WWD - Earnings call transcript Q4 2020

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Operator

Thank you for standing by. Welcome to the Woodward, Inc. fourth quarter fiscal year 2020 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.

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 Mr. call now like to turn Guzzardo.

Don Guzzardo

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

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

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

specifically, As and those the elements we consider more pandemic and and comments the filings. our including our on risks uncertainties taken of presentation governments COVID-XX the assumptions measures industry. elements, effects risks frequently always, do in by individuals, elements including Please and the and are change. in private surrounding can outlook identify ongoing businesses of and light expected based our for economy current this forward-looking or our the of related global potential Those and

our non-U.S. in will financial financial and is Woodward non-U.S. understanding today's certain release results. of We believe financial which attention your addition, information and help In additional to this slide schedules. measures, are the presentation reconciliations earnings in related measures. We included GAAP GAAP direct our providing

Adjusted for for year. was share per Net to a XXXX. the to XXXX per or net free turning from a share was our $XXX XX%. or $X.XX prior were fourth for were for per cash XX%. the the net $X.XX $XX compared year, for prior results adjusted $XXX $X.XX $XX earnings per cash share, were or to share compared million share the prior share, or to And year $X.XX prior per to prior $XXX quarter. million earnings to or of were $XXX share million net for year, decrease million $XX compared for the to $XXX fiscal $X.X million for $XXX $X.XX Net Net per Adjusted Free $XXX compared results year. compared were the earnings for of to million year. million for the prior adjusted fiscal or sales operating per million net compared quarter. $XXX quarter net compared earnings billion, share $X.XX $X.XX $XX $X.X XXXX quarter, Net million for per year were the $XXX Now activities million, million flow $XXX year of the compared fourth earnings or or was prior of million million sales $XXX flow cash XXXX. for decrease generated the million earnings full for quarter. to of Adjusted $X.XX million billion

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

Tom Gendron

you and Thank good Don everyone. afternoon

business. mitigate the acted health the and took the team world actions our of swiftly COVID-XX aggressive and ensure During pandemic. immediate fiscal volatility year brought XXXX, to Woodward on our by Woodward and incredible safety to experienced and We entire adverse the impacts on

structure to we our volatility and keenly with financial our with our and strength environment. focused management, cost lower cash While align flexibility this enhancing optimizing we in on markets, continue to diligent remain the grapple demand

team of commitment successfully ensure able front to position I navigate dedication proud well the headwinds their Our the we Woodward emerge are throughout stronger. am and us pandemic has and in to of and to executed

Moving detail. to our more markets in

driven note, terms readiness approved Military commercial demand Our a volumes COVID-XX. across rotorcraft. Boeing for caused aerospace traffic with continue aftermarket defense, Commercial over the level, demand remained but oil except for Asia of moderation to India and markets in depressed for I as see as center gas the all reduced have were markets service our result in their anticipate be be been in XXX data across some global the to such passenger On flow. Woodward expanding aircraft more Max. for increased but decline decreased from the will board earnings with bode Commercial offset In mix. impacted we of the When in strong older more In be drastic fleet by years quarter to a upgrade Engine for and and ship fleet by going the developing power. areas backup macro return should Together prices with has improved significant fixed demand natural generation, and programs. gas for by the several weakness industry power related gas the and of turbines signs production and the FAA for of in the emission well to renewables China with demand weak of and were the Max, predicting partially fleet which sentiment across of natural newer we the Woodward greater pressured materialize, a energy In With and weak to past OEM recovery impacts driven comprised a will to years. prolonged the remains economies activity. Guided does Oil strength anticipate will a sustained headwinds of post-COVID substantially decline gas and of aftermarket cash continue to first turn almost very have defense. a market share oil energy several were well weapons forward. are in related and a mixed aftermarket, OEM show demand are down which remains we for to passenger strong generally with gas weak markets. traffic applications stringent commercial number and and content. it wing growth industrial predicted utilization. pandemic, a These soft OEM last of marine the transportation, by regulations. the customer On truck positive is to recovery travel. globe and we seeing due and demand. continue aircraft retirements continued below strength China smaller levels, markets markets gas the be XXXX

around oil increased effective gas gas release higher prices activity. could which be stabilizing current vaccine or potential stimulate growth to indicate in may appear levels. natural investment. demand are of drilling and counts However, and prices and oil crude and increasing to an therapeutic The Rig for future lead

market concerns engines content industrial to natural burning continue and our move drive where Speaking and diesel overall. regulations and to gas clean share. related the emission have business, Environmental we to significant

emission technology integrating and growth on strategies. sources, opportunities focus drive presents our controls fuel in new Additionally, advance hybrid system

are the stabilize. searches As our clear customers fuel sources, and the we create have OEM generation started but summary, our to partnering In continual of markets we of more renewable to next of the control have headwinds with for pandemic the faced since world solutions. onset many

and and diligent customers the our operational with closely globe ensure suppliers working cycle. management are cash to throughout lean a We balance across strong down sheet the structure,

