Woodward (WWD) 4 May 212021 Q2 Earnings call transcript

Company Profile

Participants

Don Guzzardo	Vice President-Investor Relations and Treasurer
Tom Gendron	Chairman and Chief Executive Officer
Bob Weber	Vice Chairman and Chief Financial Officer
Robert Spingarn	Credit Suisse
Sheila Kahyaoglu	Jefferies
Gautam Khanna	Cowen
Pete Skibitski	Alembic Global
Christopher Glynn	Oppenheimer
Chris Howe	Barrington Research
David Strauss	Barclays
Noah Poponak	Goldman Sachs
Pete Osterland	Truist Securities
Christopher Glynn	Oppenheimer

Call transcript

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Operator

Thank you for standing by. Welcome to the Woodward, Inc.

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

Don Guzzardo

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

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

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

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

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

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

quarter million sales were $XX share, $XXX X% per net second million share. or were and of the when or net per quarter $X.XX net and adjusted of earnings were earnings XXXX. compared Net For the same $X.XX respectively, by and XX% to up first activities earnings the operating Net cash year. first to $XXX million. compared Free prior for the the free provided for half flow and were XXXX flow cash of the XXXX both half cash million period was $XX first million $XXX of of for XXXX, adjusted

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

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

Tom Gendron

and everyone. Don, you, afternoon, good Thank

and overall quarter year XXXX for for of first improve have our quarter of The flow, to improved improve financial our fiscal we second results remainder into the strong crisis, continue and and believe will The this enable we drive showed aggressive investments and our XXXX. markets liquidity unprecedented actions cash opportunity address to taken year ongoing from to position, continue the growth.

gained to vaccinations respect economic the the with pace COVID-XX drive to While uncertainty recovery. increases persist globe, in cases continuing momentum of across

sustained improvement resulting the to to continues sequential our continues feel traffic prior from passenger of Moving the see the it aerospace commercial from to depression markets. Aerospace to encouraging pandemic impact The although is again global markets. pressure, quarter.

utilization build are rates passenger traffic, positive return and increasing to indicators, XXX Boeing as aircraft However, we such the to the and service improving MAX. seeing

increase content significant during year. rates which Importantly, and MAX are the the production to of have we expected

see both to moderation year. continued continued OEM the strength with aerospace. commercial Defense activity. guided in strong next expect and have trends these a to spending through with We year the remain impact remainder this by of encouraged in vaccine respect expected We’re roll-up and weapons positive aftermarket

Repair demand to maintenance depleted support of emissions. inventories remain and markets. turbines projects. Aftermarket reduce demand power Global by In to China and a trucks energy to overhaul are resumption production pick recover Turning and market natural new is and industrial other due are activity The freight oil The our to remains up. by Government anticipate challenging. generation postponed in were to regulations to vessels in steady that is for several supporting largely levels, at to signs starting recovery be global shift strong gas truck natural the increased transportation, pricing market favorable and continues driven emissions. pandemic and showing XXXX. gas although The in for historically of projects natural with both beginning countries. increases to initiatives global pricing. to also driven gas we low initiatives marine improve demand renewable, continues emerging gas also improvement gas

fracking recovery. in drive drilling, summary, compression. as natural increase signs and performance economic in delivered beginning financial to are prices However, In oil markets showed investment of and strong gas we global our demand

this will of through as We monitor progress year. closely situation we the to continue half the back

diligent unfolded, reacted uncertain to our cash management. quickly pandemic navigate increase we structure, market focus on excellence the cost operational our and the environment, As reduce prioritize

this We we our share emerging new believe Industrial during the In and won company. crisis is even market in continue Aerospace downturn. addition, we and segments, from stronger unprecedented Woodward an to gain both programs

he than special before period. as turning He our January to as at XX you will Woodward. friendship me wish more I as him have this best. September role for Bob Weber truly have his years over to tremendously I will we XX over, I’m dedication his advisor of the call retire valuable Financial of contributions want the all Officer excited during Patty the interim thank year, intention built grown year his his to Now company next Bob, his an and the Chief has enters partnership XXXX. delivered tenure the leadership, effective shareholders this and phase announced Bob’s in from appreciate Under of serve retire we to we a life. the for exceptional Bob and value and for over and career. and

announced that growth is will leveraging President, forward October also Mark appointed Chief working look extensive Controller experience Mark be Officer in Woodward’s his our We X. who as I with currently Finance new effective in to Senior Corporate and continued Financial Vice role his success. drive and Hartman,

