SOURCE: Woodward, Inc.

Woodward, Inc.

July 21, 2014 16:05 ET

Woodward Reports Third Quarter Fiscal Year 2014 Results

FORT COLLINS, CO--(Marketwired - July 21, 2014) - Woodward, Inc. (NASDAQ: WWD) today reported financial results for its third quarter of fiscal year 2014 ending June 30, 2014. (All per share amounts are presented on a fully diluted basis.)

Third Quarter Fiscal 2014 Highlights

  • Net sales for the third quarter of 2014 increased 8 percent to $524.3 million, compared to $483.8 million in the third quarter of last year.
  • Earnings per share were $0.69 for the third quarter of 2014, compared to $0.34 in the third quarter of last year.
  • Total EBIT1 for the third quarter was $68.4 million, compared to $42.2 million in the third quarter of the prior year.
  • Free cash flow1 for the first nine months of 2014 was $79.4 million, an increase of $24.9 million from $54.5 million in the first nine months of the prior year.

"Results for the quarter were strong, with many of our markets showing improvement," said Thomas A. Gendron, Chairman and Chief Executive Officer. "Our increase in sales and profitability mainly reflects the stabilization of the global economy, a strong commercial aerospace market, recovery in the renewable power market, and ongoing productivity initiatives."

Company Results

Net sales for the fiscal 2014 third quarter were $524.3 million, compared to $483.8 million for the 2013 third quarter, largely the result of increased sales in our Energy segment.

EBIT improved significantly to $68.4 million for the third quarter of 2014, compared to $42.2 million for the third quarter of 2013. The increase in EBIT primarily reflected the impact of increased sales volume and cost control initiatives, partially offset by a significant increase in our company-wide variable compensation expense, which had an unfavorable impact on all reporting segments. Also, the prior year third quarter included $15.7 million of specific charges related to the renewable power business. 

Net earnings for the 2014 third quarter were $46.0 million or $0.69 per share compared to $23.7 million, or $0.34 per share in the 2013 third quarter.

Segment Results

Aerospace

Aerospace net sales for the third quarter of fiscal 2014 were $274.9 million, a slight increase from $272.2 million for the third quarter a year ago. Segment earnings for the third quarter of 2014 were $39.4 million, compared to $38.9 million for the same quarter a year ago. Segment earnings as a percent of segment net sales were 14.3 percent this quarter, consistent with the same quarter of the prior year.

The sales increase was primarily due to strong commercial OEM and aftermarket sales, partially offset by lower defense sales. Continuing quarterly variability in defense sales was a result of the timing of contracts and upgrade programs. Segment earnings were favorably impacted by lower research and development costs and cost control initiatives.

Energy

Energy net sales for the third quarter of 2014 were $249.4 million, an increase of 18 percent from $211.5 million for last year's third quarter. Segment earnings for the third quarter of 2014 were $40.2 million, compared to $12.4 million for last year's third quarter. Segment earnings as a percent of segment net sales were 16.1 percent this quarter, compared to 5.9 percent in the same quarter of the prior year. Without the specific charges referred to above, segment earnings as a percent of net sales for the prior year quarter would have been 13.3 percent.

Segment sales were favorably impacted by improved wind turbine converter sales and increases in most of our other energy markets. The increase in segment earnings was primarily the result of the specific charges related to the renewable power business in the prior year as well as the positive impacts of increased sales and related leverage, and continued productivity initiatives. 

Nonsegment

Nonsegment expenses totaled $11.2 million for the third quarter of 2014, compared to $9.2 million for the same quarter last year. Nonsegment expenses were 2.1 percent of consolidated net sales for the third quarter of 2014, up from 1.9 percent of consolidated net sales for the same quarter of the prior year.

Year-to-Date Results

Net sales for the first nine months of fiscal 2014 were $1.44 billion, an increase of 4 percent from $1.38 billion from the same nine-month period last year. Organic sales2 were $1.40 billion for the first nine months of 2014. Net earnings for the first nine months of fiscal 2014 were $114.2 million, compared to $93.5 million in the same period last year. Earnings per share for the first nine months of 2014 were $1.68 per share, compared to $1.34 per share in the same period last year. 

Year-to-date EBIT was $170.2 million, compared to $144.4 million in the same period of the prior year.