We the quickly situation worsen should and very continue improve. environment or act to closely remain to monitor positioned the

we continued generated headwinds in current the by market With term. the anticipate pandemic, the fog near

margin that strength investments long us business enhance growth efforts impact completed our These to and to deliver targets. cash, mitigate believe to well us our we capital generate term monetization very uncertainty. our this on have positioned the efforts, on favorable poised and coupled However, weather our our financial flexibility ability significant proactive our with and structure, to our have

clarity and to to markets, go we we our we forward pre-COVID our in strategy. As see capital deployment return intend

this leaner We crisis will stronger from emerge and before. than

financials Bob the call to will detail. turn discuss I the Now over to in

Bob Weber

for quarter markets. aftermarket grow. wing our Defense aftermarket quarter in hours the to reduction continues military backlog spot the Defense fleet issues earnings the programs. along to OEM sales the quarter, the compared in a XXXX the remains in down year Thank aftermarket of a the $XXX from year fourth prior segment decrease the quarter. in segment offset sales and with sales. considerable quarter as sales softness prior of million, fiscal of result sustained Results as OEM were flight you our commercial were strong down this for XXXX defense although were and aftermarket across fourth partially improve Lower decline XX% to strong $XXX earnings fourth quarter by sales and cost to lower with million guided sales spending or initiatives. weapons sales combat continued were XX.X% U.S. segment segment primarily compared quarter were fourth supply to was a XX% XXXX chain by COVID-XX upgrade Segment million impacted the segment of for readiness sales, for XXXX. related the volume, or offset fixed of to $XX for bright impacting of were Aerospace of negatively by Aerospace Tom. mixed were global partially quarter due Commercial of aircraft. XX%

were sales million sales billion, compared prior to $XXX segment year, $XXX For $X.XX year Aerospace fiscal for of a were segment for sales, year. XXXX XXXX, the or net for fiscal to prior $X.XX segment decrease. the earnings segment XX.X% year of aerospace XX.X% billion compared or XX% million

the compared prior million Industrial Turning decrease segment $XXX Industrial. to XX%. in were fiscal of million, a quarter period, fourth year $XXX the XXXX sales of to for

million a prior year. million natural and gas the by refer systems fourth the segment quarter X% to for $XXX primarily XXXX the sales markets, Industrial impacted to divested of impact year. as the renewable low $XX segment decreased in offset related and segment period offset will of same our lower and of the fourth fourth as of million Industrial the the RPS, last to an of compared compared of industrial the the or the for which earnings and third the of of declined sales earnings fourth sales, quarter, the year of were of were up of XXXX I for of compared oil period of segment million excluding X.X% segment result segment engine to for X.X% year. now the prior for XXXX cost Industrial compared Excluding China pandemic XXXX earnings, reductions were businesses, global that $XX partially $XX positively of impacting earnings sales. of gas sales increase $XXX as excluding $XX XXXX sales same to were quarter for quarter segment RPS, by segment segment quarter quarter X.X% quarter prior the or the sales, million power Industrial in than industrial prices for million more RPS, fourth of volume.

We focus consolidation improvement industrial continue to margin line product divestiture through the of strategic on and strategic segment infrastructure rationalization. RPS, segment

segment for million, sales XXXX, XX% net decrease. were year, prior For industrial year $XXX an $X.XX the to fiscal billion compared

Excluding were a XX.X% sales. $XX $XXX year, million prior prior RPS, year. XXXX XX%. XXXX segment year to earnings million, XXXX segment segment industrial for segment Adjusted the industrial for industrial were or compared fiscal the were XX.X% fiscal year or $XXX $XXX segment X.X% sales. Industrial fiscal sales $XXX for were for segment and of earnings segment Both sales year segment decrease year of adjusted or of fiscal million for industrial of earnings million earnings XXXX for million

earnings Excluding sales. segment RPS, segment industrial XXXX adjusted fiscal were year of for and million industrial $XX XX.X% or earnings segment

earnings fiscal Excluding segment segment year XX.X% for were RPS, or million industrial of $XX XXXX sales.

