Woodward (WWD) Up 3.7% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Woodward (WWD). Shares have added about 3.7% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Woodward Q4 Earnings Miss Estimates, Revenues Up Y/Y

Woodward reported mixed fourth-quarter fiscal 2019 financial results, wherein earnings declined year over year but revenues jumped. The company’s performance was primarily driven by strong product portfolios and healthy market fundamentals in Aerospace and Industrial segments. However, customer bankruptcy in the renewables business was on the downside.

Net Earnings

On a GAAP basis, net earnings for the fiscal fourth quarter were $66.8 million or $1.03 per share compared with $74.5 million or $1.16 per share in the year-ago quarter. The year-over-year decline despite top-line growth was attributable to higher operating costs and income tax expense.

Adjusted net earnings for the fiscal fourth quarter came in at $78.7 million or $1.22 per share compared with $89.1 million or $1.39 per share in the year-ago quarter. The bottom line missed the Zacks Consensus Estimate by 7 cents.

Net earnings for fiscal 2019 were $259.6 million or $4.02 per share compared with $180.4 million or $2.82 per share a year ago. The improvement was primarily due to top-line growth.

Revenues

For the September quarter, net sales increased 2.4% year over year to $736.5 million, which reflect healthy market fundamentals in Aerospace and Industrial segments, partly offset by headwinds from the 737 MAX grounding and impact of a significant customer bankruptcy in the renewables business. The top line lagged the consensus estimate of $740 million.

Net sales for fiscal 2019 came in at $2,900.2 million, an increase of 24.7% from fiscal 2018. Organic net sales, which exclude sales attributable to Woodward L’Orange, were $2.6 billion in fiscal 2019, up 16% from $2.2 billion in fiscal 2018.

Segment Results

Aerospace: Net sales were up 9.7% year over year to $505.9 million, benefiting from strength across commercial OEM and military market, partly offset by 737 MAX grounding. The segment continues to benefit from higher defense spending and increased aircraft content as narrowbody production rises. The segment’s earnings were $111.3 million, up from $104.8 million in the year-ago quarter primarily due to higher sales volume, partially offset by increased capacity expansion costs.

Industrial: Net sales totaled $230.6 million, down 10.7% due to the reduced demand for natural gas trucks in China, compliance of China V trucks for the implementation of China VI emission regulations and the impact of Senvion bankruptcy on renewables business. The segment’s earnings increased to $11 million from $8.5 million.

Cash Flow & Liquidity

For fiscal 2019, Woodward generated $390.6 million of net cash from operating activities compared with $299.3 million a year ago. For the same period, free cash flow was $291.5 million, up from $172.2 million, primarily driven by higher earnings and lower capital expenditures.

As of Sep 30, 2019, the company had $99.1 million in cash and equivalents with $864.9 million of long-term debt (less current portion) compared with the respective tallies of $83.6 million and $1,092.4 million a year ago.

Fiscal 2020 Outlook

Woodward has provided outlook for fiscal 2020. The company expects total net sales to be in the range of $3-$3.1 billion, with about 6% rise in Aerospace sales. Industrial sales are anticipated to be flat year over year.

Adjusted earnings per share are anticipated between $5.30 and $5.60, based on around 64 million outstanding shares. While free cash flow is expected to be approximately $400 million, effective tax rate is likely to be 22%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -8.04% due to these changes.

VGM Scores

At this time, Woodward has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Woodward has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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