Woodward Inc
For the period ended Mar 31, 2024. Filed May 3, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2024 · Filed May 3, 2024
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Item 2. Results of Operations
RESULTS OFOPERATIONS
The following table sets forth condensed consolidated statements of earnings data as a percentage of net sales for each period indicated:
| Three Months Ended · Six Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| March 31, 2024 | % of Net Sales | March 31, 2023 | % of Net Sales | March 31,2024 | % of NetSales | March 31,2023 | % of NetSales | |
| Net sales | $835,343 | 100% | $718,214 | 100% | $1,622,073 | 100% | $1,336,833 | 100% |
| Costs and expenses: | ||||||||
| Cost of goods sold | 600,954 | 71.9% | 559,149 | 77.9% | 1,183,335 | 73.0% | 1,051,812 | 78.7% |
| Selling, general, and administrative expenses | 81,447 | 9.8% | 75,578 | 10.5% | 155,958 | 9.6% | 138,765 | 10.4% |
| Research and development costs | 36,465 | 4.4% | 37,777 | 5.3% | 67,259 | 4.1% | 66,411 | 5.0% |
| Restructuring charges | — | 0.0% | 5,172 | 0.7% | — | 0.0% | 5,172 | 0.4% |
| Interest expense | 11,530 | 1.4% | 12,845 | 1.8% | 22,966 | 1.4% | 23,987 | 1.8% |
| Interest income | (1,293) | (0.2)% | (508) | (0.1)% | (2,766) | (0.2)% | (874) | (0.1)% |
| Other (income) expense, net | (14,384) | (1.7)% | (12,040) | (1.7)% | (35,023) | (2.2)% | (20,430) | (1.5)% |
| Total costs and expenses | 714,719 | 85.6% | 677,973 | 94.4% | 1,391,729 | 85.8% | 1,264,843 | 94.6% |
| Earnings before income taxes | 120,624 | 14.4% | 40,241 | 5.6% | 230,344 | 14.2% | 71,990 | 5.4% |
| Income tax expense | 23,068 | 2.8% | 4,730 | 0.7% | 42,744 | 2.6% | 6,873 | 0.5% |
| Net earnings | $97,556 | 11.7% | $35,511 | 4.9% | $187,600 | 11.6% | $65,117 | 4.9% |
Other select financial data:
| March 31, 2024 | September 30, 2023 | |
|---|---|---|
| Working capital | $1,120,119 | $852,256 |
| Total debt | 791,038 | 721,526 |
| Total stockholders' equity | 2,329,413 | 2,070,989 |
Net Sales
Consolidated net sales for the second quarter of fiscal year 2024 increased by $117,129, or 16.3%, compared to the same period of fiscal year 2023. Consolidated net sales for the first half of fiscal year 2024 increased by $285,240, or 21.3%, compared to the same period of fiscal year 2023.
Details of the changes in consolidated net sales are as follows:
| Three-Month Period | Six-Month Period | |
|---|---|---|
| Consolidated net sales for the period ended March 31, 2023 | $718,214 | $1,336,833 |
| Aerospace volume | 29,145 | 63,638 |
| Industrial volume | 34,299 | 113,489 |
| Effects of changes in price | 56,958 | 106,763 |
| Effects of changes in foreign currency rates | (3,273) | 1,350 |
| Consolidated net sales for the period ended March 31, 2024 | $835,343 | $1,622,073 |
In the Aerospace segment, the increase in net sales for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to increased aircraft utilization, as a result of continued growth in passenger traffic, and price realization.
In the Industrial segment, the increase in net sales for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to growth in transportation, particularly in the on-highway natural gas truck business in China, strong sales in power generation, and price realization, partially offset by a decrease in oil and gas sales.
Costs and Expenses
Cost of goods sold increased by $41,805 to $600,954, for the second quarter of fiscal year 2024, from $559,149, for the second quarter of fiscal year 2023. Cost of goods sold decreased to 71.9% of net sales, for the second quarter of fiscal year 2024, compared to 77.9% of net sales for the second quarter of fiscal year 2023.
