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It has been about a month since the last earnings report for Woodward (WWD). Shares have lost about 0.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Woodward due for a breakout? 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 Misses Q1 Earnings Estimates on Lower Revenues
Woodward reported relatively lackluster first-quarter fiscal 2021 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. Both the top and bottom line missed the respective Zacks Consensus Estimate despite diligent execution of operational plans and prudent capital management.
On a GAAP basis, net earnings in the quarter were $41.6 million or 64 cents per share compared with $53.4 million or 83 cents per share in the year-ago quarter. The decline in earnings was primarily attributable to top-line contraction owing to the virus outbreak. The bottom line missed the Zacks Consensus Estimate by 4 cents.
Net sales in the fiscal first quarter fell 25.4% year over year to $537.6 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. The top line missed the consensus estimate of $544 million.
Aerospace: Net sales were down 32.1% year over year to $321.7 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 $46.5 million, down from $92.9 million in the year-ago quarter owing to lower sales volume, partially offset by cost reduction initiatives.
Industrial: Net sales totaled $215.9 million, down 12.4% 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 $32.9 million, up from $28.2 million in the year-ago quarter led by cost-cutting efforts.
Total expenses declined to $490 million from $658.8 million a year ago. Adjusted EBITDA came in at $89.1 million compared with $126.9 million in the year-ago quarter.
Cash Flow & Liquidity
For the first three months of fiscal 2021, Woodward generated $146.7 million of net cash from operating activities compared with $27.4 million a year ago. Free cash flow was $139.5 million compared with $10.2 million in the prior year period. As of Dec 31, 2020, the company had $201.9 million in cash and cash equivalents with $745.5 million of long-term debt (net of current portion).
Due to lack of visibility amid economic disruptions stemming from the coronavirus-induced turmoil, Woodward continued to refrain from providing 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?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -6.38% due to these changes.
Currently, Woodward has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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 C. 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. 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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