R&D year. the adjusted XXXX Non-segment compared million fiscal industrial million, $XX the expenses the year. for $XX of the XXXX, to quarter same segment fourth sales $XXX sales were segment $XX million XXXX, $XX for quarter fourth totaled prior $X.X or expenses prior fourth for to for Adjusted $XX of of X.X% for were XXXX, same million of RPS, non-segment of $XX for XXXX prior the for quarter. X.X% year earnings of $XX expenses the or prior million million or compared At the million were Adjusted year. year. the the quarter for to $XX million XX.X% compared non-segment million $XXX expenses period were to to compared last level, quarter Non-segment the XXXX for million Excluding sales. for Woodward million of compared was for

million both the of compared million XXXX, prior compared or fourth initiatives X.X% year quarter quarter The sales. compared R&D and prior R&D was RPS. and the the of to For for expenses SG&A for XXXX Adjusted million million, year year fiscal of due decrease $XX or the in were $XXX was the X.X% primarily for SG&A cost $XX fourth the to $XX of $XX sales, quarter. last year $XXX million reduction to quarter of was for divestiture XXXX, million to quarter. for full

was For prior adjusted year was of cost last quarter. quarter year primarily of to year in rate tax XX.X% compared The was SG&A SG&A effective of The The XXXX to result prior quarter which expenses effective full XX.X% tax RPS. compared year. transaction fourth were reduction divestiture for for the was to $XXX fiscal of The million, fourth the million fourth the tax The adjusted year for compared XXXX, primarily prior and and to to for XXXX. effective million was XXXX adjusted rate excludes quarter initiatives quarter XX.X%, quarter decrease the rate full the the for in the XXXX compared of both compared year fourth XX.X% tax for the XXXX, the full and to for divestiture the XXXX. for XX% the year. for million of rate costs, $XXX XX%, effective SG&A, XXXX, the year. in fiscal compared Adjusted XX.X% $XXX XX.X% $XXX was merger

of for for operating million, to were Net cash year XXXX, year flow provided Looking XXXX prior million, million for was compared $XX The cash XXXX. adjusted the at Free prior Capital flow $XXX to working cash effective in million million capital compared compared for $XXX cash fiscal and flow million result to prior primarily expenditures $XXX cost year was was flows. XXXX $XX free period. for was by for year free activities $XXX aggressive cash expenditures, flow cash for period. of capital million flow the the increase the $XXX cash period. free management. free Adjusted lower control and

the a result closely managing to leverage X.X cash of fourth of declined the end at EBITDA As reducing and debt, quarter. times

We hand our also cash on have revolver billion capacity. $X through available approximately and combined liquidity significant of

year XXXX, $XX was in shares. million to the repurchased million stockholders of $XX form of million During of $XX returned fiscal and dividends

Lastly, our scope turning to with unprecedented and depth. outlook. the effects in their The global pandemic associated XXXX economic fiscal have been

we our vaccine questions. volatility severe With fiscal challenging. results markets making for a continue concludes related pandemic. providing on therapeutics to fourth at and are forecast time, respect our will financial to of and by business be are fiscal not with to in although We we this XXXX guidance open to the call XXXX. ready Operator, the our see future now encouraged that uncertainty, business This we and developments the to quarter for the comments recent year

Operator

Suisse. question first of line your from with Spingarn And Instructions]. [Operator comes the Credit Robert

Robert Spingarn

Good Hi. afternoon.

Tom Gendron

Good afternoon Robert.

Robert Spingarn

should for want had how Bob, a here and but you how Is not you next a indicative sense aero quarter. we to this first half about you are of exit just margins year? guiding nice know fourth about think continues? the I I get of that in uptick rate talked the sequential the

Bob Weber

Yes.

any is to As difficult you even given on. it said, near of sort going extremely in the term, guidance what's give

So to we encouraged. that We reduction significant on we quarter. did fourth that are the take contributed believe actions cost

monitor the continue to will and accordingly. situation respond We

Robert Spingarn

across here this not the but XXXX, margins OE, with because provisioning? Tom positive, all much of help going at into more the industry, then Max a because obviously And of ungrounding Okay. does so

Tom Gendron

the probably XXXX. we of it We some would in pickup half definitely will provisioning, be in see latter anticipate but

upfront. that's it expect we when So to see

storage aircraft how and are looks new ramp quickly Max back online rate the out what to then production brought customers the trying see like. with are our We working of and

very out So overall, is over XX months, very Woodward. thing and for the good the if positive you it thing good next it's a for look a and industry

Robert Spingarn

pickup to One about with in six, when I months about in of timeframe? that general, travel They, from airframe nine your their right is talked business. kind the in might But a Would agree about of maybe that air a materialize. recovery talking were aftermarket the more you of peers the lag? think, time lag the

