WWD - Earnings call transcript Q1 2021

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Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Woodward Incorporated First Quarter Fiscal Year 2021 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 first 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 via 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 XX, February release to by X. 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

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

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

XXXX of were the earnings XX%. the $XXX or to Net $XXX share. sales year for both million first and Now quarter. prior million $XX for of fiscal for results quarter net turning to decrease first XXXX per Net the $X.XX compared of adjusted for the our a were million quarter, quarter first earnings

XXXX, For quarter share, per prior net million per $XXX adjusted of share. or was $X.XX were of million or quarter. fiscal to were $XX for net quarter the the earnings XXXX and for Net activities by $XX million provided $XX first the first earnings million compared $X.XX operating year cash

quarter cash million. free and For of both the free $XXX flow XXXX, adjusted first flow were cash

cash and first of flow flow free million For cash was adjusted million. the $XX XXXX, quarter free $XX was

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

Tom Gendron

contributing to Thank you, economy The Don, significant variants heavily and on COVID-XX and world's to of new weigh resurgences viral everyone. negative impact uncertainty. good afternoon, continues with the

showed fiscal While still the we related stabilization of globe, signs the our in to 'XX of anticipate volatility pandemic. first many across the of quarter markets quarterly

Importantly, a we of prioritize structure. the the in to at cash management beginning swift lean pandemic took action operational

as and sheet year. of our at restored have dividend first strong, the we cash level quarter these a same result balance the announced we flow As remained actions, last quarter as today, first and have the

for while and customer to the strong with to situation continuing monitor maintaining and future. align strategically the to invest continue our position We adjust closely expectations, financial business our

the anticipating be the We're across rollout declines challenged with our most aftermarket year-over-year. future OEM traffic to globe. Moving markets. to seeing of the improvements with in passenger substantial commercial vaccines and Aerospace continues

solid and to MAX is XXX in production rotorcraft across wing OEM service expected with many Boeing key 'XX. applications. rates returning Defense markets the remains to in Additionally, improve spending fixed

as volumes. guided global of initiatives to due improved strong readiness softening a Defense anticipate to aftermarket well U.S. fleet remains continue we weapons as However, production upgrade activity programs.

power to In and generation, as this natural burning segment. inventory market our gas to drive we the expect negatively emissions for levels overhaul, demand already diesel given repair not market, cleaner Market powered depressed to be pandemic. gas shift and do and the continue to Turning low impacted pent-up turbine Industrial the regulations Increased by engines.

growth energy developing showing bulk to with In pressure natural pandemic. improvement continued our are demand be although gas oil foresee due was winter investment, demand severely natural counts globally strong, weeks. gas stabilizing. to are also and signs rig in though global anticipate markets China the we remains transportation, due lower We lack forward marine The coming impacted expansion recent to oil during for demand of the global in higher from weak of this moving market truck months. of Asia's The seasonal market the summary, some economies. and continues by prices In gas

are the our to COVID-XX. payoff We beginning actions challenges aggressive address the of see to of

our to near-term upon We partners and are consistently assess emerging business with engaging market opportunities. demand capitalize

and we year. positioning do in emerge. as markets, excellence, volatility improvement they While operational we to through and value remain significant on shareholders a uncertainty of to our future capitalize the upon as progress we'll our opportunities anticipate focused still delivering see Woodward fiscal We amount market

Now call over in turn Bob financials to the to to detail. our like I'd discuss

Bob Weber

a were and of aftermarket $XXX Aerospace down were by prior both the year were sales of remains decrease the fixed quarter defense quarter. to Overall, wing year demand quarter solid. sales XX% COVID-related and the weak supplier pandemic. XX% weapons, traffic. quarter On in slightly aftermarket due although prior a negatively sales lower quarter OEM sales rotorcraft. from note, Defense Commercial first to aftermarket flat Tom. as you, quarter, prior remain bright year the the by sales commercial and activity in to XX%, sequentially, the fiscal compared for Thank was compared OEM result of in result OEM a increasing partially were a prior the million, absenteeism in of down the sales year, segment strong the driven Defense a higher by impacted guided primarily of was sales narrowbody disruptions. first to offset quarter for systems. of depressed compared first of passenger up as Commercial XXXX XXXX

from year the well reduction and we Our or timing fiscal anticipate earnings segment lower prior quarter were cost to to at in Aerospace XXXX fourth of The margin the XXXX. compared offset of was programs. the the spending on defense compared by $XX primarily lower XXXX segment volume, segment Sequentially, of of as sales million a partially was segment of first million decrease as remains levels. initiatives. the earnings backlog to due spending aftermarket defense to result or for for sales healthy continue of $XX R&D quarter XX.X% first defense quarter XX.X% strong, of sales the decline

