Woodward (WWD) 3 Aug 212021 Q3 Earnings call transcript

Company Profile

Participants

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

Call transcript

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Operator

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

Third Quarter’s 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 Mr. Relations. Don Guzzardo, Dan Investor and and Relations Vice President Provaznik, of Director Investor Treasurer of call would over I to like turn to now Mr. the Guzzardo. Thank you. go sir. Please ahead

Don Guzzardo

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

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

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

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

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

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

free third the or or per $XX cash XXXX, to per same adjusted provided the share. million months first first Free period compared for nine net $X.XX $XX and share the both year. of earnings million. net XXXX prior were million of nine of were adjusted earnings for of For for $XXX $X.XX cash was million activities by XXXX, months the $XXX quarter cash flow million Net the flow $XXX operating and were

adjusted XXXX $XXX the For flow cash $XXX million. first months was nine million was and free cash of free flow

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

Tom Gendron

quarter deliver the everyone. we to pleased improved Thank third of the were good performance, In you, significantly and afternoon, year compared period. to Don, XXXX, prior

future progressed path variant anticipate economic to uncertainty. variants of the supply do volatility chains unpredictable COVID global markets our pace to continue. and As on all improvement, ongoing pandemic-related The of the regional disruption, of impact recovery, contributed we

we to dynamics. will favorable significant markets XXXX in continue related We growth to believe our and fleet share and will our levels gains pre-pandemic market return to see

parked returning traffic increases. markets, recover to passenger domestic airlines and continues international continue weak. commercial remains as began build is while reactivate our to levels, aerospace near Moving rates decline pre-COVID to to aircrafts to U.S. fleets, travel

overall In being defense, now aftermarket higher markets sales which utilized fleet remain to growth. commercial Woodward believe the Importantly, content favorable. lead will significantly we strong has

and upgrade programs. demand solid However, guided aircraft as anticipated, aftermarket the weapons is through their softening. remains for Defense activity utilization

activity continues continuing turbines demand to power for Backup levels predominantly we the short-term diesel of regulations, market. Transportation, V to to of natural truck XXXX, runs China’s gas datacenters plants. replacement anticipated by in remains growth be increase demand Asia, demand XX% XXXX. in China back the strong. for as driven the to drove quarter emission gas volume In in market the come natural Turning pre-COVID Aftermarket is implementation power through which to in and trucks. anticipated strong gas significantly our as and with beginning improvement increasing for VI trucks China truck approximately diesel a expect in is The of generation, markets, coal-powered result total industrial softened it of further

aftermarket markets’ quarter demand seen improved ship seeing gas crude summary, have continue. to The expect we in the improvements year-over-year In have market which as marine our quarter. utilization volatilities improving delivered markets a prices solid activity. drive global do we increased. and leading we has oil indicators However, The energy lows, will are from pandemic-related and

and continued leveraging of by regional results supply of the pace fluctuations. recovery in global global disruptions, our impacts and market being are to However, cash robust has COVID-related generate we to steadfast by our capital, economic financial allowing contributed flow chain continue developing remain been our practice performance, products impacted cleaner global to pandemic, prior to It which our of growth designed We emissions enhance and in meaningfully have operational reliability opportunities. environment. structure investing efficiency, innovative us optimizing commitments working in fuel

and these fuel As aerospace and in cleaner demand to in global efficiency for our continue opportunities energy, accelerates, greater invest will both segments. industrial renewable we

phase in unrivaled at life. sixteen an that, his the Financial Bob Bob years to contributions to final call and for counselor, Woodward friend the I of his Officer, time truly reigns for his to more Over earnings over we one partner Chief his tremendous as the team. of like giving would him was for Before and thank his all wish next he Woodward best luck

joined our call Hartman. I over by turn Mark Bob now next the look I’ll to call, During forward being to

Bob Weber

good much Mark hands. in my company will your Thank and senior know CFO you, entire I am leaving leadership with remarks together be Tom. and you, Woodward. kind I appreciate the I very an with time I team, the excellent enjoyed and

$XXX compared chain our of result the Turning negatively were increased $XX approximately the our XXXX in net predominantly Sales quarter aerospace financial impacting million Woodward constraints of quarter. sales prior global year quarter, this to third supply million, $XXX a by business. results as for to impacted to million,

in sales both OEM strong recovery XXXX percent prior sales compared and sales. at segment will passenger strong as quarter But rates aftermarket time. respectively, were compared segment Both were as and second for and XX% second third down the to year quarter. down The domestic defense the anticipate OEM aftermarket the XX.X% of our and Commercial earnings traffic. a The sales are defense that a sales providing in quarter to commercial were commercial XX% third for sequential guided guidance OEM we Sequentially, prior not strong. commercial and OEM or were sales XX.X% continue driven in remains Although more million, $XX X%, to the were were decline a beyond was by up increase more these year detailed sales, quarter. of the quarter we quarter. segment of impacted sales segment of to period. $XX of to million variability. and JDM. due sales aftermarket XXXX, segment quarterly were XXXX up defense by million of and in largely fourth quarter. primarily constraints. Defense weapons to in build normal were XX% due Aerospace of OEM. OEM an plans were up in segment higher $XXX Aerospace sales declines specifically or increasing place, third this to issues The both defense of XXXX. are primarily quarter Sequentially, year result aftermarket down Defense and sequential increase fiscal supply do in by both were backlog decrease compared the primarily supply were from the in and We X%, a compared constraints earnings volume, sales anticipate fiscal the defense sales chain was earnings XX% predominantly X% decline prior as volume the for order compared the XX%, down sales negatively aftermarket chain X% quarterly OEM significant

