WWD - Earnings call transcript Q2 2022

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Operator

Thank you for standby. Welcome to the Woodward, Inc.

Second Quarter Fiscal Year 2022 Earnings Call. At this time, I would like to inform you that this call is being recorded for rebroadcast [Operator Instructions] Joining us today from the company are Mr. Tom Gendron, Chairman and Chief Executive Officer; Mr. Officer; Financial Chief Hartman, and Mr. Mark Director Provaznik, of Investor Relations. Dan like I call to over now to the turn would Mr. Provaznik.

Dan Provaznik

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

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

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

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

period understanding Also, our schedules. We to same unless in the comparisons - during GAAP this measures, today's will the We believe information all call the providing otherwise results. financial stated. which reconciliations are is and GAAP of earnings slide Woodward of prior and our presentation measures. addition, made additional information in release help direct financial related your In non-U.S. included attention year, are to financial non-U.S. certain this

Turning of were results were the or earnings share the quarter. compared for fiscal XXXX Adjusted per earnings to $XX million $X.XX quarter. X%. the adjustments fiscal $XX to million Net million, Net activities fiscal share. compared were operating compared second $XX cash There fiscal the $XX $XX million second million XXXX sales XXXX. share. was first cash to in million, $XXX of second the was million. of our $XXX net $XX for or by of million per for million $XXX adjusted earnings $X.XX increase were no to first half compared Net quarter half $XXX million fiscal cash $X.XX flow second of flow quarter year half fiscal or prior to per an for the for the free XXXX was provided XXXX first Free and of for to

Before to on we Mark and brief turn our comment. a Tom to comment further would like the call make over strategies to markets. results,

Mark Hartman

Thanks, Dan.

call As for you XX wanted company. for This announced as be his of you all I Woodward to Chairman the with have members everything years Tom you Board his have earnings from heard, CEO. the of Directors, company. behalf retirement than last this after may done thank on will Woodward Tom, and recently and more

to billion back value created early our remembered extraordinary set in the in significant For many approximately market capitalization the past visionary under $X expanding the from XX to Woodward will and enable us come. today. our in years, XXXX These growth for strategy tremendous for accomplishments future, The shareholders. leadership million to be piloted years your towards XXXX $XXX achieve place

Tracy, luck your journey. of the wish you. thank in For the that, you all phase We and next of best we

Tom Gendron

company special past honor and the Mark. you, an XX appreciate comments. years. It nice Thank lead privilege this has the been over I to a

selection outstanding exciting Blankenship an I'm market-leading future working as the into have full very of capable forward hands. We Board's know as innovative an opportunities. my and Chip confident look product portfolio, facilities state-of-the-art Chip role. leaving company in of to I his the technology, he I'm with and the transitions team, successor new

Turning now nearly across of quarter. up see second to our segments, Orders all in business. backlog to strong and we signs are has grown the recovery market continue the

looking in including anticipate However, year, due ongoing Ukraine. and lockdowns of in quarter the the fiscal disruptions, chain we to and well industry-wide as labor challenges in market and the shortages global remainder the war volatility the supply to as COVID-XX-related China

negatively approximately XXX also of quarter and since the was direct the members pressures labor inflationary In January. inefficiencies the from addition, new impacted by increasing of second onboarding beginning

results All of our factors have second year outlook. the on in full our impacted and weighed quarter these

Although is our persist previous It business. we by through this meet guidance. year, able encouraged that are are my expect fiscal now seeing these we to we be momentum we will the not to across the challenges view

with they but challenges are the year. reducing lost, the outlook the we orders, have noted, not We our are fiscal for I

and to Our positions long-term outlook our markets see we remains the are same intact. source recover sole our as continue

year. of to later rise to recovery, market with return overall, be continues Moving continues China slowly traffic passenger XXX delayed as recover, markets. the lockdowns. higher International at driven result pre-COVID to of collapsed content. European and the has Despite include build and to throughout expect domestic is And utilization we that our a general recently U.S. service while Chinese aircraft pushed commercial Commercial passenger traffic in Woodward traffic increased for improve. passenger significantly aircraft levels MAX new domestic further builds to China travel to by Aerospace rising fleets to year. continues this nearly government-mandated rates airlines

elevated world In is the the defense market, geopolitical defense around continue focus spending have situation. tensions We the monitor anticipated. increased to the on spending and

the for However, levels future. at foreseeable program JDAM remain to to we expect continue the lower