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

for was to gas RPS, and XX, The Excluding weak on quarter will of gas decrease as strong the divestiture, pandemic, in oil current and ongoing by renewable in and the refer industrial sales were which power to impacts April RPS XXXX, market and segment the for systems demand the natural due primarily the trucks. China I partially $XXX quarter of the divested related first offset sales Industrial businesses, million. were XXXX

$XX for sales result quarter. approximately segment to $X sales primarily the Foreign million segment segment segment first XX.X% $XX by initiatives. of currency cost Industrial million million prior earnings exchange compared Industrial segment positively as rates sales or the impacted XXXX XX.X% year. earnings or the quarter a for Industrial increased reduction of in were of of

XXXX and the segment XXXX of XXXX $XX sales. adjusted were net reduction the expenses expenses same the Excluding initiatives. quarter in million and favorably $XX sales for prior quarter first the quarter. for first level, was million the quarter quarter $XX were for first of effective to the expenses of compared or SG&A of both actions RPS, our for of to cost million The XX.X% last the in for of pandemic. reflect non-segment the quarter. declines XX.X% prior expenses million of XXXX was million year. Industrial rate the first the or for quarter for of impacted The adjusted compared SG&A year million management XXXX $XX segment effective or by $XX response to and year Non-segment rate million XXXX. were $XX first R&D At tax compared of both earnings quarter Woodward adjusted X.X% and of the non-segment for $XX to the Non-segment expenses of taken first R&D for non-segment $XX were X.X% period tax cost million sales

the tax rate effective the XX.X%, XX.X%. and effective was XXXX, was of tax quarter rate adjusted first the For

first and both free to in year were quarter. excuse quarter by million $XXX effective period. adjusted for expenditures. Looking flow months flow were capital million XXXX million flow the for free to $XXX was management cash XXXX flow XXXX decrease million to provided lower compared and the cash for million the $X the cash of $XX prior working period. -- free free cash activities and increase flow Capital cash fiscal year adjusted related me, the to prior $XX compared for Free control, flows. $XX of for year expenditures million operating capital cash cash the and million first free primarily prior was cash year aggressive compared The X at of for $XX of flow cost Net adjusted

first X.X and debt at our times are to end prior the at reduced end times the down reduced from quarter the X.X paying of We have quarter. year -- the EBITDA of EBITDA leverage

new approximately combined contribute cash shareholder which allows to in invest and have future which revolver available programs value. us opportunities, billion will $X.X through significant growth to and other liquidity capacity, of hand We on increased

increased Woodward's dividend in levels, position. underscoring pre-COVID Importantly, this confidence we quarter's our to financial

of declines prioritize at are having and the impact positive a to aggressive operational structure are volume we seeing the on beginning the our actions performance. lean we sales the significant, took a management pandemic are cash While

markets. dynamic fiscal nature The global our Lastly, to to uncertainty XXXX outlook. continued cause of many in pandemic our COVID-XX turning the has volatile of and

regional forecasting rollout near the begun, and While ongoing challenging the make globe resurgences the our viral business vaccines in has new of future variants across of term. the

to be and to now open and will for the business this time, on first our Given ready This will protracted the at we of although are call the of we not questions. operator, the optimistic quarter results ongoing concludes this guidance comments to And the uncertainty lead are stabilization globe. financial this XXXX. nature across providing we that crisis, recovery

Operator

[Operator Instructions] Suisse. comes Spingarn first from Our from question Credit Robert