Cash Flow and Financial Position

Net cash generated from operating activities was $183.9 million for the first nine months of fiscal 2014, compared to $133.0 million for the first nine months of 2013, primarily the result of improved earnings and working capital management. Free cash flow was $79.4 million for the first nine months of 2014, compared to $54.5 million for the first nine months of 2013. Payments for property, plant, and equipment for the first nine months of 2014 were $104.5 million, compared with $78.5 million for the first nine months of 2013.

Total debt was $665.0 million at June 30, 2014, compared to $550.0 million at September 30, 2013. The ratio of debt to debt-plus-equity was 37.0 percent at June 30, 2014, compared to 32.5 percent at September 30, 2013.

The effective tax rate for the third quarter of 2014 was 26.4 percent, compared to 33.3 percent for the third quarter of 2013. The lower tax rate from prior quarter was primarily due to the favorable impact of foreign tax matters in the third quarter of 2014. The effective tax rate for the full fiscal year 2014 is now expected to be approximately 27 percent.

Outlook

"We are on track to meet our recently increased guidance for fiscal 2014," said Mr. Gendron. "Our market strength and share gains are translating into increased sales and orders, and in combination with our cost reduction and productivity initiatives, have resulted in improved operating margins. Accordingly, for fiscal 2014, we continue to expect sales to be in the upper end of the range of $1.95 to $2.05 billion and earnings per share to be between $2.35 and $2.45 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. Due to the timing of the acquisition, Duarte business results were not included in the first quarter of fiscal year 2013.

Conference Call

Woodward will hold an investor conference call at 4:30 p.m. EDT, July 21, 2014 to provide an overview of the financial performance for the third 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 1-866-793-1340 (domestic) or 1-703-639-1311 (international). Participants should call prior to the start time to allow for registration; the Conference ID is 1640590. An audio replay will be available by telephone from 7:30 p.m. EDT on July 21, 2014 until 11:59 p.m. EDT on August 4, 2014. The telephone number to access the replay is 1-888-266-2081 (domestic) or 1-703-925-2533 (international), reference access code 1640590.

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   Nine-Months Ended  
   June 30,   June 30,  
(Unaudited - in thousands except per share amounts)  2014   2013   2014   2013  
                  
Net sales  $524,284   $483,759   $1,435,793   $1,377,611  
Costs and expenses:                     
 Cost of goods sold   372,571    349,482    1,028,065    987,155  
 Selling, general, and administrative expenses   40,468    46,747    113,079    120,371  
 Research and development costs   34,990    35,487    100,219    99,505  
 Amortization of intangible assets   8,357    9,769    25,498    27,249  
 Interest expense   5,972    6,723    18,219    20,196  
 Interest income   (73 )  (68 )  (189 )  (205 )
 Other (income) expense, net   (469 )  122    (1,266 )  (1,030 )
Total costs and expenses   461,816    448,262    1,283,625    1,253,241  
Earnings before income taxes   62,468    35,497    152,168    124,370  
Income taxes   16,467    11,834    37,986    30,893  
Net earnings  $46,001   $23,663   $114,182   $93,477  
                      
Earnings per share amounts:                     
Basic earnings per share  $0.70   $0.35   $1.71   $1.36  
Diluted earnings per share  $0.69   $0.34   $1.68   $1.34  
Weighted average common shares outstanding:                     
Basic   65,845    68,323    66,736    68,506  
Diluted   67,147    69,430    68,030    69,698  
Cash dividends per share paid to Woodward common stockholders  $0.08   $0.08   $0.24   $0.24  
                      
                 
                 
Woodward, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   June 30,  September 30,
(Unaudited - in thousands)  2014  2013*
       
Assets        
 Current assets:        
  Cash and cash equivalents  $95,842  $48,556
  Accounts receivable   322,463   381,065
  Inventories   469,036   431,744
  Income taxes receivable   6,641   14,071
  Deferred income tax assets   44,246   43,027
  Other current assets   47,971   38,650
   Total current assets   986,199   957,113
 Property, plant, and equipment - net   436,474   350,048
 Goodwill   562,691   561,458
 Intangible assets - net   263,490   288,775
 Deferred income tax assets   17,210   13,926
 Other assets   57,009   47,198
Total assets  $2,323,073  $2,218,518
         
