SOURCE: Woodward, Inc.

Woodward, Inc.

April 22, 2014 16:05 ET

Woodward Reports Second Quarter and Six-Month Fiscal Year 2014 Results

FORT COLLINS, CO--(Marketwired - Apr 22, 2014) - Woodward, Inc. (NASDAQ: WWD) today reported financial results for its second quarter of fiscal year 2014. (All per share amounts are presented on a fully diluted basis.)

Second Quarter Fiscal Year 2014 Highlights

  • Net sales for the second quarter of 2014 were $482.5 million, compared to $485.5 million in the second quarter of last year.

  • Earnings per share were $0.66 in the second quarter of 2014, compared to $0.61 in the second quarter of last year, an increase of 8 percent.

  • Total EBIT1 for the quarter was $62.9 million, compared to $57.3 million in the second quarter of the prior year, an increase of 10 percent.

  • Free cash flow1 for the first half of 2014 was $56.1 million, an increase of $10.3 million from $45.8 million in the first half of the prior year.

"We delivered increased earnings on flat sales this quarter," said Thomas A. Gendron, Chairman and Chief Executive Officer. "Our focus on operational improvements and cost control initiatives contributed to operating earnings growth this quarter."

Company Results

Net sales for the 2014 second quarter were $482.5 million compared to $485.5 million for the 2013 second quarter.

EBIT was $62.9 million for the second quarter of 2014 compared to $57.3 million for the second quarter of 2013. The current quarter EBIT was impacted by improved operating results primarily in our energy business.

Net earnings for the 2014 second quarter were $44.8 million or $0.66 per share compared to $42.4 million, or $0.61 per share in the 2013 second quarter. Both years include favorable tax impacts.

Segment Results

Aerospace

Aerospace net sales for the second quarter of fiscal 2014 were $261.0 million, a decrease of 4 percent from $270.5 million for the second quarter a year ago. Segment earnings for the second quarter of 2014 were $40.3 million, compared to $41.2 million for the same quarter a year ago. Segment earnings as a percent of segment net sales were 15.4 percent this quarter, compared to 15.2 percent in the same quarter of the prior year.

The sales decrease was primarily due to lower than expected defense sales, partially offset by higher commercial sales. Continuing quarterly variability in defense sales was a result of the timing of contracts and upgrade programs. The slight decrease in segment earnings primarily reflected the impact of reduced sales volume, partially offset by cost control initiatives.

Energy

Energy net sales for the second quarter of 2014 were $221.4 million, an increase of 3 percent from $215.0 million for last year's second quarter. Segment earnings for the second quarter of 2014 were $31.9 million, compared to $24.2 million for last year's second quarter. Segment earnings as a percent of segment net sales were 14.4 percent this quarter, compared to 11.3 percent in the same quarter of the prior year.

Segment sales reflected improvement in most of our markets, partially offset by lower sales of compressed natural gas systems. The improvement in segment earnings was primarily impacted by the increased sales volumes and continuing operational improvements.

Nonsegment

Nonsegment expenses totaled $9.3 million for the second quarter of 2014, compared to $8.2 million for the same quarter last year. Nonsegment expenses were 1.9 percent of consolidated net sales for the second quarter of 2014, up from 1.7 percent of consolidated net sales for the same quarter of the prior year.

Year-to-Date Results

Net sales for the first six months of fiscal 2014 were $911.5 million, an increase of 2 percent from $893.9 million from the six-month period last year. Organic sales2 were $880.1 million for the first six months of fiscal 2014. Net earnings for the first six months of fiscal 2014 were $68.2 million, compared to $69.8 million in the same period last year. Earnings per share for the first six months of fiscal 2014 and 2013 were both $1.00 per share.

Year-to-date EBIT was $101.8 million, largely consistent with the same period of the prior year.

Cash Flow and Financial Position

Net cash generated from operating activities was $124.6 million for the first six months of fiscal 2014, compared to $93.0 million for the first six months of fiscal 2013, primarily the result of improved working capital. Free cash flow was $56.1 million for the first six months of fiscal 2014, compared to $45.8 million for the first six months of fiscal 2013. Payments for property, plant, and equipment for the first six months of fiscal 2014 were $68.6 million, compared with $47.2 million for the first six months of fiscal 2013.

Total debt was $605.0 million at March 31, 2014, compared to $550.0 million at September 30, 2013. The ratio of debt to debt-plus-equity was 34.9 percent at March 31, 2014, compared to 32.5 percent at September 30, 2013.