Robert Spingarn

sequential OE, I You AXXX rate? start factor you here. When that you and talked And that -- commercial think start rate see to Bob, through? we we MAX in quarter-to-quarter should from on drawing about just I when the guess, increase where are hike

Bob Weber

that. ahead I'll you Tom, go Maybe, and let comment

Tom Gendron

OEMs. say, Airbus to back engine flows direct them the it we're schedule as also from I'll production the sales through Airbus the AXXX, through Yes. and tracking with for the

what or with line on they're doing, right those -- rates. we're couple of of we a months So ahead always maybe

hard Boeing's to it's will and forward. move be the On more they on the There's as MAX, rate a how inventory the supply we're up, a We're little guidance something closely. But that prepare what comment I to I but be well in the that. today. meet following for to on base can system, the much ramp lot watching ramp to they're in of think we'll very at prepared don't say

Robert Spingarn

coming so Okay. of over for corresponding about Are aftermarket started been to in loading just side, any starting evidence here you visits done of because heavy year. inductions talking past And the an engine up on 'XX? little just shop increase then for the during some the hearing we've see up maintenance airlines has

Tom Gendron

down, our we're positive. looks And up was where Rob, into commercial -- forecasts as but aftermarket calls, be half forecast customer aftermarket our to quarter, going in we're seeing we we the first And second we highlighted fiscal and discussion recover. ramp aftermarket a it's do to but Yes. quarter did with still sequentially that soft as we've that to fiscal first were our the we start going of definitely year recover. will anticipate the previous the move seeing

Robert Spingarn

on elsewhere you does And last in you're of And how that that us there engines, the you? aircraft, schedule possibly involved the anything about the one XXXX just airplane on side? I change, tell actuation Okay. the actuation imagine issues? terms the but affect in on at you what's happening all can is are also then with

Tom Gendron

not any Yes, I'm actuation aware of issues.

GEXX just we're and the direct the program We're on But service from shape the of ready, hardware comment on the entry we're having in customers Woodward I in with into Boeing, we're also a But to So the both and… timeline. quite on working standpoint, on in on on extended good that aircraft, shape that. but and the certification terms good to GE. can't

Robert Spingarn

you for cost incremental from that? significant this no push or There's ride like to anything the

Tom Gendron

costs. have move significant, not additional no Not continue it's Rob. when cost because No. significant support, Obviously, us. doubt but there's to to to we There's things out,

Operator

from from Our comes line next Cowen. or question comment Khanna Gautam the of

Gautam Khanna

curious, than the significant guys? the Honeywell saw And I up? in on a seeing the difference we've explain demand I'm big do point other sales any $XX to just anything question, starting quarter pickup sequential up about you aftermarket spares where had million lumpiness between you Following General what picking -- sequentially anything the quarter, you Rob's the evidence whatever, of down to just in was you and is lower of ramp something since to as were -- or the a might or well. in fairly you're last curious, curious see like little that, could heard, I'm some are their their X a quarter. quarters. Electric in which implied talked

Tom Gendron

Sure. timing. depending aftermarket on products and make variability always in you the There's

I in activity engine visits. we forecast of As inquiring We're about of mentioned shop for are terms seeing spares. Rob, activity terms increased in RFQ to to coming see like starting

we starts come of MAX ramp to sales. are the So We do another anticipate the but parked one aircraft. and production reintroducing is both signs provisioning also -- see seeing initial increased do online,

do going up. move we to year, we we through fiscal as that So our see are ramp a confidence have

disconnect Honeywell, So quarter-to-quarter it's in the GE there's and from I it's you between ours between saw normal the markets. I think is, don't just think what companies and any variability. the and

seeing start move we you'll the as So through improvements I sequential year. think

Gautam Khanna

Okay.

