Earnings call transcript Q1 2023

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Operator

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

First Quarter Fiscal Year 2023 Earnings Call. At this time, I'd like to inform you that this call is being recorded for rebroadcast and then all participants are in a listen-only mode.

Following the presentation, you are invited to participate in a question-and-answer session.

the Mr. from today us company are Joining Chip and Chief Mr. Executive Officer; Blankenship, Chairman Financial and Hartman, Officer; Mark Chief Mr. Director Provaznik, Dan of Investor Relations.

I'd over to turn the to now Mr. like Provaznik. call

Dan Provaznik

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

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

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

and like our refer to on highlight would I shown cautionary statement slide three. to as

our assumptions are the always, outlook Those can chain supply of and current inflationary based global disruptions the net and change. and specifically, more and As pressures. on elements of elements economy our or forward-looking the ongoing including presentation this do and expected businesses effects for potential and frequently labor

and we number a the risks identify with to uncertainties filings the those our SEC. subject are of statements forward-looking in elements, surrounding Our including risks

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

turn will to Chip. I over the call now And

Chip Blankenship

Thank you, good afternoon, and Dan, everyone.

although our segment quarter. challenging earnings first with quarter line in our Our expectations, Industrial were a had

supply supply from industry-wide negatively our disruptions inflation end to improved affected from second flow. strategic of as quarter chain labor impacted results. mitigation markets. and and The into translate are the We profitability disruptions the year the in and our challenges to see our fiscal demand strong begin cash actions anticipated half to in and financial continue ongoing These investments labor we chain as anticipated and subside

due past result but as Our challenges, chain the also labor strong to customers because demand. sustained of commitments remain a elevated and of supply

and customers. We into continue strategic capacity improving efforts our to focus capabilities Making our increase maximizing deliveries to to additional centers of machining supply on trusted the chain investments securing suppliers. our current creation response by rapid with

In hard recognize addition, results. we serve continue to I'd who to talent. focus retaining to are members, Woodward working improve and our on better developing customers and company's our like

quarter, to for the we simplify profitability and announced experience with improved increased through organization the operations, streamlined sales and During enhance leadership designed Industrial Aerospace structures execution. customers,

Within advancement space missiles our the segment, Aerospace this and of programs. new structure enables

transform Woodward's In management as manufacturing, as of executive working our He and improve is closely multiple global expertise. required. already Industrial December, accomplished segment. to changes an lean execution. segment Randy Randy I Industrial to Hobbs Woodward and leadership Randy is significant lean President our initiatives with operational are enterprise significant driving joined

accelerating addition three to in operational have We recovery. priorities

First our and rightsizing structure. improving cost is business the

business on Engine well Systems that We the Turbine are inside and the units already path of consolidation segment. with Systems announced Industrial

pricing. is Second

confident term. the is deliver. complexity over third and multiple priorities prices our forward next that on in this reflect shareholders. progress And Randy's near-term segment product improve and work will these we during for ability longer lead look to to long-term executing as operational I'm value results, portfolio the well improve maximize call. returns to our as discussing I reduce rationalization, which are streams profitability We capture

June our somewhat a the we On related the year. Day of note, to moving calendar later in XXXX date Investor are

Our and the segment Industrial foundation internal demonstrate a is industrial We ongoing. company. the before the firm want of rest progress of to work for strategy long-term establish and targets related transformation we the to present our

call, that As to fuel technologies were project provide are we in our the name last ZEROe selected enable This we unable plant balance to proud work control was of to Woodward but fuel for to Airbus support based cell and reduction sustainable names, solution markets. the XXXX. demonstrator. This indicated for leverages projects with aircraft to end into the leading development hydrogen Airbus hand-in-hand multiple Aerospace more travel carbon Woodward propulsion. air underway at goes of to emissions already demonstrator program project Industrial for entry on service form This ZERO by a aims emission with announce

pleased fleet to continues XXX to MAX improve. the our to fly Passenger increasing airline continue Moving by International is European to traffic; domestic U.S. traffic Aerospace, to China levels. commercial has global the Boeing rates rise, near that we in returned travel in and are again. driven utilization passenger is passenger beginning see for XXXX increasing markets. to China And In traffic

consistent lead demand tensions market, increases generation data defense In centers. we global rising be driven to in continues to for for increase, U.S. at strong procurement power the power defense in spending. Industrial growth are In by international may increased activity while demand Asia, seeing aftermarket geopolitical markets, backup and robust

drive spare is aftermarket and healthy higher elevated activity utilization In result global of prices, should with cruise current increased in market Ferry in ship demand. near activity. Transportation, which XXXX levels, increased all remains and which and build increases parts the rates, freight marine future