to discuss Now turn the more financials call our to I’ll over detail. in Bob

Bob Weber

the segment were of and increase of of aftermarket pandemic Aerospace result Commercial year the a as down Thank quarter. OEM for you the the and million, commercial to remain weak down from with XX% Tom. very fiscal an $XXX prior sales much, second sales quarter XXXX OEM XX%. XX% aftermarket prior compared

up partially of side, to compared On traffic. compared XX% XX% by were million decline second XX.X% the offset in sequentially, earnings rates segment The was both and offset for commercial lower due were second cost primarily or quarter Defense was down aftermarket of to weapons, passenger aftermarket and of sales segment guided although sales year compared quarter driven and of up the XX.X% higher of strong OEM for year, sales bright by was earnings million increasing activity sales initiatives. in the sales to Defense prior was a the the by XXXX. down backlog XXXX build prior to commercial to lower segment the partially $XXX slightly $XX Aerospace result fixed reduction quarter quarter OEM volume, in wing remain solid. and compared of segment year or of the second quarter, the prior rotorcraft.

the for prior the segment compared Industrial industrial. fiscal were second sales to period. XXXX million $XXX Turning million quarter $XXX in of to

offset the engines The industrial was XX.X% systems reduction compared foreign weak the of or the in segment and in Excluding for ongoing partially of and sales primarily excluding pandemic. current the currency of slight related of cost second increase in were XXXX renewable earnings the primarily sales sales, Industrial to the demand prior of as the and and exchange earnings RPS refer quarter for effects year. segment was natural segment oil million. businesses, $XX The segment which initiatives. to to Industrial gas I positive were quarter $XX sales XXXX result rates, for due strong XX.X% $XXX segment RPS, China in second Industrial of increase quarter million million the or by the of gas power will impacts

segment quarter divestiture in XXXX project same X.X% included period half RPS Industrial and the or X.X% mainly segment expenses RPS non-segment $XX non-segment was to our the year For the excluding same sales result both segment transaction merger the of decrease to were actions prior earnings or Industrial were XXXX, product second $XX of and $XX The segment the Woodward adjusted effective the earnings were XXXX. rate for both to $XX quarterly R&D million level. for earnings, have the $XX Improved compared of for of of expenses $XX XX% SG&A we $XX for adjusted prior expenses a due year. compared compared of was many or of tax which for and million rate of to XX.X% $XX million Non-segment portfolio the last prior taking R&D adjusted quarter, sales XX% quarter of expenses non-segment of of net in year. for $XX was of million for to percent of the been At second of XXXX excluding the second as million million The quarter million optimize for and funding. quarter and expenses to the effective global quarter of XXXX earnings, of the costs. quarter. compared were second period variability million sales. customer year second the million XXXX the for footprint. Industrial XX.X% tax sales first the and also

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

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

our of the end of compared to We X.Xx to the quarter, have at prior leverage X.Xx at second quarter. the reduced EBITDA end the year

the by rollout outlook. significantly to economic caused for across ongoing our passenger viral XXXX COVID-XX countries and recovery. reduced including many new of The continues pandemic, enduring fiscal travel But forecasts. near-term global Lastly, to the optimism driving vaccines is variance turning turbulence cloud

and remainder the believe second of While This improve business uncertain year will we for for withhold markets and questions. we the to on our of Operator, of the into landscape. guidance now as continue ready comments we results are to call we XXXX, navigate many XXXX. to economic our will quarter the concludes the this open

Operator

line Instructions] you. Thank question question. Suisse. Please the Spingarn of Robert from [Operator first your state Your Credit comes from

Robert Spingarn

Good afternoon.

you they're here going the fundamentals margins have hit questions, on Can a wanted improving, good. and you fiscal margins, just been with, you're just mixed of And the have to back start fourth rest the couple tailwind. the you've plus to almost XX% tailwinds I where with to third they're year So or with, I quarter? in but have a of pretty for aerospace

Tom Gendron

it's great Yes, question. a

will The highlighting, online. there aircraft believe we're giving We an we're guidance. more are utilization be tailwind definitely not as brought coming goes aftermarket up. As

guidance in we're So for our longer segments. confident term both

sales to we're we get going improve to the on as to market we're how so profitability. the just lever the Rob, materializes, we growth, So path see and have that into there, get

Robert Spingarn

in sales provisioning us Tom, spare as than or about Bob improves detail aftermarket, versus Okay. we the you the that can other? give if or how think any stronger regular improvement on, the