gas natural elevated will and rates, we strong market. demand will favorable transportation, for for natural be anticipate drive recover and of The impacting slow for continue increasing, centers. industrial build increased, and aftermarket been counts elevated current aftermarket additional prices for our strong and utilization has to to higher for demand nearly which The the capital prices fiscal demand the oil power gas data gas higher growth as continues pricing, marine year. We see activity to which generation, investment. demand. China and and Aftermarket drive activity. lockdowns is with gas strong remain is future all rig market increasing turbines Asia. ship In power as transport has trucks global demand drive has Turning believe utilization evaporated market elevated, in In backup market we and to are

to anticipate further by increase and enabling profitability in in in oil demand our markets Woodward recovery our growth and supported and profitability we by expect continued build overall, and investments gas recovers. for industrial goals. business, Woodward, we profitability increase OEM traffic improved customer business marine in gas our well Aerospace growing markets Industrial related driven improved long-term in For prices. passenger Similarly, as summary, services turbines to continue our we as as to believe In achieve elevated and improve, continue rates will

positioning value to Mark review market the our challenges shareholders laser-focused year outlook. customers opportunities. enhance market quarterly Woodward now results on and to our excellence, while continuing our recovery to on this capitalize revised addressing will are and operational delivering and future of fiscal We

Mark Hartman

Commercial for $XXX aftermarket $XXX an X%. quarter OEM passenger XX% XX% increasing increase and COVID-XX-related sales XX%, were were and of including labor sales million, by the of sales $XXX guided disruptions, due segment lower and industry-wide which continued XX% approximately sales million of quarter fiscal aftermarket XXXX disruptions. impacted industry-wide sales in chain an the Net domestic in increase international XXXX constraints Defense weapons. shipment OEM commercial Tom. and of fiscal COVID-XX-related higher, Sales aircraft were Defense the for were resulted down respectively, million, quarter by negatively to were primarily due sales of disruptions, Aerospace by for were second for the Segment X%. ongoing recovery to primarily you, million some traffic both supply shortages. of COVID-XX-related and impacted delays due Thank orders. driven negatively second approximately quarter were down $XX sales to utilization. in

is and of $XX earnings sales in a the compared million as training. increases inefficiencies segment second defense to to were of of backlog segment of XX.X% decrease and impacts, guided and The million $XX labor related segment XX.X% was the XXXX related segment Aerospace disruptions inflationary or material earnings as weapons, hiring result increases sales. quarter to costs our COVID-XX for With sales of including order in exception net increasing. or well cost manufacturing

We are to pressures. inflationary actions pricing offset taking

to can However, timing arrangements. certain due contractual delayed be

Segment XXXX to million, material and X%. earnings XX.X% disruptions, in offset business, were XXXX the by segment COVID-XX-related to related cost pricing Turning our million natural sales decrease quarter disruptions compared the result higher increases we of $XX offset partially to Industrial an second as Similar to $XX costs compared decreased and of unfavorable for increased segment aerospace and currency see sales inefficiencies a of gas including all hiring as COVID-XX well Industrial manufacturing of by earnings continue pressures. fiscal of inflationary taking marine quarter training. were a in-service were to China segment for utilization segment in impacts labor inflationary and as Industrial. primarily million second approximately $XXX or net to sales. Industrial segment of weakness sales engines fleet. X.X% million of negatively impacted million, to or $XXX as the we $X impact, actions million increases foreign of $XX related to sales industry-wide are

quarter the expenses XXXX The tax million. rate XXXX second Woodward to X.X% the or return variable XXXX $XX of $XX of R&D costs million compared for to rate SG&A effective second business. of quarter the XX.X%. for effective XXXX. However, XXXX and level, well compared of The matter X.X% nonsegment of or There $XX sales of the XXXX second $XX There no the of certain XX.X%. second both $XX timing quarter were to quarter costs. with ongoing operations were result XXXX the million of for XXXX Adjusted expenses the compared to can expenses second associated to expenses certain of nonrecurring as expenses nonsegment in nonsegment a expenses of included for arrangements. the were second be unrelated as expenses were charge adjustments quarter annual adjusted adjustments of was the million of was Adjusted for sales. for At of tax quarter compensation the the million. the second The a to a delayed second for increase XXXX timing the rate of to XX.X% no incentive was quarter quarter the of million. Nonsegment of tax for XXXX. due were nonsegment for the second were $XX effective contractual quarter reversal

second Looking fiscal Adjustments flow to decrease flow million. flow of were year compared flow to and for cash activities the free There by free XXXX. increases period. cash second expenditures cash fiscal year $XX half year related for to to flows. and $XX activities XXXX XXXX of adjusted EBITDA business capital included Net for half to the first quarter. cash growth. of free of million working flow million. to million Leverage end half $XXX first primarily flow cash was million. was this no first million cash first of was for provided The first Capital restructuring the cash XXXX, flow at adjustments were related compared Free $XXX half the $XX anticipated compared to prior the payments $XX free free in in the support activities. cash half X.Xx cash the operating development the for was million free the of at half $XX of to Adjusted was

