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Woodward, inc (NASDAQ:WWD)This autumn 2021 Earnings CallNov 18, 2021, 4:30 p.m. ETContents:
Questions and Solutions
OperatorThank you for standing by. Welcome to the Woodward Integrated, Fourth Quarter Fiscal 12 months 2021 Earnings Name. Presently, I wish to inform you that this name is being recorded for rebroadcast and that’s all and that every one contributors are in a listen-only mode. Following the presentation, you may be invited to take part in a question-and-answer session.Becoming a member of us right now from the corporate are Mr. Tom Gendron, Chairman and Chief Government Officer; Mr. Mark Hartman, Chief Monetary Officer; Mr. Don Guzzardo, Vice President of Investor Relations and Treasurer; and Mr. Dan Provaznik, Director of Investor Relations.I’d now like to show the decision over to Mr. Guzzardo.Don Guzzardo — Vice President, Investor Relations & TreasurerThank you, operator. We wish to welcome all of you to Woodward’s fourth quarter fiscal 12 months 2021 earnings name. In right now’s name, Tom will touch upon our markets and associated methods and Mark will talk about our monetary outcomes as outlined in our earnings launch. On the finish of our presentation, we are going to take questions. For many who haven’t seen right now’s earnings launch, yow will discover it on our web site at woodward.com. We’ve, once more, included some presentation supplies to go together with right now’s name which might be additionally accessible on our web site. An audio replay of this name shall be obtainable by cellphone or on our web site via December 2, 2021.The cellphone quantity for the audio replay is on the press launch saying this name, in addition to on our web site, and shall be repeated by the operator on the finish of the decision. I wish to check with and spotlight our cautionary assertion, as proven on slide 3. As all the time, parts of this presentation are forward-looking or based mostly on our present outlook and assumptions for the worldwide economic system and our companies extra particularly, together with the anticipated and potential results of the continued COVID-19 pandemic. These parts can and do incessantly change.Please think about our feedback in mild of the dangers and uncertainties surrounding these parts, together with the dangers we determine in our filings. As well as, Woodward is offering sure non-US GAAP monetary measures. We direct your consideration to the reconciliations of non-US GAAP monetary measures that are included in right now’s slide presentation and our earnings launch and associated schedules. We imagine this extra monetary info will assist in understanding our outcomes. Now turning to our outcomes for the fourth quarter; web gross sales for the fourth quarter of fiscal 2021 had been $570 million in comparison with $531 million for the prior-year quarter.Internet earnings for the fourth quarter of 2021 had been $50 million or $0.76 per share, in comparison with $57 million, or $0.89 per share for the prior 12 months quarter. Adjusted web earnings for the fourth quarter of 2021 had been $54 million, or $0.82 per share, in comparison with $48 million, or $0.75 per share for the prior 12 months quarter. And for the complete 12 months, web gross sales had been $2.25 billion, in comparison with $2.5 billion for the prior 12 months. Internet earnings had been $209 million or $3.18 per share for fiscal 2021, in comparison with $240 million or $3.70 per share for the prior 12 months.Adjusted web earnings had been $212 million or $3.24 per share, in comparison with $254 million or $3.96 per share for the prior 12 months. Internet money generated from working actions for 2021 was $465 million, in comparison with $349 million for the prior 12 months. Free money circulate and adjusted free money circulate for 2021 had been each $427 million. For 2020, free money circulate was $302 million and adjusted free money circulate was $315 million.Now I’ll flip the decision over to Tom to remark additional on our outcomes, methods and markets.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentThank you, Don, good afternoon, everybody. As a few of you realize, Don has determined to retire on the finish of the 12 months after a 31 12 months profession at Woodward. Don has been an necessary champion of Woodward’s development and switch transformation story over the previous three a long time and has been a trusted advisor to administration. On behalf of the corporate, I wish to specific our honest gratitude for his dedication to Woodward, excellent management and counsel. We want you all one of the best on retirement. Going ahead, Dan Provaznik, a 15 12 months Woodward veteran will lead our Investor Relations operate.We delivered strong outcomes for fiscal 2021 in opposition to the headwinds of COVID and world provide chain