In continues which in activity engines, development. announced global market multi-fuel is OEM content alternative the marine show on greater enhance projects and are future. under aftermarket should increasing to more the interest Woodward in addition, fuels and as

depressed elevated China to levels. demand which natural gas trucks utilization, demand. oil gas in In continue at equipment turn On remains other for in higher the drive should increased prices hand, result market, in the and aftermarket commodity

anticipate heightened Woodward. signals we demand summary, strength opportunity In market and growth to for continued as point

Woodward across and success for developing value the company, which all execution and operational for retaining will long-term innovation, improving creation and to our committed are talent We position shareholders. of

I turn Mark to review will quarterly over results. call now the to our

Mark Hartman

of XXXX impacted $XXX by $XX increased also the million, realization, first and were approximately by an Chip. driven disruptions. sales growth Sales volume $XX price million, were million, due by of was you, quarter rates. Thank increase XX%. quarter ongoing Net for approximately impacted Sales fiscal labor for supply to unfavorable due currency and global the negatively chain but exchange to the foreign

per for $XX earnings first million quarter XXXX. Net of $X.XX were share or the

quarter of net per earnings and first $XX were share. $X.XX per or million net earnings the $X.XX For $XX million adjusted or share XXXX, were

of OEM and first XX% XXXX Commercial XX% aftermarket fiscal the domestic recovery for of an were respectively, increasing passenger up were both sales sales segment international Aerospace quarter traffic increase aircraft by and and and continued $XXX driven million, XX%. negatively the due $XX of supply lower caused flat. million were sales XX% quarter Defense chain utilization. to sales disruptions. Defense labor down by in shipments sales guided Segment by primarily were delayed and in OEM were impacted aftermarket global weapons. in sales

Aerospace aftermarket of quarter primarily realization million segment volume. or segment of result $XX earnings were XX.X% OEM first price and and sales, of higher was sales. in million a to XXXX the for commercial segment XX.X% compared or The segment earnings $XX increase of

were negatively incentive hires; compensation. and in training the costs; including earnings segment inefficiencies labor impacted related annual return by increases on related supply costs the of of material percent new to disruptions; Segment and as sales inflationary impacts chain a to

industrial by Turning approximately quarter the strong $XXX in-service fiscal The approximately supporting compared currency well impacts of demand million. the primarily million, shipments industries. were for utilization sales increased to million, turbomachinery were of of caused sales higher million marine driven increase the negatively $XX labor of increase and in first delayed generation an $XX fleet for by XXXX Industrial. supply X%. $XXX and and global disruptions, Industrial was process continued as by to exchange power Segment from chain unfavorable foreign rate impacted as sales sales

foreign costs; new supply effects hires, higher unfavorable realization. quarter was labor result first annual segment Industrial X.X% by to earnings XX.X% and offset related segment price and segment as partially million $XX in inflationary material of primarily training a compared The were inefficiencies sales. and of $XX or increase compensation, impacts the sales, disruptions; of decrease all sales chain earnings of of in to or XXXX for incentive costs million return currency related to segment on the volume

quarter were Non for XXXX. million expenses -segment first the of $XX

expenses first the quarter non-segment $XX million. For non-segment of were XXXX $XX adjusted million expenses and were

XXXX At level, compared was X.X% XXXX. sales, the of Woodward effective XXXX to $XX million, quarter million. of of The tax to $XX sales. the for was compared X.X% first was X.X% R&D or quarter of the the first rate quarter for $XX first of or SG&A for $XX million million

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

activities quarter for first first to Net of cash million, XXXX flows. of Capital net provided cash by were cash $XX provided the expenditures of activities at operating to $XX was million by $XX the for operating million. compared million. XXXX, $X compared fiscal quarter Looking

Free cash first was negative fiscal million flow XXXX. the quarter of for $XX

of was the was inventory impacts; supply end The EBITDA flow and the flow the and free Leverage primarily quarter. labor to of $XX quarter and million. in chain timing first at cash cash was increased capital first to free fiscal X.X was The free flow expenditures; disruption $XX adjusted XXXX, increases, of payments. cash million decrease tax related times due

of was $XX the returned million dividends first share quarter in $XX $XX the million our program. During of of repurchased shares under XXXX million and of authorized board repurchase fiscal to form stockholders

approximately segment to and Turning is outlook and to flat are fiscal $X.XX percent to unchanged. billion to segment to XXX for points expected previously to expected total to We points. fiscal Aerospace are growth sales percent up flat increase segment expected be by industrial sales a Industrial $X.XX be remains be be sales basis to earnings year-over-year. growth Aerospace anticipate of of outlook. XXXX fiscal as between and as XXXX segment billion. a sales earnings basis XXX X%. XXXX XX% expected is our sales XX% stated Woodward's between net