to half million $XX fiscal XXXX, April and in of of to $XXX repurchased in stockholders million first $XXX XX, of dividends. form shares shareholders, the shares. the $XX million and dividends XXXX, Year-to-date million $XXX repurchase through approximately $XXX million returned of was During million returned in was

the during our to disruptions COVID-related XXXX impacts net turning XXXX fiscal Lastly, quarter anticipated. and were of second greater than outlook. fiscal inflationary

currency The Industrial inflationary disruptions. now earnings The adjusted labor expected as well a approximately the $XXX ongoing related still environment chain expected to cost of revised is to previous remainder $X.XX industrial expected now be to free from is disruptions, to and approximately current in we outlook Industrial and million. as improvement impacts, exchange The previous due adjusted on as capital material expected $XXX manufacturing cash China $X.XX from the in digits percentage weakness Also, to are tax our be cash the the flow as still billion sales related outlook from XX%. our is is is significantly particularly resulting through including the worsen. conversion by percent engines decline a segments are to rates. the XXX%. is is percentage expected as free between increases to segment revised mid-teens. the The decline are the Adjusted assumes rate delayed sales now be COVID-XX rate as net due costs XXXX expected million outlook. the and be of the segment greater increases be is of not $XX to the for now between approximately in are be free have of XX% low and our primarily outlook inflationary COVID-XX-related in XX%. to The to sales headwinds growth primarily Although does to working now net expected capital Aerospace sales of sales foreign timing Total growth growth sales in million. driven now a XXXX related effective segment in fiscal to to and impact percent lockdowns now X% billion. expected XX%. segment to to previous expected as supply double year, year decline flow percent both be gas Adjusted sales gas net to primarily Aerospace from be expenditures China be expected balances. earnings in than sales the net between XX%. earnings well prices outlook natural is approximately cash flow elevated and natural expected

earnings and flow $X.XX in the improve, average working cash XXXX expect fiscal of based share we to from on be the XX fiscal approximately expected As thereby Adjusted is weighted The to capital diluted fully COVID-XX disruptions $X.XX per now requirements recovering outstanding. our weighted Operator, decline, million delayed XXXX. which concludes approximately assumed to earnings on shares and fully diluted outlook the would are average between previous shares to open and the $X.XX. ready results XX share second $X.XX per This adjusted our questions. for business of quarter the XXXX. million call we equate comments to outstanding, now of between

Operator

Please line [Operator Spingarn first with comes of question the Our Instructions] Robert ahead. from Melius. go

Robert Spingarn

the great your best. been working on with retirement congratulations Tom, And you. and wish you It's

Tom Gendron

appreciate I that. you. Thank

Robert Spingarn

been in here, the I digging quarter. ask still unfortunately, your past, OE factors? other you've a pressures aero, wanted all to said Just on in tough case that inflationary Is you they've sales and and with these commercial profitable. the

Tom Gendron

I Rob, it see still profitable. Yes, as

comments, with in increases. highlighted inflation will Mark offsetting the price be As prepared we

aftermarket, And primarily per long-term Some have still increases. that's which of that adjustments. The Those agreements, comes escalation once and have our provisions. those agreements. contracts year price price OE are type - pushing then through we through - are all

if with remember quite at COVID. Investor of the supply inflationary during all few as some that hire the and up said, you to Some coming chain. having was board. we a talked our about of Day, the do rates we wage had But across To to attrition saw that, our people were that we of growth we guys

start pricing. too, through on will through that to We escalation see recovery and

we're going it's So that recovery to see. delayed a

profitable So OEM we a see sales. still

Robert Spingarn

on just another And one just - shipset on Okay. then content.

unforced Airbus. Woodward? what's You And see higher that's the the do happening mix GE content airframers forward maybe the some Boeing relative going But Boeing two I there, tend at if for and relationship. a on the platforms you errors to have between been know to don't of different given

Tom Gendron

in we the AXXXneo LEAP, maybe things may that referring with or going Well, LEAP. are LEAP you it's the the definitely, MAX more up. on content, be And the one do Airbus equivalent have content we with versus pretty but of MAX, show rates on a AXXXneo much

We have on on power slightly content less neo. pure the the

So that's maybe... where

Robert Spingarn

- relationship, that's widebody GE in because I Tom. too the Yes, factoring was I there guess with

Tom Gendron

correct. Sure. That's

We at have Boeing. widebodies better the on content

it it's a - be statement. let to So that's Yes, this me correct going way. put

good-selling the over going are think I be XXX, to aircraft. XXXX time,

now in they There pick knows, my positive time... a was have and some issues in very and up be will aircraft, view. everybody those are they future, good long-range two As right but the