disruptions. We do count on continued restoration all through 2022, though uncertainty and volatility across the tempo of restoration is anticipated to stay. We imagine our confirmed resiliency and powerful monetary place will permit us to capitalize on future market alternatives. Transferring to our markets in additional element, business aerospace continues to get well and construct charges are anticipated to enhance additional in 2022 based mostly on introduced will increase and the anticipated certification of the 737 MAX in China.Industrial aftermarket is being pushed by elevated passenger site visitors and the utilization of a business fleet that features considerably greater Woodward content material. Home journey is almost pre-COVID ranges whereas worldwide journey though steadily bettering, remains to be considerably lagging Protection markets remained secure aside from guided weapons, which we anticipate will proceed to melt in fiscal 2022. Turning to our industrial markets; in energy era, demand for gasoline generators continues to extend, pushed primarily by development in Asia and the continued alternative of coal powered plant.Moreover, we see robust demand for backup energy for information facilities. Aftermarket exercise has been secure, however is predicted to extend in 2022. In transportation, the worldwide marine market is seeing enchancment in orders for brand spanking new ships, in addition to elevated utilization, which is able to drive aftermarket exercise. Demand for China pure gasoline vehicles continued to be delicate as anticipated as a result of absorption of China VI diesel pre-buy exercise associated to the implementation of New China VI diesel emissions laws, which took impact July 1.As well as, world pure gasoline costs have spiked on account of elevated demand for energy era and restricted provide and climate associated utilization. This improve in worth is predicted to dampen demand for pure gasoline vehicles within the close to time period. Regardless of this volatility, China’s dedication to lowering emissions is predicted to drive long-term demand for pure gasoline vehicles. In oil and gasoline, costs have returned to pre-2020 ranges from pandemic lows due partially to vitality demand will increase. Capital expenditures have elevated steadily since early 2021. This degree of funding is predicted to proceed. In abstract, we delivered strong efficiency in a difficult macroeconomic surroundings.We’re seeing enhancements in most of our markets. Nonetheless, COVID associated impacts, together with an ongoing labor and provide chain challenges and regional market fluctuations proceed to strain world financial restoration. Looking forward to 2022, we count on ongoing restoration and improved profitability in our Aerospace enterprise as OEM manufacturing charges and passenger site visitors proceed to develop. In Industrial, we count on a modest enchancment in profitability as our markets proceed to get well, carry cargo charges and volumes are bettering, demand for industrial gasoline generators is growing and rising oil and gasoline costs are driving funding. We’re optimistic concerning the continued restoration throughout our markets and look ahead to continued progress in 2022.And I am going to flip the decision over to Mark Hartman.Mark D. Hartman — Chief Monetary OfficerThank you, Tom. Internet gross sales for the fourth quarter of fiscal 2021 had been $570 million, a rise of seven%. Gross sales for the quarter and the complete 12 months had been negatively impacted by roughly $32 million on account of world provide chain disruptions, which delayed orders scheduled for cargo. Aerospace phase gross sales for the fourth quarter of fiscal 2021 had been $371 million, a rise of 12% from the prior 12 months quarter. Industrial OEM and aftermarket gross sales had been up in comparison with the prior 12 months quarter by 67% and 23% respectively, pushed by elevated construct charges and continued restoration in home passenger site visitors.Protection OEM gross sales had been down 6% and protection aftermarket gross sales had been down 20% within the fourth quarter of 2021, in comparison with a powerful prior 12 months quarter. Aerospace phase earnings for the fourth quarter of 2021 had been $66 million, or 17.4% of phase gross sales in comparison with $58 million or 17.4% of phase gross sales for the fourth quarter of 2020. Section earnings had been positively impacted by greater business gross sales quantity. For fiscal 12 months 2021 Aerospace phase gross sales had been $1.40 billion, in comparison with $1.59 billion for the prior 12 months, a 12% lower.Aerospace phase earnings for fiscal 12 months 2021 had been $234 million or 16.7% of phase gross sales, in comparison with $310 million or 19.5% of phase gross sales for the prior 12 months. Turning to Industrial; Industrial