between The effective between expected expected diluted share to is to million. XX%. average Capital million per million. cash approximately outstanding. $X.XX approximately tax million are Free of rate expected shares is expenditures be on to be and $XX $XXX be weighted be Earnings $XX $X.XX $XXX is fully approximately expected flow based to to

to and outlook to industry-wide are during continuing anticipated half to XXXX a financial environment. of and improving begin performance, operational while assumes fiscal subside the second chain disruptions navigate Our The year. fiscal the supply labor challenging

improvement uncertain supply could if improve not timing disruptions negatively be However, labor expected. chain do as the and and results impacted so, of is

a with Finally, reminders few modeling. your assist to you

As a in the result labor fiscal the half mitigation we will begin of second our strategic and year. anticipate chain disruptions actions, the supply investments to and subside

approximately of in realization approximately expected first variable is million of price quarter the full-year full-year the $XX compensation the of the for costs, EBIT incentive an of of the expect increase annual compensation million to fiscal sales. variable to be million in of was $XX range XXXX. We include X% $XX over year, prior incentive recorded

by our million, rates. interest interest increase due primarily $XX rising anticipate We to will approximately expense

As in flow of we reduce our past period. same the expect the year, to half we in generate the free cash dues second

the first we results and open This the for to ready on now concludes business our the to XXXX. are of Operator, questions. comments quarter call

Operator

question Thank at will line begin [Operator question-and-answer this Spingarn the comes from Robert The of session you. first Melius Research. time. Instructions] with Our

line open. is Your now

Robert Spingarn

Hey, good afternoon.

Chip Blankenship

afternoon, Rob. Good

Robert Spingarn

quarter like things other sure and comp I you that? lower I quarter the but from -- pressures but I not by about worse? what and higher understand margins Perhaps are on some you or these to would would can last this, deteriorated clarity both this fact have it's who the year-over-year. mentioned that understand went been relieved it wants want margins. in that what up, I'm quarter-over-quarter just seem -- take volumes offer to got it's And to

Mark Hartman

Yes.

let's stab sequential, question So take the at your that let clarity, I with for think that's and me Rob, because first just where start a that started.

that at sequentially, the at the working also is addition that we we actually the anticipated in the days talking compensation which in call. discussed variable we just down, look are November number had call. actually lower also on that based volumes you were had November increase to the And of about If what we

we other that's side euros driven to earnings what on course the are to currency the dollars. the the on forecast translating do side industrial the and rates related by can't euro the headwind really going one of and U.S. currency just the impacts, of business primarily the then was And was which

and dollars was sequentially the the that So in in earnings around drivers sequential really both rate. decline

Robert Spingarn

ramping, that Without just have going think given sequential in aerospace math, fewer the recovering if the I apply? at least all the would up been currency, working the days are through you revenues have and those so businesses on would side, didn't seasonality, the would normal shouldn't

Mark Hartman

our based Yes, little fiscal on I seasonality a QX of of QX. just year-end, lot normal in customers mean, it's they're have our quarter bit a we always

and our And other of so is their just of holidays. some the just always days around then managing little lighter and it's the QX a work how the is number inventories they're

sequential -- customers of our related to demand It just our this us. isn't a are in decline is is So from product revenue at truly how output and pulling matter all. not

Robert Spingarn

assume it's sounds like I an inventory the issue. not And in channel. That that's Okay. not

Mark Hartman

That's correct.

Robert Spingarn

as at into really And you just what's and business. dig than just machining just today and tip going business looking about the for it thought quarter improving you see solving higher touched get Okay. problems. about this on? the Does talked Bringing three quarter on to time you've need you it it in-house level ago help more more last more months and

Chip Blankenship

suppliers we of than bringing parts improve. it, from gotten the we're to progress, terms XX got our suppliers making but to watchlist, some centers the we're watchlist we've over Well, and the some XX still moving we number folks graduated improve we've elevated are of performing ones in-house. have of that And in to that we've XX better Rob, on more and machining than

on So we're I all customers of of make way chain through the to the build supply quarter. affect progress, our and that but assembly shipping the having puzzle see making test that to rates is and the us piece the working daily this it

things like hunt more always help, on talented for new on somebody team Hobbs brought places the full them roll folks that partnering our of a more comes look up looks running We're they’ll to talent. we detailed are E&I operations, more with a at -- the we're find the business how very action needing terms and we're and some as it of Randy terms need in, and whenever to we're attention. In that well the asking as of in and do capability business

attention that So of say just more I needed, needed but I'd in we attention seeing bit ago. months space confirming industrial three little We're a it… are most were things the thought those

Robert Spingarn

in saying? are You discovery I what if mode, hear still you're

Chip Blankenship

those product approach. management confirmation scrub product mode. thoughts mind in my portfolio really of terms good we're say that to olfaction would really I through the of on from need especially already I product had most a to actions in lifecycle we

So we're on it.