Robert Spingarn

my part do And with which on of Tom, the that part further XXXX, of is that what XX to is last this that delays here nothing question, really - was is for the it? and changed do year? Or

Tom Gendron

was traditional XXXX, the down yes, the a - we Well, but on was saw and XX XXX, not little down. saw we

the OEM think So that little coming come. and But will narrow-bodies did back in impact particular, overall, a I XX seeing yes. we're bit, up, rates

have did a of it major an impact - wasn't yes part But it it. So us. but on

Operator

next from with Sheila question. Please Our Kahyaoglu Jefferies. question your comes state

Sheila Kahyaoglu

retirement. Tom, on congratulations your

Tom Gendron

Thanks, Sheila. Yes.

Sheila Kahyaoglu

ask kind inflation. to you wanted Or we very think it OE Mark talk bit a understand always prepared think questions is abating I can think When of is we that? his about inflation not the for do okay most on with what's forthcoming. risk? year? about side? to aftermarket? this Aerospace, How How aero, it remainder it's if about Is considered think the because you remarks, you're the that's I I several mentioned about little in of think on going Can the on where just investors because want we

Tom Gendron

before, was we've fill required and hired to year. I we first, and beginning the would to have that Well, highlight, positions. the are of inflation, Sure. since I labor labor XXX Those attract all able like be rate internal the mentioned just Woodward positions direct that

hit. that So

but that, there been some I'd suppliers. our has to job chain a doing group from We've there. is coming We been pressure say mitigate have supply seen trying - good some

aftermarket, little you as know, pricing, some, but fully price we flexibility, and recover have in much through already our to more We The and will a we're that to be of offsetting going to it to time we doing done recover intend get those and that. contracts we So place. increases have inflation takes bit more.

So I see happening. that

The of we to been on ties doing a people one plan hiring - in. if that were kind teams We've getting of And to you direct recall, have XXX - but our good with month. really it's job said ahead inflation, other into hire per going need we're not labor. we been

bring Some changes. But when did we have of that was labor many people, that required we rate in inefficiencies.

the through And on the cost. a manufacturing first on people them aren't goes when manufacturing in that put into see quite year. they half second don't all then get which we the directly line. training. is as overhead, put We That We improving So people the extensive lines. of efficient the

quite expect bit. We to a labor improve efficiency

So part - the disruptions. a will of COVID that we're the and calling be natural what inflationary

be believe able to just see inflation. into we on So to the half and and in It's 'XX. do we'll second the start the we'll year of delayed recover

Sheila Kahyaoglu

how guess, follow-up from like 'XX, of a But force at almost margins, dropped were would great - how that, that XX.X% like I be my So X,XXX margins. much we they where QX and bridge And quarter materials? basis inflation when at a points granted margin freight was look the labor in the they to related in what's then is drop? question versus second that

Tom Gendron

mix does there. definitely have It issues the these has some Well, dropped, in in margin there. issue, have labor efficiencies does inflationary a

we'll increasing second do half margins. of you think year, math, could if the I be look you the guys all

past We we coming due due recover will disruptions. through. of some have start that to anticipate You see these the that to

in you the the volume seeing of the recovery increasing So the COVID pressures. start margins in on some

combination it Sheila. lies that's one, those. all think that a I It's So of on of where

Operator

question Alembic Skibitski Our comes Peter Please from with question. your Global. next state

Peter Skibitski

you mostly clarification so the of and best aftermarket? of your million all OEM because little widebodies luck just the $XX Aerospace, it a COVID One was defense much defense all bit. guided about was pretty fundamental Rob echo kind I'll headwind, talked down it in because of the weapon like that softness, on Was Tom, aftermarket Sheila, retirement. the sounds almost

Tom Gendron

in? No. No, you it's do to across - chime Mark, want

Mark Hartman

defense all four of OEM commercial $XX did across it's all, Yes, impact million market That and OE subsegments them aftermarket. aerospace. impact

Peter Skibitski

shortages. talked And capacity do of maybe suppliers some are there cutbacks those? you I your the because quarters with they few update we've in the - the What's previously. last any what's terms of Okay. did the guess, about of update chip And issues having, - that

Tom Gendron

we Yes. - question. legacy have. with No, great lot of got a We're we've suppliers the products

mitigated is suppliers a troubled So have of originally what suppliers. those. we've I on high-risk went mitigating list that it and and suppliers, big us are through as XX. But I risk impacting But the the think started we think, We've those, risk on about the was like got we we're we still tail of is with, our XX.