Cost of goods sold increased by $131,523 to $1,183,335, for the first half of fiscal year 2024, from $1,051,812, for the first half of fiscal year 2023. Cost of goods sold decreased to 73.0% of net sales, for the first half of fiscal year 2024, compared to 78.7% of net sales for the first half of fiscal year 2023.
The increase in cost of goods sold on an absolute basis in the second quarter and first half of fiscal year 2024 compared to the same periods of the prior fiscal year is primarily due to higher sales volume and net inflationary impacts on material and labor costs. The decrease in cost of goods sold as a percent of net sales in the second quarter and first half of fiscal year 2024 compared to the same periods of the prior fiscal year is primarily due to price realization.
Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 28.1% for the second quarter of fiscal year 2024 and 27.0% for the first half of fiscal year 2024, compared to 22.1% for the second quarter of fiscal year 2023 and 21.3% for the first half of fiscal year 2023. The increase in gross margin for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to higher sales volume and price realization, partially offset by net inflationary impacts on material and labor costs.
Selling, general, and administrative expenses increased by $5,869, or 7.8%, to $81,447 for the second quarter of fiscal year 2024, compared to $75,578 for the second quarter of fiscal year 2023. Selling, general, and administrative expenses as a percentage of net sales decreased to 9.8% for the second quarter of fiscal year 2024, compared to 10.5% for the second quarter of fiscal year 2023. The increase in selling, general, and administrative expenses on an absolute basis for the second quarter of fiscal year 2024 compared to the same period of the prior fiscal year is primarily due to increased annual variable incentive compensation costs.
Selling, general, and administrative expenses increased by $17,193, or 12.4%, to $155,958 for the first half of fiscal year 2024, compared to $138,765 for the first half of fiscal year 2023. Selling, general, and administrative expenses as a percentage of net sales decreased to 9.6% for the first half of fiscal year 2024, compared to 10.4% for the first half of fiscal year 2023. The increase in selling, general, and administrative expenses on an absolute basis for the first half of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily due to increased annual variable incentive compensation costs, increased expenses relating to business development activities, and increased headcount.
Research and development costs decreased by $1,312, or 3.5%, to $36,465 for the second quarter of fiscal year 2024, compared to $37,777 for the second quarter of fiscal year 2023. The decrease in research and development costs for the second quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily due to variability in the timing of projects and expenses. As a percentage of net sales, research and development costs decreased to 4.4% for the second quarter of fiscal year 2024, as compared to 5.3% for the same period of the prior fiscal year.
Research and development costs increased by $848, or 1.3%, to $67,259 for the first half of fiscal year 2024, compared to $66,411 for the first half of fiscal year 2023. The increase in research and development costs for the first half of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily due to variability in the timing of projects and expenses. As a percentage of net sales, research and development costs decreased to 4.1% for the first half of fiscal year 2024, as compared to 5.0% for the first half of fiscal year 2023.
Our research and development activities extend across almost all of our customer base, and we anticipate ongoing variability in research and development costs due to the timing of customer business needs on current and future programs.
Interest expense decreased by $1,315, or 10.2%, to $11,530 for the second quarter of fiscal year 2024, compared to $12,845 for the second quarter of fiscal year 2023. Interest expense decreased by $1,021, or 4.3%, to $22,966 for the first half of fiscal year 2024, compared to $23,987 for the first half of fiscal year 2023. Interest expense as a percentage of net sales was 1.4% for each of the second quarter and first half of fiscal year 2024, compared to 1.8% for each of the second quarter and first half of fiscal year 2023. The decrease in interest expense for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to increased payments on our revolving credit facility during the second quarter and first half of fiscal year 2024. During the first six months of fiscal year 2024, we paid the entire balance of two series of private placement notes totaling $75,000.
Other income increased by $2,344 to $14,384 for the second quarter of fiscal year 2024, compared to $12,040 for the second quarter of fiscal year 2023. The increase in other income for the second quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to a gain on sales of assets and businesses whereas in the prior year we had a loss on the sale of assets and businesses.
Other income increased by $14,593 to $35,023 for the first half of fiscal year 2024, compared to $20,430 for the first half of fiscal year 2023. The increase in other income for the second quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to increased earnings in the joint venture with General Electric and a non-recurring gain related to a previous acquisition that was recognized during the first half of fiscal year 2024.