Robert Spingarn

Okay. Thanks so much.

Chip Blankenship

Sure.

Operator

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

open. now Your line is

Pete Skibitski

sense Hey, guys. through a afternoon, there, of, for macro was signs out Maybe of happen? industrial us revenue anything any seeing at solid. Chip, you of, pretty strategists macro or in question kind Can good Obviously, you the weakness kind the flow Are order could you. a this all quarter some of, guys quarter industrial? like was about give

Chip Blankenship

were on of XXXX. a lines serve their demand a seeing and our customer the was we're rates lines increasing. them at prime in our as lot XXXX remanufactured dealer softening getting demand to We for this to to see from service their build point or a any don't parts. of we XXXX coming up in of out shelves new now. rates remains signs pressure So those increasing That for end taking customers up were just restocking from signal pump well their under We strong standpoint preparations the and to QX increase with their at OEM of lot major of from and pressure

Pete Skibitski

Okay.

plus on full-year X%, side the do So is you for your perhaps? flat conservative outlook that's industrial to feel

Chip Blankenship

this promises some not how to our and we're and it’s metered keep forecast. lot demand units. feel can time cases is count our manage to lead metered by inside I they A dropping by them demand. like -- delivery our on to We're with trying customers in and ability make produce in we're of

standpoint. a really us, of lot on top as dollar line from is the So constraint the well FX headwind as some a

Pete Skibitski

Right.

That's quarter Aerospace Okay. for seems just on a by leading helpful maybe of performance -- kind Could disruption, there the $XX to had kind COVID actually in haven't year, better like this industrials for you've that on one less see helpful. It Last anything that's and to of gotten there touched got in it's here. worse. behind? segment that where has falling me through you industrial issues you is

Mark Hartman

Yes.

right, that slightly get worse. Aerospace Pete, industrial the get better did quarter did So in you're and

-- our really what's of just both based to machine chain the on strong it's related volume was really their limited is output talking industrial, big the is that the labor is It's availability Chip and the disruption about As we've industrial those still electronics previously is The and other supply be worse side availability. increase customer there. on the driving order drivers the to got demand. still in so still and still components continues talked is capability of on one and that that the demand

Pete Skibitski

Components labor? so Okay. than less

Mark Hartman

there's the million -- labor across we improving this the that in Well, on in, our availability of from factor both the and and $XX board a brought our chain line. supply output trained labor that getting

Pete Skibitski

guys. Thanks Okay.

Chip Blankenship

bet. You

Mark Hartman

Welcome.

Operator

with line Your Christopher Oppenheimer. next the comes question Glynn from of

line now Your open. is

Christopher Glynn

about of industrial positive Hey, quarters, to Good few mode? maybe verticals the any seeing more past turbomachinery. thanks. kind evening. some you're incremental strength there out, pronounced of, now? Wanted certain investment ask Relative stepping in Are inflections the process to

Chip Blankenship

for OEM we don't definite step at application provide. market us, that of see that all turbine-controlled that way asking -- exact the gas we to the the land-based for we I a your function you're end just know demand through end question. see in But a accessories

there's that is power gas splits where coming from can but and oil the for an So postulate it's Yes, not that this generation process, and between increase sure. the Woodward. that's bulk we of we're --

Christopher Glynn

the supply visibility, certain know, where, subside to of you in investments. half. are subside. timeline? the and starting is at look back to have subset, more Or there more the have where to you've labor your to real you a Okay, to tighter see you know, traction, great. Is made some one And you Where chain as issue begin you you outlook

Chip Blankenship

So but in few control, a machining be tighter the traction for fiscal quite I in destiny rapid producing offload to is starting controlling centers that next by hit parts so things Woodward and up the don't suppliers category. to equipment know That be timeline, quarter standing installation at some our quarter at that a and and complex machining quarter within and fourth that commissioning sure, our different our the the about and our are floor locations we're of the be we'll of struggling third able number own and phase, plants.

So that's have actions that to line benefit. that and will a good we sight able that of lead to control something to are the

Christopher Glynn

to revenue that Does in outlook? base sort increment lead a the rate your to as any, current step-up of, proportion run

Chip Blankenship

planned It certainly that so essentially to will to be give and will capacity overall trading alleviate which But translate believe output. we count makes can will we that's into that consistency, sense. I not uplift are if an on, disruptions to actual capacity producing going that

Christopher Glynn

I Thank think you. so.