phase gross sales for the fourth quarter of fiscal 2021 had been $193 million, in comparison with $195 million within the prior 12 months interval, a lower of 1%. The lower in Industrial gross sales was primarily on account of decrease industrial gasoline turbine gross sales, in addition to weak spot in pure gasoline engines in China, partially offset by enhancements in marine. Industrial phase earnings for the fourth quarter of 2021 had been $21 million or 10.7% of phase gross sales in comparison with $19 million or 9.6% of phase gross sales for a similar interval of the prior 12 months.The rise is primarily on account of favorable influence of overseas forex alternate charges. For fiscal 2021, Industrial phase gross sales had been $842 million, in comparison with $905 million for the prior 12 months, a 7% lower. Excluding the renewable energy methods and associated companies, which I’ll check with as RFS and had been divested within the third quarter of 2020, Industrial phase gross sales for fiscal 2020 had been $837 million. Overseas forex alternate charges had a good influence on Industrial phase gross sales for 2021 of roughly $33 million. Industrial phase earnings for fiscal 2021 had been $109 million or 12.95 of phase gross sales. Industrial phase earnings for 2020 had been $100 million or 11.1% of phase gross sales.Excluding RPS, industrial phase earnings for fiscal 2020 had been $97 million or 11.6% of phase gross sales. Non-segment bills had been $17 million for the fourth quarter of fiscal 2020 in comparison with non-segment bills of $0.2 million for a similar interval within the prior 12 months. Adjusted non-segment bills for the fourth quarter of fiscal 2021 and monetary 2020 had been each $12 million. Adjusted non-segment bills for the fourth quarter of 2021 excludes the restructuring fees, adjusted non-segment bills for the fourth quarter of 2020 primarily excludes the achieve on sale of properties. Non-segment bills for fiscal 2021 had been $64 million in comparison with $95 million for fiscal 2020.Adjusted non-segment bills totaled $59 million for fiscal 2021 in comparison with $67 million for fiscal 2020. On the Woodward degree, R&D for the fourth quarter of 2021 was $28 million or 4.9% of gross sales in comparison with $27 million or 5.1% of gross sales for the prior 12 months quarter. For fiscal 2021, R&D bills had been $117 million or 52%, I am sorry 5.2% of gross sales in comparison with $133 million or 5.3% gross sales in fiscal 2020. SG&A and adjusted SG&A for the fourth quarter of 2021 had been each $38 million in comparison with SG&A of $41 million and adjusted SG&A of $43 million for the fourth quarter of 2020. For fiscal 2021, SG&A and adjusted SG&A bills had been each a $187 million in comparison with SG&A bills of $218 million and adjusted SG&A bills of a $196 million for fiscal 2020, which primarily excludes merger and divestiture transaction prices.For the fourth quarter of 2021, the efficient tax fee was 18.2% and the adjusted efficient tax fee was 18.8%. For the fourth quarter of 2020, the efficient tax fee was 16% and the adjusted efficient tax fee was 13.8%. The total 12 months efficient tax fee was 15.1% for fiscal 2021, in comparison with 14.7% for fiscal 2020. The adjusted efficient tax fee was 15.3% for fiscal 2021, in comparison with 17.8% for fiscal 2020. Taking a look at money flows; web money supplied by working actions for fiscal 2021 was $465 million, in comparison with $349 million for the prior 12 months interval. Capital expenditures had been $38 million for 2021, in comparison with $47 million for the prior 12 months interval.Free money circulate and adjusted free money circulate for 2021 had been each $427 million. For fiscal 2020, free money circulate was $302 million and adjusted free money circulate was $315 million. The rise in free money circulate and adjusted free money circulate was primarily associated to efficient working capital administration, partially offset by decrease web earnings. Leverage was 1.7 instances EBITDA on the finish of the fourth quarter. We even have vital liquidity obtainable via roughly $1.4 billion of mixed money readily available and revolver capability.Throughout fiscal 12 months 2021, $82 million was returned to stockholders within the type of $36 million of dividends and $46 million of repurchase shares beneath the beforehand licensed $500 million share repurchase program, of which $441 million remained obtainable on the finish of fiscal 2021. Lastly, turning to our fiscal 2022 outlook; finish markets and provide chain disruptions are anticipated to enhance in fiscal 12 months 2022, though the uncertainty and volatility across the tempo of the restoration is predicted to persist. Development and profitability in each segments could possibly be negatively affected if COVID and provide chain disruptions don’t enhance