WWD - Earnings call transcript Q3 2024

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Operator

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

Third Quarter Fiscal Year 2024 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 Chip Blankenship, Chairman and Chief Executive Officer; Bill Lacey, Chief Financial Officer; and Dan Provaznik, Director of Investor Relations. I would now like to turn the call over to Dan Provaznik.

Daniel Provaznik

operator. you, Thank welcome Fiscal to you Woodward's to We'd XXXX all Earnings Quarter Year Call. Third like of In today's results call, related Chip we at will comment on our of will our release presentation, discuss the in end markets; take our then our outlined financial questions. as will earnings and Bill strategies and

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

noted. An with audio included website some All of or on presentation today's along call the this in again go accessible phone that to are have references will We our through call references company's to website. replay this by otherwise XXXX. be to also are year materials fiscal years call August available XX, our on unless

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elements of economy the for on elements can frequently are and forward-looking and more Those presentation global outlook current this specifically. and do our As based assumptions and businesses our always, change.

subject of statements not are identify update of to with as to These in SEC. Our we law. except forward-looking and by we the today, a required our risks them, uncertainties statements risks surrounding made elements, the number intend are filings including those do and as

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

turn the Chip. call I'll over Now to

Charles Blankenship

good and Thank afternoon, everyone. you, Dan,

Day and recall, operational interconnected innovation our you last value Investor we may drivers excellence three our December. growth, As at shared of

is some on our innovation. Designing topic and of control current precise like environment and financial in to within on Before we the our DNA discussion our begin performance, demonstrate. product complex product as solutions highlights offerings motion challenging energy share customers' I our would

we We're some our and building our next-generation current with customer road on R&D serve. it share our of power some on our and strategy future. predecessors helping purpose that growth needs deliver with count the partners can product a and meet platforms. are I'll to we to purpose control aligns a of our engagement solutions fact, our investments future. evolving our Today, new active with their clean end innovations design Woodward the future news. is technology of In start I'll for energy requirements markets prepare for customers that This and ensures recent and the the development map

that revolutionize thin-wing has and Boeing this the and feedback actuation International is and to a Boeing Farnborough hydraulic manufacture within its pioneers fit It fuel This burn design single-aisle of surfaces to now controls the configuration demonstrated NASA wing advanced transonic yet drag low has X-XX low-profile demonstrator, will that and for During that , precision of Air thankfully. dubbed selected wing the aircraft last enable potential design. concepts Woodward envelope emissions. reduce design. motion control control we announced a collaboration the project Woodward week, advanced to for Show applications on trust-based between

ambitious criteria potential for Woodward durability materials by as is evaluated fuel the Another driven develop significant as gas regulations such has by PXX generation, new quest in in from control a robust Woodward specific compatibility ammonia design future. Alternative toward area testing has These posed each analysis global a material materials changing power component have is reduction delivering standpoint. methanol hydrogen, systems, achieved contribute and maturity cleaner liquid and and customers fuels and identified in invested new challenges transportation to fuels aviation, and to applications. for or various selection carbon fuels as and compatibility where are invested Power-to-X targets known fuels technical alternative applications. being leading alternate the for for

a We the demonstrator. have Airbus Germany, Research state-of-the-art hydrogen-powered ZEROe components compatible testing aircraft in for Center PXX we're established where hydrogen Stuttgart,

and programs our advanced engine, fuel reduction Another or bypass for engines. an ultra-high very control small, core burn fuel exciting aircraft be the newer achieve is reduction one open have next system an targets To fan the of to quite generation ratio and an the for of inside ducted and temperature will additive systems the and and we've reduced compared will the compartment service. previous to housing volume using and than system current be compartment significantly meet technology envelope, than achieve higher To more core designed volume fuel manufactured core the in XX% weight engines. fuel to corresponding

our to demonstrating components combustion technology core optimize fuel fuel to on and substantial for position management. requirements. control product high-temperature, track delivering to demanding the our enable to technology I'm developing mission, that allows size that maintain improvements the in customers' designed will In competitive robust confident in evolving and we're with and road burn. and are XXx this maps electrical through innovation flow accuracy sensing This motion edge addition, customers better in further deliver currently servo-hydraulic alignment our Woodward's environment. We're confidence

and some in to traffic nature. markets. In discussed heard as term short U.S. domestic yields, the in market which airlines you Aerospace, strong continues. commercial overcapacity recent Though passenger Moving they be in international our to and domestic believe lower earnings calls,