So you of what based you're sort seeing December trough today? on the quarter the think marks

Tom Gendron

bottom. Definitely, at the down it's -- we're

Now about the how as there's forward. we're move fast at you no that, trough, bottom. we do come out to of down that be doubt anticipate that but But we going we're increasing

Gautam Khanna

also for of but the to question the would those trying One non-segment maybe, get you forgive, don't was I what on basis? rate one-time in I'm tax low just what non-operating and sense an fairly a comment and ex-items, this quarter wrong one, be because the be Okay. other -- it's non-segment, to And on a modeling Bob, can want items. our items

on non-segment maybe we rate? utilizing should you what If can baseline be tax for us

Bob Weber

the in of back for also, you'll in of first full -- always items From Yes. heavy on -- to is had, Duarte impairment recall, and it's of asset. non-segment and for gain see quarter the the this sale little you us The year. one-time compared the later the we the release a the the RPS if the

more So that's what rate we took out to get oriented. to run a

So we level you'll see to more consistent year a decline the with the through prior go a as year.

Gautam Khanna

Okay. rate as well? And tax

Bob Weber

Yes. XX%, in this a we go as range area will bit Tax hover little probably year. the the overall in XX% higher rate through

Operator

or question comes Christopher next comment from from line Oppenheimer. the Our of Glynn

Christopher Glynn

substantial little wondering incremental work. cash in that, XX%, the was in getting if could margins -- on you still curious, sustainable kind variability a the job be subsequent more Industrial, mid-teens expected Is sequentially the now divestiture a pandemic the such I'm variable we Nice XX%. of just I for remove or and might way level restructuring. that some room RPS with months? on of behind on

Tom Gendron

what Yes. working say I'd of our like talked Well, is over on committed the margins hard we're first, increasing we last Industrial years. couple and

favorable a we So the have in improvements the some quarter, we products. did had divestiture on the margin come cost but reductions, have really -- of from mix

side as aggressive margins. say hold definitely we through level, it this through year, definitely to mix Industrial going the year-over-year As we the go be see But path little have will margin be And but a the to Mid-teens year, were we going move for on be improved. to that's year, Industrial the on. we that would we're is aggressive improved but at to year-over-year, out. are that plays how we that

Christopher Glynn

just end you're where rebound And your as for just more and the of I'm just issues does with ease, other defense end have type chain several markets, have a thing? some seeing? about impacted chain there, curious date what specific defense, Okay. than start And the quarters kind nice row that structurally kind seemingly criteria a in issues supply market those supply why waiting absenteeism of

Tom Gendron

pandemic A got strong I'd of sales Clarita defense site really had our first could backlog hit backlog the of say is our be our -- also supplier with didn't But on as Santa high lot Yes. had the was hard. they California severe had. What We absenteeism, we sales out get to issues defense. Aerospace we out as we've where due a Niles to come in The and with weren't that. site.

the sell backlog, the have that we of fiscal to will through be which year. So we remainder do able

dent So and location-specific it location. did forward. we And just in hit and to due we supplier-specific a expect it our move just happened have be side than to to harder side the that commercial it as happened to defense problems,

Operator

Our the Alembic Global. from Skibitski next question line or from comment comes of Pete

Peter Skibitski

Switching you the back CNG to guess, how I give up Industrial, us was maybe a of China much quarter? can in ballpark Bob,

Bob Weber

a And you volatile given peg to the long I be, was Yes. how So you've difficult significant could enough, it that but thing couldn't quarter. right? that's us one us specific, quarter. give any that's in for extremely followed Pete,

Peter Skibitski

revenue. The that kind language thought maybe was indicate second That that seemed I guys Is slides, be guess, that expecting? because that what Yes. China are guys seasonality? on sequentially you Is could it CNG to of that the down my on you just, of question.

Tom Gendron

down Chinese is New New you the look one, always Well, Year. Year Chinese at slows production. the always have And to

production. working our slows You kind down of holiday less season, days look at as it

in spread, pricing bit in a have place quite So do or the down. now dropped good depending Gas in moving that. variation volatility you definitely right diesel calendar It's coming see there direction. oil first a was We is in gas quarter, that. and has the some and on

We you effect going to on regulations regulations up forward. diesel higher also engines in but have market, to coming see where into expect going the gas. use favorable in emissions still gas-powered regulations The some forward to VI positives July, is, just China goes volatility compliance And trucks. is see going positives there of that natural that's natural we're

market, some little the in going, have in direction. be variability some but see just we normal due seasonality always but the right that a trends are to to cautious, So positives and we