a So couple suppliers. about that's of of out thousand

the at we're their forgings, got capacity working. have, we're recovery We've with struggling And in ones teams approach the We're We've But it's if is yielding those got plans process still them. castings, base supply in addressing site. you're recovery results. So machine facilities. tight all labor using that. on we looking they're with and the and houses,

issues So the as market the some we those when down during XXXX. them. really before, the supplier are of some moving of products shut And plant shutdowns, - been in have was highlighted

they're still of from So those. some recovering

it's amount think And semiconductors, more there, one both of Day, supplier. challenging us, this Now getting on for source. used fair a I said that a and due than we is we I use low-volume, would impacting say have auto or it might that has And Industrial, aero. problems guys we been to Industrial, are and are the lot aero And in and still of have having that at impacting the automotive. an chips issue but issues high-mix the the components Investor we're is

said we as it we so and back don't And full semiconductors, to are that 'XX, working to see pressure. still get track. the And until 'XX might be we ongoing hard we mid before, on recovery, that's but as get late

that's still challenge. a big So

they second year. think we ones that other good half got seeing plans recovery of The some we'll time, mitigation start we've take this and

all year sole sales some remarks, to into 'XX. As the want emphasize the lost. board, fiscal in of we're XXX% I that There - are will roll None that. of on Mark really just generally source. these, his said across prepared

matter lines helping recovery, of getting and back a running track. make it's we keep sure So their our on getting customers

that's - with cash flow associated recover will will and will It positive. come, those So the sales and those the come.

ship into fiscal in rolling it's that's just year, to to roll AR end of the going year late we to up going due as the fiscal 'XX 'XX, Some and that cash get into that's in to out.

Operator

next from with question comes Our question. Glynn state Christopher your Please Oppenheimer.

Christopher Glynn

the the kind Tom, curious insights, for the And cumulative that sector up thanks prior rolling on aero great insights formulation all was hundred for a a the aggregated on $XXX that pushouts? the have over million. the couple sales of million we Or years. the quarter? the push million of about of I sales built of now $XX Is

Tom Gendron

cumulative. a it's rolling No,

is equivalent the $XX So the QX. of it's at $XX the so of now $XXX grown it's QX end million the million, end million since of

Christopher Glynn

becoming curious, have talent things. half you impacts big the rub gotten couple And described, of factors you swing a kind a efficient. the reasonably sounds of you talent of was or I'm at one? and And the one the tilted proportional segments the of it winding new second Are it's Great. and hiring need? down, Okay. training nice both kind those of like as the is in since hiring process to

Tom Gendron

tilted bit little a It's aftermarket increases - question. good had No, as where we aero, and as faster rate line increases. to well Yes.

good. and supporting expect more done the and down third which to in half we ahead moving But that the start hiring we be will plan, to more in see that we start 'XX will covering growth it, is of good the than then going our bit in will off. little second getting hiring second tapering job actually in experienced But normal natural are practice we've attrition. ahead quarter. a And what in that have of We here slowing really that quarter the and of a

Christopher Glynn

those the through stair linearity guidance, half functionally Okay. and as right think revenue of and kind just and we margin kind And about should of back of proportionately? your we've got step we the EPS

Tom Gendron

quarter, Well, to details about going going higher I fourth it's maybe the be lack say give because in so of if it's would tell it's stair guidance, third - just the that's I'll reemphasize, maybe you talk of a It you just than back-end the - you I step, We it, quarter is to okay, orders. very - - the loaded. not it's you.

orders higher quarter. getting have it than be out the third will fourth in orders, I We the all and anticipate the so the quarter just

Operator

Our question next your Strauss from David Barclays. with comes question. Please state

David Strauss

I'll echo I March I the luck. reiterated back-end guess to your that at anticipating that weren't Investor course changed - that was weeks best be you appeared congrats, loaded to Wanted that couple of I the what Tom, X, guidance of very the it ask, you you think over Day, point? had at point. of next guess

Tom Gendron

that were to Russia call were definitely impacted Yes. Look, sales out. war going if you really didn't we into go look, the lockdowns in China, by and the in out, Ukraine. Ukraine broke We

that, the of just term adds some call we to natural the matter And we that orders Ukraine down use to couldn't is nothing ready on-highway As but what those because every been that up. we go, other then - a and of gas, no million I not China did near we Russia. that's mean right China impacting were take now. longer delayed. and the fact, could sales lockdown have ship evaporated. kind of $XX not plus to major, was ship that's

So today. working on and between those Investor are issues. just then that all top through differences And supplier of still that Day occurred

forecast, high, we all removed together. problems a were the candidly, there. percentage just - our as China recovered we basically as recovered were, we again, quickly But from haven't high as it's but We those of the we sales have China lockdown factors haven't believing with is the - still

and Ukraine. So we're watching still happen what that difference, will is a big with

since those Investor are impactful our things that So Day. occurred

David Strauss

color. great That's

typical out anticipating I reference that of we're anticipating? and, you terms year what what begin to natural versus Just this I business were - you guess, in of that sales year, point, gas you a what now X, China guess, your