tiers complex mind, invested give effort help two raw macro players from lines all deployed to from were in material recovery. to a centers in faster to environment them in recover. chain strong, the the of to launched the heard that and between other update We in resources not OEM you path chain on I'd companies, rapid down suppliers aircraft to and like that in the remains XXXX yet synchronization. With in performing the supply to and supplier or suppliers machining our While supply Woodward offload you as struggling, we

described escalation rates. that run forward and We to in our likely deployed system I or currently to detail our build impact operations are continue to and engineers support previously, we that tiered have management experts suppliers impacting

have this as numerous seen the graduate suppliers seen we list have ones We well. list, enter but from new

collaborate invest to suppliers sooner impact to solving continue of resources problems action the with build they and with before taking our will We goal rates.

we in of breathing investment parts to benefits complex have reap to room suppliers as thousands centers rapid machining our recover. allow to insourced continue from temporarily We

and We machines more is body the a benefits provide synchronization flow year struggling We with of capability the we this the across to aerospace third chain flexibility. our is improving Back as but lack and and suppliers buildup basic inventory from even but opportunity bigger those building delivering in and with operations we that supply our monitoring part times our flow. our flexibility customers efficiency line to picture. The in the progress There shortages transformation, our focused lean is inventory can in reducing effort, manage have a and from to associated perform. suppliers. of to This also additional and most lead invested of resilience. work through are are system, offer of creating same want smooth detect is that we communicating on

horizon an resulting align are in legacy industry on in flow. Aerospace to other industrial, increased ago. investment rising we high smoother additional better shop We is each generation. than visits outlook that and and years of would aircraft is to a utilization power gas-fired driving Overall, and and we continue pleased healthy continued just connected a particular, aerospace global to demand as support working with be longer the in of engines high few activity aftermarket path a production business. In have power predicted due remains utilization together with repair our to activity

centers and driven stability. ready grow are Data are artificial alternative to fueling future aftermarket sharply intelligence this and also fuels marine demands. In current elevated trucks seeing China increased across activity. market fuel the remains build efficient, continues marine increasing for heavy-duty increase. installations rates high support rates utilization Demand by Demand more We ship for and for healthy. quarter. demand in and demand OEM and softened to computing grid the transportation, engine industry with backup other power lower emission for to associated forecast driving demand alternative

our stock go through in term. section. which engines in Bill they heavy-duty Discussions cycle orders expect accordingly, in near and indicates the from guidance revealed QX their and share China truck to year customers elevated sales engines our we've industry through inventory resulted his are diesel in will full However, lower on-highway natural data revised gas and This levels, for applications taking industrial China. with that

gas in generating on margin we well free a our for to remain solid oil basis outlook markets, track to refining U.S. results. gas of although their strong. remains share and growth petrochemical capitalize robust global to end low gas China financial the infrastructure demand the as $XX innovation profitable value. I'll well and for like focused strong summary, approximately and business XX%, incremental and operational gas Regarding million driven of space growth, and prices. and are activities Middle customers members with for our to and now markets, to thank Bill shareholder excellence We're and demand it natural XXX East Overall, on flow. points natural of in and by I is shale performance serving our improving dedication to on our production year hard this sales would to expansion maximize India. In across be by in sentiment work pressured continues over turn results. domestic oil positioned as Positive cash we

William Lacey

good you, and Thank Chip, afternoon, everyone.

an increase third quarter unless year-over-year Earnings X%. were of all XXXX per of for third for As million, $X.XX. for X% the otherwise a XXXX the aftermarket sales comparisons aftermarket XX%. by $XXX volumes, quarter $XXX million are a up down million of and million, $X.XX $XXX an sales. $XX sales quarter of utilization. Aerospace sales were or were reminder, XXXX in and utilization of compared by Net Commercial were aftermarket segment XXXX XX.X% the supported while share share earnings increase stated. for the million offset compared price third sales segment partially Defense up Aerospace OEM of were to OEM to of XX.X% of X%. per were segment sales quarter increase XX%. earnings segment third inflation. $XXX to Overall, was The and defense compared earnings which or were aftermarket were up higher result of X% was of aircraft were sales higher sales segment commercial

