Woodward, Inc. WWD reported solid second-quarter fiscal 2019 results, wherein both the bottom line and top line surpassed estimates as well as increased year over year, largely driven by strength in Aerospace segment.
On a GAAP basis, net earnings for the fiscal second quarter were $77.6 million or $1.20 per share compared with $38.5 million or 60 cents per share in the year-ago quarter. The two-fold increase in GAAP earnings was primarily attributable to top-line growth.
Adjusted net earnings came in at $90.3 million or $1.40 per share compared with $52.4 million or 82 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 35 cents.
Woodward, Inc. Price, Consensus and EPS Surprise
Woodward, Inc. price-consensus-eps-surprise-chart | Woodward, Inc. Quote
Quarterly net sales increased 38.4% year over year to $758.8 million, attributable to sales growth in both Aerospace and Industrial segments. The top line also surpassed the Zacks Consensus Estimate of $662 million. Organic net sales, which exclude sales attributable to Woodward L’Orange, were $671 million, up 22%.
Aerospace: Net sales were up 25.3% year over year to $483.9 million, which was strong across commercial and military OEM and aftermarket programs. This resulted from continued momentum in next generation aircraft production, increased aircraft utilization and higher defense spending. The segment’s earnings were $101.7 million, up from $74.7 million in the year-ago quarter, significantly benefiting from higher sales across all platforms.
Industrial: Net sales totaled $275.9 million, up 70.4% primarily due to improvement in both industrial turbomachinery and reciprocating engines, including strength in Woodward L’Orange. Organic net sales were $188 million, excluding sales of $88 million attributable to Woodward L’Orange. The segment’s earnings increased to $27.1 million from $10.7 million, driven by the addition of Woodward L’Orange and higher organic sales volume.
Cash Flow and Liquidity
For first six months of fiscal 2019, Woodward generated $140.9 million of net cash from operating activities compared with $56.7 million for the prior-year period. Free cash flow was $87 million for the first half of fiscal 2019 against an outflow of $2 million for the year-earlier period. This was primarily due to increase in earnings and improved working capital utilization. As of Mar 31, 2019, the company had $65.3 million of cash and cash equivalents with long-term debt of $1,160 million.
Fiscal 2019 Outlook Raised
Woodward has raised its outlook for fiscal 2019 on the back of strong performance in Aerospace segment and steady improvements in Industrial segment. The company presently expects total net sales to be $2.8-$2.9 billion, up from $2.65-$2.8 billion expected earlier with approximately 15% and 35% rise in Aerospace and Industrial sales, respectively, year over year. Adjusted earnings per share are projected to be between $4.60 and $4.80, up from previous guided range of $4.40-$4.70, based on approximately 65 million outstanding shares. While free cash flow is expected to be around $300 million, effective tax rate is estimated to be roughly 20%.
Woodward remains confident of meeting its fiscal 2019 outlook on the back of diligent execution of operational plans while delivering healthy shareholder value. Its Aerospace segment is expected to deliver strong performance, driven by healthy global passenger and cargo growth.
Coming to Industrial markets, while the industrial turbine market remains uncertain, the company is witnessing robust growth in distributed power for data center applications. Woodward L’Orange is likely to continue to enhance the company’s Industrial segment with respect to both sales and earnings. It is well positioned to capitalize on the near-term production ramp-up along with opportunities that lies ahead.
Zacks Rank and Stocks to Consider
Woodward currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader industry are Ericsson ERIC, Juniper Networks Inc. JNPR and PC-Tel Inc. PCTI, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ericsson is trading at P/E (F1) of 27.1x.
Juniper has a long-term earnings growth expectation of 6.2%. It has delivered a positive average earnings surprise of 15.4% in the trailing four quarters, beating estimates on each occasion.
PC-Tel is currently trading at P/E (F1) of 59.1x.
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