Tom Gendron

quarter, a $XX approximately just I'd near approximate, X. just we're run million maybe you, have $XX and it Yes, would million tell down to to

David Strauss

me Are talk rates? below below are And about with of Okay. MAX kind those you where stated you what still on last one are MAX. restocking of - there? can you then in or maybe today? line Or rates, bit some for seeing actually Boeing you

Tom Gendron

flowing are No. The - of they're kind through. rates

So continue we're at, in guidance and looking both for the and - Airbus preparing at on on with what is we're track what that, there. looking we're to Boeing track following so is their ramp

Operator

Securities. comes Truist Our next question Ciarmoli from state question. your Please with Michael

Michael Ciarmoli

great they mean about risk still the well, guys the up since been you threaten you first door on the up get months, the fast the of - It's pole that we can are you working being out guess, becoming obviously, rates. to MAX you forward maybe if to, tent mean, Airbus, are mean David long best. months, in able I mean, keep guys the was deliveries? here? six you guys get in to all Tom, I with is any years. talking I asking production? with narrow-bodies guys product where the I over about XX want kind there I might future

Tom Gendron

- or well, look Yes. any and Airbus We not our out deliveries up let aircraft. up plan back me holding first. No, we're of Boeing

we the look we're to labor called plan those what's we where out are rates. issue And a all to. labor, COVID, rates deliver in necessary highest the We've that and Boeing months, on equipment anticipation before about those that meet had We higher we very produce our have believe capacity, was our capital Airbus track go the had thorough track now we The of we capitalized with process to on SIOP and programs. on have are to and going that. to we labor, talked before, at we XX

So that of all into working ramping and we know with growth what is up do confident but that translates suppliers work Woodward, need in rates, in ensure highly we'll also rate, we're labor we're we keep those I'm to the it. capacity, and capitalized they our And ramp increasing to that progress. are

Michael Ciarmoli

seeing you're maybe here kind it. so more obviously, little from the Got Got that these you business? outsized kind I are there seeing is I of labor, getting making bit mean it. that's mean, business inflation. anything nat-gas glean that China your just headwinds get the anything sales, impacted, here in setting or a aside. you of unique I your can suppliers all

Tom Gendron

Yes.

comes of always - And automotive they're are I call part the mix, SKUs think with in like. temperature wide a you for in kind A impact we company. - then companies range, other We've to think of ones is semiconductors. in range is different we And that have use is that's lot we support. broad the have peer saw. a would what And and the we And the for a you maybe I semi-grade lower - we're of when said that's reliable the And volume. the the it. and have are lower-volume is lines you that a I of here call, about is small them, that, our guess which into a than part low I few what that's number when the part with play, believe then suppliers. market. one but other have yes, than that of the think, programs electronics on I reason high And we lot And want to if we have volumes, wide mid-volume, And impacted high or they're of case. that them. that more of earlier of believe mentioned different say volume, you of portfolio, some we we products few

Michael Ciarmoli

last for just And one Okay. then No, that's me. helpful.

pass still sounds aftermarket, I'm like get looking your power dynamic? just of see still there. some, Or aero - obviously you still you the you you've all you it are real and guess? can it, price-cost at call pricing that more Are Do pricing, maybe going costs I that there? On pressure some through expect got to

Tom Gendron

In highlighted and that the OE I ones contracts, agreement, the can, escalation long-term on aftermarket, are have we yes. negotiated before, we clauses. And as under

have helps inflation. more most under So have are contracts, of we but inflation, Where agreements. not us we our long-term that's usually go recover flexibility, to sales OE any above don't

Operator

Akers your Please with state from Our Wells question question. comes Instructions] [Operator next Matt Fargo.

Matt Akers

any of again much out, that Best you. of China it if do know guidance. the don't prices. And possible like there taken upside there ease? potential sounds from was almost is trucks. parse you Is I natural impact just to the but gas on out higher congratulations. do gas to of how versus Tom, wanted that the to starts lockdowns lockdowns if you've the this think luck I to natural ask completely

Tom Gendron

hard dried It's it's it's to predict. little it and is upside forecast, one think a would lockdowns prices a have year The the the combo second market. I little to a than harm to really Yes. of other, half that Yes, truck if elevated say the really was but a reduced demand, the up hard be combo which in the think recovers sales. to one that's I more hard say gas actually there what so our natural

why So that's out. really we took also it

Matt Akers

Yes, that makes sense.

guess this any could I provisioning then just if number? about forward? that big provisioning maybe point, on should contributing how And Or growth, Okay. talk here trend the how in you of was at that there aftermarket sort going is