Tom Gendron

overhaul and into year we side next recover. as Right later it's this on do to see provisioning, provisioning on but we're we move stronger starting than Yes. repair now year, the anticipate

Robert Spingarn

And to Tom, I on Okay. follow then wanted comment. up your

sense comment or a just XX, And could your a recovers, with hoping I ramp you gating on labor? to rates then you're your I specific quickly given demand as I factor, can that throughout get that wanted raise capacitized, more XX. year you current But bit was think through there and our rates. assume at point position XXXX. I the will that of the for how calendar be And the is inventory was beyond XX MAX little it

Tom Gendron

Yes.

to the both on higher the and and rates, you're neo. for that So MAXs the correct sized support we're

come the the the that be capital, rates pandemic as So to. is, support we highest that out the we news Boeing good will equipment Airbus have one of and we going of to anticipate

we So that's forward. good news go as

onboarding new laid very some to of sessions new moving together forward. that support to put we're ramp. up. are We members extensive either onboard to were off bringing are members, ramp But or our help We training our members support innovative the back Others we're members the – furloughed. and ability to confident in some

system, The other and comment depleted. the inventory the was on inventory

combination. a there's So

We on track some inventory see will the in We're of production. increasing. ahead

uncertainty production the rate be production of ahead around There We the lot will a ramp. of rates. still is

those they going saying six, in And achieve. wanted Boeing there's over tracking the to months. with I Airbus be And, to are what but volatility think so rates next some XX we're exactly and

Robert Spingarn

lead normally just Boeing's to end your time And delivery customer? relative to what's Okay. the

Tom Gendron

it's Yes. circumstances, – like, or months. it'd normal be the Normally, in when you're order, four five on

Robert Spingarn

Okay. All right. Appreciate Thanks, Tom. it.

Operator

Your next from is Sheila Kahyaoglu state your Jefferies. question. Please from question

Sheila Kahyaoglu

at Tom because longer for Tom, talk Or short provisioning two. because bit the What's the expectations, a kind this the touched term of but don't AXXX, or your on I term, the sell pandemic what afternoon, upped the maybe bit and does your near aftermarket change you stick think in of little on you, aftermarket. airlines been look it, also you on How term? it? it could aftermarket like? is content, so your and we all? of to you've and MAX Does little historically but the to Bob, again. about longer you do on Good maybe a I'll of Bob, course, one way both sales congratulations maybe know about term

Tom Gendron

the start, first Bob kind Sheila, I in to want – chime maybe Sure. some I'll anytime. lay But of groundwork.

coming guess They're outside bringing retiring service. favorable. the of aircraft if forward, they're As aircraft. back of into demographics knows I the call most we service are aircraft efficient and as look that going the very more in newer look at everybody we it some And goes to the fleet it, older the we back be

terms we the aircraft, more In of on. have content

And starting we're service. in aircraft to utilization that so see to just and being returned

brought going where deliveries Airlines the as that have of aftermarket to term. of content. the tremendous longer new coming in think new revenue is and service. So new narrow start particularly we We the have we're in point aircraft the taking are bodies bodies wide significant

favorable utilization to So And we it. very to as up, that's anticipate start seeing in more maintenance looking go us. rates those going we're

those their products, of as the bodies called of their seeing you're that's think, I pre-neo XX come first visitor aware – we've narrow shop are some MAX what legacy CFM of just X,XXX well some into are and second.

up, So and to start think picking will activity maintenance again, us. favorable we the very

and of all I it's year a cash start XXXX planes XXXX, have start In a good they little it positive. when service. pre-pandemic, of those aircraft we MAX are definitely we preserving in moving provisioning aftermarket more they're picking for our out time But think the out kind starting than of start careful provisioning, of the start for going But expect, to initial as and and of remainder Maybe back of going the the putting it's to initial pandemic, demographics take part look storage, fiscal would they airlines you terms in it's being think mix. up. into our deliveries We pickup more that. service, we're airlines as seeing the the of taking into out about

the of the aftermarket all on improved Our market has over that years. will we're equipment up, signals going is think utilization it us. I to next And be share favorable improved, very

Sheila Kahyaoglu

MAX of – provisioning Just those them any missed I'm this or topic if you as it, what with aftermarket then, provisioning And on staying expect ship you all I overall are is these initial initial mention of for? allotted out kind guess would I sales? already sorry inventory, did an

Tom Gendron

in least No, the the have let's at this not – of phrase most Woodward are for Sheila, provisioned that been MAX equipment. storage, way both part

kind of expect get what we it's up more going start approach and – and as starts very that – I'm a provisioning as been It's So saying, they fiscal up, we taken during recover. that's to pandemic. come. our it's utilization I But the of year we XXXX, think seeing the low

Sheila Kahyaoglu

much. Okay. Thank All you right. very

Operator

Please your from Cowen. is question next question. Your from state Gautam Khanna

Gautam Khanna

congrats so… and I again. we'll guess comp still on though you, get Thank call Yes. another you Bob another

Bob Weber

That's all right. Yes.