The effective tax rate for the second quarter of fiscal 2014 was 21.1 percent, compared to 15.7 percent for the second quarter of fiscal 2013. The tax rate for both quarters included favorable adjustments related to prior years' tax issues, which had a similar impact on both periods. The effective tax rate for the full year fiscal 2014 is still expected to be approximately 28 percent.

Outlook

"Consistent with prior years, we expect to see stronger sales in the second half of the year," said Mr. Gendron. "Accordingly, our full year outlook for fiscal 2014 is unchanged, with sales anticipated to be between $1.95 and $2.05 billion, and earnings per share expected to be between $2.10 and $2.30 per share."

1Non-U.S. GAAP Financial Measures: EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation and amortization) and free cash flow are financial measures not prepared and presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Management uses EBIT to evaluate Woodward's operating performance without the impacts of financing and tax related considerations. Management uses EBITDA in evaluating Woodward's operating performance, making business decisions, including developing budgets, managing expenditures, forecasting future periods, and evaluating capital structure impacts of various strategic scenarios. Management uses free cash flow, which is derived from net cash provided by operating activities less payments for property, plant, and equipment, in reviewing the financial performance of Woodward's various business segments and evaluating cash generation levels. Securities analysts, investors, and others frequently use EBIT, EBITDA and free cash flow in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets that are subject to amortization. The use of any of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. Because EBIT and EBITDA exclude certain financial information compared with net earnings, the most comparable U.S. GAAP financial measure, users of this financial information should consider the information that is excluded. Free cash flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Management's calculations of EBIT, EBITDA, and free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures.

2Organic sales: defined as net sales excluding first quarter fiscal year 2014 sales of the Duarte business, which was acquired on December 28, 2012.

Conference Call

Woodward will hold an investor conference call at 4:30 p.m. EDT, April 22, 2014 to provide an overview of the financial performance for the second quarter, business highlights, and outlook for fiscal 2014. You are invited to listen to the live webcast of our conference call, or a recording, and view or download accompanying presentation slides at our website, www.woodward.com.

You may also listen to the call by dialing 1-866-793-1344 (domestic) or 1-703-639-1315 (international). Participants should call prior to the start time to allow for registration; the Conference ID is 1635544. An audio replay will be available by telephone from 7:30 p.m. EDT on April 22, 2014 until 11:59 p.m. EDT on May 6, 2014. The telephone number to access the replay is 1-888-266-2081 (domestic) or 1-703-925-2533 (international), reference access code 1635544.

A webcast presentation will be available on the website by clicking the Investors tab, then the Calendar of Events menu selection and associated webcast link. The call and presentation will remain accessible at the website for 14 days.

About Woodward, Inc.

Woodward is an independent designer, manufacturer, and service provider of control solutions for the aerospace and energy markets. The company's innovative fluid, combustion, electrical, and motion control systems help customers offer cleaner, more reliable, and more efficient equipment. Our customers include leading original equipment manufacturers and end users of their products. Woodward is a global company headquartered in Fort Collins, Colorado, USA. Visit our website at www.woodward.com, and connect with us at www.facebook.com/woodwardinc.

Cautionary Statement

Information in this press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, including, but not limited to, statements regarding future sales, earnings, liquidity, relative profitability, and the impact of economic conditions and downturns on Woodward. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Factors that could cause actual results and the timing of certain events to differ materially from the forward-looking statements include, but are not limited to, a decline in business with, or financial distress of, our significant customers; the continued global economic uncertainty and instability in the financial markets; Woodward's ability to obtain financing, on acceptable terms or at all, to implement its business plans, complete acquisitions, or otherwise take advantage of business opportunities or respond to business pressures; Woodward's long sales cycle, customer evaluation process, and implementation period of some of its products and services; Woodward's ability to implement and realize the intended effects of restructuring and alignment efforts; Woodward's ability to successfully manage competitive factors, including prices, promotional incentives, industry consolidation, and commodity and other input cost increases; Woodward's ability to manage expenses and product mix while responding to sales increases or decreases; the ability of Woodward's subcontractors and suppliers to meet their obligations; Woodward's ability to monitor its technological expertise and the success of, and/or costs associated with, its product development activities; Woodward's ability to integrate acquisitions and manage costs related thereto; Woodward's debt obligations, debt service requirements and ability to operate its business, pursue its business strategies and incur additional debt in light of restrictive covenants in its outstanding debt agreements; risks related to U.S. Government contracting activities, including liabilities resulting from legal and regulatory proceedings, inquiries, or investigations related to such activities; reductions in defense sales due to a decrease in the amount of U.S. Federal defense spending; changes in government spending patterns and/or priorities; future impairment charges resulting from changes in the estimates of fair value of reporting units or of long-lived assets; future subsidiary results; environmental liabilities; Woodward's continued access to a stable workforce and favorable labor relations; physical and other risks related to Woodward's operations and suppliers, including natural disasters, which could disrupt production; Woodward's ability to successfully manage regulatory, tax and legal matters; risks from operating internationally including the impact on reported earnings from fluctuations in foreign currency exchange rates, and compliance with and changes in the legal and regulatory environments of the United States and the countries in which Woodward operates; fair value of defined benefit plan assets and assumptions used in determining Woodward's retirement pension and other postretirement benefit obligations and related expenses; information systems interruptions or intrusions; and other risk factors described in Woodward's Annual Report on Form 10-K for the year ended September 30, 2013 and any subsequently filed Quarterly Report on Form 10-Q.