Operator

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

is now line open. Your

Matt Akers

the up seeing kind I about some Hey, general, of weapon, they're munitions bit? a Do just and down? understand more JDAM sort Are are of, you sequentially? talking they about guided guess good either wanted of, maybe of a around little for there that, Ukraine they where afternoon, of And Thanks and we demand us ask on kind there you or compare? for said to just down help Is while, that pick guys. any we're year-over-year, are? could question. restocking slow a And more down tougher downside? specifically, sort I

Mark Hartman

Yes.

Matt. questions, I'll the So two take

comp in from that soft. sizable to JDAM side mean, a the we guided And to you XXXX, may continues fiscal recall it but there step year-over-year, us on really really isn't following a down compared weapon so fiscal the XXXX. had is decline tough the be I

we've prior It's based but down another are in they've it's on the We business. year, of that the the there seen significant volumes just on still about still not step had. talked continued weapon guided anticipating and softness as of side a as ordering what our

to the I'll we haven't any yet in Which foreign typically the your DoD pattern which of of of orders for might of business, versus us Ukraine the it more out question second you we seen then drop we lot opportunities there, have type have some on uptick hear call of a that transitions typically. in point, conflict? from have is couple And at military sales, order of on -- don't we into for around anything -- ordering your side be a and a of and that in part out a lot our the visibility years orders this

opportunity come firm may we haven't be us. for at some for point, would that That of any forward seen So us. the orders. But that this

Matt Akers

Thank you.

Mark Hartman

Welcome.

Operator

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

Your line now is open.

David Strauss

Thanks. Good afternoon.

Chip Blankenship

Good afternoon.

David Strauss

out? just inventory or lower. comment you're like levels back reverse pre inventory balance you basically it And I you the of was where to are XXXX -- is it And XX% excess running could today? carrying? the Mark, looks when going sales could this to some inventory you much do on you expect how mean,

Mark Hartman

Yes.

in second QX. output So and fiscal has we're we're sure. prepared remarks half and continued What it continued is around the team increased want QX. here in would that with with to supply in year, inventory. here both of our as labor we ‘XX Really go is, in a focused significantly reducing begin in to the where that as we the up It chain on well increased disruption, improving to here to inventory the and on above up, go up gone for our and inventory mentioned the be, help

anticipated were So point, and forward. of inventory the that go the from all-time like And as of year help you're mentioning, half is at, perspective team that that the something the some very on reduce output focused at with we in would second making almost increases it's improvements. this that highs

David Strauss

But and I'll defense revenue looks for to going million it's side, like the Aero, Okay. rate Aero there now the is the I And that that like business looks as JDAM about a what left? would I $XXX year way going run was is the the the million? in Or back mean, that coming $XXX business it be mean think fill right expected. think the, OEM has and the Defense I on about right the aftermarkets gap a baseline to guess, is for forward? business something that's as

Mark Hartman

Defense that would the what say we're ballpark at the on of JDAM. decline I it's side, the in looking of based the on So in

is on have spoken of back last there increases a back, ROM, was AIM-XX, with small the which choice SDB or of But the volumes JDAM choice weapon the we the Now it the the both when F-XX. of were about some is in so. diameter and volumes aren't what at weapon decade the

and On disruption we lot the demand strong that do side defense Defense the there. our chain aftermarket business. A aftermarket impacting see supply of of is side, labor

defense fiscal about to year. offset here about on throughout the aftermarket output I improvements improvement weapons ’XX second was the we Obviously, talked just be spoken in we've is headwind anticipate the on that side. side, some some Based of what So on the defense as by year. the for stable we've describing guided half

that's of stable we're in kind ‘XX. So revenue at FY perspective ‘XX, where a world to of kind from is that compared FY for

David Strauss

last And me. for Okay. one

want guess, Any looking amount the You QX? calibrate with below line fair in your, for. us provide Obviously [Indiscernible] you internal help came you know, plan. to was was, on said QX I a to your what

Mark Hartman

also remarks is, are in a lot a give is prepared we where had discussion we don't that where to of it guidance begin starting of, we kind today. This I November my half back in know. see, second So that's I'll that improvement quarterly had you recovery really will to subside. as to go

is the at than right, will compared spoke comp be I have anticipated but look prior $XX in book the about, FY the year, you year, for will $XX did million did more the to ‘XX. increase there. we QX, we still that We if that So variable what's million QX,

back Complex opportunity of the many improvements more As that was half for really It's be QX. in won't mentioning, that for Chip example, parts us. Machining, Rapid Again, we're making. a here with producing

QX we're that And improvements on business is working don't QX QX. based in holiday more had continuing days. seasonality to is so seeing at full, our into where what our the don't in stabilize really disruption year even periods subside. effect but at business, looking we're that of we here We going some some half that through the the move our We make QX, in not impact of of start but as just really we really second full not have not some to have improving had much the the we really

David Strauss

All Thanks very right. much.