Tom Gendron

up you Yes. increasing Provisioning that for rate deliveries we MAXs now. held And in growth. that in some really and those XX% believe or right aftermarket top provisioning growth was held on that, delays anticipate do do That can is see we Chinese sales of commercial of airlines. - China, sales

that get to expect So those come we as start planes delivered. to

aftermarket. are well we So is positive - commercial as trends overall, provisioning but really initial as in And shop up. doing well see visits

Operator

from Gautam question comes Please next Cowen. go ahead. with Our Khanna

Gautam Khanna

a great on a career, had I Congrats questions. couple of Tom.

so somewhere your sales. the maybe second the end in a bit month wanted people half midpoint. the and end you it's maybe in naturally dues kind there, How second if because curious? seems of but percentage-wise, a catch lift put second you out confidence QX it But any to versus how I first of now of a half made just like quarter, $XXX So you have the half past in versus much million just improvement I'm that, you XX%, the around And XX%, just embedding to midpoint about it the get progress on to half versus up down? sense would half, have And a your number the one but know weighting. I low it whittle big implies just you much are you asked the seasonality the current into mentioned the year? high third range, give first wide fiscal

Tom Gendron

at up okay? No, look imply helps range the high be where due. end a lot end we've it's Yes. due, with that little would past you to bit if closer range, would our Roughly, that the improvement, Midpoint past the worsening no of you. recovery of if there. imply a are made The or even bottom of would of we

So...

Gautam Khanna

the that... in And rate third run seen a helps. that have in step-up such of you quarter, monthly output No,

Tom Gendron

we improvement Yes. range got - need we and our our month slight got a earlier, you say - above. get into is to just Yes, one as of April, it tracking was know, so in had that slight we - highlighted quarter and would fourth March under belt. I just which in large a why we I midpoint

Gautam Khanna

these same it is $X.X something why it memory, I another related out million guys think And if something. items? you you by could number, $X.X business out. have - in And what was to just we're of category the this QX, or was Okay. yes, of what to that. And Like Are it called development backing is, expenses quarter it? elaborate X.X, related nonrecurring on million, like

Mark Hartman

Yes.

for to $X.X other separate that we clarify $X related took you, was that nonoperational was the development Gautam. million to to try related nonrecurring, the we called costs me and million had. business out. impact adjustments we two In Let QX, One

$X.X reduced we quarter, $X this million clarify, million. charge to the by Just

a So $X.X now net million. it's of

item because in out So we we it in was a QX. adjusted favorable back item that unfavorable QX had the

Gautam Khanna

million the just cash quickly have you Are And you $XXX to deployment, going Okay. toggle what Got terms bit, you does execute maybe of Does of How down the the Or you've cash authorization, flow it minus expect with down buyback all to at pace - done. it are that? you it. guide impact do the on that matter? coming a paying... going to in buyback?

Tom Gendron

return of return the that to the the do all don't sheet. We return. have we And But that our long-range We intend we're and in but I Board we million. we shareholders. I, going had in And Yes. we're And $XXX that X-year out, a to time well very tracking we're that And period. a rate allotted. finish the over plan. balance in balance on Mark unlevered to think fairly also to to all time Directors, believe going which to have capital return agreed sheet said we to at we frame intend cash

Operator

Noah with Please question. Poponak comes Sachs. state next question your from Our Goldman

Noah Poponak

Tom, $XXX out the range? year makes What congratulations the take up to that you on full million your retirement. came What $XX of guidance did revenue million out?

Tom Gendron

of chunk of I to as Well, came highlighted, deliveries out a it China.

the impacting dollar. We have a FX line that's headwind with strong the top

we've about a chain We supply bit the COVID-related on deliveries. that disruptions also little reduced and in due past due based to disruptions. businesses talked all That's

little across the a it's board, So but ones. big bit are those the

Noah Poponak

the logistics - out sort and it quarter, that million last some well? I COVID of that that of assumption you Do that than XQ million sounds assume supply chain, $XX in have that comes for larger than and was was cited had like and XQ guess something to a or incrementally assumption. was that as million The the for was favorable million surprise the you $XX less for for the was quarter there $XX $XX maybe prior you guidance

Tom Gendron

little of our Well, some million additional issues. we it's highlighted $XX In a particular, supply had just around kind was the really what impacts electronics. bit primarily I chain real earlier,

Noah Poponak

last and is - now like are now supply guess Tom, of issues where looking through was end like and seem $XX the like to than resolve it later, calendar if they are others going sounds that sooner there the a you're that that, there's I going thinking in million chain with themselves thinking I'm year. Yes. quarter they're might

is and are three then then the sounds some of million FX, it run back million then And it's so guidance. not and XX adds million on $XX better old a where and to rate, like worse, deliveries up some in $XX it was the a to it gets little $XXX going. times China quarter more assumption it's you I'm down there's $XX because if maybe that than a and in had half just maybe the you million But maybe quarters if shut