Tom Gendron

little I have airlines to honestly expenses. it's managing And than cost aircraft Rob. of think admirable optimize maintenance I job think that, a faster an and balancing the done their

call flying as demand I pent-up quickly there a out think is again fleets there, want that that, the be over, we it believe, get once coming pandemic you fairly the the vaccines I to will if is that. once

and and markets anticipate do in effect and pick we some coverage. hard refer a can coming. as aircraft if that lot a both I you it's It's that is, we other when pin bullwhip other aftermarket a of and of see bullwhip quicker of little client a than industrial to we just up your the believe down will people to refer I but do, this think see participate your we in what but

Robert Spingarn

Thank Okay. much. you very

Tom Gendron

welcome. are You

Operator

the of Alembic Your next question with comes Pete Global. from Skibitski line

Pete Skibitski

Hi. to sense Good us maybe you fiscal Tom in power XXXX, gen a in declines of transportation you oil and niches start. saw give and Could and the gas? Maybe, by industrial Don. and Tom, afternoon, Bob that year and the

Tom Gendron

By understand question. the I segment? didn't

Don Guzzardo

Pete? transportation oil gen, and that was the gas, question, Power and

Pete Skibitski

It was, yes, fiscal XXXX. for

Don Guzzardo

fared? those How each of

Pete Skibitski

Correct.

Tom Gendron

else Well, up our business was natural all a that one slightly part they down. The single was only down. There gas was of were up. China truck. wasn't Everything

Pete Skibitski

Okay.

GE for has thinking just year-to-date So I XXXX, been know book power, fiscal I pretty year about for the think order turbines, soft.

of expecting lag. noted you area and So that have you I are that imagine

a are like gen XXXX? imagine that marine soft guess I fiscal the China to know, area, about going secular we you but play. then And CNG? CNG, wondering many into year not year am there? as more So expected? fiscal I be the expecting seeing XXXX. and marine transportation power in is there Or are you you seems I people comp growth Are are marine call analysts, continued in think a on marine, downside I seeing a soft-ish

Tom Gendron

that good market, recovery, over and some like economic it anticipate, to market fiscal We actually see and first, no carriers years market is on was it's of was also marine fourth few you those those kind of the to some a third of the spots, the bottom, bottom the and then we book will like and we for based on order call. doubt, see look little start segment gas kind hard But we when in I the seeing you there vessels. here. utilization marine at and expect our we we LNG quarter is next is where down really related exactly as into pickup. do have this down. possibly in marine going strong every particular about brighter talk on share believe a at gen, type the Power it's turbines, when of And

a we talk Again, some drained. combination. aftermarket. believe and So seen about of in inventory builds, it's heard have kind It's of system gas of a the combination has of I lot you kind turbine. movement new also been earlier a but

we that. of is would and activity pipeline. seeing think do to up and picking Once was highlighting, And it's the that some we and timing start drained again, but as been there. Bob carefully I see are we watch think material to start going uncertain, there something the is we some

attacked a inventory. people of lot taken markets, action, has have aggressive So our everybody

and in to OEM fill the we are pipeline picking you little third some service up. activity demand the with secondly in the see pickup, production inventory with and turn as first recovery So going and then see

Robert Spingarn

Okay.

whole, XXXX in first are a of for you here as fiscal for for So your and better on back of the meant the XXXX whole? bottom we kicking days half fiscal the the as bottom, a along industrial that then ahead half your comment maybe industrial

Tom Gendron

some of economy That's again. the what we distributed course activity does come get again, again we with widely anticipating, or start people start are vaccines and with if generating get a uncertainty and economic shutdown to out

But anticipate be uncertainty. seeing second would some improvements. we to So half that's the

Robert Spingarn

Right. Great. Thanks guys. for the color,

Tom Gendron

you Bob. Thank

Operator

of line Kahyaoglu Your from the Sheila next Jefferies. question with comes

Sheila Kahyaoglu

margins Hi. for on what guiding Bob, Good we should afternoon going on the are do and your forward. time. thanks aero guys you not

ask on will you So industrial. maybe I

guys The bit gone fell lower were and digits You decelerating. into into double quarter. have digits the declines organic this a little think, decrementals despite, single I

as just puts of thought better, your I especially and divestiture the So would takes, would have been kind well? given have margins

Bob Weber

to Yes. to past. to have that of we are this us the taken Again, through to that long have taken the b, terms crisis But back to, in that need targets out confident the called in and provide a, us path no get color XXXX. nothing, actions we be the we get very term

then know, believe, we as out from those we called actions. there. made And the and we you going on target XX% have longer a term, As have

there But initiatives of renewed to they a point very, have have between gas in as term. and difficult in a to anything We and near you even get the by right some way we see kind And path very taken see maybe buffeted got the and and them both. industrial out, that. it's of is prices COVID, confidence oil the

the aerospace are almost if will, than even they confidence going forward. difficult, So But you side. more

Sheila Kahyaoglu

Tom, Okay. it. it one the was XX%. will like you. take aftermarket doesn't for Cool. down I seem maybe

sorry? So could the the much aftermarket, you are In of Maybe provide expectations, sequentially, commercial not you on any what saw in details what kind business? that on quarter your improvement.

