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Woodward Reports Fiscal Year 2019 Results and Fiscal Year 2020 Outlook

Woodward Reports Fiscal Year 2019 Results and Fiscal Year 2020 Outlook

FORT COLLINS, Colo., Nov. 18, 2019 (GLOBE NEWSWIRE) -- Woodward, Inc. (WWD) today reported financial results for its fiscal year 2019 and fourth quarter ending September 30, 2019. (All amounts are presented on an as reported (U.S. GAAP) basis unless otherwise indicated. All per share amounts are presented on a fully diluted basis. All comparisons are made to the same period of the prior year unless otherwise stated.)

Fourth Quarter Fiscal 2019 Overview

  • Net sales were $737 million for the fourth quarter of 2019, up 2 percent
  • Earnings per share were $1.03, down from $1.16
  • Adjusted earnings per share1 were $1.22, down from $1.39

Fiscal Year 2019 Overview

  • Net sales were $2.90 billion for fiscal year 2019, an increase of 25 percent compared to the prior year. Organic net sales1, which exclude the L’Orange business acquired in June 2018, increased 16 percent compared to the prior year.
  • Net earnings were $260 million, or $4.02 per share, compared to $180 million, or $2.82 per share, for the prior year.
  • Adjusted net earnings1 were $314 million, or $4.88 per share, compared to $246 million, or $3.85 per share, for the prior year.
  • Net cash provided by operating activities for 2019 was $391 million, compared to $299 million for the prior year. Free cash flow1 was $292 million for 2019, compared to $172 million for the prior year.

“We delivered solid results for 2019. Our Aerospace and Industrial segments benefitted from strong product portfolios and healthy market fundamentals, somewhat offset by headwinds from the 737 MAX grounding and the impact of a significant customer bankruptcy in our renewables business,” said Thomas A. Gendron, Chairman and Chief Executive Officer of Woodward. “As we look ahead to fiscal year 2020, we are well positioned to deliver another year of strong performance, maintain positive momentum in our Aerospace segment, drive margin improvements in our Industrial segment and consistently deliver operational excellence.”

Company Results

Woodward adopted the FASB Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (“ASC 606”) effective October 1, 2018, accordingly, results for the fourth quarter and fiscal year 2019, including adjusted and organic amounts, are presented under ASC 606.  Periods prior to fiscal 2019 are presented under prior accounting guidance for revenue. Please refer to the tables included in this release and our Quarterly Reports on Form 10-Q.

Net sales for the fourth quarter of fiscal 2019 were $737 million, compared to $719 million for the fourth quarter of last year, an increase of 2 percent. Net earnings for the fourth quarter of 2019 were $67 million, or $1.03 per share, compared to $75 million, or $1.16 per share, for the fourth quarter of last year. Adjusted net earnings for the fourth quarter of 2019 were $79 million, or $1.22 per share, for the current quarter, compared to $89 million, or $1.39 per share for the fourth quarter of the prior year.

Net sales for fiscal 2019 were $2.90 billion, compared to $2.33 billion last year, an increase of 25 percent. Organic net sales for fiscal 2019 were $2.57 billion, compared to $2.22 billion in the prior year, an increase of 16 percent. Net earnings for 2019 were $260 million, or $4.02 per share, compared to $180 million, or $2.82 per share, for the prior year. Adjusted net earnings were $314 million, or $4.88 per share, for the current year, compared to $246 million, or $3.85 per share, for the prior year.  

EBIT1 was $86 million for the fourth quarter of 2019, compared to $91 million for the fourth quarter of 2018. Adjusted EBIT1 for the fourth quarter of 2019 was $103 million, compared to $122 million for the fourth quarter of 2018.

EBIT was $363 million for fiscal 2019, compared to $258 million for 2018. Adjusted EBIT for 2019 was $424 million, compared to $334 million for 2018.

The effective tax rate for the fourth quarter of 2019 was 12.8 percent, compared to 5.7 percent in the fourth quarter of 2018. The adjusted effective tax rate1 was 15.5 percent for the quarter, compared to 18.9 percent for the fourth quarter of 2018.

The full year effective tax rate for 2019 was 19.0 percent, compared to 17.9 percent for the prior year. The adjusted effective tax rate for the full year 2019 was 17.5 percent, compared to 16.8 percent for the prior year.

Segment Results

Aerospace
Aerospace segment net sales for the fourth quarter of fiscal 2019 were $506 million, compared to $461 million for the fourth quarter a year ago, an increase of 10 percent.