or the tempo of inflation places extra strain on labor and materials prices.Whole Woodward web gross sales are anticipated to be within the vary of $2.45 billion and $2.65 billion. Aerospace and industrial gross sales development percentages are every anticipated to be within the low double digits to mid-teens. Our aerospace outlook assumes additional enchancment in construct charges in alignment with introduced will increase and the anticipated 737 MAX certification in China. As well as, continued restoration in flight site visitors is assumed to drive development in business aftermarket. Guided weapon gross sales are anticipated to say no, whereas the rest of the protection is predicted to be usually in line with 2021. Industrial development is predicted to be pushed by greater demand for energy era gear, rising oil and gasoline investments and elevated ship utilization.China pure gasoline truck gross sales are anticipated to be flat year-over-year, with quarterly volatility persevering with on account of uncertainty round pure gasoline costs. Aerospace phase earnings as a p.c of phase gross sales are anticipated to extend by roughly 200 foundation factors to 300 foundation factors, primarily as a result of elevated gross sales quantity in each business OEM and aftermarket, partially offset by decrease guided weapons gross sales, the return of annual variable incentive compensation prices and inflationary price pressures.Industrial phase earnings as a p.c of phase gross sales are anticipated to be roughly flat to up a 150 foundation factors, primarily on account of elevated gross sales quantity, partially offset by the return of annual variable incentive compensation prices and inflationary price pressures. The efficient tax fee for the 12 months is predicted to be roughly 21%. Earnings per share is predicted to be between $3.55 and $3.95, based mostly on roughly $66 million a completely diluted weighted common shares excellent. The favorable impacts of gross sales development and productiveness enhancements in each segments are being partially offset by the anticipated return of annual variable compensation prices, inflationary pressures and a better tax fee.Free money circulate is predicted to be roughly $315 million, producing a free money circulate conversion fee of higher than 100%. As gross sales development returns, we anticipate greater working capital necessities, primarily pushed by accounts receivable. Additionally, capital expenditures are anticipated to extend by roughly $30 million. This concludes our feedback on the enterprise and the outcomes for the fiscal 12 months and fourth quarter of 2021.Operator, we at the moment are able to open the decision to questions.Questions and Solutions:OperatorThank you. [Operator Instructions] Please stand by on your first query, sir. Your first query is from Sheila Kahyaoglu of Jefferies. Your line is open.Sheila Kahyaoglu — Jefferies and Firm — AnalystThank you guys for the time, and Don, congratulations on an incredible 31 years.Don Guzzardo — Vice President, Investor Relations & TreasurerThank you.Sheila Kahyaoglu — Jefferies and Firm — AnalystMaybe if we may begin off with simply steering implications. It is — I’ll really concentrate on industrial, as a result of I feel low double digits is fairly sturdy simply contemplating what the phase’s executed over the past decade. So what provides you the arrogance, how’s the backlog wanting, are you able to possibly speak about sub phase shifting items there?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentSure, Sheila. One of many causes you see that kind of development fee is we’re undoubtedly coming off a backside, as — and a few of our markets, the place energy era went down, oil and gasoline was down, China pure gasoline was down. In order you have a look at it, we see good development in our turbo equipment enterprise. So overlaying gasoline generators for energy compressors, steam generators is a few course of plant. We’re additionally seeing good restoration within the marine market and we’re beginning to see aftermarket pickup within the marine market, but additionally throughout the board, among the auxiliary engine functions, similar to backup energy is growing, gear gross sales are growing. So we’re beginning to see the financial restoration circulate via to demand, numerous that has shorter, I wish to say shorter order cycle. So we’re seeing orders are available, however numerous discussions with our clients are taking a look at quantity will increase and we’re constructing the crops round that.Sheila Kahyaoglu — Jefferies and Firm — AnalystOkay. Thanks. After which possibly on simply aerospace OEM particularly, how can we take into consideration MAX charges in 787s that you have constructed into your plan, is it honest to say you are sort of assuming 25 a month on the MAX and two or three a month on the 787 and [Indecipherable]?