Income taxes were provided at an effective rate on earnings before income taxes of 19.1% for the second quarter and 18.6% for the first half of fiscal year 2024, and 11.8% for the second quarter and 9.5% for the first half of fiscal year 2023.
The increase in the effective tax rate for the second quarter as compared to the same period of the prior fiscal year is primarily attributable to higher projected full-year earnings taxed at statutory rates ranging between approximately 19% and 35%. These higher projected earnings and higher actual quarterly earnings resulted in lower current quarter tax benefits as a percent of earnings when compared to the prior year quarter. Additionally, the increase is attributable to projected future withholding taxes on unremitted foreign earnings.
The increase in the effective tax rate for the first half of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to higher projected full-year earnings taxed at statutory rates ranging between approximately 19% and 35%. These higher projected earnings and higher actual year-to-date earnings resulted in lower current year-to-date tax benefits as a percent of earnings when compared to the prior year. Additionally, the increase is attributable to projected future withholding taxes on unremitted foreign earnings and the release of uncertain tax positions that did not recur in the current fiscal year.
Segment Results
The following table presents sales by segment:
| Three Months Ended March 31, · Six Months Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2024 · 2023 · 2024 · 2023 | ||||||||
| Net sales: | ||||||||
| Aerospace | $497,512 | 59.6% | $437,017 | 60.8% | $958,268 | 59.1% | $832,702 | 62.3% |
| Industrial | 337,831 | 40.4% | 281,197 | 39.2% | 663,805 | 40.9% | 504,131 | 37.7% |
| Consolidated net sales | $835,343 | 100% | $718,214 | 100% | $1,622,073 | 100% | $1,336,833 | 100% |
The following table presents earnings by segment and reconciles segment earnings to consolidated net earnings:
| Three Months Ended March 31, | Six Months Ended March 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Aerospace | $98,451 | $73,314 | $177,453 | $128,748 |
| Industrial | 65,244 | 37,571 | 132,125 | 48,973 |
| Nonsegment expenses | (32,834) | (58,307) | (59,034) | (82,618) |
| Interest expense, net | (10,237) | (12,337) | (20,200) | (23,113) |
| Consolidated earnings before income taxes | 120,624 | 40,241 | 230,344 | 71,990 |
| Income tax expense | (23,068) | (4,730) | (42,744) | (6,873) |
| Consolidated net earnings | $97,556 | $35,511 | $187,600 | $65,117 |
The following table presents segment earnings as a percent of segment net sales:
| Three Months Ended March 31, | Six Months Ended March 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Aerospace | 19.8% | 16.8% | 18.5% | 15.5% |
| Industrial | 19.3% | 13.4% | 19.9% | 9.7% |
Aerospace
Aerospace segment net sales increased by $60,495, or 13.8%, to $497,512 for the second quarter of fiscal year 2024, compared to $437,017 for the second quarter of fiscal year 2023. Aerospace segment net sales increased by $125,566, or 15.1%, to $958,268 for the first half of fiscal year 2024, compared to $832,702 for the first half of fiscal year 2023. The increase in Aerospace segment net sales in the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to increased aircraft utilization, as a result of continued growth in passenger traffic, and price realization.
Defense OEM sales increased in the second quarter and were approximately flat for the first half of fiscal year 2024 as compared to the same periods of the prior fiscal year, primarily driven by increased demand for ground vehicle components, partially offset by reduced demand for smart defense. Our defense aftermarket sales increased in the second quarter and first half of fiscal year 2024 compared to the same periods of the prior fiscal year, primarily driven by supply chain stabilization and increased output.
Aerospace segment earnings increased by $25,137, or 34.3%, to $98,451 for the second quarter of fiscal year 2024, compared to $73,314 for the second quarter of fiscal year 2023. Aerospace segment earnings increased by $48,705, or 37.8%, to $177,453 for the first half of fiscal year 2024, compared to $128,748 for the first half of fiscal year 2023.