Tom Gendron

to pick XXXceo, their applications will in seeing, activity rise. programs to like service. I would here core they of pretty we narrowbody those in the their have a just doing from seen, Depending given we which I shortly say the The managing the go and which the we Aftermarket, on be the airlines we on those seen as up are it, pandemic, to have expect will cost. XXX given not engines, good and aircraft Yes. neo in utilization declines first and the job are aftermarket good where narrowbody back sharper

and monitor forecast track. very but difficult very, to we So to

But to trying But be will turn serviced, can working keep on yet. daily sure we coming. the with put anticipate hours to aren't them our it are customers make being see fly. we enough they just to that We sure make

Sheila Kahyaoglu

a guys. lot it. you. Thanks Got Thank

Tom Gendron

Thanks.

Operator

Your comes David Strauss of from Barclays. question next

David Strauss

afternoon everyone. Good Thanks.

Tom Gendron

Good afternoon.

David Strauss

question seeing I of engine products on between that, the the Tom, of deck sort aftermarket. on flight difference up are the Following last aftermarket? your terms any discernible guess about you in and non-engine,

Tom Gendron

generally, always do. we Well,

from what our And than Just generates products downturn, even engine this airframe we a the aftermarket substantially continuing. products. standard, call in more that's

the as as more the have soon good what fleet, hours can tools because forecast of on analytical we maintenance per aftermarket And we case. to is application hours see in equate we forward activity. means then pretty more terms that So the coming,

So applications. definitely is it much more heavily weighted engine to our

David Strauss

I bit I declines maybe Yes. are I the about a was pretty talking that deck the side. thought little guess terms side just in is mean, of flight XX%, seeing I than level engine the decline. would both? similar is more you of discretionary across have

Tom Gendron

a but have in to I aftermarket, It's it's exactly you head good pretty as the we going question. look it Yes. at declines. I the am tell don't uniform

David Strauss

Okay.

Bob Weber

flight of Most function anything of and the they profiles like of more else. our products, than that, are things thrust a reversers

XX/X Tom you as are airlines right, me. earlier, spending. every think, where otherwise, the flight a the But the apply once they I job, discretionary thrust running so engines of done And flight, are twice good excuse reversers said or going and have every it's can

David Strauss

Yes.

how commercial in was then were out down what I quarter? down that you between that air the QX. And QX? business and jet in And OE break What business the Okay. think was in does transport? XX%

Tom Gendron

the more of a larger aircraft so decline. the a it as been the jets, XX%, obviously jet big Biz flight to refer of than impacted OE have And was Biz end safety. aircraft. as been we hasn't smaller Commercial kind down to lower bad.

opposed advantage some that. taken the So a have ability jet traffic, fly commercial to if during you times have of to business people as these

commercial hasn't been as OE. it as So down much

David Strauss

cash guess, think fiscal year. last taxes, this any up we guidance. next meaningful CapEx? Are way Bob, Okay. I saw know way guess, to capital, relative giving But headwinds what either right a you you I or for cash I year? And tailwind, not of guess, last one, about, I are working those on the what's to

Bob Weber

is, CapEx tell can you control. our is I What Sure. under

intend we to number that so down to And to hold a this similar year.

to is where used hold it times. call levels So utilization million being high in as $XX at equipment Obviously, isn't intend same range the we the that.

maintenance it declining as needed you working And will then cash. and tell sales, of on will not of working in start One much to working be pattern start the is, sales, that we that eventually is there is during flatten major to in terms times a So see What of capital regard. when use capital generates increasing area capital. that we have and will about year make next excellence and operational inventory percent a as on progress inventory been us of talking on been management our the our enhancements wildcard lot that term towards is that a allow believe true And we our to sales. have operational and be north we levels. focused do that targets long will I

come And downturn hopefully. the so hopefully that we out will as continue to be a even tailwind in of XXXX

David Strauss

Okay. And [indiscernible]

Bob Weber

Sorry.

Dave. You breaking up, are

David Strauss

the that is deferral? with change next year a taxes, cash payroll The meaningful Sorry.

Bob Weber

No.

David Strauss

very All you right. Thank much.

Bob Weber

Sure.

Operator

from Gautam Cowen. of question comes Khanna Your next line with the

Gautam Khanna

Hi. afternoon Good guys.

Tom Gendron

Hi Gautam.

Gautam Khanna

of I ones. have a quick couple

to was why said historical First, just was it already. the maybe you I so curious relative this non-segments, But levels? low

Bob Weber

Yes.