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. On that Sheila, for the MAX and the Neo, the 787, clearly the MAX and 787, you do not — h had these disruptions everyone’s conscious of. We’re actually monitoring to the Boeing and Airbus manufacturing charges. I feel as most of — particularly those that must hit our services, we’re capacitized for a lot greater charges they usually’re saying proper now. So we’re in good condition to deal with the charges. We’re planning to satisfy the charges that they are taking a look at. Yeah. There undoubtedly is the uncertainties, will these charges materialize, are closely depending on the FAA releasing the manufacturing high quality points on the 787 and likewise for China to certify the MAX. However the charges which have been quoted by our clients each plan and people occurring, as we transfer ahead within the following quarter. So that is what our plans are constructed round, that these are going to be recovering these charges are going to be met.Sheila Kahyaoglu — Jefferies and Firm — AnalystOkay. Thanks, guys.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYou guess.OperatorYour subsequent query is from Pete Skibitski of Alembic International. Your line is open.Pete Skibitski — Alembic International Advisors LLC — AnalystHey, good afternoon, guys, and greatest Don needs.Don Guzzardo — Vice President, Investor Relations & TreasurerThanks, Pete.Pete Skibitski — Alembic International Advisors LLC — AnalystI guess. Yeah. So I suppose, Tom, so coming off a number of quarters of the availability chain points, it seems such as you guys possibly really feel just like the worst of that’s behind you since you’ve given fiscal 2022 steering. So are you able to sort of stroll us via why you are feeling like the more severe of those provide chain points are prior to now possibly and possibly you possibly can even ballpark your expectation for the primary quarter income that it provides us any residual influence?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. So first, I am going to reply the final query, Pete. I feel it’s going to take into the second half of the fiscal 12 months to get well numerous the late that was pushed by provide chain disruptions. The rationale we have now some confidence — so there are, are mechanical kind parts after which we acquired electronics. I feel everyone’s actual conversant in the electronics shortages and disruptions. We’re seeing some enchancment in that occuring and so we anticipate because the 12 months strikes on that we see electronics beginning to get well.The mechanical aspect, you need to say, have a look at that, numerous that disruption was tied to our provide base — reacting to the pandemic, reducing again, closing — consolidating factories, shedding employees after which calls for returning and — there’s disruptions there past what we may overcome. I feel I shared prior to now — we put collectively of Woodward and invested in what we name a fast response staff that — we knew there have been going to be provider, provider disruptions and we mitigated fairly a number of, however there have been greater than we had anticipated.So we have now a full staff working with these suppliers. We acquired restoration plans. We’ve some confidence in these restoration plans or like I mentioned, they’re taking just a little little bit of time, however we’ll overcome these after which — we’re sort of depending on the worldwide electronics provide chain however we see electronics provide chain that we see — promising enhancements there. So, that is why you’ve gotten some — some religion that we’ll see as we transfer within the second half of the 12 months that we have now restoration.Pete Skibitski — Alembic International Advisors LLC — AnalystOkay. Okay. And something on the primary quarter when it comes to degree setting us on the income aspect?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentWell, we do not give — or speak to essentially quarter-to-quarter. So I feel it’s going to comply with our regular sample Pete. We all the time have the vacations, shorter quantity of labor days — within the first quarter, as — and in order that sample will proceed.Pete Skibitski — Alembic International Advisors LLC — AnalystOkay. Okay. And final one for me. There’s chatter that for the Protection Division, we may have probably a full 12 months persevering with decision. And it appears like your expectations are pretty modest for protection as a result of — possibly sort of flattish to down. It appears like total. However would you guess if there’s any threat to that from a full 12 months CR we have now one?