Aerospace sales growth for the fourth quarter of 2019 was strong across military markets and commercial OEM, while the 737 MAX grounding led to softer initial provisioning. The segment continues to benefit from higher defense spending and increased aircraft content as narrowbody production ramps.

Segment earnings for the fourth quarter of 2019 were $111 million, compared to $105 million for the fourth quarter of last year. Segment earnings as a percent of segment net sales were 22.0 percent for the fourth quarter of 2019, compared to 22.7 percent in the same quarter of the prior year. Segment earnings primarily benefitted from higher sales volumes, partially offset by increased capacity expansion costs.

For fiscal 2019, Aerospace segment net sales were $1.88 billion, an increase of 21 percent compared to $1.56 billion for the prior year. Segment earnings for 2019 were $389 million, or 20.7 percent of segment net sales, compared to $309 million, or 19.8 percent of segment net sales, in the prior year. 

Industrial
Industrial segment net sales for the fourth quarter of fiscal 2019 were $231 million, compared to $258 million for the fourth quarter a year ago. The decline in Industrial segment sales was primarily driven by reduced demand in the fourth quarter for natural gas trucks in China resulting from the large pre-buy, in previous quarters, of China V compliant trucks ahead of the implementation of China VI emission regulations, as well as the impact on our renewables business of the Senvion bankruptcy.

Industrial segment earnings and adjusted Industrial segment earnings for the fourth quarter of 2019 were $11 million, or 4.8 percent of segment net sales. Segment earnings for the fourth quarter of last year were $8 million, or 3.3 percent of segment net sales. Adjusted Industrial segment earnings1 for the fourth quarter of 2018 were $35 million, or 13.4 percent of segment net sales. The decrease in adjusted Industrial segment earnings was primarily due to the lower sales volume, higher manufacturing costs, and an engine product warranty expense.

For 2019, Industrial segment net sales were $1.02 billion, an increase of 33 percent, compared to $768 million for the prior year. Organic Industrial segment net sales for 2019 were $688 million, compared to $665 million for the prior year, an increase of 3 percent. Foreign currency exchange rates had an unfavorable impact on segment net sales of approximately $21 million for 2019, and no significant impact on segment earnings. On a constant currency basis1, organic sales would have increased approximately 7 percent. Industrial segment earnings for 2019 were $94 million, or 9.2 percent of segment net sales, compared to $50 million, or 6.5 percent of segment net sales, in the prior year. Adjusted Industrial segment earnings for 2019 were $115 million, or 11.2 percent of segment net sales, compared to $84 million, or 11.0 percent of segment net sales, in the prior year. Adjusted Industrial segment earnings excluding the renewable power systems business1 for 2019 were $127 million, or 13.3 percent of Industrial segment net sales excluding the renewable power systems business, compared to $81 million, or 12.0 percent of Industrial segment net sales excluding the renewable power systems business, in the prior year. 

Nonsegment
Nonsegment expenses totaled $36 million for the fourth quarter of fiscal 2019, compared to $22 million for the same period of the prior year.  The increase in nonsegment expense was primarily due to a $13 million pre-tax charge for the impairment of assets related to the Senvion bankruptcy. Adjusted nonsegment expenses1 for the fourth quarter of 2019 were $20 million, compared to $17 million for the fourth quarter last year.

Nonsegment expenses totaled $119 million for 2019, compared to $100 million for the prior year. Adjusted nonsegment expenses were $80 million for 2019, compared to $58 million for the prior year.

Cash Flow and Financial Position

Net cash provided by operating activities for fiscal year 2019 was $391 million, compared to $299 million for the prior year. Payments for property, plant, and equipment for 2019 were $99 million, compared to $127 million for 2018. Free cash flow was $292 million for 2019, compared to $172 million for 2018. The increase in free cash flow was primarily related to higher earnings and lower capital expenditures.

Total debt was $1.08 billion at September 30, 2019, compared to $1.25 billion at September 30, 2018. Debt-to-EBITDA1 leverage at September 30, 2019 was 2.1 times EBITDA, compared to 2.9 times EBITDA at September 30, 2018.

During fiscal year 2019, $150 million was returned to stockholders in the form of $40 million of dividends and $110 million of repurchased shares.