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

third of quarter of and the expenses prior of sales, quarter. third the or of systems I was sales for truck Non-segment period SG&A X.X% earnings to effective for million. quarter excluding or third for XXXX million XX.X% XXXX, was consistent the RPS gas diesel million million, RPS, the rate effective quarter million were expenses the natural due XX.X% R&D was gas respectively with expenses for segment to the favorable anticipated. industrial quarter Industrial last $XX and $XX X.X% for impact by of expenses were supply impacted the non-segment natural XXXX. partially million the China level, refer the renewable primarily more year year for $XX compared will were both million of third XXXX than segment compared adjusted of of and third Industrial adjusted third Excluding engine rate both $XX adjusted million $XXX to for The softness chain $XX power the as pre-buy year rates, V year. $XX The and compared to quarter which the businesses, sales the constraints. or global million prior XXXX which quarter of SG&A same of the adjusted At related of Woodward non-segment the sales, currency The negatively in and non-segment for increase in were tax million foreign sales, prior quarter. XXXX to for of engines and quarter. we China segment $XX and sales tax offset were $XX $XX

XXXX, Capital to quarter For $XXX provided primarily and million, tax related cash the flow million capital were first expenditures cash prior nine XX.X% earnings. was was and operating free net flow for period. the was $XXX for months effective effective adjusted $XX rate cash year activities of for Looking the million free of first capital million to period. cash million $XXX net of of Free the XXXX at working effective first nine cash adjusted fiscal to prior XXXX free cash the tax $XXX by year third offset rate adjusted management for months lower the of to were period, $XXX of both for the for $XX adjusted The year months flow free and the nine by the cash flows, million compared expenditures, lower increase prior compared compared free flow flow and XX.X% partially cash XXXX, flow in million, was and

Lastly, turning to our fiscal XXXX outlook.

COVID Accordingly, to results free chain expect third respect the fourth flow expected sales, on at regional of and to variants, open XXXX. our of to detailed volatility, quarter, continue. questions. we the providing the disruptions, supply quarter all third ready the and for this cash are global time. remains earnings, market considerable for and While uncertainty more than higher business comments the are quarter guidance be to which to we we with results now are call Operator, concludes not This

Operator

Gautam [Operator Instructions] comes question first with from Khanna Our Cowen.

Gautam Khanna

Hey are guys. How you?

Tom Gendron

you How Good. doing? are

Gautam Khanna

congrats, of Good. Good. best and Bob, luck. And

Bob Weber

Thank you very much.

Gautam Khanna

between this any other Hey, actuation initial and or competitive business? transaction Woodward I announced the part if the what to wanted implications your wondered And is any to Meggitt. view I ask, of there of was the business Parker-Hannifin

Bob Weber

as Gautam, yes… our comments,

Tom Gendron

really in the acquisition landscape. of Meggitt by Parker changing Gautam, anything see competitive I the don’t

a is a but Parker have minor. overlapping We strong company. few areas, it's

in are in So at of don't enhance will I I competitiveness, impact they Woodward sure it Meggitt. all. am help think terms But

Gautam Khanna

Okay. mind where the are am elaborating? overlaps wouldn't you there - curious, I is if

Tom Gendron

some really space significant their well. a area turbine is minor and little amount view overlaps. is little management thermal But bit on on But gas think industrial little sensors there's as There it's the Meggitt. about bit you Yes, side, some at Parker, a thermal business have some valves and a a the the in believe. air we is little There them With there Meggitt bit are management. there is bit don't we really I as I competitor. on asking minor a and in

Gautam Khanna

sorry, And Okay. go stepping ahead, Bob. back, maybe just just

Bob Weber

didn't No, I say anything.

Gautam Khanna

Where bigger some of might us and if I I portfolio sort the And I going company Hexcel what just - what different with in were change? think? How just wondering years. sorry. are am strategy M&A be you forward? a how the going how - am get in contemplating and you that give to at? Woodward your et what view just could you. - M&A transaction year to five ask, direction might hoping the evolve are might terms ago may looking was Woodward you How cetera? What in back of as stepping is of the you we on part Thank

Tom Gendron

our you when first, Well, balance Yes. look alike. sheet at and

can I think you we of that all are strong. see

- a still have sheet. strong balance We are we

flow. We are doing really well on cash

We however in why prepared are still the said pandemic that's we the and recovered. remarks, in we

in Our estimate of will sales is XXXX. we XXXX level recover to

For the belief and timeframe. the continue people's invest in health market is we most company Aerospace ensuring and ensuring that that's think to really the the We, pandemic balance I flow strong cash that's on during been strong the future focused have of sheet. have and the

highly a position. position confident in are financial feel of We our where now we

been great bolt-on with track for of what the what into we think going going acquisitions are see forward. and is, go back tie company, the help in to you that are strategy. look way a company and was that fill proven success the that's is I I and our we've that's going to at had good to system record it have think I direction the

Gautam Khanna

Thanks, guys.