Gautam Khanna

right. All

aftermarket, it the pretty you was through far rate in Or Well, could and on curious quarter consistent the was was through terms through I March, Okay, exit if so February, did the better about, growth? what calendar seen it about the second you January, on talk quarter the have – of get good. it April aftermarket?

Tom Gendron

month-over-month, I say seeing, aftermarket we're would Yes, improving. the

utilization, tracking all So we're yes, on the weekly the aircraft. seeing utilization we're

have seeing and starting what's shop to visits increase. content happening, we're We on

month-over-month. with much of service. So that conjunction coming continuing anticipate we it's into And in pretty kind back aircraft

as So as, see steady going the continued see thinking aftermarket to improvement you're we I'm long growth.

Gautam Khanna

the you Could types where about both, it anything it? the across you're actuation? it any the way? skew Okay. it seeing components? Is say either on engine Is Is on product

Tom Gendron

the I'd towards traditionally skewed so are the running. engines that's that engines truly business the that's than higher Gautam, just airframe. the And It's always engines aftermarket say supporting on where engine, has our the

more So engines. aftermarket revenue you time and generate from more

it way. So that is skewed

Gautam Khanna

just our this your broad highest, because mean, stronger or? is, or am at leads is flight I related curious, business just then look to I it it of, I that, – that we is to hours where it imagine kind are of generally sort that there the I us? anything Okay. tracking than And mean, based, is

Tom Gendron

Sure.

most the and the the in hours you're are in U.S. As aware, China.

definitely it. more that's so And driving of

Gautam Khanna

Okay. what that see forward expected the supposed very is is June, at in shop quarter good. lead be? into you pretty visibility terms Or the I it this is kind very, But can calendar time of short point, aftermarket? still second through of mean, to

Tom Gendron

of but the customers We're forecasts anticipating fair the pick and demand provisioning volatility still our And ourselves uncertainty shop of our I but internal visits, going getting there's from for there's like amount We're still seeing planning increasing visits, shop to for that. it, in to volatile. increasing our it's it a And, market. for we're fair doing but continue would planning we're that, say for amount around up and we're is own prepared and still belief is a that. aftermarket,

Gautam Khanna

guys very Thanks much.

Operator

Your next Please question state Skibitski question. is from Global. your from Pete Alembic

Pete Skibitski

the Bob in Don. wanted Yes. where Tom, to think the guys I comps. left lack Good with general stems and back you've half your from, visibility I better because and afternoon, two of up a to tough of sense. in quarters you for year lapped get Maybe expect, consensus the Tom just the for be revenue COVID in year,

not is be the around It's in the of So drove ballpark logic issue around ballpark up margin kind to that an the And to range half back revenue year? because is the a revenue. guidance. where a hard to to of just kind it's that, of that, expect that of it hard reinitiate you you then

Tom Gendron

all – rates still being production achieved. in we're to going OEM even and that be on the are don't rate the the rates, variability the still we're seeing – cautious There's we see still matter

in time definitely indicators And there’s there. there's All down. nail challenging the little it’s are a a really those but aftermarket. to So improvement, to pointing uncertainty uncertainty

the fast the solid, the What of were the get the that with pinpoint on positive, have encouraged And be are but it’s the mix outlook. lot is not but trend those? forecast. margins, and there, you’ve utilization China looks down right issues by is around Will the that Second in all a trying approve hard the There’s planes to with really say, can pointed uncertainty side the how direction the you still thing, we we to the MAX, indicators delivered? factors as pin the on to going but aerospace we’re it’s will very that still then MAX? exact difficult definitely out will wrapped as variability, the

Pete Skibitski

Okay.

do want you something? Bob, Okay. to say

Bob Weber

Yes, were a to add the was and on industrial the pricings focused and we firmed of aerospace a of and the the uncertainty well. only gas kind there. thing on side lot as side, oil up We’ve there’s is, equal little but going had I

gas to variable so call natural China even show they’re industrial side a and to and the is always but L'Orange, of we’re seeing Our on on. well. start market some the – to as signs, marine they’re impactful kind just And very totally that’s