compared increase increase segment an sequentially. X% in X% year in Industrial X% primarily $XXX sales. flat sales was sales $XXX million, growth down were oil year-over-year flat by The to the expected, quarter China million relatively for a by were due were offset and third sales segment at increase on-highway Turning gas. Industrial. Industrial increase on-highway of power prior China of and sales compared industrial generation $XX partially in million in driven transportation, the an a X%. approximately XXXX as to to moderated decrease to and

level $XX of sales declines we further the for $XX at quarter of Chip segment quarter fourth Industrial the segment of by of XX.X% result the XXXX expecting million. of mix. compared sales. million inflation in depressed delivers sales, as largely flat earnings As were million range earlier, million are $XX third earnings relatively referenced the with sales segment business Industrial of this to a or to offset margins. unfavorable negative realization, in remained was which and price or $XX XX.X%

natural compared X.X% compared of sales tax sales compared to or of to XXXX $XX XXXX $XX quarter million for Excluding million strong was continue was the and for sales. SG&A third level, China and to X.X% million the At the be of or segment compared X.X% million third XX%. Non-segment quarter X.X% for third for The of truck $XX effective or quarter highly rate XX.X% at million the R&D Industrial third quarter of margins XXXX the to were gas sales. approximately or the of of $XX impact XXXX was $XX million. of to Woodward of business, expenses XX%. $XX

at the Looking free cash $XXX expenditures at to operating X free and million X for first XXXX by due was compared first provided of of $XX increased XXXX cash $XXX cash and $XX million, capital the free the adjusted end flows. Net $XXX first flow million. third months quarter. Free Leverage X million. compared was months million. $XXX cash to earnings for million cash compared working of EBITDA was were primarily expenditures. higher million. cash $XXX capital, The increase to $XX XXXX flow XXXX flow was to compared flow for for improved in the X.Xx X partially the was million Adjusted of first offset to the of activities by months Capital months

to of million of During million first returned in dividends form of months the $XXX the X XXXX, $XXX we the of million and share $XX stockholders repurchases.

guidance. XXXX our to Turning

range for systems. with customer environment. confident spite aerospace timing these align year deliveries, the for and We issues. Total Chip that We quarter on the We're based the lowering current and between sales China reduced Supply in supplier XXXX range remain chain dynamic now fuel revenue deliveries for on-highway chain natural pushouts $X.XX year-end. return the to guidance are on year free earlier collect fourth us orders fiscal referenced chain that to revising of with to can the coupled we certain the cash for on disruptions cash expected guidance of deliveries flow. leading industrial on-highway likely as are supply XXXX environment our aspects net deliver billion growth late to the extend are full be our supply sales such XXXX $X.X to billion. of planned year will outside into fiscal our XXXX better expectations China truck The original visibility gas

to is previous to XX% now high end and approximately of the XXXX, Aerospace growth sales, sales be expected earnings segment our of to be are For XX% XX% still expected range.

a be questions. expanded to now X.X%. To with we on sales At based rate $XXX and segment share open are XX% million to to industrial be per quarter XX flow flow now concludes solid between fully Operator, to XX% earlier year-over-year expected business $X now on Woodward to for approximately on We and $XXX million. Capital free we diluted cash Adjusted sales margins adjusted expected be Chip's effective level, segment earnings year and million. earnings adjusted the expected to and of growth now is are $X.XX average the approximately results be a XXXX, are free now XXXX. are the approximately to shares track expect comment, cash for expect our generation. This the weighted be sales. XX.X% is expenditures to outstanding. For $XXX growth, tax strong be and between third reiterate comments we approximately the now to still ready call expected million

Operator

first Scott with Our Mikus Research. Instructions] [Operator question Melius comes from

Scott Mikus

us know give U.S. And Bill, or aftermarket you been airlines any talking aftermarket. the for capacity time, orders have lumpy, can be commercial on Aerospace market, about market. at reported flagged in X.X above either ] can but But domestic its bookings I is you the [ book-to-bill in Chip, commercial X color ] year-to-date? in too [ your book-to-bill quarter having much the same GE how the especially

Charles Blankenship

our coming book-to-bill and our So in it's we outgoing. intake aftermarket. don't really But advertise strong on strong

in on you up results quarter. As saw this our was It XX% commercial aftermarket.

a think we I traffic domestic I and U.S. think to bit the cautionary little grew -- X%. capacity the of about comments were market numbers -- are delivered capacity the industry just the new passenger tail X%

don't little of cautionary small, quite impacts of a I just still So is it's might It's but it's slower. bit that big little growth the high. nature, not mismatch. utilization bit be a a anything or think rate deliveries it that

