 Earnings call transcript