Fiscal Year 2020 Outlook

Total net sales for fiscal 2020 are expected to be between $3.0 and $3.1 billion. Aerospace sales are anticipated to be up approximately 6 percent compared to the prior year. While ASC 606 favorably impacted Aerospace sales growth in fiscal year 2019, it is expected to have an unfavorable impact on sales growth in fiscal year 2020 due to the timing of sales orders and inventory levels. Industrial sales are expected to be flat to up low single digits as compared to the prior year.

Aerospace segment earnings as a percent of segment net sales are expected to be approximately 21 percent. Industrial segment earnings as a percent of segment net sales are expected to be approximately 14 percent.

The effective tax rate is expected to be approximately 22 percent. 

Free cash flow is expected to be approximately $400 million.

Earnings per share is expected to be between $5.30 and $5.60 based on approximately 64 million of fully diluted weighted average shares outstanding.

Conference Call

Woodward will hold an investor conference call at 4:30 p.m. EST, November 18, 2019, to provide an overview of the financial performance for the fourth quarter and fiscal year 2019, business highlights, and outlook for fiscal 2020. 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.

You may also listen to the call by dialing 1-877-231-2582 (domestic) or 1-478-219-0714 (international).  Participants should call prior to the start time to allow for registration; the Conference ID is 4382689. An audio replay will be available by telephone from 7:30 p.m. EST on November 18, 2019 until 11:59 p.m. EST on December 2, 2019. The telephone number to access the replay is 1-855-859-2056 (domestic) or 1-404-537-3406 (international), reference access code 4382689.

A webcast presentation will be available on the website by selecting “Investors/Events & Presentations”. 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 industrial 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.2

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 our position within our markets and ability to compete effectively, expectations related to the performance of our segments and specific markets within those segments, and our future sales, earnings, earnings per share, liquidity, tax rate, and relative profitability. 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 our customers’ business, or our business with, or financial distress of, Woodward’s significant customers; global economic uncertainty and instability in the financial markets; Woodward’s ability to manage product liability claims, product recalls or other liabilities associated with the products and services that Woodward provides; 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 any restructuring and alignment efforts; Woodward’s ability to successfully manage competitive factors, including prices, promotional incentives, competitor product development, 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 to perform contractual obligations and its suppliers to provide Woodward with materials of sufficient quality or quantity required to meet Woodward’s production needs at favorable prices or at all; Woodward’s ability to monitor its technological expertise and the success of, and/or costs associated with, its product development activities; consolidation in the aerospace market and our participation in a strategic joint venture with General Electric Company may make it more difficult to secure long-term sales in certain aerospace markets; Woodward’s debt obligations, debt service requirements, and ability to operate its business, pursue its business strategies and incur additional debt in light of covenants contained in its outstanding debt agreements; Woodward’s ability to manage additional tax expense and exposures; risks related to Woodward’s U.S. Government contracting activities, including liabilities resulting from legal and regulatory proceedings, inquiries, or investigations related to such activities; the potential of a significant reduction in defense sales due to decreases in the amount of U.S. Federal defense spending or other specific budget cuts impacting defense programs in which Woodward participates; changes in government spending patterns, priorities, subsidy programs and/or regulatory requirements; future impairment charges resulting from changes in the estimates of fair value of reporting units or of long-lived assets; future results of Woodward’s subsidiaries; environmental liabilities related to manufacturing activities and/or real estate acquisitions; Woodward’s continued access to a stable workforce and favorable labor relations with its employees; 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; changes in accounting standards that could adversely impact our profitability or financial position; risks related to Woodward’s common stock, including changes in prices and trading volumes; impacts of tariff regulations; 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; industry risks, including increases in natural gas prices, unforeseen events that may reduce commercial aviation and increasing emissions standards; any adverse effects on Woodward’s operations due to information systems interruptions or intrusions; risks associated with integrating the L’Orange business, including diversion of management time and attention, inability to meet our expectations, unexpected liabilities, loss of employees and difficulties integrating and retaining customers, suppliers and partners; certain provisions of Woodward’s charter documents and Delaware law that could discourage or prevent others from acquiring the company; and other risk factors described in Woodward's filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and its Annual Report on Form 10-K for the year ended September 30, 2019, which we expect to file shortly, and other risks described in Woodward’s filings with the Securities and Exchange Commission.