Just marketplace. to sort hearing we're the all consistent the of in with trying news stay

Scott Mikus

Boeing May, tail for components. other JDAM kits and a late $X.X in then And received order Okay. billion

any fiscal orders year? to it of Or that And that in are you is thing? revenue could defense contract. translate 'XX to this of support starting of more So a see

Charles Blankenship

in late know. our getting take to down. it's fiscal these as while And year, Well, requirements flow a you

are for with has for us. potential supply We and increased firmed in nothing been chain but parts rates, discussions of other yet up Boeing the

Operator

Bank. Deutsche Scott with Our question comes from next Deuschle

Scott Deuschle

to clarify quarter? you lose gas can China is Bill, the in how truck much fourth natural business money assumed the

William Lacey

Yes.

from is, I that impact level ] where it won't we a [ margin revenue talked into is go the it. [ it we see, ] But a can on to it drag position what as that business Scott, you negative expect volatile. XX% As as as This kind is from standpoint. of at detail the business. our that about, do a XX% to the discussed and a goes to of being of characterize continued have have is, we very of we quantify OH exact how

this surprised on margins quarter. not does I'm yes, down the we're segment. But here our Industrial our volatility. drag that so And it given

Charles Blankenship

the to is full. in side the non-China we news, news will half range. though, The OH business industrial believe on the good that the think I good XX% glass be be on -- the our

to feeling of ability about the we're good execute business. So our rest the on

Scott Deuschle

the a thought XX had days guide fourth of this that quarter, but I visibility, could would original I And have kind quarter solid so you Okay. in have guidance, assumed assumed always fourth you with the you'd wouldn't really of there. much

is thought reduction always already this this assumed. So on surprised I'm guidance by not that a I bit the because

So me can understand you help that. just

Charles Blankenship

more of more in quarter. Yes, amount zone going business this the Xx we breakeven were XX% we the thinking of were maybe be to to that fourth in

like we visibility. quarter one a so have And said we've before,

first this less bit get, third more is our so quarter getting the got do the than in a quarter. technology. just strong quarter business. fourth we this visibility fourth in we'll We to we're and quarter. margin. just good more good It's we'd And lumpy the in it's in It's a It's Maybe say. application. a hard -- of 'XX, like and thinking were hard little it's get It's We see. to

is our opportunity quarters. deliver money and So the to these to focus the get is prepared when and be to tougher make right try through efficiently

Scott Deuschle

didn't that. then you help looks stock million change up guide And in the Bill, $XXX share quarter, count the the you but share Okay. on sequentially me like was count. of it actually and repurchased understand you Can

William Lacey

the Yes. the appropriate that shares an range, is now think for guide We million guide is that, XX the in we felt still and for year.

Scott Deuschle

So quarter, that on in impact the any? $XXX have the what if count, share does buybacks of the million

William Lacey

our guide of help stay It of the in the again, to, does stay us -- million. XX range in Yes. that

in of we the prioritize off million the we quarter, to at beginning going last program calendar year. the $XXX look kicked mentioned, line the with Chip repurchases to were share As that

And so as and do dilution, and will to plan help that. this offset our is you -- us to know,

Scott Deuschle

So don't are -- the issuing $XXX how you math understand just works. stock. I million of I

William Lacey

No.

Charles Blankenship

dilution things associated with with we options of shares. compensation the offset a There's these of purchase programs exercises and and nature that of that

Operator

question Global. comes with Our next Pete from Alembic Skibitski

Peter Skibitski

talk more industrial. a about challenging industrial niches becoming revenue to want I net in the Just pricing side, little more in certain on Is guess.