Gautam Khanna

And about the future? what we might infer

Bob Weber

and on out side the best so of you fairly large operational will back can numbers is take imagine, in of release that one-off and during like. show had table we at puts see a a The crisis that to the look can the way that, as tried that what takes. of equation the the more of all you so we a number, looks there a you Yes. of events W to

terms And in of as forward, laid net, in of net in we business kind cost the going reduction are the they back. So activities our still did out well. non-segment of portion

have run ahead we than going that we little a lower bit believe do we so on ongoing will And the basis an in past.

Gautam Khanna

helpful. That's Okay.

of And it. me pardon sort on this if and rate? any tax you I already color said go Additionally, missed forward

Bob Weber

where what the your and of in administration finalized on No. we is like Well, And what ability to have kind as just position election changes happens Congress to of it. will the is didn't a see They is of when probably and to. make it's if ever what as made known their We would so, ours going when. any cover do. be with of guess good and if terms terms now this matter on they

don't with our the respect rate of any to we no, So impact going forward-looking have tax statements forward.

Gautam Khanna

make like? Okay. and much asked dramatically of we if sequential improvement we didn't was wondered do And because the is then are I basis. XX%, it in, read seasonal to to destocking nature And think what's because just sequential somebody normal kind curious, like nearly of on commercial? down we how the I of about which in the pattern mix and down be kind the anything, as money. basis was should look just was aftermarket it incremental what going a on margin about it on not in of relative like some we thinking margins? But sequential looks incremental years a a aerospace but better, margins, real-time still about you of Should where It prior should are

Tom Gendron

Right.

ratio down, So when though really aftermarket, dramatically. they and you favorable seeing but OE Bob ratio in even are to look at some too, down the are there, of here ratio both the jump we can

better that that tell to you As the in first, but we move forward, can recover is the the in of remarks, and aftermarket carries we we going we kind keep prepared to alluded which going to uncertainty back market, margins.

think improved so aircraft the we production come OEM I to margins rates see start up. moderate as as And recovery, that then that going see are you

knows curve that the pre-COVID. knowing is, without the that, hard favor fleet demographics So will the exactly I when strong now draw were base and kick very working to would a have our very installed good it's we as exactly think everybody fleet, aftermarket, but utilization up, in a that say we little

going are aircraft like more the think going generate going are and most to in forward. be which heavily to will Woodward weighted revenue we the than like get hours that and are to aftermarket the the the Now help to past, better lead content

OE So margin as think I growth. aftermarket as then soon going to and to are growth as tied production pickup, things good see tempering you

Bob Weber

would the XX% add Yes. and The commercial are We only that XX%. down numbers OE thing significant. I think I only aftermarket would said be down which

more and much we defense the kind to military favorable talked about we in differential the mix. OE much OE And of Tom's as speaks about mix. that the was a So in addition, isn't kind between comment sequentially It's aftermarket. side biggest saw of there which on increase

So nice that's tailwind for as a mix well. overall

Gautam Khanna

Good point.

get when makes that correctly to for well in said sense. That a OE back that, down destock consumption, in presumably where kind quarters with the into you the underlying versus how complete for a that's did the mix. right. of leading the should consumption sorry, of some you. eventually will speaking There not and take underlying I And But Do Thank destock? out to have level it heard a long that. you to that XX% is range row, excess in few sense

Tom Gendron

Yes.

at we have production rates. what look customers have and we track is then stated our think I to closely,

actually those rates to start on as the chain do when their Airbus Boeing stated as a ramps XX towards per will the those kind XX back obviously, the and month their moves supply So rates Max starts XX timing supply the occur. working But and then brings issue the rate, chain up stocking materialize. in seeing AXXX of and and we it's

earlier at bottom that are rates and stated start the one, to is pipeline. probably these there looking and ramp those we customers restocking these as back couple, three the the look then you forward want So of if quarters, looking

forecast ramps we inventory will and but a we the we occur and those as pattern So highlighted, little see in. come will some see challenging will to

better that into identify see So sales will second and and looks half of for rates. better able production as that what XXXX, probably we we on move to visibility like

Gautam Khanna

you Thank guys.

Tom Gendron

you. Thank

Operator

Glynn with question comes Christopher next Oppenheimer. from Your

Christopher Glynn

Good kind of steady Hi. the particular. Is aero in severe pattern? of term Or I press too? that the the all wondering about aftermarket that commercial the volatility was in am curious, is release. sort you I over used place evening.