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. No, not total. And Pete, you are undoubtedly within the ballpark with what we’re anticipating on total protection that — there shall be some softness. As we as we identified on the guided weapons. And so — down barely as what we’re anticipating.Pete Skibitski — Alembic International Advisors LLC — AnalystOkay. Thanks, guys.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. Thanks, Pete.OperatorYour subsequent query is from Matt Akers of Wells Fargo. Your line is open.Eric Yan — Wells Fargo Securities LLC — AnalystHi. It is really Eric Yan on from Matt. Thanks for the query. Simply on the guided weapons, I feel you talked about, yeah, there shall be a a lot decline in 2022. So simply pondering the place we’re within the JDAM decelerate or another guided weapons if we’re at a standard run fee or additional to fall?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. So what you’ve gotten it was our guided weapon portfolio. The JDAM and the present lot by the federal government is down, our different controls for guided weapons are literally going to go up, so that’s nonetheless down, as a result of JDAM has the biggest program. I feel we’re beginning to method, possibly the regular state going ahead on JDAM. The one factor that might change just a little bit on that’s we’re seeing some exercise round overseas navy gross sales that might add some quantity, however that has not come via but. However we do anticipate those that transfer ahead in 2022 and into 2023, we would see some overseas navy gross sales begin to fill in. However these are nonetheless unknown in the mean time, however we do suppose that might occur.Eric Yan — Wells Fargo Securities LLC — AnalystOkay, acquired it. If I may do yet another, simply relating to the magnesium scarcity individuals just lately speak about, do you see steel provide as a possible threat for you guys going to 2022?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentNot actually a threat when it comes to the metals we use and our means to obtain them. We’re seeing inflationary pressures round supplies in addition to labor. In order that’s one headwind, however we proper now usually are not anticipating that we have now shortages of required supplies.Eric Yan — Wells Fargo Securities LLC — AnalystOkay. Thanks.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYou’re welcome.OperatorYour subsequent query is from Christopher Glynn of Oppenheimer. Your line is now open.Christopher Glynn — Oppenheimer & Co., Inc. — AnalystThanks. Good afternoon.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentGood afternoon.Christopher Glynn — Oppenheimer & Co., Inc. — AnalystI’m curious — I apologize for the canine within the background, nothing I can do, however worth price I am interested by worth price timing to offer a good quantity of OEM relationships and clients in industrial and sometimes there is a lag to cost realization, run-off a few of previous contracts. So, I’m wondering if there is a dynamic the place — that sort of rolls into new pricing, possibly into the New 12 months your fiscal second or nonetheless you wish to touch upon that?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentSure. Logistics prices have risen, as you are declaring. Most — most of our OE gross sales are tied to long-term agreements. So, the flexibility to maneuver worth is restricted now. Nonetheless, our long-term agreements have escalation clauses in it. So every year we do reset based mostly on indices and inflation. So we are going to see some restoration. Different elements of our enterprise the place we have now shorter cycle, not LTAs or aftermarket, we do have the flexibility to have some worth realization in these areas. So it is a combine. However the advantage of long-term agreements we have now like I mentioned is there are there, we all know we have now the applications, however we do have to attend every year for costs to be adjusted for the escalation indices.Christopher Glynn — Oppenheimer & Co., Inc. — AnalystOkay. However on the web equation, what I am understanding is you are inside the lag impact, although, so it is just a little punchier presently than it is more likely to be — 1 / 4 or two quarter out, possibly that?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. So, if you happen to see, yeah. And — considered one of our outlook charts that you simply see there’s we do have certainly, we skilled inflation whether or not you have a look at supplies, wages, logistics, throughout all these classes. However we’re additionally offsetting rather a lot with productiveness and we’re driving via — nonetheless that strain. In order that mixed with the contracts coming via, we’re actually netting and offsetting — it is principally all of that.Christopher Glynn — Oppenheimer & Co., Inc. — AnalystOkay. That is useful. Thanks. And the $32 million of sort of maintain again from provide chain points and presuming that is principally within the industrial phase, however I did not actually catch it if that was clarified in any respect?