Charles Blankenship

about Well, niches. I know don't

with our the I -- to a going think strategic moderate tends to across more pricing a we've be have is of challenging pricing, in But got bit. bit little board opportunities as inflation general, catalogs. we

We have 'XX. adjusted year LTAs provide the It some FY not past. that later to over into has still a for will been more us few come this and in longer-term opportunities for business inflation

So productivity there's and up go next couple still some cost and to opportunities focused cranking throughout to that years. -- margin the it's on make sure we're of continues machine expansion reduction the also

Peter Skibitski

Okay.

then And Okay. gas that. in a and like which was quarter kind for it everyone down of the second oil I understands row, looks think

seems it of On Are easier you gen? the can maybe are to power GDP a of know, good don't state getting anything we more that a for of I Is gen of we're that? lapping area? Xx now estimate in would like like, you kind side, steady kind comps. to Or add kind where power we grow rate that

Charles Blankenship

works just term, in think what I logic a comparison to the that quoted for short as medium me. you

abroad. required, gigawatts the more good the in think do we for other especially year might into some of we U.S. gas natural be add longer in environment renaissance. to computing grid natural think get Maybe this of more good the gas a a OEM per But the if turbines, you manufacturer stability term, on listen to news I to there. and you the story still color gas and I math have facing might if I

the power generation So especially looking is that I good for think turbine future. gas

Operator

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

David Strauss

$XXX as a trying in Just point quarter we modeling 'XX. think an rate industrial for put somewhere margin. million like business sales about this around to you're -- exit and looks a implying into on XX% finer It of

$XXX model on-highway. to right quarter and a differently Or way XXx about it? mean next thinking China the should I we XX% about is year? million You margin this is be talked the

Charles Blankenship

like comps not in, it's probably engine fuel FY whether marine we're to and know, ready quite kind you about the valving or and of we're and talk industrial right guidance. the that We control as businesses reciprocating systems it's power important standby Well, the 'XX some business all noted for growth, though, that little to extent, are harder gas growing small those a to is show medium as are getting have turbines. think that We growth still of to but and may we you markets available. others large think the

closer quantify get we we'll as to you. -- for that we'll try so 'XX, FY And and

David Strauss

Okay. mind aero least and breaking the year-over-year industrial. volume Bill, in at saw or out that you would price price and you

William Lacey

into we Yes. QX. level, We level the level. of in through saw at -- don't the X% at that typically come Woodward price But get segment about the in

Operator

UBS. line next the question Parsons Our comes from Gavin of with

Michael Ciarmoli

raise this guys EBIT quarter actually segments? you -- Did guidance of

William Lacey

basically, the of we margin the for range of guidance aero is segment to approximately we XX%, industrial, which ]. to from at previous XX% of and our We guide our the end guide -- took a And went at at XX% XX.X% [ top range the guide level to approximately. a from

Gavin Parsons

those of does to higher by higher, two Or is net that drop offset that The corporate? EPS? through is

William Lacey

up we So the guide, EPS bottom $X.XX on in $X.XX we to from -- $X. to took the

it move midpoint... -- So does

Charles Blankenship

Bill's a short for final rest is we just you? yes. since the the point, But math, we're close play for Is answer. we're get that to you to answer the year see put to finer trying and midpoint that If of on what just in the good the point

Gavin Parsons

there Aerospace ensure too you any seen from talked still the demand change kind actually want channel. to customers? inventory about signals on are isn't guys there. you you inventory your appreciate then in your don't grew you OE, sequentially 'XX And 'XX in And about have how thinking yet, managing much but just I channel to building. then it. know about you of talk I

Charles Blankenship

Right.

from players of signals chain. tiers the different in have supply do the we So

supply to different well trying people chain. rebalance inventories too into the signals. their we're read So much to We've try as the had in as not pushouts some

but we're bit not seen rates. no make but overarching and to stay it well in we've to can So communication that, trying if of change goods, manage build increases. of just much respond the we've pool own And and we our too seen little finished a official sure

Operator

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

Sheila Kahyaoglu

So you if to had operated first it on pretty look that of understand business. it the the in trying CNG fixed I quarters, suggesting inventory-light was said we and business, just on base ship profitability and the cost think Industrial, prior book cost. at low

so from breakeven And do of given million of like $XX it's up revenue at we margins loss segment operating going a how million loss it think about XX% million rest at and seems million $XX to $XX revenue. to at is the It $XX making of it XX%. XX% the operating at

is so does much? business the customer it? why So what or Is it swing

Charles Blankenship

volume pretty the Well, and sensitive dramatically. to it amount says, what Sheila, it's we're fixed math and of that's and the that's what that swing can volume, cost

Sheila Kahyaoglu

Okay.