Mark Hartman

You're welcome.

Operator

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

Your line open. now is

Sheila Kahyaoglu

Thanks. guys. afternoon, Good

Chip Blankenship

Yes. Thank you.

Sheila Kahyaoglu

to price the XX to to an slide And, maybe what QX? So on about did of going flow in that you Is and price follow-up just X% the the can timing talk net gross see contracts, whether realization? through? or us price? or it's And you it's Industrial Aerospace? How

Chip Blankenship

net So Sheila. price, that's

Sheila Kahyaoglu

Okay.

Chip Blankenship

agreements Industrial It's come sort that they come long-term far are and month in some of as goes, the due. -- They're both as Aerospace just our it's due in timing expires. not annual. And when cases

annual, X. spread or catalogs things agreements Life out plus are adjust that that do The so like And Program are nature, on January with that OEMs sort year. through contract of, long-term under of the

the So then X% what see of spread out that the January a bit there's year. kind rest is X, them the of we're lumpiness of and and we'll saying on through are what is

Sheila Kahyaoglu

aftermarket. your switching commercial just Okay. onto And then gears maybe

also body know, average script. think China your wide you versus double And narrow provisioning. limited in in grew numbers. far aftermarket you thus given it like You your I body seeing But are what mentioned initial the peer

your business So how is far below peak? versus China

Chip Blankenship

I take remember of can to those just a not Well, -- all maybe I'm one time, a but points. at sure

now doing and of service we those the right our all back So them strong door. very and shops a getting have turning team job units pretty inputs of to out good is our

we've predicting some. I in had us. for China but initial narrow Europe not have the now. business us the take case, had We've China some for quarter the good that strong, demand for Not We of, our that. think we is looking most of coming from last quiet much the East did pretty kind and In off two, to the Americas but for extremely that provisioning really hopefully, body. Middle can't and right of in a or got years

Sheila Kahyaoglu

so much. Thank you Great.

Chip Blankenship

Yes.

Operator

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

Your line is open. now

Gautam Khanna

Good Hey, guys. thank you. afternoon,

Chip Blankenship

Good Gautam. afternoon,

Gautam Khanna

questions. chain on to catching million wanted And, related much just the how I a I $XX guidance, year? anticipate One, supply ask the in have delinquencies? up then Do the you two follow-up. fiscal of

Mark Hartman

Yes.

get with, sales we has September again, guidance we to at would improvements. $XX would supply the there's seeing From maybe What are was demand higher started to get low of we right and year you wide market towards of million the points worse. end of into labor end range, and chain million range a varying it grounded a of you everybody $XX previously that get that kind went be had kind range you both year impact. be when anticipating the end that So that had the in and XXXX. guidance in little range as at, middle, the would things our we of, the on said based disruption range the just we and Obviously,

to we but part on, a took that specific so really gave. range was into a really related number the of that focused that account we not And what it's we're

Gautam Khanna

seeing, constraints? you discern? could what And worse? you're What respect there's If with got what on you chain got can supply quarter-to-quarter any trend Okay. elaborate changed better? to What

Chip Blankenship

statement. general elevated are than say more that's think Gautam, list put on. more But a I’d we have we've that taken the off I attention suppliers recovering overall,

of better good lines, and of in a things including our in We've some in that's had some terms getting value sign of front So our the ends machining. output streams of better.

and our we're of to newer machinist feeling starting up to that's operators speed. more So get we're also like

So a less better people more because those two -- those items. earlier thing. good I are three hiring, or were having we're staying, people that's this but that I to three points in are about trend sequentially staying think We're the a say feeling three as need quarters good think we doing seeing, are trends so discussion we whether maybe we're

Gautam Khanna

impression Is management? are are in? stuff? better? it sense. you And the you Like, make of you What do where your if could Is your it may. preliminary to thinking like industrial thoughts actually last Makes initial what's Right. skew you Is I participate one, Chip where portfolio? -- it markets on

Chip Blankenship

rationalization I portfolio think term first you the vast where another But of with are old kind the company. the from of what I segment. would product the industrial performance. as not And SKU all initial went in impression is an class in is children is use our the top

stages some do need to we could got things that That older conjunction to lifecycle. things upon. our action are be as work well that our we some that well base as of sell make the latter to of to strategy supply customers, to differently as rationalize in things the good as on or customers we've actually take that supporting with and we work our try product we do with in managed the that have upgrades So standardize

complexity. results are That's there of that with could main that we it. focus true improve of, to the tried and our So portfolio sort are, a reduce number of make our the ways really well-known and different moves

Gautam Khanna

very Good much luck. Thank you guys.