Bob Weber

you. Thank

Tom Gendron

Welcome.

Operator

next the with Skibitski question from line of is Alembic And the Pete Global.

Pete Skibitski

Yes, Tom, Bob, good best and afternoon, luck. Don. of And and Bob,

Bob Weber

Thank you.

Pete Skibitski

on kind the of just that specifically? more million that going was give of was on guess, you all what's split color some between I defense I there the within $XX could commercial? split more kind you chain you quantified impact it wondering there. said it supply issues, remember give us color aerospace am and or little and I us And a could you if aerospace on was

Tom Gendron

on did both Sure. predominantly disruptions see and we But was aerospace. sides. shortages It

are is – all we’ve there the the and read slowdowns related shortages that all from. electronics least that's But shutdowns We've at to got of we to probably or predominant and other about seeing COVID variety area come You’ve a issues. related things. plant

to been getting running with announced here. do continue to have we're of shortages respect We plans a and alleviate for the there it's believe and have that supply to our the forward. issues, variety We respect things close seeing impact while very stay back I So, a up just things going that chain. to think They with them. But us going to

Pete Skibitski

of you in quarter? Would expect the similar headwind fourth a Okay. a kind negative

Tom Gendron

like this to say hard have I time, Too they at said, plans.

We have ramps.

and locking say too cetera, of improvement. cetera, everything very, the all in anticipation down, time. and talks it's very et with have to this We But particular - on hard about going as say with things delta to at et everything hard

Pete Skibitski

Okay.

we down you me on the Okay. weapons. and or, guided the I say aftermarket for the XX$ some maybe of in down third that? it defense was that you XXXX. how guess, you or Are and think do And aftermarket? said, say last you Did one to quantify significantly could in color going both much be talking or kind within all it quarter was more fiscal I on plus OE

Tom Gendron

Sure.

guided on aftermarket much not So, weapons.

So it's defense all in. It’s OEM.

But angle. around so JDAM. a the - - than humor and more little is there that Just overall

inside mix that. So, a of there is

well. as M&X and bomb diameter small have We

quarter, So for flat the to slightly down.

and we kind because XXXX hard anticipate out there quarters, had will significant do of called though some this at It's forward decline. in go quantify be time, in last very we've couple we've we this of to a shortages. as As that said, point partially we've

Some is pushed or pulled of excuse that getting into me XXXX.

not exact a hard to at sizable. will So an time amount this it do. be be But will insignificant. is very It giving

Pete Skibitski

Okay.

the color. Okay. Thanks for

Tom Gendron

Sure.

Operator

from Oppenheimer. Glynn line the is with question And next your of Christopher

Christopher Glynn

Thanks. Good afternoon..

Tom Gendron

Good afternoon.

Christopher Glynn

over And for the working years. Bob, us thanks with Appreciate that.

Bob Weber

you. Thank

Christopher Glynn

just what good. the now? marine curious I degree at degree So, am just seems and you revenues the hitting aftermarket are mean, IGT the Is what - the I aftermarkets formula I road seeing curious there? back about them very was come the marine there –

Tom Gendron

customers and utilization and to our rates ramp so like is order the on things to improving. The Yes.

not that so yet and We in on. are we have future sales. seen But between order discussions

both We of a lot areas. more seeing are optimism in XXXX for those

I improving. - example think customers, the were order out the for from saw some that came you volumes IGTs announcements our in saying of

of our timing matter just terms pull-through that's the so, of And a side. in on

on XXXX. are for yet. amount bullish Not a we it seeing So, tremendous

Christopher Glynn

relay Okay. And industrial in or interesting is like anything there anything to book-to-bill that? of terms

Tom Gendron

us the the definitely publicly a China of seeing. of formal for because side use, improving or we book-to-bill areas, of that terms the that necessarily But of we not It lot on improving in that the natural significant number pull equation gas We because we are isn't that was is element some on activity track that it's this a quarter. in clearly industrial Orders mentioned impact helpful. the are most

Christopher Glynn

that But think do half. tough saw might you already the cadence sort that anticipate growth this you feel I to gas secular you to in think at what of when at returning override maybe first of comps And just they China you growth? natural that engines curious juncture?

Tom Gendron

challenging, somewhat think of to Yeah. will the think quarter. buy. going it's We extend oversized V that the fourth We into because be China

we - As it's diesel, we of we been do in clean and the gas China continue to that of considered that natural a long-term has a is secularity natural terms that that vis-à-vis gas in EV mentioned, improving of in fuel the do believe believe so to size longer and likes. truck term similar market,

Christopher Glynn

Okay. Thank you..

Tom Gendron

Yes.

Operator

question of from Wells line Akers Fargo. the Matt next Your with is

Matt Akers

I Yes. guys. questions. Good afternoon. two Hi have

Tom Gendron

Hey, Matt.