I So customer, maybe feel on I certain volume again waiting And aero in has if is goes impact with then pricing nobody the been about and inventory. the customer supply like it's not ask terms based it's others of it. for a in volatile. very just this but down could and we've chain, felt for of that the really what

say it this of inventory? terms hence So do margin Aerospace? in that I then the you the is is aftermarket to OE fair seeing come offset the most lower it in more to are chain? supply you in And guess, Where think rates

Charles Blankenship

question, the Sheila. I last part that of didn't get

Sheila Kahyaoglu

to the say aero better versus what in stronger margins to a OE. lower higher and that aftermarket was that's fair it Is led

Charles Blankenship

that had Sheila, we mix of versus certainly, margins. a the Aerospace effect helped OE aftermarket Yes,

the inventory far as just inventory -- to So answer your build. question as on

the inventory. value it's we're So that specific, and seeing it's of the in specific stream some customer builds to

just looks that attention we're with 'XX as paying We're we're what lot to know like. overreacting and close said, to going a We in way. So we're we like to I customers it. pay figure everyone any really communicating of not out to attention want our something FY

Operator

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

Louis Raffetto

still confused. So go guy to I'm because want I the guess to back little industrial a I

million guided full originally for third guess model quarter $XX you million year. $XX to million. be implied your this So of to CNG And to the in you million $XX $XX had kind I

you the of to -- back of million So in million. in said $XX that's half still million of China I half quarter, natural gas you're million second $XX for and So third $XX year, the the $XX did looking million the think same to year. the talking you now you're $XX amount

to gas? just I'm Or trying it guide. natural something industrial Is the else? China lower understand So it is

William Lacey

Yes. sort we Louis, quarters the quarter roughly lower that rates. that half, expected. way are we the distort actually -- Again, industrial don't fourth where I the than that see roughly we margin plan we that it for at planned second of is at what level we at

did So the we But a lower bit we what little quarter in that's had for stronger. it's fourth third in quarter, actually come than what expected.

on a standpoint. So those two is China things together, half less OH our second

Louis Raffetto

end like you're think that think even maybe mean, high being we go-forward that or basis of that on previously It from tracking one? I last sort at year the above X.X% of that? as X.X%. just X% nonoperating I of should towards sort as expense. maybe to you looks Maybe the mark -- a that on Okay. of

William Lacey

'XX Yes, our and in infrastructure around as -- our support came to X.X%. we we'll our there we it's it we're guide. in infrastructure, into And update be to expect investment growth, X%, support get around X.X%. it that and that to

Louis Raffetto

And just last one. one

clear, Just had the to low OE the was was tough growth reasons comp. commercial simply you a I really be guess of relatively speaking, one

should that fair see in mean into growth is the we acceleration I to And expect so fourth quarter? it

William Lacey

right. last inventory. had did we -- Yes, certification the which saw we you're XQ RDV year, of the [ ],

strong give a OEM. did us in So last quarter year that commercial

[ continue we'll that and combating go ]. is how we're something So that to see that

Charles Blankenship

customer chance the many Yes, that acceleration, be about I'd things a there's that our also for and moderate on supply need many to the is that chain -- add view as inventory that just headwinds to happen. in we but there's as to what likely

be it and revenue aerospace about levels we've range the for the the growth feel we on could So confident but that. levels year about more, said based

Operator

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

Michael Ciarmoli

commercial, you're are Aerospace a the lift Just be aftermarket margins, sequentially. were aftermarket higher? this implied mean, quarter, some at but just at back you again to and mean, less revenues down getting XX% OE holding at running the get aftermarket pre-COVID, this probably going rate, fourth shade Just and on you're what's I guess mean and margins picture, you to just say nice sit over north I margins even on guys now I were here for from the be -- favorable in is guess the the I probably to bigger these I a And segment of X/X going revenue sustainable. could run mix, of defense we not and you going probably

So guidance, you're going that know give just I longer-term forecast -- you XX% to but margins. is XX% to have not

there to anything back now is back right pre-COVID holding Aero from margins the the peaks? So getting

Charles Blankenship

our Let quarter the me be on does guiding achieved. said down next based quarter. our about margins just sequentially range to our clarify something When going that next XX% we're year-to-date of down approximate we range margin you give indicate that that not

down just clarify in margin. that going So to Aerospace we're not

what's of part the Next holding question is like back. really

and to hard are we've are have generate offset way the through, to costs lot to we of is hired get lines those based starting to our that into value We getting inflation to the transformation a that. incurred We And supply and their all that on up productivity hold, worked speed. new our some and chain stream price working under better ability enter transformation. realm lean taking brought are members the of on we're

two transformation, work chain margins range way that factors then of working we've XX-plus while XX% feel supply frame, in through lean all to to automation, about the of -- to the this the from it's them So talked XX% sort certification XX% profitability take to to improve of and Investor Day are time confident to with completion, last time all make over and we percent productivity, those to them approval. in-sourcing guidance get going programs, work, now XXXX our in the to activated that those years. And the certainly been