Tom Gendron

Well, in I February and think the on severe could you is where today. more say, we where we are volatility were,

So as broader a it we took look.

your large rate, much question see high volatility. are I lower think is, swings seeing we minor No. month-to-month We if which at swings? was this

Christopher Glynn

temporary whether different capital the across acting it industry? working cash the of for for capital of pressure. kind players aftermarket curious chain flow, on looks I working while the them the sort as flows bankers some pick am a then strains takes players it's And to up overall as on revenue weaker if and normal just the through flows for about supply you. Got

Tom Gendron

very good that We under very we continue Right Woodward, AR we in are very be management, And doing AR comment stress. going confident and for suppliers that, we now are are I But industry collections. will is to we shape. able on various would good forward. seeing the collections. are know only on more well very in good

did And pressure, caused about being that U.S., issues we to chain as more supply mention up not time. standpoint, flow. that quite even and we Things from there. transportation that Woodward, disruptions impact But that that over to people cases are seeing is some have due managing the know supply chain some it's what that but positive. doing are it's sales. out around little still picking about is don't this We well will overall some are factories, isn't there a supply chain AR. we very say that. we on disruptions I in to all are month but the tied be want world. from But product with is like all and pressure the And really bit well, hampering to able Especially for So temper

Christopher Glynn

Great. Thanks for that.

Operator

Instructions]. [Operator

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

Chris Howe

Hi afternoon. Tom, and Bob Good Don.

Tom Gendron

Hi Chris.

Chris Howe

just continue, on XXXX we part for could could of longer seeing we as And thoughts areas as the normalize general industrial aftermarket to the touch and LNG aftermarket play see each provide the some color year where how into commercial situation early some we I wanted potentially aftermarket? XXXX? consideration look us Could of we these mix break in kind that this normalizes in see aftermarket, respective of a fiscal for of behind Could conjunction? of we QX of as out virus potentially see with that defense or on the are opportunity perhaps term as If we you out well strength aftermarket. aftermarket that you carriers.

Tom Gendron

Yes.

you on side, and say, the think market power applications. to oil I give in do start have sales If gas you market, it see more our right. prime color. if and to you in But we industrial the in we marine little strong want try I a aftermarket will

earlier, So and equipment. all want the seen these utilization high have those you as destocking if down we said to of today or occurring. you are are where say, get very And we inventory management

at restocking see we looking should plus aftermarket normal utilization the utilization see we So will solid economic we as do which we up, anticipate chain. those up, will supply drive driving are activity in some both that pick as picks

and been downturn. So the difficult that out follow and would see a anticipate coming downturns have Bob an we It's a exact pattern quite that. to we and just have that here we But we pattern timing many been is quite while at bit. that I both Woodward predict. a of through seen is every

So are we of in It's pattern. the that. just confident nailing t timing the

not all are and there see we I I is sure this, and will that want being to hours to So the But different for to airlines, than to we is how going in. airlines need generate as that. flying am saying up think a once maintenance very are do very utilize to for see they goes always It that maintenance. there and safe. assets make we is aircraft anything as pent-up utilization again, that those maintenance their the smart in they side the accumulating extra applicable be kick are flying not and are demand But

And think happen. do side we destocking just well been pickup in there. anticipate as the It's there going And so exactly it's when. has to we where aerospace will we see some again,

vaccine XXXX half somewhat latter dates but challenging predict. probably, based being So to successful on or the XXXX, exact

Chris Howe

you today, Okay. now? was on can for have quarter, one it backlog where I of try expectations will last is Great. your Most specifically COVID where forward? mix of taken, And you questions comment what as my it other are far there the but been corner more. we or that more turn are a to starts on seeing backlog to how level move more as granular and as the What backlog? accrue Perhaps impact

Bob Weber

Yes.

the the side talked in increase but OEM did very supply mention on backlog time systems driven and on give that you are time backlog But aftermarket defense indicative. We by side. have formal the we have isn't related so And we is true to forth, of on the that seen issues same significant from kind that. largely color, the real-time chain to some to we

cetera, demand. got of a in the Those where probably the have side, power as On as demand. mentioned It's work. much clock and the industrial have a et country generation lot can't more you pent-up they an there. It's to not service utilized as cetera, lot. in And is Tom are backlog pent-up much time ticking you do not we see it when the something. side get the down them but people you necessarily to backlog to don't see et order

that are side. of seeing a, it, So industrial I think more it's an we informal call the backlog on

start there of the production again. the obviously increase is rates seeing lot On commercial not a OEM, until backlog there we

Chris Howe

I all Thanks. queue. Very the in appreciate the I interesting, will back Bob. hop color.

Tom Gendron

Thanks.

Operator

the from comes Your line next Michael question of Ciarmoli with Truist.