Tom Gendron

better bit Well, some goalposts saying we range on this on half. But of and even will We're I a we - second really look is and you not get progress for except a yet if hard do was we bit little really seeing at really at to just is will areas in electronics. we're recovering the bottom all million I take believe this maybe the the at make the progress we the a if range, well. gave, believe end we electronics earlier, and working recover. going little do any time, of in we're you recover the $XXX the top worse, range on that little

through. anticipate also that help will the labor We production sizable improvement efficiency And all efficiency from in rates go direct a we've labor hired. and

we'll on million. progress make that believe do I So $XXX

and that going were we Our we're previous sooner belief was be on not. obviously, to recovery

will I And was and making so But that's believe why year. are second progress, to down improve. call we right decided the half do we do the thing

Noah Poponak

new chain in making challenges the in be quarter that you the up to ones? old losing sales third guidance didn't have the while fourth you previously and supply Will

Tom Gendron

back, And of all We our all XX% going really so... sole anticipate I'm our to business really no of got go to say, of is that's lost you sourced, sales. - -

Noah Poponak

extent I expected, you're don't have supply even the an are some supply stuff. would the would old to and permanently them chain just the it like lost sales. mean if seem lasting incremental XQ than of guidance meant I up like compared challenges to fiscal from No, making old XQ that to hit chain longer

Tom Gendron

you that industry, an some give the is and this just Woodward. in, we across have factored is not There example. I'll Yes. And

maintenance. can't get goes want delaying we And to aftermarket, plant everything now, few outage of the a for times, like, for in a they know all Industrial a our because They of outage. power So right the have see ready refinery a hardware. that business, them they down lot have we or say,

factored outlook. So our been that's into

other that will they they a Now mean, them lost pushing because out suppliers maintenance, Woodward, that not are delayed, sale, I but is not are outage do late. only because it's but and that

you're permanent asking But that not pushout, thing sale. a a is happening. lost that lost it's about. is of a not so again, once And what - Noah, type maybe

Noah Poponak

won't that, exactly pricing little is be but alluded half back want maybe inflation aggregate. for flow square that you XX% No, in to, if increases to trying I right on XQ, new I on? I helpful. XQ just spot I'm If guidance, the to to that the while through XX% labor to it going just year, and implies sense. and makes achievable make away, incremental Yes. report new right. then the as up think a virtual that's And but with the you I clean take that the go Okay. margin XX% have a still basically sure have Aerospace that

Tom Gendron

see one impacted really, the capturing efficiency lever labor normal addition QX. that's the from we And we that we direct that achievable. in us as Yes, operating all in labor move of forward to is hired we really that incremental that here flow-through believe have our

line, on the will increased those as productive right build rates flow up, become volume. go through efficient, that So members more we become more on incrementals the

Noah Poponak

Okay. flow Got last guidance it. And free just one much EBITDA? one. is more cash the than revised Why so for

Mark Hartman

Yes.

prepared bit little and bit, little to all comes remarks. a it capital. down I down to and So - Tom it all comes It mentioned working mentioned a my in

that have in than be than we half. will our QX. ramp anticipated anticipating second receivables larger as previously. What Tom in will second a a balance mentioned, is see, and you half And As be we're QX large larger

is, thing plan today. and just anticipated inventory than - cash delayed we're 'XX. about originally higher disruptions but down, lost is not those Now we today as COVID on it's higher do the are what again, the given It's had given where cash. other at may great And balances they the into that little a working be fiscal we

fiscal and again, cash thing. But as AR two into delay factors 'XX. It's - impact a cash why So is. timing just is that's those capital, those it really on flow to significant the a inventory, working between the it's just

Operator

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

Tom Gendron

with plan got And Well, interactions, from business. Chip company I found carry come thanks and working back good and time. have will, of always and I've believe it with we've It's be to for and I've be and no We our doing a markets going I our great We'll enjoyable Mark here. disruptions. to all our on enjoyed joining you. today, a you you give information trying with guys always our back keep And in think, you. on and learned appreciate job in that long-range interact to you I these know appreciate do transparent. good

on appreciate a parting guess last with so kind that I as took And easy I you me I So it call you. as that. today, my appreciate guys comment, all of of

I'll you in run the and maybe the New into or York future I'm So when like. out in

lot, a thanks and Bye. So talk to you soon.

Operator

our and Ladies conference gentlemen, today. that concludes call

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

Woodward (WWD) 3 May 222022 Q2 Earnings call transcript