Peter Skibitski

It time. front in June Tom, -- are buy some ahead buy like another last had you VI? in ahead like expecting like quarter China of you the seems

Tom Gendron

of things there's a that different that's to buy restrictions bit were large aheads. one to come won't But in. going the There in into that little are various VI some cities trucks allow non-China is some place go

be maybe might ahead, I there'll it some in be limited -- past. than So think but buy the more

Operator

the question Our line of from comment comes Konrad Jefferies. next or from Greg

Greg Konrad

Just some sequential mean widebody the on improvement Aerospace, follow-up destocking what on mentioned widebody bodies, on on given you commentary to narrow seeing you cuts some side? some rate further commercial and but are around the side I

Tom Gendron

rate yes, a Well, would widebody, that definitely on inventory we think cuts we from have and occurred. Woodward has say -- seen the the destocking the impact I

narrow the think, that's to but I definitely are anticipate has our down believe rates, a our longer plans we that, into the going rates do So OEMs working on are occurred, yes. production but bodies amount And low. fair recover. we on activity, our to We're take built than and wide bodies with those

Greg Konrad

at a do kind pretty despite and the of some in market how XX% you decremental over mean, quarter. I are improvements the with when does little takeout, the some incremental this held least, mean, just productivity of has about -- mix then constant, cost maybe the how turn, margins? in you aftermarket, I been given And Aerospace bit thinking unfavorable

Tom Gendron

we capacity We and one will rates. highlighting -- looking facilitized you're handle be have The Yes. to. were the to forward higher have some much thing is

had forward. operating So an effect as that's us be below to capacity on we move

say, would Bob, I in to jump may thing, want First you comment, and too.

add as volume good, have anything in see We to know, XX% Bob, that the decremental end I to to that? would the is margins up. we expect actually the don't we drops. the significant With you Aerospace have and given reverse other ramp on fairly

Bob Weber

of Early going on, really know still pandemic started, we when it's don't higher. pan know it didn't out XX%. the but much be We I out, Yes. would all and to how threw thought

that -- a we've would reasons employed. got think we as that's I the the a up hope that cost a to to get capacity of get have but being capital and it lot of we not that capacity blunted ways of we And got that speaks lot because said, a out of So first, to took so very We leverage Tom the same on kind some come everybody of downside. actions as right? go available lot a those

forward. get some we once see incrementals nice So should going that we humming,

Operator

Chris next question from line or Our Barrington the comes of comment Howe Research. from

Chris Howe

the up Following of went just some on we questions through.

Industrial one, longer expectations last may the not is spending, far turbine positives how the some as as positives path mentioned this administration will detail relates that some markets? to a perhaps recovery? you're as talk the being gas may at it change about go Aerospace same by segment, pressures pertains it into the perhaps the influenced in seeing rate an economic pandemic, can into the that to your you're of this of industrial for some seeing the segment? the offset Who prolonged on in you but how far And help current growth As this we the insight more infrastructure you the recovery, continuing as thinking as which along there outlook knows the that the Industrial additional accelerating so

Tom Gendron

and aftermarket. market was And in think everybody Sure. demand was books time seeing but the the as We're was fill for of, in. right we're The long to been to out What market that seeing the the we're down, starting that depressed. inventory now order have down starting side, of pulled see really now pipeline. turbomachinery aware it is particularly the on well I a is pent-up

going turbomachinery, We isn't room go the more just So There that to happening. don't we rest down. -- really and think really head compressor really any that that see steam in to market of it only up. turbines we're gas the turbine

up, the enhanced filling we of as that move are all So going part book pointing we that and through the forward. year, we in business order in sales indicators see our will have