Pete Skibitski

whatnot, there guess maybe global was you actually lot expertise the was second it short-term That about ports and that read hard of to of positive It it articles also marine know, but market, a with and there’s bottlenecks, seems my but ships question. seems, mine, not trade like a these it’s up. negative, a out particular I and picking

clarity there’s flow up? Is done wondering mean, Thank be L’Orange up I could some give picking that’d and kind for great. down there in So, you how the us of you. you has cycle, through visibility marine? order I’m maybe if guys maybe picking just

Tom Gendron

market freight Yes. is One the in increasing particular, is want seeing in marine the carriers. to say in thing you the if you’re utilization

picking are seeing picking carriers that, those. very LNG we’re and by book also strong order the up those And content Woodward, up, cruise it’s traditional utilization order cruise on So, kind encouraged on The programs we’re a we’re up and L’Orange seeing it’s content on picking lot we’ve for and dead the through business. market, of a those. of our through ships, got of lot and particularly been book

be We’re they U.S. cruises here. see that the may in allowing encouraged to

maintenance kicking That’ll some a that up. I think be positive. there’ll July. activities in. think, latest firmed maybe starting was in And We gets be

goes highlighted, picking years out, lead time marine little just long predict, I order hard things a out lead book but see time. are orders they’re market timing, are It’s them So recovering Bob are coming. a mean, couple exact is, the the like overall, order to just books we so, now those up, is the they

the positive that’s and is with trend but right thing the for in most us a stripes, now important So, utilization encouraging. aftermarket it’s and

Pete Skibitski

cruise I pretty a revenue? didn’t I understand ships of Okay. it’s L’Orange’s guess fully good chunk

Tom Gendron

part business. it’s ships you associated of products and and to go the Good dead in go has the in with been a good high-tech the that that there as Yes, aftermarket water. cruise know,

So…

Pete Skibitski

tell me. Yes. problem, No

Tom Gendron

yes, ships, always also the been – all it’s it’s said, say fair. be be like and utilization it be cruise not And ferries, carriers the and We positive. exactly, improving. Would the pandemic, of that recovers just in cargo that then, I that’ll happening the like is

we’re So that And business. drives book. good then the order encouraged by

a track and, hopefully will for it’s year, on year the start the recovery this industrial of next those, second seeing be So our we’re and good segment. in to some good half which

Pete Skibitski

Okay.

just me, for one fiscal we okay talking substantial – XXXX, guided the or last declines weapons ahead. go lower declines, are type XX% comments, Just on

Tom Gendron

as we reduction, DOD No, anticipate, weapons, may or firm, foreign be military are moderation that highlighting. but it’s orders the were sales we not and a military for reduction see foreign the partially in some dramatic but which smart you by sales, offset not

Pete Skibitski

Thanks Okay. very much guys.

Tom Gendron

Yes. Thanks.

Operator

next Glynn is Please Christopher Your question. from Oppenheimer. state from your question

Christopher Glynn

congrats. on Good days couple for everybody. Bob I’ll of Thanks. afternoon, a on hold

Bob Weber

Okay.

Christopher Glynn

than indicators had So across best transportation, on fiscal comments I of half? half to the kind gas, second stronger turbo are think marine a the of and of on of those in of and oil terms kind general first the machinery, framed – just volume directional believe too, us utilization curious, a you little having positive number

Tom Gendron

we industrial, we generally see but quarter some anticipate of traditionally with it, that Yes, do around of fourth the sub segments again uncertainty wrapped in improvements fiscal our definitely as stronger we and into those move quarters. one years, our and then

this that So, either. we see don’t year changing

on things positive but sales. that outlook you quarter, trend. it’s the saw in we’re flat uncertainty year-over-year positive of materialize, if now second kind with they’re So, here the And those on right basically that where a

a we a positive, improvements with wouldn’t that’s but think say during that’s normally pandemic, trend we positive real coming. So

Christopher Glynn

any are investor? like timing recognition, revenue equipment COVID or any for issues and And that there related Okay. to commissioning anything

Tom Gendron

material. say I Nothing that is would

Christopher Glynn

you aftermarket for sequential for aerospace, one nice real me the Okay. had Last on pickup. a

including X number kind flat, a Some others even business maybe – some of the a little were jet, down bellwethers. of of

volatility is – So depict market, kind already the the structural is there in demographic to that is shift reflected? of aspect your that or just a out there being the

Tom Gendron

say, to that’s would of the call Woodward it we’re in. favorable years utilization as analyzing content. you’re think And what the seeing the it’s fleet demographics the fleet I think week definitely every fleet. of and because the I And Yes, I are over back they Longer-term cycles. we when content they’re of that that new you’re all for highlighted next years going materialize we hitting we’ve and aircraft. service think as And in to I seeing on number secured, the the additional these start maintenance start

So, we for a think positive us. that’s

Christopher Glynn

Interesting to Thank there. the you. gate of out see it

Tom Gendron

Yes. Welcome.