Chip Blankenship

Thank Welcome. you.

Operator

next with comes Research. of from Wolfe Raffetto Louis Your the question line

open. is Your line now

Louis Raffetto

evening, guys. Good

Chip Blankenship

evening. Good

Mark Hartman

evening. Good

Louis Raffetto

kind deja out. year bit here half we at a second and first spot recovery little were we of ago, from kind looking same that story how a played a and So of of tough know vu quarter

implying if in the realistic? your is at rest margins that average. look So is I mean, now, year of the business just XX% I I that on think guide Industrial kind of

Chip Blankenship

operations to business, that. there that our Price products. portfolio are And in key on then some push I rationalization the that Well, Like so to. we to I a our action rightsizing addition action. three a little are said, our we're taking got recovering we've the to and focuses that achieve to realization, and get we looking was the opportunities talking do product through value for need better that's

of on If the year, none see and each but benefits -- it this to are we time, them. things moves which it things time half. that to is So the execute and many knew none to would start these in of these take to why were things cases of it we some take these planning of easy back

Louis Raffetto

-- you And pull you. the tell any just XXX, on side are OEs? from are me What Thank XXX, you Aerospace? then what OEs from seeing AXXX, Great. guys can the you about

Chip Blankenship

nothing say, changes sort rate overall I of schedules, small going changing the of, year. would or seeing We're there's our plans rate on in mean, build there I lot that's are same from a but there, break reschedules last out

with in we're trying folks and their lead we tune sure following So and support them. the and airframe engine to make

Louis Raffetto

All pretty right. year-over-year. flowing most of the And then I just lastly just through much of cost flat on was guess SG&A the variable that's comp, goods. so

Mark Hartman

P&L, SG&A. goods the three all cost of R&D across on sold, and goes lines It

Louis Raffetto

Okay. Thank you.

Mark Hartman

welcome. You're

Chip Blankenship

Thank you.

Operator

the Michael Your Truist from with of Securities. Instructions] question next line [Operator comes Ciarmoli

line now is open. Your

Michael Ciarmoli

the question to I Thanks back guys. that operating these if want disclose Maybe the Hey, just guys companies I us out bridges. first -- mark Good taking one you Aerospace, for on super you of and questions. know to help don't are Rob's to income think evening. go

improve I the and mix I if did sequentially mean, fourth in looked segment So the was quarter? this quarter, productivity, Aerospace from price that

Mark Hartman

Yes.

overall. Michael have the where side of, don't we the the the impact seeing. inflation material X% But as is, did which offsetting realization, essence, on that's that know and the both price we achieve In other and kind as direct side So here price productivity sequential labor that in mix bridges XX-Q we've we're the quarter, you of inflation in really it.

Michael Ciarmoli

second But -- Okay, the okay. going get I flattish. quarter about should your expect second XX% guess look quarter And off in function sets like -- second right step Or don't should improvement give of most level of we kind way see it? mean, question, half? industrial I the this level? you're for here this second more that think a some just the it to sounds that in XX.X%, up Is to And what's in know like the online Or we I the pronounced in we X% to to comes to of back then know quarter? improvement previous to confidence margins, new going I going mean, guidance. us to are not it just margins really capacity maybe I expect

Mark Hartman

prepared Yes. half remarks. is this second And as story I'll say consistent a here. mentioned, you with our

it call earlier time. As Chip that the towards was of they then he mentioned, the working take mentioned a lot and confirming as were, activities on

second why really that's are a we half so improvement. this is about And talking

Michael Ciarmoli

unfortunately bind is the strike your to fiscal a get most bit kind stable the second quarter I for you a environment little you are puts seemingly a are Is there good half? half? stabilized for in which there calling a supply enough of too. Okay. stable enough for and the get you for of September, chain mean, reporting there I you peers of to that mean, second guys

Mark Hartman

we stabilization is inventory we a and us see shipping because hold or And missing Stable not you final one of and up. and enough, have have can lot that lot two and a those capacity. assembly need some as of we parts test

So we've balancing the got Centers delivered some in Response us second half. around to and shift Rapid good capabilities get that and plans capacity

Michael Ciarmoli

it. Got Perfect. guys. Thanks,

Mark Hartman

You're welcome.

Operator

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

line now Your is open.

Noah Poponak

good Hey, evening.