So RFQ we starting globally. orders activity picking The are flow. things in is that highlighted are moving the up, to that's right that's why all direction. The and

on pretty upturn. feel that's that we confident the So

commend other think There's trips as commercial pick able the they've the will airlines how was And think maintenance. the aircraft and flying business lot aircraft to happened demand travel little huge go managed we heavier utilization vaccines how the up we this the when first-leisure needed on keep there's the saw over been get more we're as more, going will that I And heading a -- question lot service, aerospace markets, and during that they the job on done they've utilization for pandemic I of and also of a to I off -- balance for a huge holidays. and but see travel. soon safe up. a into believe people what they've pent-up to probably the and to get out a

and way. that of a It's going that's to beginning to that come matter So picking indications is just timing, up. our see we're

the a followed aftermarket rate bodies, on as take recovery see talking international some narrowbody distributed neo more will wide and you're think start and get obviously that we'll the some players follow-up travel the I to and for by up people but vaccines confidence, that little more production the commercial as maybe the little will seeing are then So going a the get about that ramp-ups long then longer. and recovery and with MAX, hopefully, rapid

Operator

Michael Our Truist next Securities. comes or question from comment the of Ciarmoli from line

Michael Ciarmoli

little Bob, I you Tom color the if is to what and but margins of -- know expect. us Industrial a this Maybe of on or don't gave kind bit

then there's Aerospace, I like a the assuming a seems had thinking guided at the sequential segment and issue about recovery sequential Looking weapons it being about, OEM, the it's talked a in little aftermarket below here, guess, that OEM mix big of improvement. with margins you kind bit there of And that you down. decline. I'm

that I can uplift is us think Should could an this are this about level squishy aftermarket stay here more margin get and in margins pretty quarter give does historically just margins. anything you've good OEM, think in aerospace? said bit the those we pressure or on a you if you trajectory that maybe put XX.X%

Tom Gendron

Yes. and anticipate commercial lot I What is it on we of is recover. aftermarket a based would to say recovery,

ramping We to in margins remainder volumes are the military the and for through and up. travel recovery but would those we that guess I as OE just confident we have highly will recover place, margins if XX-plus look to the aftermarket fiscal to you'll do that higher throughout year. the of outlook will the I'm also aero backup anticipate say may as sales little our in the segment activity expect takes the in going picks be That that And year take I aero. year, aftermarket the get year. at full fiscal That improve percent a to see us and the help into year mix. we going numbers, 'XX fiscal And

on market, but quarter it still OE. was tough There's higher definitely do this want always to address we in is that out doubt, no mix say quarter the aftermarket the during in -- was to the I volume. uncertainty the So our carries your volatility, question. the margin got Aerospace there's model and

enhancing will margins. without pressure you if aftermarket higher your see you get OE increasing, so -- on some And

segment forward a through direction the is we see Aerospace everything the right the has but fiscal going in that that -- for true our moving going So and year. business point

Michael Ciarmoli

Got are of a you come -- us in versus I give imagine absorption? even facility? right at can where Rock it. that, maybe as aftermarket, you lines they're because utilization I terms mean, us Cut current of on a you some back Can give just now? sense I can would talk, Tom, Cut your get maybe is mean, of on, you maybe those you sense of Rock some better where though OE capacity dilutive

Tom Gendron

we're would probably upswing. of the Cut There's Rock no is leverage capacity. say on going to operating see Yes. I real doubt XX%

continuous through And downturn, all lines, capacity. improving We're including velocity. to of activity. we're take so Kaizen a we investments our away this recover, facilities, one And Cut, And improving that's been recover, been when lines. do lot production a preparation improvement have of the everybody working that have That the lot made. with -- help so is doing capital. improve going during of it's already we we've productivity been the at production a all those So lines improving should thing markets Rock will those that

at we going haven't of been out sitting it production stronger. of lines. to come this our So we're just hey, saying, been going improve pandemic. looking during We've all We're this to

got We good recover. We've and or have when the in there, the have investment recover leverage they going as high on to that volumes we're capacity.

Michael Ciarmoli

Got it.

last one me. for -- on Just

Just like on up capital. looks bit. inventory working little is the a It

we headwind being about of a and going had planning bit rates a Do should obviously. and for cash quarter, inventory to to great think is be that for ready You a But cash? recovery OEM maybe and flow free ticking aftermarket? investment how inventory think maybe higher specifically you that

Bob Weber

in and we've True we've It from about operational improvements all the be normally of work that talked as we been doing time North would so back, on. kind but enhancements come and time to

the confident we're are be that So normally offset pattern. able to what to going would be fairly we

continue go about to anticipate inventories levels base base increase that much So hopefully, inventories -- bring feeling see some overall Clearly, won't our the counter inventory that so we'll improve, working throughout down down, we movement as of have year. hopefully, needs significant making as progress receivables bring the we're we still a natural. cope recover. But have as to we things terms would we sales. in with be will and increasing better to of be capital brought to the But we down the headwind we're we'll and forward, and

Operator

Instructions]. [Operator

or next comment Our line question comes the David from Strauss of from Barclays.