Operator

Howe Research. state Your next Please from question question. is from Chris your Barrington

Chris Howe

Thanks my for everyone. afternoon, Good questions. taking

Bob Weber

Hi, Chris.

Tom Gendron

Chris. Hi,

Chris Howe

Hi.

weeds with on the for I hard to just get First talking the these on perspectives this to know it your to VI off, can starting the last quarter. cautionary reasons basis. about into going that. into you perhaps some with effect the China regulations, in right we’ve into business? And outlook But talk the a July, been upside half about expectations on with it once second quarter-to-quarter you there lot limitations a in the there wanted call, the last I know place, regulations for your are general, were going potential mentioned gain in it’s

Tom Gendron

China it pre-buy. regulation, but The what’s The emission call new of effect kind you Yes. VI VI gas in happening in regulations into July. already for have time diesel go effect, typically natural Good we every happens a – China question. are

purchased China seeing diesels right being you’re now. V So,

And having quarter. an so of a that’s second the bit impact, that little it did in here

together has China diesel very and difference look gas price is though, to you the move been engine, the at cost China VI versus gas. the we As natural and forward fuel brought favorable VI closer

reduced is So but truck operating not emissions, costs go only greatly engine, the payback to improved. natural in gas in to

been of you in folks of customers see to was duty We kind have ground market to even the X% in approximately gas might sorry, Traditionally growing a trucks China. expansion. believe it truck, last on just do fleet well our the I’m we percent have talking gas, holding and of in These ballpark. as that order years, which to heavy of over are total for number China, And trucks forecasts some the natural our our we it – the natural share. XX% the gas XX% the the the the all natural share XX% of expect market – on give very or substantial market going forward, is might for to the or market

We have gas performing very, very high China engines. system VI for

so we our will you our that the a longer percentage markets next through over fiscal of term as total natural but expect the and of of more business remainder the couple as for year, improve that increase, go that’s importantly, gas happens. go as the positive years, expansion the So you of

outlook So, volatility China or good, overall and Bob as always in I market. there’s little volatility would say upfront, the is and the

see but longer do we as that, term is trend the very So, well. favorable

Chris Howe

And Okay. one I That’s have follow-up. helpful. very

answered future. perhaps You some the other questions areas of that recover as my on relates it could industrial to in

how ago, outsized which changing be a recover wide discussed a pre-pandemic. What XXXX it beyond aerospace in look aftermarket commercial though three should than should margin been as has basis, margin is first there incremental body, we Perhaps into are as how of daily versus as incremental quarter-to-quarter, as business narrow, about Thanks. we think aerospace? we moved much a we but new we be but normal, where and at could move and seems then term to to to fiscal was see kind lot? year improvement we on stronger would far months a Moving we now could sequential

Bob Weber

way said it the From first the it we’ve are he you but build can should and characterize standpoint, take improving. I’ll rates Tom aftermarket margin jump OEM, in by if come followed the Sure. wants.

to quantify, in and tailwind. So but a XX% we and we it’s had of beyond, not ask between aftermarket a but tailwind. extremely a do margins lot XXXX of into kind very as do will it’s huge will be we shift be OEM, XX%, believe XX%, variables us looking a triangulate a different mixed should at it’s we we overall but it it difficult kind and on believe tailwind. to see segment obviously, ways of of a hard do if it We’ve go been people We’ve analyzing lot believe

Chris Howe

guys. all That’s

Tom Gendron

Could repeat that please? you

Chris Howe

that’s all have. I questions Oh, the

Tom Gendron

you. Thank okay. Oh,

Operator

next Your your David is Strauss from Barclays. from question. state question Please

David Strauss

Good afternoon. Thanks.

Bob Weber

David. Hi,

David Strauss

companies this there OE that would was low well? for there Was think with to stronger MAX and just come issue commercial what starting seen other quarter there that? much you sequential that XX%, we the elsewhere, anything was comparison saw you exactly we being growth drove what So back than really that all, as but seen besides or easy have I any

Bob Weber

Yes.

