Woodward, Inc.

RESULTS OFOPERATIONS

The following table sets forth condensed consolidated statements of earnings data as a percentage of net sales for each period indicated:

Other select financial data:

Net Sales

Consolidated net sales for the third quarter of fiscal year 2025 increased by $67,758, or 8.0%, compared to the same period of fiscal year 2024. Consolidated net sales for the first nine months of fiscal year 2025 increased by $102,039, or 4.1%, compared to the same period of fiscal year 2024.

Details of the changes in consolidated net sales were as follows:

The increase in Aerospace segment net sales in the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year was primarily attributable to price realization and increased volume supported by operational improvements including increased output and other efficiency gains.

In the Industrial segment, the decrease in net sales for the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year was primarily a result of lower China on-highway volume, partially offset by price realization.

We have experienced, and expect to continue to experience, significant sales and earnings decreases in our China on-highway natural gas truck business in fiscal year 2025 as compared to fiscal year 2024. Future demand remains uncertain due to the volatility of this business. We also continue to monitor the evolving trade policy between the U.S. and China.

Costs and Expenses

Cost of goods sold increased by $48,585 to $666,287 for the third quarter of fiscal year 2025, from $617,702, for the third quarter of fiscal year 2024. Cost of goods sold decreased to 72.8% of net sales, for the third quarter of fiscal year 2025, compared to 72.9% of net sales for the third quarter of fiscal year 2024.

Cost of goods sold increased by $91,871 to $1,892,908, for the first nine months of fiscal year 2025, from $1,801,037, for the first nine months of fiscal 2024. Cost of goods sold increased to 73.6% of net sales, for the first nine months of fiscal year 2025, compared to 72.9% of net sales for the first nine months of fiscal year 2024.

The increase in cost of goods sold on an absolute basis in the third quarter and first nine months of fiscal year 2025 compared to the same periods of the prior fiscal year is primarily due to higher sales and net inflationary impacts on material and labor costs.

Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 27.2% for the third quarter of fiscal year 2025, compared to 27.1% for the third quarter of fiscal year 2024, or essentially flat. Gross margin was 26.4% for the first nine months of fiscal year 2025, compared to 27.1% for the first nine months of fiscal year 2024. The decrease in gross margin for the first nine months of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to unfavorable mix, partially offset by price realization.

Selling, general, and administrative expenses increased by $14,891, or 20.2%, to $88,703 for the third quarter of fiscal year 2025, compared to $73,812 for the third quarter of fiscal year 2024. Selling, general, and administrative expenses as a percentage of net sales increased to 9.7% for the third quarter of fiscal year 2025, compared to 8.7% for the third quarter of fiscal year 2024. The increase in selling, general, and administrative expenses for the third quarter of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily due to higher project-related costs and payroll expenses.

Selling, general, and administrative expenses increased by $12,471, or 5.4%, to $242,241 for the first nine months of fiscal year 2025, compared to $229,770 for the first nine months of fiscal year 2024. Selling, general, and administrative expenses as a percentage of net sales increased to 9.4% for the first nine months of fiscal year 2025, compared to 9.3% for the first nine months of fiscal year 2024. The increase in selling, general, and administrative expenses for the first nine months of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily due to increased expenses relating to business development activities and higher project-related costs.

Research and development costs were $41,088, or 4.5% of net sales, for the third quarter of fiscal year 2025 and $108,525, or 4.2% of net sales, for the first nine months of fiscal year 2025, as compared to $38,728, or 4.6% of net sales, for the third quarter of fiscal year 2024 and $105,987, or 4.3% of net sales, for the first nine months of fiscal year 2024. 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 $282, or 2.4%, to $11,234 for the third quarter of fiscal year 2025, compared to $11,516 for the third quarter of fiscal year 2024. Interest expense as a percentage of net sales was 1.2% for the third quarter of fiscal year 2025, compared to 1.4% for the third quarter of fiscal year 2024. The decrease in interest expense for the third quarter of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to a lower long-term debt balance as we paid the entire balance of a series of private placement notes.

Interest expense increased by $982, or 2.8%, to $35,464 for the first nine months of fiscal year 2025, compared to $34,482 for the first nine months of fiscal year 2024. Interest expense as a percentage of net sales was 1.4% for both the first nine months of fiscal year 2025 and for the first nine months of fiscal year 2024. The increase in interest expense on an absolute basis for the first nine months of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to increased average daily borrowings on the revolving credit facility during the first nine months of fiscal year 2025.

Other income increased by $3,426 to $17,864 for the third quarter of fiscal year 2025, compared to $14,438 for the third quarter of fiscal year 2024. The increase in other income for the third quarter of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to decreased expenses relating to our deferred compensation program.

Other income increased $16,294 to $65,755 for the first nine months of fiscal year 2025, compared to $49,461 for the first nine months of fiscal year 2024. The increase in other income for the first nine months of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to a one-time gain related to product rationalization activities that was recognized in the current fiscal year that did not occur in the prior fiscal year.