The increase in Aerospace segment earnings was due to the following:
| Three-Month Period | Six-Month Period | |
|---|---|---|
| Earnings for the period ended March 31, 2023 | $73,314 | $128,748 |
| Sales volume and mix | 17,159 | 31,289 |
| Price, inflation, and productivity | 16,775 | 28,846 |
| Other, net | (8,797) | (11,430) |
| Earnings for the period ended March 31, 2024 | $98,451 | $177,453 |
Aerospace segment earnings as a percentage of segment net sales were 19.8% for the second quarter and 18.5% for the first half of fiscal year 2024, compared to 16.8% for the second quarter and 15.5% for the first half of fiscal year 2023.
Industrial
Industrial segment net sales increased by $56,634, or 20.1%, to $337,831 for the second quarter of fiscal year 2024, compared to $281,197 for the second quarter of fiscal year 2023. Industrial segment net sales increased by $159,674, or 31.7%, to $663,805 for the first half of fiscal year 2024, compared to $504,131 for the first half of fiscal year 2023. The increase in Industrial segment net sales in the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year was primarily attributable to growth in transportation, particularly in the on-highway natural gas truck business in China, as well as strong sales in power generation and price realization, partially offset by decreased oil and gas sales.
Future demand for on-highway natural gas trucks in China beyond the third quarter of fiscal year 2024 remains uncertain.
Industrial segment earnings increased by $27,673, or 73.7%, to $65,244 for the second quarter of fiscal year 2024, compared to $37,571 for the second quarter of fiscal year 2023. Segment earnings increased by $83,152, or 169.8%, to $132,125 for the first half of fiscal year 2024, compared to $48,973 for the first half of fiscal year 2023.
The increase in Industrial segment earnings was due to the following:
| Three-Month Period | Six-Month Period | |
|---|---|---|
| Earnings for the period ended March 31, 2023 | $37,571 | $48,973 |
| Sales volume and mix | 11,629 | 55,374 |
| Price, inflation, and productivity | 24,609 | 38,527 |
| Other, net | (8,565) | (10,749) |
| Earnings for the period ended March 31, 2024 | $65,244 | $132,125 |
Industrial segment earnings as a percentage of segment net sales were 19.3% for the second quarter and 19.9% for the first half of fiscal year 2024, compared to 13.4% for the second quarter and 9.7% for the first half of fiscal year 2023. Industrial earnings benefited significantly from increased demand for on-highway natural gas trucks in China as well as from operational improvements including increased output and other efficiency gains, and favorable product mix. Future demand for on-highway natural gas trucks in China beyond the third quarter of fiscal year 2024 remains uncertain.
Nonsegment
Nonsegment expenses decreased by $25,473 to $32,834 for the second quarter of fiscal year 2024, compared to $58,307 for the second quarter of fiscal year 2023. Nonsegment expenses decreased by $23,584 to $59,034 for the first half of fiscal year 2024 compared to $82,618 for the first half of fiscal year 2023.
The decrease in nonsegment expenses for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior year was primarily due to significant costs that occurred in the second quarter of fiscal year 2023 that did not reoccur in the second quarter or first half of fiscal year 2024.
The significant charges that impacted nonsegment expenses are as follows:
| Three Months Ended March 31, | Six Months Ended March 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Nonsegment expenses | $(32,834) | $(58,307) | $(59,034) | $(82,618) |
| Non-recurring gain related to a previous acquisition | — | — | (4,803) | — |
| Business development activities | 1,664 | — | 5,902 | — |
| Certain non-recurring separation costs | 2,666 | 2,208 | 2,666 | 2,208 |
| Specific charge for excess and obsolete inventory | — | 11,995 | — | 11,995 |
| Product rationalization | — | 10,504 | — | 10,504 |
| Restructuring charges | — | 5,172 | — | 5,172 |
| Non-recurring charge related to customer collections | — | 4,997 | — | 4,997 |
| Nonsegment expenses excluding one time significant charges | $(28,504) | $(23,431) | $(55,269) | $(47,742) |
Excluding these charges, nonsegment expenses increased $5,073 in the second quarter of fiscal year 2024 as compared to the same period of the prior fiscal year. Excluding these charges, nonsegment expenses increased $7,527 in the first half of fiscal year 2024 as compared to the same period of the prior fiscal year. The remaining increase in nonsegment expenses for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily due to increased annual variable incentive compensation costs.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.