Just to right? – gave numbers. up down you’re and XX% it we the year-over-year was talking check Well, XX% commercial aftermarket

David Strauss

No, I’m actually talking commercial OE.

Bob Weber

Oh, I’m sorry.

So, year-over-year down XX% that and up XX%. was

David Strauss

yes, I the Yes. XX%. number. mean, got that’s I still, Up

Bob Weber

significant. Pretty

David Strauss

Yes.

significant a lot more see So than we what elsewhere.

Bob Weber

quarter-to-quarter. depends out, that stay lumpy so kind of on And, expect Tom pointed and be we level timing of the and the forth. it’ll of I as on Yes. don’t it timing, and to lot know But all a would so shipments that

David Strauss

Okay.

Tom Gendron

add companies, would as on up, I rates thing other these high share. definitely only is, they’re gained The we the programs to if pick have it’s market Yes. comparing

we may to programs. that heavily not part of that be me, surprising it’s it. versus to in recovery more it’s – maybe overly good weighted have somebody legacy That there so And is

David Strauss

How business related this business you your new jet are and the what on seeing new – equipment equipment commercial of Okay. aftermarket much in, at jet side? is point

Tom Gendron

market We’ve through content, OE are held good new business sales. increasing that’s positive there. for ago. all we or us. indicators Actually know business aircraft jet actually a lot came the a And got And for here the well. And thought out better the pretty many, than we almost I markets a year together many, jets don’t pandemic – sitting is

indicator – now say we used view. one always available earlier the of you the market my a track in is good and the low things the the market. in And is use aircraft to want right markets low newer available is and to If very the used it’s available surprisingly

being activity quite coming right now And forecasted and going forward. we’re OE so up see to and it healthy looks starting some

David Strauss

aftermarket this business How – is How point you jet? aerospace Tom think business, much sorry, commercial of your is, your jet. business at much

Tom Gendron

Probably I know. don’t

general of We we’re little and somewhere the in a bit overall that aviation. XX% but business have breakout, north

David Strauss

with to is about you’re there one I don’t an then for and to Bob, balance And million your guess what the to how there. close cash sheet long. running about balance be I want cash Okay. update thinking $XXX last do on assume in too the you

Bob Weber

out. about back and being And XX% focused most earnings of looking buybacks. also But to opportunities, of there. kind of missiles getting talked a on in them peers always directions, having organic if We’ve a of you both we’re shareholders about and we’ve one policies share is we’re many no. so returned a inorganic process, dividends of importantly, talked Yes, and to an our pre-COVID opportunities at growth. of called was net kind will, just we do growth have And like we lot number funnel our and space

So, is value most brings We we’ve our always that – a that model been believe our growth to mode. shareholders. the

let the won’t up long. we no, pile so, cash for very And

David Strauss

Great. very Thanks much.

Operator

Please Poponak from your Your state next Goldman Noah question Sachs. is from question.

Noah Poponak

congratulations, Hi, the and on good Mark evening everybody and Bob announcement.

Bob Weber

you. Thank

Noah Poponak

slowing rates looked would growth faster just just to holding fiscal and or you equipment had the down? compare original to the same aftermarket, we at the and fourth in that how expect rates aerospace, the quarter aerospace you about quarter directionally, growth sequential If third in

Tom Gendron

I’d going Bob the as not little Well, should earlier I saw, challenging be just a things that hopefully little as see a chime we growth say bit, do more the will but as sides to probably And we stabilize. give quarters, in color market, in But be high pick of highlighting predict is bit as forward. OE to aftermarket, well, rate continuing rate to The be, a we’ll continue in a rates growth anticipate both OEM up. as aftermarket. but able we the little to on of next very increases was and solid we’ll few

Noah Poponak

sure that of high. as which So sequentially speaking talking same was to about you OE, here, David would Tom, or had in are you the the commercial you same the surprisingly rate growth we’re thing expect just saying make just asking was

You’re pick stay you saying or or just that even more that up, the go rates going saying to production to expect same higher. are you’re

for going while. a rate to some growth that’s So healthy have

Tom Gendron

I year is go rate up – to are and second rates I improved we’re I what say quarter. growth Yes, I’ll still going Yes. production over the guess first think, over seeing think the the overall

to I think expect I rate we’re saying yes. improve, that the

Noah Poponak

Interesting.