Michael Ciarmoli

to down sustainable R&D, I these again, to Bob, call guidance, of of obviously evening rid that expenses little and bit. asking but at the dig taking $XX of got Not do million taking renewable think back million and then margins go forward? $XX try sequentially, and rates? both run at question. close going Good and but those gone of the And this the beginning those just How non-segment, about I quarter. the SG&A you that operating of back we going are combination to the here the looking the Hi. Thanks guys. will for into call for think a

Bob Weber

that But where and of are the Yes. There are that also elements sustainable. is elements it in clearly we purely the crisis. at are by there phases crisis are driven of

returning. to you So have I to going think it when what costs put are is types to start of very difficult say things on

need can activity of you now that necessarily to took are invest are through going we as a return that all going see. we When but don't you you number to items. the on have So go. things in actions of go the list that There that as you

were goes some taken, that our not were will progresses. of that back up. reduction so as substantial took of the year but furloughs labor of in the back a year. temporary. come reductions a recovery some come Yes, are a on and during salary there Furloughs come layoffs, the of early that temporary that the substantial number forgoing For They back the the things on, as the demand for example, like lot we and may bonus

forward. tell So I the the as you and that improve But of It that, savings showing all be that when profitability you going sustainable actions amounts certain will we can I as the are dollar is look some for at portion we not can't all. reductions but those that tell forward. some only go that do thing today are that cost are you the believe will sustainable of we

Michael Ciarmoli

I and get higher it. rid the sequentially of about Got it. getting margins on renewables. What volumes gross the down

You have decline margins, aftermarket. the margins? with in the sequential mix What drove gross favorable

Bob Weber

margin variable down into you Most still get -- just, get of when to degradation. lot got have you that you the gross breathes fixed to the point that's base it's the a of see you where margin it not cost a the that level but

Michael Ciarmoli

Okay.

gave last out. I you quarter quarter one So guess

you from do months ago? is today, three better here or sit think, your visibility you As worse,

Bob Weber

it's worse. say, would I Today,

heading back right. are We in,

Michael Ciarmoli

Yes.

Bob Weber

Right happens but starting of like, will to down is what we kind well, see shut now, again. everybody's it

of of a going So bouncing was everything and along, kind I and increasing. cases see else it's the think shutting now down. than states gotten ago a all along actually We we sudden, bottom you month worse see everything it the was and were

contributes I to therapeutics, a the more that actually mentioned less. And also month. we positive. seem think the Vaccines, have that think wow, some volatility news, some negative, visibility what lockdowns, is Tom I to everyday

Michael Ciarmoli

Yes.

Bob Weber

uncertainty. Tremendous of amount

Michael Ciarmoli

All certainly Thanks Perfect. it. back get queue. will in trying the I Yes, Yes. guys right. jump navigate through. are guys. I you to what

Tom Gendron

Thanks.

Operator

Robert And Spingarn of your the from line with Suisse. Credit last question comes

Robert Spingarn

the evidence that material I But follow not think with serviceable of parting taking you Hi. is seen pandemic couple a into up or the I in this just wanted market? seen apart were used to have yet have Tom, aircraft the any in happening? people you engines. any coming things. beginning out change of

Tom Gendron

confident happening. Well, is are we it

impact We correct. from haven't actual you that. are seen But

hard of out. look AXXXceo. I older certain also monitoring be more it to seen there impact the going material parting will impact we but us, are service on have think it people aircrafts. that, more both neo, lot and think narrowbodies Narrowbodies fleets got to will think of the see used fleet, Max from at much new going sweet say others. is for be haven't applications. we is I it. it's to-date, on And than much don't we A There But again spot some used the neo, a impacts on and those once you material. But forward. on how to us we But will that. much are it serviceable

Robert Spingarn

Max? then changes the back look And XXX with anything we happened Boeing curve. just cost contracts its that to last success, Okay. there When back as like Has in one. get help and a were for at on the delays partnering

Tom Gendron

No.

Robert Spingarn

Okay.

Tom Gendron

for Not Woodward.

Robert Spingarn

you Okay. much. Thank Good. very

Tom Gendron

Okay. Thank you.

Operator

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

Tom Gendron

message. call appreciate I is We with managed joining well appreciate guess, We and Woodward interesting It's is leave us to talking I you We everybody did to-date. with today. this want just I what always Well, can strong. pandemic this. you. times. you also all Okay. highlight

as continue it well we financially it, will technology stronger well. of We to to manage and Coming as products are going be out even and growth-wise.

and seeing from long Ideally, happening inflection upturns sales quarters. in we we talking too I as few the about now, hope. So forward look not get next be a point in will we and change

So joining. thanks, again, for

Thanks again. will We Bye. I quarter. am next to in talk you, the sure, all of

Operator

gentlemen, and today. call conference our concludes that Ladies

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

Woodward (WWD) 19 Nov 202020 Q4 Earnings call transcript