Chip Blankenship

Noah. Good evening,

Noah Poponak

saying just This to know, together I because repetitive, is you margin stable inputs, heard the is going a you enough. but little be I struggling guess I'm piece to all just

if prior the not know, sounded you was description question -- a like chain Your to better. supply little stable,

I'm we've better chain I why it sounds cost supply dealing disruptions with. quarter. trying were You've just in then the general like? And input the to guess, margins got worse better been understand pricing, inflation,

me, but to that the margins line-by-line moment, cost were struggling to it's are and I some understand to you've seems were just stable putting hard of a had know, guess You and some them really answer the for better? it of hard worse still square. you've it's ramp had back that half them like inputs, but aside the why without showing

Chip Blankenship

do who the now not no, making there two show where they in that up and places What we've there's would seen, costs than to labor from even proficient applying our their making parts part, now? make. no on right would step once a then So pointing part. supply some labor way and I training so making or of of are I are a And right they're was training chain a stable our a a to to internally, improvements but the standard people from and are term we're machine operator to trying in training are graduate fewer

margins second half, accumulating are more costs planning where places two time we're the that are and our that have impacting by those time. get by to be proficient to So the people we

So that's internal factor. stability an

to we've the right all make But And that -- we've then unit. you XX as graduated more more XX watchlist, now. we it though got than than externally, suppliers parts you have off even on know, need the

much some not factories. that we're signals need not fact cases the the We getting sub-optimizing and end on very our so And internal parts up time. good we we're in getting

on whammy traveled at or work So that's double cost work of we're it, re-sequence output getting resequencing not the a we're having it. doing having or sort to where and

Noah Poponak

Okay…

Mark Hartman

be just to want about be right This clear to clear just I I is that. not stable that. want now.

Noah Poponak

Okay. No, that's helpful.

too OE, piece or On competition? the is industrial? too that the Is aftermarket, Is all are there those SKU enough what the What disruptors not things? are rationalization it and product the in review, much much characteristics? Aerospace any

Chip Blankenship

many into. be we and part numbers. a answer don't Well, disruptive the surprised. we mean, to often I of we you'd stream we things simple made inserted whom very number very I here, too do, the is when I think all And If showed value you make the it's

well sold of product show a there's as that to bring with -- So period manufacturing just, associated of that, on cost that maybe quarter. or goods because that hidden life it isn't overhead a the what trapped cost actually costs that up in to takes

serve improve So ability of you the product should that's and basic but management, we price offer might getting make to customers margins. higher our going say generate an should and we're use better -- understanding things it. what what tool we These alignment to should with how and to we are

Noah Poponak

And roughly? under are SKUs what percentage review the of

Mark Hartman

All of them.

Noah Poponak

All of them?

Mark Hartman

some them really. I but we'll there -- are in groupings. mean, of all it Well, logical It's groups. do

Noah Poponak

it's history else? me. something this back year, capital loaded just you for pretty is Last or elevated Anything, implied XQ capital that to its plan. Mark, ramp a Understanding do the XQ one especially related the working free and half on on plan to that with if compared just add steep, how the to year? you can cash from

Mark Hartman

Yes.

there. of comments couple a So

on one of half first. that really earlier that that will that inventory be capital improvement impactful the be most year It the flow. we improvement will -- So on and the are cash is initiatives significantly mentioned working that drive as we'll I last what the to working call have you we second help the in higher hit --

say, have past. the cash had, I'll seasonality flow We in

If look you QX QX us. for that back and strong consistently do at has and been flow generation go historically free cash

today working kind where customers inventory And back then in today, so getting collections the be a like implying and the and important. inventory half and with of, we're, it capital at where we'll will piece with that the dues, balance we're story out obviously reduction be is getting the past

than guided to the in half CapEx QX, there, just $XX $XX was first spend loaded. more did we note we it here million, Your million a little so

R&D in was other The the here. we to payments, tax back U.S. deduction that's have cash for talked to Tax we of R&D, tax timing payments, law higher primarily change November, -- the will the one going related

I big and improved inventories really, comes allow the so to And impact production capability to that down one us But that collect an the has reduce will too. the due and which past getting mean, cash.

Noah Poponak

you. Thank Okay.

Chip Blankenship

you. Thank

welcome. You're

Operator

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

Chip Blankenship

I’d next thank look to and your forward like you for quarter. you participation seeing to

Operator

and that today. Ladies concludes gentlemen, conference our call

be X-XXX-XXX-XXXX for call, will the will If X-XXX-XXX-XXXX XX available days. call p.m. it be call, available Time the A a you rebroadcast or XXXXXXX. by by at would conference like Company's for for a dialing www.woodward.com, access entering to listen also and non-U.S. Eastern a Standard at to X:XX of U.S. today website, this code rebroadcast

and We your on participation you. you thank you call conference disconnect today's line. Thank that your for ask please

Woodward (WWD) 30 Jan 232023 Q1 Earnings call transcript