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Woodward (WWD) Up 8.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
·5 min read

It has been about a month since the last earnings report for Woodward (WWD). Shares have added about 8.1% 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 catalysts.

Woodward Tops Q4 Earnings Estimates Despite Soft Sales

Woodward reported relatively modest fourth-quarter fiscal 2020 results, with net earnings and sales declining on a year-over-year basis due to severe volatility in its markets stemming from the COVID-19 pandemic. However, both the top and bottom line exceeded the respective Zacks Consensus Estimate backed by diligent execution of operational plans and prudent capital management.

Net Income

On a GAAP basis, net earnings in the quarter were $57.2 million or 89 cents per share compared with $66.8 million or $1.03 per share in the year-ago quarter. The decline in earnings was primarily attributable to top-line contraction owing to the virus outbreak.

Excluding non-recurring items, adjusted net earnings for the reported quarter declined to $48.1 million or 75 cents per share from $78.7 million or $1.22 per share in the prior-year quarter. Nevertheless, the bottom line beat the Zacks Consensus Estimate by 21 cents.

In fiscal 2020, GAAP earnings were $240.4 million or $3.74 per share compared with $259.6 million or $4.02 per share in fiscal 2019, while adjusted earnings decreased to $254 million or $3.96 per share from $314.5 million or $4.88 per share in the respective periods.

Revenues

Net sales in the fiscal fourth quarter fell 27.9% year over year to $531.3 million due to lower sales in the Aerospace and Industrial segments on account of coronavirus adversities and lower oil prices. While commercial OEM and aftermarket sales were severely affected by the lockdown restrictions within the Aerospace segment, defense market witnessed decent growth due to upgrade and fleet readiness programs. Decline in oil and gas prices, along with weak customer demand due to the pandemic, led to lower sales in the Industrial segment. Nevertheless, the top line surpassed the consensus estimate of $520 million.

In fiscal 2020, net sales were $2,495.7 million compared with $2,900.2 million in fiscal 2019.

Segment Results

Aerospace: Net sales were down 33.5% year over year to $336.3 million led by lower commercial sales due to the decline in global passenger traffic and OEM production rates and plant closures. The segment continues to benefit from a strong defense market, which mitigated the significant impact of the rapid reduction in passenger traffic and aircraft production rates. The segment’s earnings were $58.5 million, down from $111.3 million in the year-ago quarter owing to lower sales volume, partially offset by cost reduction initiatives.

Industrial: Net sales totaled $194.9 million, down 15.5% year over year due to the impact of COVID-19 across the company’s markets, weakness in oil and gas as well as the divestiture of RPS. While results were affected by the economic slowdown, the divestiture of the renewables portfolio enhanced the segment’s profitability. The segment’s earnings were $18.7 million, up from $11 million in the year-ago quarter led by cost-cutting efforts.

Other Details

Total expenses declined to $463.1 million from $660 million a year ago. Adjusted EBITDA came in at $98.3 million compared with $136.1 million in the year-ago quarter.

Cash Flow & Liquidity

In fiscal 2020, Woodward generated $349.5 million of net cash from operating activities compared with $390.6 million a year ago. Free cash flow in fiscal 2020 was $302.4 million compared with $291.5 million in fiscal 2019. As of Sep 30, 2020, the company had $153.3 million in cash and cash equivalents with $736.8 million of long-term debt (net of current portion) compared with respective tallies of $99.1 million and $864.9 million a year ago.

Outlook

Due to lack of visibility amid economic disruptions stemming from the coronavirus-induced turmoil, Woodward did not provide any guidance for fiscal 2021. The company expects to emerge stronger from the crisis with a healthy balance sheet position and resilient business model.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 6.22% 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 upward for the stock, and the magnitude of these revisions looks promising. 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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