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A month has gone by since the last earnings report for Woodward (WWD). Shares have added about 30% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Woodward due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Woodward Tops Q2 Earnings Estimates, Withdraws Guidance
Woodward reported healthy second-quarter fiscal 2020 results, with the bottom and the top line beating the respective Zacks Consensus Estimate.
The results were largely in line with the company’s expectations cited before it began to experience disruptions related to COVID-19. Due to global uncertainty, Woodward has withdrawn its fiscal 2020 guidance.
On a GAAP basis, net earnings in the fiscal second quarter amounted to $91.3 million or $1.41 per share compared with $77.6 million or $1.20 per share in the year-ago quarter. The improvement was primarily driven by lower expenses.
Quarterly adjusted net earnings were $104 million or $1.61 per share compared with $90 million or $1.40 per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 63 cents.
Net sales in the March quarter fell 5.1% year over year to $720.2 million due to lower sales in the Aerospace and Industrial segments. However, the top line surpassed the consensus estimate of $704 million.
Aerospace: Net sales fell 1.9% year over year to $474 million, primarily due to the Boeing 737 MAX production halt and related lower initial provisioning. However, the defense continued to perform well in both OEM and aftermarket on strong demand for Woodward programs. The segment’s earnings were $118 million, up 15.7% from $102 million in the year-ago quarter. The upside can be attributed to the elimination of the annual bonus for 2020, which was partially offset by lower sales volume.
Industrial: Net sales totaled $246 million, down 10.9% year over year. The downside was caused by weakness in oil and gas markets and the impact of COVID-19 on China’s natural gas trucks. This was partially offset by improvements in gas turbines and renewable power. The segment’s earnings were $26 million, down 3.7% from $27 million in the year-ago quarter primarily due to lower sales volume.
Total expenses declined to $613 million from $668.7 million year over year primarily due to lower cost of goods sold.
On Apr 6, Woodward announced the mutual termination of its merger with Hexcel. The decision was made in the spirit of doing what’s best for individual businesses with a focus on managing through this unprecedented crisis. It also decided to shift Bob Weber back to the role of vice chairman and chief financial officer.
On Apr 30, the company closed the previously-announced divestiture of its renewable power systems and related businesses.
Cash Flow & Liquidity
In the first six months of fiscal 2020, Woodward generated $52.2 million of net cash from operations compared with $141 million in the year-ago period. Free cash flow for the first half of fiscal 2020 was $23 million compared with $87 million in the prior-year period, attributable to higher working capital.
As of Mar 31, the company had $102.8 million in cash and equivalents with $869.2 million of long-term debt (less current portion).
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -54.9% due to these changes.
At this time, Woodward has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Woodward has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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