Matt Akers

the A-XXX to other and what would above about like - up required any we kind about to were or those investment Can to kind rates. of soft is I get rates there –still it's to thinking you Airbus capacity use we of get you bringing talk there? talking about know have be talk Neo if

Bob Weber

Yes. No.

of the and XXXX capacities. those COVID invested and years for the narrow XX at we XXX into both the bodies know, a plus guys you so towards went of As environment kind on. the in We around lot plus timeframe some

significant have available. we capacity So,

with they time point shortages. either time. can't in ramp in known no we in start that. associated with this But respect We the to up. of Obviously, at of up electronic are capacity Probably develop issues chain to concerning of cases supply aware bodies this constraints the most as any directly the some is narrow not at and plenty ramping

Matt Akers

winter? they aerospace then, ramp. forward bit kind a demand summer the or on could that unusual of ahead guess, little I There another going that saw, just supplier seeing kind of kind of a the And in fall of any we is kind the pull in the Okay. a that like commented aftermarket. Are indications how and maybe on into trend seasonality of you of

Tom Gendron

or It's terms of parts issue kind know when flow we specifically pull-forward so about and anything. Yes, a arrive never in of forth.

So, look we aircraft when do did second are had flying of more that lot aircrafts the we've And the content. and will back the content. the clearly at you much We history, that was to see a were sell as strong have continue it a quarter that Woodward that less said quarter. parked

forward, going probably believe have do kind of we It's little mentioned of as saw and increasing aftermarket. on most that improvement drop a So - volatility domestic what traffic of We of continue China volatility that see recently. kind think impact terms we've but quarterly kind bit. will we traffic will we in systemic a that just been down we

Matt Akers

Thank Great. Okay. you.

Operator

Your Strauss the line is with Barclays. next of from David question

David Strauss

Thanks. enjoy retirement. Congrats your Bob,

Bob Weber

Thank you, David.

David Strauss

structural side. you you've headcount do you an started perspective from where cost And this to on ask period? terms down guys maybe then, you of update to how think so, just wanted a much much? take And through how Just if Have the hire back? in on are aerospace

Tom Gendron

we've terms equation. folks the we direct have significant obviously bringing been in so don't for in side. indirect But I number of the side the is it much to exact Not have begun labor Yes, folks predominantly, you. that bring an the of back Sure. on back.

to kind the related So, savings. cost of

back get from to to beginning the standpoint back supervisors, that will are us bring et cause and shift ramp our indirect cetera. cetera, form of labor We up et

So, seeing. are we

continue part was? have going and I the of to We are question and we'll am forward. seeing that second your seen increases anticipate there And sorry, see

David Strauss

you’ve cost you How savings? think of terms do down much taken in structural

Tom Gendron

We will $XXX inflationary also you about out many of be April be first million total will pressures. approximately called believe that of in some in as we last through we many $XX we there year. continuing. million believe have that back that in But of went seen when of So announcements,

forward terms seen took, will some be some and then, And that systemic on director, be the remain the elimination back, the it will savings where whether end be go savings. the So in back took of as some of we annual to XXXX. coming of up total we'll cost into bonus, we of saw of cost officer those the you as in actions we

David Strauss

Bob, last you. for And one Okay.

cash on reasoning business? us fill of - In need can you it is guess, to down you you much the as terms it that balance, cash maybe why is how the I you the of run terms cash in And do it’s update high think today? let let behind

Bob Weber

maybe give on you the breakdown balance. a little cash Yes,

also this been actually So, have do Europe balance for largely the U. predominantly now time, in we the In since S. first and past, I've it's role, been Asia. fairly balance. a cash regional significant a in in cash

terms balance, in cash be may immediately call as roughly balance let's having a as looks. it of available not overall million $XXX So, the significant, it significant

work. that's cash do a we lot both growth. given point and be our there So the a where have some to cash we organically that believe way will of that focus do we will We cash on not put is come situated the excess And are position to forward believe you on at opportunities color little globally. of give inorganically

are appropriate, market. to that to net monitor the going path We And we we shareholders forward. said have a and earnings and as XX% returned probably some continue are will back pre-COVID share on do of buybacks our being to

basis organic and go as inorganic opportunities for we forward. ongoing So, and that we of watch intend kind manage to on both

David Strauss

Thanks Bob. again, Perfect.

Bob Weber

Sure.

Operator

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

Michael Ciarmoli

Meggitt. around Thanks the so where for while congrats, sticking for if taking questions. Hey, might trigger a be on guys the you good you Bob evening guys. pulled

Bob Weber

I know. Yes.

Michael Ciarmoli

in you outsized companies or here chain. But seen shortages. have - unique anything experience I I just mean, seem I this So, on aerospace far. certainly seems supply electronic guys is number you disruption specific? there just mean, the a heard magnitude being specific seems guys can not obviously from anything products? mean, pressures mean, you to a than so a or supply I on be of to yet. it's little many kind bigger anybody we engine are of point widespread on talking of mean, hear having so are we've the else. about guys presumably, disrupted I just bit we've I mean, to about report from didn't chain mean, potential I impact the challenges,