Michael Ciarmoli

was sight do that's mean, rates forecasting are? to originally building inventory. you've line give to you on actual XX% the just where X% were shipped I XX% you it. And into ]. to you that [ X% I Got schedule? Got us growth now any color GE your to can LEAP, [ And it. actual for year, any then Sheila's units have mean, build ] maybe back think question of originally I maybe

Charles Blankenship

can Well, we engines and want all we be LEAP, provide of time. hardware they customers, build and need that all they on to that for together portion to CFM with GE closely work the to including very with engines what our of the start comfortable they inventory ensure work

do and and we've with discussion. real-time to on a program quarter, demand ongoing we've an what working month long-term of working and long is the synchronization So this been each got a for out good time, that's them really what each

Operator

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

Gautam Khanna

the should entire ] revenues. To of be rates OE OE follow little up the of were a way, or on that maybe rates calibrate we -- a more with supply different you up we been and that has expected supply last relatively how Or asked question, bottleneck? been therefore, a XXXX you Brazilian chain, actually cautious keeping your [ chain are have guys

Charles Blankenship

to on rates. broadly with So of terms were in customers. in build But XXXX, customers just a problem XXXX, aerospace, in their yes, year be were not impacting we fiscal we impacting were we're in we the customers, for time trying impacting and speaking, in

-- on are in in to We customers, would inventory in at We're front XX% of to on MRP largely say stations the a time there's like But what our segment. systems. not time aerospace bottleneck. full like their I we're is the not be inventory we'd certainly, and build

Gautam Khanna

that And you a schedule manufacturers that purchase anticipating you revised are guys? to of subcontract ship just kind communicated might from the you Or the or have OEMs happen?

Charles Blankenship

what some not more is activity start things to time their that's we're So that yes, on only we're pick system subtiers saying ask just time to us slow their to to us but deliveries finished maybe has inventory been down up and a very running nothing official And and their MRP top, goods. system little is seeing we to need, the that be the as and of hot. MRP be here on push causes that communicated though up the build that out nature of to of different parts to from adjust and levels

Gautam Khanna

up revision. you. Got And to the then, just then follow on guidance guidance the

top million... was industrial the X%, CNG is a line by down to stuff, whatever, million, taken so $XX due which $X million, the that So was $XX entirely on-highway

William Lacey

That's correct.

Gautam Khanna

Okay.

So that was a terms of operating $X in million delta, it sounds like, profit?

Charles Blankenship

our What were ranges talk those best based some guidance confusion setting we that achieved. forecast thought on is of and for number be then when ranges actuals, -- the I we and think we the some would we experienced of

last we're orders actuals what the resnapped we in we when for and we actual third fourth so expected we And that compared the say, quarter, for and line the quarter's guidance. get quarter, we have down to

due going and in to the to that, on-highway adjust we're China entirely to case. this it's So midpoint

Gautam Khanna

it's like mean just given -- into the if aero what's sales a level I'm still the you're I Is be, have I a variance do you do you in Or would range have quarter the curious just growth, of And where a mean, destocking? anywhere? the range? mean, month variance it I -- on so one

Charles Blankenship

as The variance to out units cause to suppliers the accept things could a are not push of would customers produce value deliver. and of and that deliveries our streams that as has as many well can finished combination customer not like one as we ordered is that

and in we deliveries is that can on So accept issues supply that customers that end it's we way range create have of will any then of both high sides chain low provide. the that And end standing range. can equation the the the of don't of everything

Gautam Khanna

Like may -- best would how some in I guys year? we not on-highway? What mean, it's how you Should QX through should I'm assume breakeven on do about about back, levels the do... following on you representative destocking your XXXX there's given what's guess the going think Stepping think just of we curious be quarters?