 
Woodward, Inc. and Subsidiaries 
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS 
    Three-Months Ended   Year Ended
    September 30,   September 30,
(Unaudited - in thousands except per share amounts)     2019       2018       2019       2018  
                 
Net sales    $ 736,537     $ 719,359     $ 2,900,197     $ 2,325,873  
Costs and expenses:                
Cost of goods sold      571,123       544,343       2,192,654       1,722,802  
Selling, general, and administrative expenses     51,441       52,654       211,205       193,736  
Research and development costs     35,748       36,854       159,107       148,279  
Restructuring charges     -       -       -       17,013  
Interest expense      9,845       12,714       44,001       40,465  
Interest income      (400 )     (498 )     (1,413 )     (1,674 )
Other (income) expense, net     (7,835 )     (5,735 )     (25,969 )     (14,326 )
Total costs and expenses      659,922       640,332       2,579,585       2,106,295  
Earnings before income taxes     76,615       79,027       320,612       219,578  
Income taxes     9,819       4,515       61,010       39,200  
Net earnings   $ 66,796     $ 74,512     $ 259,602     $ 180,378  
                 
Earnings per share amounts:                
Basic earnings per share   $ 1.08     $ 1.21     $ 4.19     $ 2.93  
Diluted earnings per share   $ 1.03     $ 1.16     $ 4.02     $ 2.82  
Weighted average common shares outstanding:                
Basic     61,872       61,718       61,950       61,493  
Diluted     64,553       64,114       64,498       63,876  
Cash dividends per share paid to Woodward common stockholders   $ 0.1625     $ 0.1425     $ 0.6300     $ 0.5525  
                 

 


Woodward, Inc. and Subsidiaries 
CONDENSED CONSOLIDATED BALANCE SHEETS 
    September 30,   September 30,
(Unaudited - in thousands)     2019       2018  
Assets        
Current assets:        
Cash and cash equivalents   $ 99,073     $ 83,594  
Accounts receivable     591,529       432,003  
Inventories     516,836       549,596  
Income taxes receivable     8,099       6,397  
Other current assets     55,691       43,207  
Total current assets     1,271,228       1,114,797  
Property, plant, and equipment, net     1,058,775       1,060,005  
Goodwill     797,853       813,250  
Intangible assets, net     611,992       700,883  
Deferred income tax assets     18,161       16,570  
Other assets     198,517       85,144  
Total assets   $ 3,956,526     $ 3,790,649  
         
Liabilities and stockholders’ equity        
Current liabilities:        
Short-term borrowings   $ 220,000     $ 153,635  
Accounts payable     240,460       226,285  
Income taxes payable     18,849       16,745  
Accrued liabilities     228,127       194,513  
Total current liabilities     707,436       591,178  
Long-term debt, less current portion     864,899       1,092,397  
Deferred income tax liabilities     151,362       170,915  
Other liabilities     506,088       398,055  
Total liabilities     2,229,785       2,252,545  
Stockholders’ equity     1,726,741       1,538,104  
Total liabilities and stockholders’ equity   $ 3,956,526     $ 3,790,649  
         
         
Woodward, Inc. and Subsidiaries 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
    Year Ended
    September 30,
(Unaudited - in thousands)     2019       2018  
Net cash provided by operating activities   $ 390,608     $ 299,292  
         
Cash flows from investing activities:        
Payments for property, plant, and equipment     (99,066 )     (127,140 )
Net proceeds from sale of assets     1,010       1,923  
Proceeds from sales of short-term investments     22,252       9,088  
Payments for purchases of short-term investments     (26,723 )     (9,323 )
Business acquisitions, net of cash acquired     -       (771,115 )
Net cash used in investing activities     (102,527 )     (896,567 )
         
Cash flows from financing activities:        
Cash dividends paid     (39,066 )     (34,003 )
Proceeds from sales of treasury stock     36,044       9,132  
Payments for repurchases of common stock     (110,311 )     -  
Borrowings on revolving lines of credit and short-term borrowings     1,683,542       1,930,261  
Payments on revolving lines of credit and short-term borrowings     (1,690,035 )     (1,691,934 )
Proceeds from the issuance of long-term debt     -       400,000  
Payments of long-term debt and capital lease obligations     (143,535 )     (421 )
Payment of debt financing costs     (2,238 )     (1,494 )
Payments for forward option derivative instrument     -       (5,543 )
Net cash (used in) provided by financing activities     (265,599 )     605,998  
Effect of exchange rate changes on cash and cash equivalents     (7,003 )     (12,681 )
Net change in cash and cash equivalents     15,479       (3,958 )
Cash and cash equivalents at beginning of year     83,594       87,552  
Cash and cash equivalents at end of period   $ 99,073     $ 83,594  
         