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. It is cut up usually evenly throughout each industrial and aerospace.Christopher Glynn — Oppenheimer & Co., Inc. — AnalystGreat. Thanks for the colour.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYou’re welcome.OperatorYour subsequent query is from Gautam Khanna of Cowen. Your line is open.Gautam Khanna — Cowen and Firm, LLC — AnalystHey. I echo my thanks and congratulations to Don. So a pleasure working with you.Don Guzzardo — Vice President, Investor Relations & TreasurerThank you, Gautam.Gautam Khanna — Cowen and Firm, LLC — AnalystYou’ll be missed. Tom, I used to be simply going to follow-up on the aftermarket. So are you seeing what are you seeing month to month? The place are you seeing sort of an enchancment all through the quarter, are you seeing suits and begins nonetheless? You understand, how would you characterize sort of the, the pattern line, you realize, with nonetheless sort of?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. We’re — yeah. Okay. Sorry. Yeah.Gautam Khanna — Cowen and Firm, LLC — AnalystYeah. No, please go forward.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentGood, good query. We’re seeing accelerating aftermarket exercise. And also you’re asking, you’re particularly on business aerospace? I take it.Gautam Khanna — Cowen and Firm, LLC — AnalystYes. Sure. Yeah.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. Industrial aerospace, we’re seeing — accelerating exercise. We’re additionally seeing preliminary provisioning pick-up so all good indicators. Clearly, fleet utilization is an enormous driver of that. We really feel very constructive that the fleet flying has excellent Woodward content material. So, that is a constructive tailwind. And this shall be provisioning, like I mentioned, it has come again and we anticipate good improve in 2022. However that additionally nonetheless depends on the manufacturing charges being met and China’s certification coming via. However we imagine these will occur. So — yeah, aftermarket’s wanting good. We nonetheless anticipate tail finish of 2023 is the place you are seeing nearer to 2019 ranges.Gautam Khanna — Cowen and Firm, LLC — AnalystOkay.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentWe’re on a very good path.Gautam Khanna — Cowen and Firm, LLC — AnalystOkay. And on a business aero OE aspect, prior to now, you guys have indicated these shipments are worthwhile, and I am simply on a comply with as much as one of many earlier questions on inflation and your escalators. Are you seeing compression in OE profitability subsequent 12 months or ought to I say, did you see it all through this 12 months and due to this fact there’s — it is a constructive 12 months to 12 months dynamic subsequent 12 months as worth resets?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentRight. Proper, Proper. We could have worth adjustments as a result of escalation clauses taking impact in 2022. I’d spotlight and we talked on earlier calls that through the downturn we invested extra in our true north steady enchancment exercise. We really did fairly good on OE margins and we actually anticipate driving these up via productiveness enhancements. We’ve to offset all this inflationary strain. However I feel total we’re nonetheless in good condition there and we’re nonetheless working exhausting to drive that via, clearly, as quantity will increase via our factories as quantity will increase via our, our factories, that that is an enormous plus as properly to get that quantity leverage.Gautam Khanna — Cowen and Firm, LLC — AnalystYes. And final one for me. You guys are capacitized for a lot greater ranges of demand, so capex via the cycle from right here presumably shall be subdued relative to the final cycle. What’s the plan with capital allocation sort of like what, what are you hoping to do, is there, is M&A the precedence from right here, is a share repurchases like what do you, apart from natural development and the core enterprise stuff?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah, no good query. Mark may soar in right here with me, however simply to spotlight you are appropriate on capex and we’re roughly taking a look at $50 million plus or minus.Mark D. Hartman — Chief Monetary OfficerRight, it is simply timing on capex, proper? So we have guided prior to now — we anticipate to be round $50 million since you’re, you are correct. We’re totally capacitized. So we’re in a upkeep mode for capex — there’s timing variations. That is why — we’re decrease than $50 million in fiscal 2021, greater than $50 million in fiscal 2022, however you are proper on that.