   
   
Woodward, Inc. and Subsidiaries  
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS  
   
    Three-Months Ended     Six-Months Ended  
    March 31,     March 31,  
(Unaudited - in thousands except per share amounts)   2014     2013     2014     2013  
                         
Net sales   $ 482,467     $ 485,513     $ 911,509     $ 893,852  
Costs and expenses:                                
  Cost of goods sold     340,028       348,100       655,494       637,673  
  Selling, general, and administrative expenses     35,283       37,206       72,611       73,624  
  Research and development costs     35,805       34,000       65,229       64,018  
  Amortization of intangible assets     8,657       9,813       17,141       17,480  
  Interest expense     6,185       7,017       12,247       13,473  
  Interest income     (57 )     (69 )     (116 )     (137 )
  Other (income) expense, net     (190 )     (890 )     (797 )     (1,152 )
Total costs and expenses     425,711       435,177       821,809       804,979  
Earnings before income taxes     56,756       50,336       89,700       88,873  
Income taxes     11,958       7,890       21,519       19,059  
Net earnings   $ 44,798     $ 42,446     $ 68,181     $ 69,814  
                                 
Earnings per share amounts:                                
Basic earnings per share   $ 0.67     $ 0.62     $ 1.01     $ 1.02  
Diluted earnings per share   $ 0.66     $ 0.61     $ 1.00     $ 1.00  
Weighted average common shares outstanding:                                
Basic     66,633       68,737       67,182       68,597  
Diluted     67,905       69,935       68,463       69,831  
Cash dividends per share paid to Woodward common stockholders   $ 0.08     $ 0.08     $ 0.16     $ 0.16  
                                 
                                 
 
Woodward, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
 
    March 31,   September 30,
(Unaudited - in thousands)   2014   2013*
             
Assets            
  Current assets:            
    Cash and cash equivalents   $ 56,665   $ 48,556
    Accounts receivable     320,492     381,065
    Inventories     458,733     431,744
    Income taxes receivable     6,820     14,071
    Deferred income tax assets     43,027     43,027
    Other current assets     43,514     38,650
      Total current assets     929,251     957,113
  Property, plant, and equipment - net     401,050     350,048
  Goodwill     562,617     561,458
  Intangible assets - net     271,887     288,775
  Deferred income tax assets     17,424     13,926
  Other assets     56,211     47,198
Total assets   $ 2,238,440   $ 2,218,518
             
Liabilities and stockholders' equity            
  Current liabilities:            
    Short-term borrowings   $ 21,000   $ -
    Current portion of long-term debt     -     100,000
    Accounts payable     154,372     145,541
    Income taxes payable     13,726     7,848
    Deferred income tax liabilities     800     800
    Accrued liabilities     128,013     161,741
      Total current liabilities     317,911     415,930
  Long-term debt, less current portion     584,000     450,000
  Deferred income tax liabilities     105,427     104,533
  Other liabilities     101,304     105,510
  Total liabilities     1,108,642     1,075,973
  Stockholders' equity     1,129,798     1,142,545
Total liabilities and stockholders' equity   $ 2,238,440   $ 2,218,518
             
*In connection with the Duarte business acquisiton, retrospectively adjusted for purchase accounting adjustments
             
   
   
Woodward, Inc. and Subsidiaries  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
   
    Six-Months Ended  
    March 31,  
(Unaudited - in thousands)   2014     2013  
Net cash provided by operating activities   $ 124,644     $ 92,987  
                 