Tom Gendron

- a had did had maybe some are not couple did a the locations. of staffing the products. new our major had don't products I’ll back. - they They lot closed in Without suppliers was, go impact that second on well. them part segment name without other But And people Yes. answer go some anything. to question our plants, hiring are it want little of we across And the moves and a that we during bit that pandemic, or they a providing we aero suppliers

more business That and we cascaded than of able our the because ran also it to aftermarket, some inventory of might. disruption out So weren't service just we through aftermarket. our impacted of a single

of we’ve the with supplier got on hands all how Bob to deck on this get the back as we've earlier, on type But supplier disruption. track. So that's working highlighted working –

goes they and that just products I industry component like whole the - impact to are people consolidated said, This and trying we think them one regarding see more to of adverse across happened, hire many, facilities had ramp reduced that. as back. may workforce and an start people we our many of I or had

Michael Ciarmoli

quarter, I ourselves mean, we, at unpredictable. XX.X I sounds how you it makes - sense. And going margins, Got guess, I cadence forward building mean, if about looking If these aftermarket, just more they are we should how like be guess, your it. XX.X? disruptions are obviously, should hit thinking be But That going off the margin going to the mean, it this last the I supply here? to chain did profitable, the calibrate I

Tom Gendron

Yes.

get as we before, in some here is of And things we One through Bob, see go we back year plus can come too, - almost volume to XX% XXXX. that also jump highlighted are of here do target. our to to we the need into fiscal you

go we’ll those So now up during and as volumes we in confident as then. XXXX, year margins the year are into and deliver - improve between we fiscal XXXX XXXX through and that fiscal pick

could see, not OEM some back, you only as provisioning. OEM, of positives, markets for those the are are coming the rates up, going and for but So, initial

And we're quarter we highlighting supply But whole here, we've be some so, until get we’ll as confident stabilize chain. there. quarter been there the to volatility may

Michael Ciarmoli

bodies you And Got get do you… it. all need can back of come Got way it. wide margins the to XX% those the to to

Tom Gendron

No.

Michael Ciarmoli

Okay.

Tom Gendron

don't. we No,

Michael Ciarmoli

the more mean, you a number? guys that the planned than Got JDAM. headwind docs, in than on know in was thinking that I of one of Last you'll Pete on the Or volumes kind the it. are I had, asking is I I just XX%. I procurement see guess, think right of – down the XX% XXXX? sort DoD volumes are

Tom Gendron

rate. year or a calendar on the could into that through some come at movement there looking foreign That are much flow trying do And to they the how XXXX other, everybody at see we years. military are exactly we is change Bob the maybe that fiscal with sales the will lot ordering that highlight What DoD lots the and and but just highlighted JDAM. various lower between are something we're

in on have Now, the we’ll decline weapons. a from overall, of the decline, and well year-over-year XXXX some programs JDAM guided but doing other offset are

Michael Ciarmoli

Okay. guys. Thanks a lot Got it.

Tom Gendron

Yes.

Operator

Your with of next question line the from Credit Spingarn Robert is Suisse.

Robert Spingarn

Hi. Good afternoon. Bob I'll add Mike you. congrats to

Bob Weber

Thank you.

Robert Spingarn

think, can is you since clarification a new March How in one. But happened just We've aftermarket because supply. or out Just missed demand $XX questions - through little about maybe talk have bit, you really lot what's couple July? talked about a said Tom, know really we million you I on a trending? maybe, a sales. I

Tom Gendron

the Yes. flown, fleet, all number utilization signs engines is We're seeing we our increasing. And in actually of of with part back know, associated and big aero the demand a aircraft of as monitor aftermarket hours service. in you

monitor also did rotating admirable they the are past. to best to time, near-term time into here what are that have airlines get the screen they've we we keep do of due and back to doing complemented job fleet They can as more of could maintenance so in they the done an utilization. service, needed reduce the We more screen that's going seeing assets expense. to and All come

So, we see to about going particular what up. body optimistic in are the pick are we narrow

go is, are The aircraft back of the Max seeing second service. we that part into

up very and We provisioning are in seeing well. rates we initial we promising see XXXX, Boeing year fiscal anticipate that's production in All newbuilds. the for that sales as on better provision starting to sales initial will move

in still heading could and on direction promising but are So, be a right volatile. things the path,

Robert Spingarn

now Tommy sudden Just capacity of OE with exact couple and aftermarket, a or about concern things we time, turbo quarters you concern interfere should answer. on talked all OE XX, really for or at each geared there the a have Leap any they of like that hitting from is get other. demand in a Is that, the don't prior rates are those the fans Bob higher high same you for aftermarkets, CFM

Tom Gendron

started we we've the of last Rob, going still - fall pandemic. down Yes. because we been

we initiative, where upturn to were was for of anticipate they long we recovery. make an we And we started the that, many some. that also and didn't need ready working would disruptions. But we that be Part that lead fixed in we problems. before well. how training, and would preparing upturn We trying parts, we've became the and has resolved highlighted hire se for identifying fairly worked any the had have per highlight the to just internally, supplier sure preparing for So, call we to

but we've success, we weren't also some that had able been to have counter. we So hit

am we've all I it. that preparing confident. been is said being So for

see onboarding Our hard constraint are really training. are and internally hiring but was is up question people. training and training earlier, so hundreds bring and to as labor we're bringing of going on now right And to and on be ramp members we members the direct asked starting centers we new we things them special we to working and set

parts upturn. in time is we're we we're on and ensuring anticipation this alike new capacity We're can as as in lead fast not terms there. of ensuring of So, equipment and bringing long members

So, sure. that's going we make are what to

Robert Spingarn

Okay.