Okay.

commentary drive the will around With that, you that defense in XXXX, guided to grow? weapons revenue could in total it your down are still be fiscal or fiscal XXXX, anticipating

Tom Gendron

sales. a to defense effect going have It’s flattening on

Noah Poponak

sense. Okay. Makes Yes.

Tom Gendron

Yes.

Noah Poponak

back doesn’t margins, just quarter the if the one quarter up, third there year, second out but back look a years several quarter had down up it it decent quarter strong, in happen seasonality then these on years Is that aerospace stepped over or seasonally down more seasonal steps window then I some last And where the there’s where here years. happens little amount is at fourth any of the the a every XQ the XQ and second strength moment? back back

Tom Gendron

There’s later and and ready holiday a for airlines season, maintenance it’s are summer the sure then little bit of season. for making really seasonality wise

on see that. a little seasonality bit do So, and you of faced

Noah Poponak

a margin the the then zone So yes. of the little about year-over-year, quarter then the it quarter, minute I second incremental ago, down third guess, if aerospace that, imply quarter use margins, in that, and you a of fourth bit I were I type just talking sort the would is maybe of use and and

Tom Gendron

that’s say, when normal I that no, I what again, a would And year. highlighted

Noah Poponak

Okay.

Tom Gendron

service, job hit. you’re getting brilliant With and airlines, pent-up is I’m hard I’m going their think seasonality. to not think year. costs rotating exactly hits managing it believe did there coming. when personally, back the bubble they somebody’s And but it’s aircraft, real, but pandemic, sure could of follow as they they going I maintenance and a not just normal possibly And in did and that’s maintenance to apply it’s as a another assets best I seasonality thing that’s absolutely the and during just sure to is forecast, to That but this that see I

cautious So little a I’d be on just that.

Noah Poponak

Interesting. Okay.

Okay. Thanks so much.

Bob Weber

You’re welcome.

Operator

Osterland is question Securities. next your Truist Please from Your question. from state Pete

Pete Osland

previously margins. sequential again industrial for Hey, a afternoon. you quarters. Ciarmoli. but color you expect Is know be just Pete can the any margins during the start you that Osterland quarter’s over the expect from back next I on provide there showing take called step they and rest trends you’ve the out level, to fiscal good able year, in that is this Mike improvement fiscal should We’ll This of on directionally, how additional couple QX,

Tom Gendron

we’ve definitely of to go structural, kind business, provide in some mean, had side should. of tailwind we’ve taken of but They I actions should Yes. equation. as we’re the we as the going forward always variability have the the the

targets, increase still the we things not sales increases we’re seeing XX% Now the is that targets was plus really side being and XX%, of to needed headwind one to some we said in any sales. get our

think to the enhance optimism we’re and And we and – year get I respect XXXX. are see – the remaining going the quarters the into optimistic to so right able to now the to any really increase buzzword to sales But margins. of need with we be is leverage

we’re see see see seeing than greater we’re start a we’ll we targets to going sales think to today. I don’t much our a think I So, tailwind. until increases

Pete Osland

million like it quarters? what SG&A prior it the was $X just Thanks. on and down us just been next was use million. $XX wondering versus looks R&D has for couple run over down driving Great. And I’m what costs, And about of then that rate quarter to the decline.

Tom Gendron

a between Yes, of things, things that and probably always of pop got in like out the midpoint projects, timing expenses, them. quarters. lot and We’ve that, the of

have both is decline would some variability, sustainable. the in And so say not I that we so

through we the forward the I as think you’ll the X% year. in between go see middle somewhere

X.X% a That’s We’re running for us at usually. about pretty rate. low

think quarter. mostly I it was this So, timing

Pete Osland

Thanks a lot. right. All

Operator

We do Please Christopher a your state have question. follow-up question from from Oppenheimer. Glynn

Christopher Glynn

Thanks. Yes.

spend I’ll purposes. SDA to little but out. as tax a just then to close that. take the comments housekeeping corporate I And your a was on had modeling for So, rate the One answer

Tom Gendron

so. always The be not but forecast haven’t that’s guesstimate try quarter for necessarily prior year, the rate one in a year, in that full good significantly, was the XX.X adjusted to to we % we’ll XX%, above XX% the probably – tax

Christopher Glynn

you. Thank Okay.

Operator

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

Tom Gendron

And thank Thank day. a quarter all well today for release. questions. everybody look and you. of to you our Okay, you third join to to talking Have you good thank we during for us forward your

Operator

gentlemen that call and concludes today. conference Ladies our

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

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