Income taxes were provided at an effective rate on earnings before income taxes of 14.5% for the third quarter of fiscal year 2025, compared to 16.4% for the third quarter of fiscal year 2024. The decrease in the effective tax rate for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 were primarily attributable to a decrease to the projected future withholding taxes on unremitted foreign earnings, increased earnings in lower taxed foreign jurisdictions, an increase to the Poland research and development credit in the current fiscal year, and higher state income tax credits. This decrease was partially offset by a lower U.S. research and development credit and an increased apportionment to higher taxed states.

Income taxes were provided at an effective rate on earnings before income taxes of 15.8% for the first nine months of fiscal year 2025, as compared to 17.8% for the first nine months of fiscal year 2024. The decrease in the effective tax rate for first nine months of fiscal year 2025 as compared to the same period of the prior fiscal year was primarily attributable to a larger stock-based compensation tax benefit, a decrease to projected future withholding taxes on unremitted foreign earnings, an increase to the Poland research and development credit in the current fiscal year, and higher state income tax credits. This decrease was partially offset by a lower U.S. research and development credit and an increased apportionment to higher taxed states.

Segment Results

The following table presents sales by segment:

The following table presents earnings by segment and reconciles segment earnings to consolidated net earnings:

The following table presents segment earnings as a percent of segment net sales:

Aerospace

Aerospace segment net sales increased by $78,430, or 15.2%, to $595,990 for the third quarter of fiscal year 2025, compared to $517,560 for the third quarter of fiscal year 2024. Aerospace segment net sales increased by $175,773, or 11.9%, to $1,651,601 for the first nine months of fiscal year 2025, compared to $1,475,828 for the first nine months of fiscal year 2024.

The increase in Aerospace segment net sales in the third quarter of fiscal year 2025 and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year were primarily attributable to price realization and increased volume supported by operational improvements including increased output and other efficiency gains.

Commercial OEM sales decreased in the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year, primarily due to supply chain disruptions and inventory management by our customers. As production ramps, we expect Commercial OEM sales to grow sequentially in the last three months of fiscal year 2025 as compared to the third quarter of fiscal year 2025. Commercial aftermarket sales increased in the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year, primarily due to high aircraft utilization rates.

Defense OEM sales increased in the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year, primarily driven by increased demand for our smart defense products. Defense aftermarket sales were down in the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year due to timing of sales.

Aerospace segment earnings increased by $23,898, or 23.5%, to $125,740 for the third quarter of fiscal year 2025, compared to $101,842 for the third quarter of fiscal year 2024. Aerospace segment earnings increased by $65,786, or 23.6%, to $345,081 for the first nine months of fiscal year 2025, compared to $279,295 for the first nine months of fiscal year 2024.

The increase in Aerospace segment earnings was due to the following:

Aerospace segment earnings as a percentage of segment net sales were 21.1% for the third quarter and 20.9% for the first nine months of fiscal year 2025, compared to 19.7% for the third quarter and 18.9% for the first nine months of fiscal year 2024.

Industrial

Industrial segment net sales decreased by $10,672, or 3.2%, to $319,456 for the third quarter of fiscal year 2025, compared to $330,128 for the third quarter of fiscal year 2024. Industrial segment net sales decreased by $73,734, or 7.4%, to $920,199 for the first nine months of fiscal year 2025, compared to $993,933 for the first nine months of fiscal year 2024.

The decrease in Industrial segment net sales in the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year was primarily attributable to lower China on-highway volume partially offset by price realization, volume increases in oil and gas, as well as operational improvements, including increased output and other efficiency gains

In the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year, we saw a substantial sales decline in our on-highway natural gas truck business in China. Future demand remains uncertain due to the volatility of this business. We also continue to monitor the evolving trade policy between the U.S. and China.

Industrial segment earnings decreased by $12,095, or 20.3%, to $47,622 for the third quarter of fiscal year 2025, compared to $59,717 for the third quarter of fiscal year 2024. Industrial segment earnings decreased by $58,056, or 30.3%, to $133,786 for the first nine months of fiscal year 2025, compared to $191,842 for the first nine months of fiscal year 2024.

The decrease in Industrial segment earnings was due to the following:

Industrial segment earnings as a percentage of segment net sales were 14.9% for the third quarter and 14.5% for the first nine months of fiscal year 2025, compared to 18.1% for the third quarter and 19.3% for the first nine months of fiscal year 2024. Industrial earnings were significantly impacted by the sales decline in our on-highway natural gas truck business in China and unfavorable mix, partially offset by price realization, volume increases in oil and gas, as well as operational improvements, including increased output and other efficiency gains.

Future demand in our on-highway natural gas truck business in China remains uncertain due to the volatility of this business. We also continue to monitor the evolving trade policy between the U.S. and China.

Nonsegment

Nonsegment expenses increased by $6,455 to $36,130 for the third quarter of fiscal year 2025, compared to $29,675 for the third quarter of fiscal year 2024. Nonsegment expenses decreased by $3,723 to $84,986 for the first nine months of fiscal year 2025 compared to $88,709 for the first nine months of fiscal year 2024.

The significant items that impacted nonsegment expenses in the current fiscal year as compared to the prior fiscal year were as follows:

Excluding these items, nonsegment expenses increased $6,455 in the third quarter and increased $13,256 in the first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year. These increases were primarily attributable to increased headcount and higher project-related costs.