If you me. storm me pass can behind hear the

basis the away think a from aftermarket know - backing But defense to some year-over-year forth, you of on so aftermarket. cash supplier to and saw on sounds the it more flush much reflects perhaps so one wanted starting like are around wondering which behavior discussion that we've with of had the OE. beginning is surprised JDAM softness defense some DoD fade? just at system. you into in Just the Not another we maybe ask the and we aftermarket one on elsewhere pandemic Do if defense

Tom Gendron

seeing We're not right now. that

and So, it's see but at we're aftermarket our we do moment anticipating. not flat, not budgets, where something basically looking terms DoD the this any We recognize defense, at are we at we it pullback are in time. of seeing

Robert Spingarn

Okay. Alright. That's it Thank you. for me.

Tom Gendron

Rob. Thanks,

Bob Weber

Yes. Thanks.

Operator

your And Instructions] the question Howe of [Operator line from Barrington Research. is next Chris with

Chris Howe

together. travels will I And definitely congrats Good our Bob and miss again to afternoon.

Bob Weber

Chris. Thanks,

Chris Howe

several asked been different It's ways.

on direct, June perhaps context far Can to it million supply on fared disrupted compared that these to The can so So, another on back if up to in there, a give And of to seeing lot way. $XX kind how following so. out I I'll $XX come to $XX basis for the suppose disruptions? you be what a million any ask already it related build. forward, in has have you you as this, deferred are in it month-to-month in break more granular quarter? moving or think about deferred we million example, a the of that detail $XX supply the third you say chain, started chain a relates that, July if in this got how deferred There million still million to $XX anticipate is revenue to QX you let's filling quarter, hypothetical backlog all single is continues as

Tom Gendron

start as I'll Bob then, Yes. Well, chime please in, and well.

about The July. first you asked

the of Our first be fiscal XXXX. quarter recovery QX of moving September into happening couple a more on looks of suppliers to and August,

taken So, for as and with we really this moving all actions it's it's a we've that start bit to forward. the to adjust internally making month little the supplier uncertain. saying that, really are progress But going

mainly we little realize a aware how are are one all you it IPs commitments and the also it tight use automotive-based, But based supplier some projections and get automotive aerospace. the market is well on through, and you all it's capabilities a business our of good industrial on electronics hardware electronics is environmental that from I we because think IPs hit controls, a one and basically how both difficult lot our our of So, when have that can am electronic because, in one of is. of really of we the I sure difficult the hit the and

we'll mid-XXXX So, that really hard predict one to and maybe forward carry is beyond. probably into

working We well are that's not hard, or solution on customers. month one path. as a But working two as our that

we precise So, quick. a to able is that uncertain here capability mix are to we numbers, that's we're us it's hitting in as why recover. just to you not little a forward our those and got But being how doing carrying everything and give try

Bob Weber

that here of But forward and to some I time. Tom first we a The of give on gave add kind sudden of all It'll down as are is tried you balloon balloon least burn see a quarter at a idea push to quarter. don't we some and to to, improvements going we sudden of big only into a go not we us gradual be won't probably we at this related there this there. anticipate the see more be a is, thing certain a would - that color

Chris Howe

question returning helpful. looks and lagging healthy be and may. domestic, two And are to last domestic to buckets we one international are difference other pre-COVID if That's travel have that seeing the Tom the we business-related Okay. levels travel. recoveries that which passenger I are mentioned

buckets, mid-XXXX year. should As perspective you and Can we about part say, back what other business? top down let's look that on comes those a we business latter back the from talk at two the in see comes of international

Tom Gendron

aircrafts about start, in. Yes, correlate Woodward fleet the look for of - We well talked all that's how joining positive wide as ahead Bob you or when bodies, you have kind I’ll are AXXX look, dynamics the and airlines will I if on the two. XXX, will we But used and using you continue. These on position bodies are content do some have up. the like XXX at go pick maybe good are products, international. And international going I forward. obviously narrow heavily I mean, our the

seeing they going We these aftermarket good And more are see guys to older towards the recover. of bodies. of be service for wide using the would newer good those. as have out those that of and what from current bodies wide of Woodward. And we comes are coming so are four aircrafts are utilization, you aware engine some it's as in that even Those they're we and the some

fleet bit So, wide it the think and little newer oriented long-term body those I aircrafts, more markets for But Woodward. to think international take those will be for positive time I that's will recover. of a a

on Bob, don’t add want I So, if to you know to any anything that?

Bob Weber

we're close timetable No, covered hearing of probably different pretty the it, is body any of overall back lot I what think coming Clearly, The sources. to a wide piece from you helpful. is Tom.

normal of spectrum. lumpy when see It's with to until are trying so, is get that's be kind going back to across anticipate we to quarters the that are to going going And highlight future why everything nice not still then, the more we that's into and a quarters. on. we believe things And we just good XXXX straight-line

Chris Howe

my taking questions. for Thanks Okay.

Operator

line Kahyaoglu Jefferies. next of your And is question with Sheila from the

Sheila Kahyaoglu

afternoon, Hey. Good guys.

Tom Gendron

Sheila. Hey,

Sheila Kahyaoglu

congratulate Bob. could don't know time. third Hey. or the second I you for I if

retiring So, I'll he am actually he I sure is and pretty will since on retire. congratulate

Tom Gendron

Right. And right this time.