 



Woodward, Inc. and Subsidiaries 
SEGMENT NET SALES AND EARNINGS 
    Three-Months Ended   Year Ended
    September 30,   September 30,
(Unaudited - in thousands)     2019       2018       2019       2018  
Net sales:                
Aerospace   $ 505,904     $ 461,128     $ 1,880,520     $ 1,557,988  
Industrial     230,633       258,231       1,019,677       767,885  
Total consolidated net sales   $ 736,537     $ 719,359     $ 2,900,197     $ 2,325,873  
Segment earnings*:                
Aerospace   $ 111,312     $ 104,769     $ 389,126     $ 308,553  
As a percent of segment net sales     22.0 %     22.7 %     20.7 %     19.8 %
Industrial     10,984       8,483       93,521       49,894  
As a percent of segment net sales     4.8 %     3.3 %     9.2 %     6.5 %
Total segment earnings     122,296       113,252       482,647       358,447  
Nonsegment expenses     (36,237 )     (22,009 )     (119,447 )     (100,078 )
EBIT     86,059       91,243       363,200       258,369  
Interest expense, net     (9,444 )     (12,216 )     (42,588 )     (38,791 )
Consolidated earnings before income taxes   $ 76,615     $ 79,027     $ 320,612     $ 219,578  
*This schedule reconciles segment earnings, which exclude certain costs, to consolidated earnings before taxes.  
                 
Payments for property, plant and equipment   $ 21,162     $ 68,662     $ 99,066     $ 127,140  
Depreciation expense   $ 22,984     $ 23,113     $ 85,982     $ 71,389  
                 

On October 1, 2018, Woodward, Inc. adopted the FASB Accounting Standards Update No. 2014-09 (“ASC 606”), “Revenue from Contracts with Customers.” The stated amounts in the tables below reflect the impact of the adoption.

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Woodward, Inc. and Subsidiaries 
Comparison of financial results under ASC 606 and ASC 605 
    As reported     As adjusted (Non U.S. GAAP)
    Three-Months Ended September 30,     Three-Months Ended September 30,
      2019       2018         2019       2018  
(Unaudited - in thousands, except per share amounts)   ASC 606   ASC 605   ASC 605     ASC 606   ASC 605   ASC 605
Net Sales:                          
Aerospace segment   $ 505,904     $ 490,743     $ 461,128       $ 505,904     $ 490,743     $ 461,128  
Industrial segment     230,633       242,521       258,231         230,633       242,521       258,231  
Total consolidated net sales   $ 736,537     $ 733,264     $ 719,359       $ 736,537     $ 733,264     $ 719,359  
Earnings:                          
Aerospace segment   $ 111,312     $ 112,645     $ 104,769       $ 107,931     $ 109,264     $ 104,769  
Segment earnings as a percent of segment net sales     22.0 %     23.0 %     22.7 %       21.3 %     22.3 %     22.7 %
Industrial segment   $ 10,984     $ 15,039     $ 8,483       $ 10,984     $ 15,098     $ 34,569  
Segment earnings as a percent of segment net sales     4.8 %     6.2 %     3.3 %       4.8 %     6.2 %     13.4 %
Consolidated Net Earnings   $ 66,796     $ 73,131     $ 74,512       $ 78,701     $ 85,096     $ 89,083  
Consolidated diluted earnings per share   $ 1.03     $ 1.13     $ 1.16       $ 1.22     $ 1.32     $ 1.39  
                           
                           
Woodward, Inc. and Subsidiaries 
Comparison of financial results under ASC 606 and ASC 605 
    As reported     As adjusted (Non U.S. GAAP)
    Year Ended September 30,     Year Ended September 30,
      2019       2018         2019       2018  
(Unaudited - in thousands, except per share amounts)   ASC 606   ASC 605   ASC 605     ASC 606   ASC 605   ASC 605
Net Sales:                          
Aerospace segment   $ 1,880,520     $ 1,761,389     $ 1,557,988       $ 1,880,520     $ 1,761,389     $ 1,557,988  
Industrial segment     1,019,677       1,029,168       767,885         1,019,677       1,029,168       767,885  
Total consolidated net sales   $ 2,900,197     $ 2,790,557     $ 2,325,873       $ 2,900,197     $ 2,790,557     $ 2,325,873  
Earnings:                          
Aerospace segment   $ 389,126     $ 380,687     $ 308,553