David Strauss

you M&A the terms readjusted what continue And going into cash, to going In do you excess market? to cash back -- or I get you've with at point? the use how delever use of that dividend about repo just now you pipeline to are the thinking would you're your guess, expect to are this to

Bob Weber

Tom. ahead, go sorry, -- Yes Yes.

Tom Gendron

Bob. Go Bob. ahead, ahead, Go

Bob Weber

Yes.

we You to one, back pre-COVID dividend the saw, level. got our

to step Step that number going X. is along of lines of the was So more probably X growth. be kind number

to We opportunities of organic have plenty in. invest

while into watch inorganic we'll and invest to is really and have always where don't said we plans forward. believe and normally to they as market we're get for we'll we on. back lot are have so that opportunities repo But going share good of the market, the price a repo to kind we've arise. this investment of continue see I opportunities at to point, continue in, The watch We a

news, side, debt of of the debt. paid kind we off short-term our prepayable all the On great

debt entire to XX revolver have long-term a And to so is don't of XX available us for opportunity now fantastic years. And we to the next and out the that debt there's number spread tranches the any a due. of about the years, we're L'Orange almost us, -- time, gave probably and really know, years, acquisition over last XX at

of lot of great debt have runway some lot a sheet due, great will us cash not balance some and we a a in, So strength, with give it opportunities. coming I think

David Strauss

all over the cash expect your is pieces another where conversion free income? terms net of cash Bob, obviously moving this you giving us And would in flow year XXX% and be of to Okay. without earnings,

Bob Weber

believe would. be year do be as We'll yes. as strong quarter out. recover, it but But headwinds XXX%, the every We to if probably was. going mentioned strong this is obviously, was and pans anticipate see that quarter to quarter. north receivables the this I've we related we of will as a I how don't

David Strauss

for quarter guidance, past, you sequentially quarter. for expect but Would expect the you've be you Okay. an year QX to talked more in to of up And then aren't standpoint I kind know the about full flattish next giving EPS from last guys me. the range? sequential what in one or an

Bob Weber

of the first part were the was think part. I not giving We right comment guidance. your

get hard is sorts them got very vaccines. the We Tom can't agree I -- it's all yes, to next minute, with one The great everything comment on out. made. So of minute, looking problems. we

will about impact -- a But what and going passenger quickly, was think earlier an might of traffic and think so that have. amount forth and pandemic I that the what the again. question pent-up really that there's prolonging tremendous of that demand when I get how

see going quarter. So I less able in early it's think remainder what's to to the to than year, be the next much just too happen of

Operator

Poponak comment line Goldman or next the Noah from question Our comes of from Sachs.

Noah Poponak

you I on environment, the the the your unique. occurs, is following there a of for for and a there's $XXX walk and last is really of when along end segment and but to the at Does it helpful your of Aerospace decide that time the kind all recovery environment? the But at walk, even is that through sequential, can revenues, to has of its very reasons. the in unique the unique question it's market the something years, if X then million. bottom hold for literally to lot variety 'XX, window David's just Actually, If years several is we to close in the of of sort if kind the no change where year-over-year year Yes. sequential XQ where envision out sort Aerospace looking There's at XX seasonality. this fiscal really look look bottom at seasonality everything or then given look the segment very XQ all

Tom Gendron

type would we working we'd that's and of of just see into still days working play seasonality It’d activity those amount But our be the year all and there. is seasonality. in that our to magnitude year it. think still of that of quarter, calendar versus due with just fiscal on I the first some customers out say

Noah Poponak

Okay.