Sheila Kahyaoglu

Okay.

QX give of defense the down we EBIT with to In and kind drop but walk of Q-over-Q? of mix to like down. you do XX% think supply bridge that XX% from aero maybe of margins through the an from QX, us chain, also terms can How

Tom Gendron

It driven mix that XX.X QX target QX. Lots XX% small by too other I to had would it's grade down quarter-over-quarter. by mix. those came the Yes, in in international, And in on the itself. from no being and both was of XX middle of element on items that was hold think far a point basis. going hard defense this to of impactful in embedded it a pandemic at of But still lot an aftermarket earnings. I and of It predominantly But being ongoing to still kind think that. that's through most it quarter time good at

Sheila Kahyaoglu

impact do OE – And XXXX? in XXXX, and do that about on think we do out target? your that guess head point, destocking on we into XX% you as see did you the you guys back continued your think I OE how we on business, And impacted AX OE how about AXXX?

Tom Gendron

Well, XXXX, was we Franken. OE were XXXX,

So, were for near into were obviously, we when are XX we nowhere are went of we where - build kind rates, just of good at look COVID the we at part levels that a we and time. those

as and most you So drag near is by aftermarket an as far comment nowhere the not predominant. maybe for us. earnings OE - know, is It's the Tom obviously

is pressured. be to OE also So, continues

on We should go airline comments and as and are rates should support the forward and build that the that. so profitability are that come we by support that out forth increasing so encouraged travel about encouraged have and we

for we we are looking as So, go that's forward. what

Sheila Kahyaoglu

maybe the just forward? know within percentage for size aero? I last - a us should a everybody but big defense as has whether of a can going asked, kind business And business and JDAM defense for normalized dollar think of expect on is How XX%. you we and sales it's then, one that what's I is, number the or

Bob Weber

that a Has chunk a it out it the level the been. being with It's XX growing significant call within I business. defense JDAM Yes. there. we commercial it's is program. been around And, But don't think it good from is specifically. what side, on even

Sheila Kahyaoglu

a Thanks Guys. Okay. Thank you. lot

Bob Weber

Thank you.

Operator

line Your next from of Noah with question is Sachs. Poponak the Goldman

Noah Poponak

everyone and congrats, on the Bob afternoon, Good Hey. retirement.

Bob Weber

Afternoon you. and thank

Noah Poponak

compared commercial and July, chain that even Or was So, aerospace aside, fairly April just time? perspective, of period aftermarket the issue from demand June putting through to in been and a softer it supply May? pure has

Tom Gendron

impacted. say supply it's it's mostly side a I been been would softer, but on that

of the but the really a of in only chain was we terms think saw it's some a demand impact But most assume did strong many we side pull or or whether whatever. side not, ahead supply or - can that from I we equation. don't push we the - So, know, quarter, in not outs the on demand of whereas that slippage and as a constraints the have quarter, third second all seeing both of

Noah Poponak

Okay.

a it necessarily as there the to… ready aircraft a forward to what But bit. pull doesn't substantial of So, a return is were - sound service you trying say little and – slowdown doesn't that getting am sound I was there maybe to they from off airlines maybe like would substantial that now

Tom Gendron

think I the side chain variability would side demand you side, whereas demand is, to normal, on comments, we the I the On if supply quarter. outsized clearly was relation in would quarterly variability. the be very will mentioned quarterly say,

see we variability. going are to to So, continue

mentioned, longer-term aircraft the we've medium-term think As the have that and compared to we parked. flying positive term are that to the very that content aircrafts that the longer because is were of do

we as aftermarket very are bullish So, we on go forward.

hold that some guys of our You some peers. very put up And to volumes, compared have us quarters seen you some aftermarket can't high forever.

that we've think and actually this happened discussion that of all on bit I off and up think had catch eventually that I that that's these things little a some quarter.

Noah Poponak

that. Appreciate Okay.

the related built coming the sizing inventory as those to you not happened for Any delivered? in you XXX that provisioning are you spares help here but initial can hasn't yet. and on be delivered basically, Max can provide the meaningful how mentioned You've quarters that for

Tom Gendron

carries profitability a aircrafts aircrafts weren't good provisioned. with most Yes. were it Initial parked of the that that or I’d is parked provisioning lot And say – it. have

also Boeing situation through can service. a And expect calculated aircrafts that coming bit cash so, it's like service, into that back when can going get aircraft do both and back have as tie into those a over provisioning we but little we airlines, and up. the to the of and timing their rates two But with years Airbus next build initial think go what look those are little I and

see of to How many it's got good to followed we've And have we all on And provisioning an airlines. XXXX bringing as new I based that route are structure we as board? go that those they you pretty it quarter-to-quarter. you of a increasing benefits while, So they for aftermarket. like part are then the do margin on to is and on will back it. us good business. aircrafts The said, that for be XXXX lumpy handle into So, initial on It's flying. same know a it's

Noah Poponak

then And just last Okay. one.