Charles Blankenship

we signals market you that help it's to us I natural China Yes. are can't not is standard because on-highway more on quarter There the I'll give volatile. predict answer than a that give forecast. triangulate the

so do driving that margin the and industrial you that where level it. I to to to chosen non-China right tried around XX% capability you not help That's now. for we've best business. difficult of on-highway So what we're right And is can with it's business is -- with that's do our do probably that now we've

Operator

Poponak comes Goldman question from Noah with Sachs. next Our

Noah Poponak

just industrial been to ex industrial Chip, what Or the ex maybe the there correct? of it that's guess discussing truly some confusion at Is would so China completely XX% it's like. last excluding I loss-making, question. China was think margins that you around out sub-XX%. that or on-highway sort model year, it's because do of -- took we if on-highway, the next

Charles Blankenship

the -- industrial deliveries no that that in enough Yes. some it's used which and I've past, fixed are you the XX% harm on-highway the cost margin, I operation. apologize the but now, -- at think there cover about doing we're operating China of language business, for that if maybe on-highway to imprecise right orders China means to

if the goes it's going then negative, XX%. So it impact to Right.

Noah Poponak

a Do the is? you sense have breakeven for where

Charles Blankenship

to we've in the million to the that the stick Yes. in past is that said well, And distortion the for no damage now? we'll just [ that business. to -- $XX with no past to industrial We said think the I XX $XX ] million

Noah Poponak

clear in that's for it Do have the Okay. the take to channel will China a inventory how you long on-highway? sense out on

Charles Blankenship

for on We sure Noah. that know don't

are to that into a ourselves. view short-lived it's Our a be customers us telling destocking, but going great have that we don't

on is -- just China No, mid- to put your it. on-highway? clarify, breakeven on mid-$XX In to to million the low ] point for maybe the [ fine Just question, the a XXs point

Noah Poponak

$XX million segment the be it's close making would where margin. The something to

Charles Blankenship

sir. Yes,

Noah Poponak

aftermarket you come the starting started just I be consolidated rate through? Okay. but shop Have growth seems visit see to to those seem along. no, LEAP revenue mean like to move

Charles Blankenship

pumps seen turbofan with question, and nozzles nice increase mostly but maybe metering doubling picking asked but the the actuators it you and and but Noah. in and units. metering And glad up. fuel to other fuel it's in units actually has We've on from -- geared coming as a pumps some And say, components, overhaul some the and future that year-over-year other Xx up, LEAP that bodes because turbofan mostly repair well number, through, up I'm I'd a geared as nozzles. valves fuel small picked quite for well that fuel X.X Yes. and LEAP

Noah Poponak

guess, growth to Okay. was kind of guided some hasn't speak revenue, quite aftermarket OE maybe directionally -- picked and I Good. defense, then while there's flow, stabilized And a but you for up. it just in rate year could now think weapons pressure what order to under next do been sustainably I just don't defense? see I you -- quarter-to-quarter then kind and visibility the enough of and have the

Charles Blankenship

you There's repair itself Well, in of aerospace like talk if trends, stated lot strategy market. business. there. it a for ready yet, in try one to looks market the growing. strategies and participation grow Noah. of our that opportunity 'XX But is to is the not look And the really our we're about overhaul growth at and our FY we've defense That's

and that. -- ready excited we're it. but to quantify So not we're about

Operator

Louis from Raffetto with comes next Our Wolfe question Research.

Louis Raffetto

Just wanted to be clear on this.

have the higher higher -- sales $XXX to So lower than I than you're have that just China that, think of if just what in than gas guess if Is natural have margins. next about margin, to to XX% million XX% lower going XX% I need margins. we year to heard sort going you're they're

Charles Blankenship

be were One thing to to say year. clarify, going we what next didn't margins our industrial

don't don't if still you to Bill, So we -- revenue. talk the to on X point. I China intend about stand want for know,

William Lacey

that. ready mean get again, Chip terms revenue and China mentioned that the the what again, that 'XX mid-XXs of is a statement. of I into our repeat to is Chip's But that I we for is kind talked think breakeven in I to just what and Yes. statement is, think we as breakeven don't about point just we're as it, stated

Louis Raffetto

taking you sort just no, mean didn't were run about that you've appreciate current ]. guiding rate of the I last [ for XX% But I'm I it. quarters. enough. the imply three talked to fair And to that

Operator

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

Charles Blankenship

earnings All you rest of right. like much. call very everybody the joining wish the and week. to well thank Thank you for today, I'd for our

Operator

call today. conference concludes that gentlemen, our Ladies and

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

Woodward (WWD) 29 Jul 242024 Q3 Earnings call transcript