get had, you towards insignificantly rate alone off an sort the the be that on that of actual not market end would pickup of that? move $XXX and going of has just the you're segment low to year, end run then that on So the seasonality of if million top

Tom Gendron

would And visit we we're I monitor improvement. part, We're activity, we that very as our correct. we daily. things during on We we to very the crisis see paid quick definitely The react And off, everything seasonality. picking we watch up, that's conservative think I tougher say outlooks. closely. and is, of those shop the see will order will we're and yes, cautious our OE that. a as will the on we but sequential the second see up. second that a volatility But pick volumes dip volumes outlook, about pick move aftermarket our we the up, year through That's fiscal see quarterly outside dip, happening. outlook But and activity,

Noah Poponak

year-over-year that do with positive business, to end the expect Defense year? up you for growth rate Okay. a

Tom Gendron

flat Yes. year-over-year. up We up should -- be think slightly it slightly

Noah Poponak

bit you to a recent of and indicators about the leading in there. a some oil we leading where the the lag referring in In and improvement of from noted -- those business? revenues gas your you're the Okay. that think little business, time What's should indicators

Tom Gendron

Yes.

are and The and seeing monitor service. rigs we how we're first thing, meaning count rig -- in many

activity starting the with Looking at of -- activity. drilling the the

at looking that we're with their lot you starting to analogous to as equipment at. was look what could equipment the a of market, service, and parked, equipment, is, in aerospace commercial Second, customers happened say to it's plan return very to they're mothballed

ordering to quotes, some And some so aftermarket see happen. starting to parts starting for meaning request we're activity

potential those that in markets customers us OEM are they're big to Our and talking seeing increases. about

And those continue it's the we year. a should to seeing of $XX half see it's in some $XXs positive -- a the things the in barrel move if but signs, So start not all second firmed pickup up we oil track. range, we have we are to but fiscal yet, our

Noah Poponak

most first is you the in did that's the quarter, sort quarter end to that's me. cash just markets. yet remaining given of exactly fair just But X kept And of quarter as last not the year-over-year, questioning 'XX quite try for fair. impacted of That's on one isn't I'll -- follow-up the Okay. the March that line quarters year for If the March the by one maybe because of well. flat free then what helpful. I just just maybe

guess, year you I So would flow very items cash free a the I or the savings have that, I be this above and free the doing if you what here? enough growth pull be that is quarter attacked up first XX% did cash that in year normally there double-digit forward the mean you'd beyond plus. significant have flow for cash could in

Bob Weber

Yes.

normally there -- the would last totally I the a way for It's of year and kind seasonality half think the normal right? the year see that from was is a of else. way no kind halves, out The second half started us. first different from and error normal you is of X was in fiscal tale then kind anything perspective of what

in very were the fourth quarter, part, latter particular, the not So normal.

of be know year, of would the going recovering don't this strong. tale I it's think to way, that in second halves but the to terms it So in going other the in I'd that like X half, be

said kind give take think giving and that come up could approach to you number don't an I we're guidance, give you So not with going outlook reasonable and a that. that a to specific it's outside of of and hard number, we on

Noah Poponak

-- outside I there's and capital the -- recovering? sounds headwinds, doing you I point, that if that in business cash end of you're end was thinking working market abnormalities like the wouldn't last guess half the guess, you what is I things market then but have on year major you're it Bob, had second of have your source of segments are

Bob Weber

cash. working was were Because sales Yes. flowing was down, -- it capital but

Noah Poponak

Right.

is recovering So not the happening?

Bob Weber

Exactly. but... Not same extent, the to

Operator

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

Tom Gendron

Well, us Okay. to the the I'd been has year, year last like quite It's joining coaster. today. been -- roller thank for the everybody quite

membership look and improving pandemic, start I seeing think of that going of to has on managed if feel quite results well. we back we And moving downturn you. it, Woodward couple we're to look quarters We this the crisis to we're coming our forward. the reporting forward the to managed forward out and home has next

We to to talking for to again everyone. us. thanks night So you quarter. over forward joining look the Good

Operator

concludes our today. and gentlemen, call conference this Ladies

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

Woodward (WWD) 2 Feb 212021 Q1 Earnings call transcript