On compare side, have on looking the the you then, more do revenues have have industrial few at there, sequentially China the natural gas the tough margin many a And just quarters, piece? stabilized a there? in and yet. fully natural Is the annualize mix you until back up should stable now picked And hasn't quarters margins kind there the China we gas piece? of that just expect to remain

Bob Weber

and… Yes,

Tom Gendron

Bob.. go ahead, Well,

Bob Weber

jump and me. up could you from pick then I'll in

China the a gas, target. So, of very the natural is issue kind volatile comp moving

you as have of we set follow think time us seen is there been. what I over seasonality have they each new But time, is regulations. some a predominantly there has

engines. natural creates round, last to one related I and think significant what to gas last volatility. it really year the diesels the that's was is This related Over

standpoint we return quarter. really first we of overall be So, I as to the go, more the you the as will many fourth increases going much anticipate that But in be as will probably how tried It do related it that into tough that. late an just guide we we anticipate we gas. the and have tell elements significant inventory quarter comps systemic of natural from couldn't to

Noah Poponak

Okay.

Tom Gendron

Bob's comments. maybe to color little a and Yes, add to

we coming asking XXXX, as IGT of flat XXXX see gen flat margins, You're some of move what kind see do prepared picking around do remarks, up. and we talked the power is we in like, into we revenues,

what see we up. machinery total that we picking our controls call year-over-year, business So,

the One lot And prices up. it and mix collapse seen gas has and into will played oil been out activity, really aware, the of parts. aftermarket the but pick - down are happen. hasn't the good things guys we both a that industrial But with as some not quite for but segment. yet, shut well pre-pandemic a of oil of and the of aftermarket starting demand Oil to has auto aftermarket the lot of utilization up, it driven as were And marine marine, with the where as you aftermarket. picking gas that's

We improve counts and are seeing well alike.

areas are side also some will that terms on only but we to starting sales help margin. the in not So, mix positive see of be industrial for will

Noah Poponak

Thank it. Appreciate Okay. you.

Bob Weber

Thank you.

Operator

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

Pete Skibitski

Yes. Thanks guys.

quick a Just of couple follow-ups.

I due timing to supply On to due said just Bob the issues about? was we you talked to I I haven't was chain aftermarket defense it that or make quarter, the this something else think down XX%. sure want or understand,

Bob Weber

some. of chain issues lot, equation. the that a supply the area, OEM chain have in did timing. but many were Most of we Mostly in side the Not not as supply

the anticipate this that in we where defense question, we've respect return. So, on more not to point on stuff follow earlier favorably with that speak of we in see posture seen and do some respect we with DoD’s anything to at do will actually changes budget the spending that To to time, the may play.

Pete Skibitski

Okay.

defense, So aftermarket? the Did chain OEM supply commercial issues that mostly I hit right? and hear

Bob Weber

right. That's

Pete Skibitski

Okay.

sure? also, Okay. that's quarter. And that or we earlier expect think Should revenue mentioned the in not you then, you fourth true both segments sequentially up for

Bob Weber

We at point believe time, segments. this both in

Pete Skibitski

Okay.

I you would Okay. ahead, at just guess, anticipate quarter to able call, are one for that being fourth getting point? if Tom me, when XXXX the we And - we or to fiscal get then, give last guidance

Tom Gendron

intend point in when guidance we earnings at give intend We release Yes. this to time in November. we

Pete Skibitski

regular Okay. Back to order.

Tom Gendron

order. regular Yes. to Back

Bob Weber

also. We

Operator

Gautam of with line the from is Khanna question next Your Cowen

Gautam Khanna

Yes.

I catch Just but be sequentially are is QX are that $X.XX. well mean, consensus nonetheless am on but Because am up. was I below something consensus guys because maybe you up of catches sales sales, in will what to haven't million QX. some you hopefully guided the a the up, over said I this, you sales a us curious, could an million lot I consensus have can question. a give $XX than large about just $XXX and big not framework it's about wonder you better period? on there pick if QX, quickly million at I we are like, $XX be up how like Pete’s are QX, of How for or the not wondering, think of and going numbers now? curious numbers unusually just constrained guys looking obviously Obviously, follow-up numbers where still QX both - be - segments. to sequential supply

you. plays Just out? any that how sort Thank framework of on

Tom Gendron

some Let me give color. you

we me and trying So, what cetera the to say or as matter you lot speak of give a some uncertainty the sort first estimates currently is to of do off, let policy. consensus to other external on. cetera, been going do that But a not we've for et framework are of volatility et

not do I early So, quarter the that areas until FY think or anticipate XXXX. a we recovering of mentioned, late couple in in we fully

from the discern we been of that made may at other the so, aggressive systemic moment you see progressing And are that consensus a fourth externally what the the on have going compared see that some are and little that, things that comments into we or to quarter. and

Gautam Khanna

you. Thank

Operator

no questions. there are further And

Tom Gendron

we the Investor questions. But before and the December. think you, I thank know, Day in as close, us interaction Well, joining Okay. everybody We for we most you normally appreciate Analyst an today. have of

going new person. I strategic move And able move it thought the we March hopefully, see to to However forward, for to timeframe. in rollout we be decided able better the would to everybody and everybody we'll event be our and plan we'll to hope be it

to the the for thanks back turn joining So, again operator. today. us call I’ll

Operator

conference Ladies concludes that and for call our today. gentlemen,

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

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