Cash flows from investing activities:                
Payments for property, plant, and equipment     (68,560 )     (47,184 )
Business acquisitions, net of cash acquired     -       (198,860 )
Proceeds from sale of other assets     154       320  
Net cash used in investing activities     (68,406 )     (245,724 )
                 
Cash flows from financing activities:                
Cash dividends paid     (10,754 )     (10,966 )
Proceeds from sales of treasury stock     6,147       6,533  
Payments for repurchases of common stock     (99,655 )     (17,144 )
Excess tax benefits from stock compensation     2,163       4,397  
Proceeds from the issuance of long-term debt     250,000       200,000  
Payments of long-term debt     (300,000 )     (41,875 )
Borrowings on revolving lines of credit and short-term borrowings     256,071       40,072  
Payments on revolving lines of credit and short-term borrowings     (151,069 )     (35,329 )
Payment of debt financing costs     (1,297 )     -  
Net cash provided by (used in) financing activities     (48,394 )     145,688  
Effect of exchange rate changes on cash and cash equivalents     265       (122 )
Net change in cash and cash equivalents     8,109       (7,171 )
Cash and cash equivalents at beginning of period     48,556       61,829  
Cash and cash equivalents at end of period   $ 56,665     $ 54,658  
                 
                         
                         
Woodward, Inc. and Subsidiaries  
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS  
   
    Three-Months Ended     Six-Months Ended  
    March 31,     March 31,  
(Unaudited - in thousands)   2014     2013     2014     2013  
Net sales:                                
Aerospace   $ 261,021     $ 270,493     $ 490,893     $ 481,882  
Energy     221,446       215,020       420,616       411,970  
Total consolidated net sales   $ 482,467     $ 485,513     $ 911,509     $ 893,852  
Segment earnings**:                                
Aerospace   $ 40,289     $ 41,223     $ 62,838     $ 72,791  
As a percent of segment sales     15.4 %     15.2 %     12.8 %     15.1 %
Energy     31,888       24,235       58,959       48,143  
As a percent of segment sales     14.4 %     11.3 %     14.0 %     11.7 %
Total segment earnings     72,177       65,458       121,797       120,934  
Nonsegment expenses     (9,293 )     (8,174 )     (19,966 )     (18,725 )
EBIT     62,884       57,284       101,831       102,209  
Interest expense, net     (6,128 )     (6,948 )     (12,131 )     (13,336 )
  Consolidated earnings before income taxes   $ 56,756     $ 50,336     $ 89,700     $ 88,873  
                                 
Payments for property, plant and equipment   $ 31,411     $ 17,290     $ 68,560     $ 47,184  
Depreciation expense     11,062       10,139       21,694       20,412  
                                 
**This schedule reconciles segment earnings, which exclude certain costs, to consolidated earnings before taxes.  
                                 
   
   
Woodward, Inc. and Subsidiaries  
RECONCILIATION OF NET EARNINGS TO EBIT AND EBITDA  
   
    Three-Months Ended     Six-Months Ended  
    March 31,     March 31,  
(Unaudited - in thousands)   2014     2013     2014     2013  
Net earnings   $ 44,798     $ 42,446     $ 68,181     $ 69,814  
Income taxes     11,958       7,890       21,519       19,059  
Interest expense     6,185       7,017       12,247       13,473  
Interest income     (57 )     (69 )     (116 )     (137 )
EBIT     62,884       57,284       101,831       102,209  
Amortization of intangible assets     8,657       9,813       17,141       17,480  
Depreciation expense     11,062       10,139       21,694       20,412  
EBITDA   $ 82,603     $ 77,236     $ 140,666     $ 140,101  
                                 
                                 
   
Woodward, Inc. and Subsidiaries  
RECONCILIATION OF CASH FLOW FROM OPERATIONS TO FREE CASH FLOW  
   
    Three-Months Ended     Six-Months Ended  
    March 31,     March 31,  
(Unaudited - in thousands)   2014     2013     2014     2013  
                                 
Net cash provided by operating activities   $ 80,211     $ 53,013     $ 124,644     $ 92,987  
Payments for property, plant, and equipment     (31,411 )     (17,290 )     (68,560 )     (47,184 )
Free cash flow   $ 48,800     $ 35,723     $ 56,084     $ 45,803  
                                 

Contact Information

  • CONTACT:
    Don Guzzardo
    Director, Investor Relations & Treasury
    970-498-3580
    Don.Guzzardo@woodward.com

    Woodward, Inc.
    1000 East Drake Road
    Fort Collins, Colorado 80525, USA