Liabilities and stockholders' equity        
 Current liabilities:        
  Current portion of long-term debt  $-  $100,000
  Accounts payable   179,420   145,541
  Income taxes payable   14,107   7,848
  Deferred income tax liabilities   800   800
  Accrued liabilities   130,252   161,741
   Total current liabilities   324,579   415,930
 Long-term debt, less current portion   665,000   450,000
 Deferred income tax liabilities   102,909   104,533
 Other liabilities   96,588   105,510
 Total liabilities   1,189,076   1,075,973
 Stockholders' equity   1,133,997   1,142,545
Total liabilities and stockholders' equity  $2,323,073  $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  
  
   Nine-Months Ended  
   June 30,  
(Unaudited - in thousands)  2014   2013  
Net cash provided by operating activities  $183,890   $133,017  
            
Cash flows from investing activities:           
Payments for property, plant, and equipment   (104,530 )  (78,515 )
Business acquisitions, net of cash acquired   -    (198,860 )
Proceeds from sale of other assets   258    354  
Net cash used in investing activities   (104,272 )  (277,021 )
            
Cash flows from financing activities:           
Cash dividends paid   (16,021 )  (16,421 )
Proceeds from sales of treasury stock   8,380    7,439  
Payments for repurchases of common stock   (141,488 )  (45,754 )
Excess tax benefits from stock compensation   2,638    4,755  
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   356,071    97,072  
Payments on revolving lines of credit and short-term borrowings   (191,069 )  (62,329 )
Payment of debt financing costs   (1,297 )  -  
Net cash provided by (used in) financing activities   (32,786 )  142,887  
Effect of exchange rate changes on cash and cash equivalents   454    260  
Net change in cash and cash equivalents   47,286    (857 )
Cash and cash equivalents at beginning of period   48,556    61,829  
Cash and cash equivalents at end of period  $95,842   $60,972  
   
   
   
Woodward, Inc. and Subsidiaries  
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS  
  
   Three-Months Ended   Nine-Months Ended  
   June 30,   June 30,  
(Unaudited - in thousands)  2014    2013   2014    2013  
Net sales:                       
Aerospace  $274,923    $272,218   $765,816    $754,100  
Energy   249,361     211,541    669,977     623,511  
Total consolidated net sales  $524,284    $483,759   $1,435,793    $1,377,611  
Segment earnings**:                       
Aerospace  $39,357    $38,949   $102,195    $111,740  
As a percent of segment sales   14.3 %   14.3 %  13.3 %   14.8 %
Energy   40,203     12,430    99,162     60,573  
As a percent of segment sales   16.1 %   5.9 %  14.8 %   9.7 %
Total segment earnings   79,560     51,379    201,357     172,313  
Nonsegment expenses   (11,193 )   (9,227 )  (31,159 )   (27,952 )
EBIT   68,367     42,152    170,198     144,361  
Interest expense, net   (5,899 )   (6,655 )  (18,030 )   (19,991 )
 Consolidated earnings before income taxes  $62,468    $35,497   $152,168    $124,370  
                        
Payments for property, plant and equipment  $35,970    $31,331   $104,530    $78,515  
Depreciation expense   10,489     8,559    32,183     28,971  
                 
**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   Nine-Months Ended  
   June 30,   June 30,  
(Unaudited - in thousands)  2014   2013   2014   2013  
Net earnings  $46,001   $23,663   $114,182   $93,477  
Income taxes   16,467    11,834    37,986    30,893  
Interest expense   5,972    6,723    18,219    20,196  
Interest income   (73 )  (68 )  (189 )  (205 )
EBIT   68,367    42,152    170,198    144,361  
Amortization of intangible assets   8,357    9,769    25,498    27,249  
Depreciation expense   10,489    8,559    32,183    28,971  
EBITDA  $87,213   $60,480   $227,879   $200,581  
                      
   
   
Woodward, Inc. and Subsidiaries  
RECONCILIATION OF CASH FLOW FROM OPERATIONS TO FREE CASH FLOW  
  
   Three-Months Ended   Nine-Months Ended  
   June 30,   June 30,  
(Unaudited - in thousands)  2014   2013   2014   2013  
                  
Net cash provided by operating activities  $59,246   $40,030   $183,890   $133,017  
Payments for property, plant, and equipment   (35,970 )  (31,331 )  (104,530 )  (78,515 )
Free cash flow  $23,276   $8,699   $79,360   $54,502  

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
    Tel: 970-482-5811
    Fax: 970-498-3058