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. And so the capital deployment — we’re — final quarter we talked about — we’re returning to — our capital deployment technique and — we’re returning 15% of web revenue to shareholders via dividends and buybacks. And also you noticed that we had been shopping for again within the quarter. As well as, we do have a really robust stability sheet and with that, we are going to proceed to search for development. So each and — good investments in natural development and if we are able to discover engaging M&A that — builds on our methods, suits what — our enterprise, we are going to have a look at that. So it is a combo of that and as everyone is aware of, M&A isn’t one thing you possibly can predict timing of so if we have now extra money, we’ll return to shareholders.Gautam Khanna — Cowen and Firm, LLC — AnalystThank you.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYou’re welcome.OperatorYour subsequent query is from David Strauss of Barclays. Your line is open.Bradley Barton — Barclays Capital, Inc. — AnalystGood afternoon, guys. It is Brad Barton on for David. Thanks for taking the query.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentGood afternoon, Brad.Bradley Barton — Barclays Capital, Inc. — AnalystI was questioning if you happen to may speak to working capital. And the way a lot of a headwind you count on to see from right here?Mark D. Hartman — Chief Monetary OfficerYeah. As gross sales returns — clearly we’re anticipating — good development in 2022. We do anticipate having that working capital, our want funding, but it surely’s primarily going to be in receivables. One factor that you have in all probability seen — all through the final couple of years, we have executed an excellent job of managing our stock balances and we’re anticipating to proceed to do this as we transfer ahead. So actually, it is simply actually going to be — associated to the gross sales total. And as we’re rising right here quarter to quarter, we must make investments into accounts receivable total and that might be the primary working capital part that we would be chatting with going ahead.Bradley Barton — Barclays Capital, Inc. — AnalystGot it. Thanks. After which simply rapidly taking a look at head depend and aero and industrial, how a lot have you ever elevated from backside?Mark D. Hartman — Chief Monetary OfficerYeah. So we have been hiring total, clearly, as development is, has come. I haven’t got the quantity off the highest of my head, but it surely’s been vital, particularly as we have anticipated the expansion as we’re shifting ahead right here. It is primarily been on the direct labor aspect and a few of that is been bringing again members that had been laid off after which others are bringing in new members and getting them up and skilled on the road total. But it surely’s a number of hundred — throughout the corporate over the over the past 12 months timeframe as development has been occurring.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. And we do anticipate the necessity to rent a big variety of members within the coming 12 months and we put collectively hiring methods and plans — to get forward of the curve. So with that development, yeah we’re, we have got the capital, we have got the services, we must add headcount to assist the expansion.Bradley Barton — Barclays Capital, Inc. — AnalystAll proper. Nice. Thanks for taking the query, guys.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentWelcome.OperatorYour subsequent query is from Michael Ciarmoli of Truist Securities. Your line is open.Michael Ciarmoli — Truist Securities, Inc. — AnalystHey, good night, guys. Thanks for taking the decision. Congrats, Don. It has been a pleasure working with you over time. Good luck. I suppose, Tom simply on, I suppose again to what Gautam was asking round — sort of your services, what your measurement for. You talked about sort of that that finish of 2023, however how ought to we take into consideration aerospace margins? I imply do you want aerospace revenues to get again to the prior peak or do you suppose you will get again to that degree of profitability given among the actions with true north and I noticed inflationary surroundings labor prices that that may be — open ended sort of a problem proper now, however what are the ideas there?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah, proper now our outlook is that as we hit the top of 2023, it will be at 20% plus run fee, run fee, on aero.Michael Ciarmoli — Truist Securities, Inc. — AnalystGot it.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentRun fee on the finish of 2023 is once we ought to see it.Michael Ciarmoli — Truist Securities, Inc. — AnalystGot it. Obtained it. Okay. After which I suppose simply being inside aero protection after which I suppose simply stand inside aero, protection, it sounds such as you’re fairly cautious basically. Did — apart from the guided weapons, something incremental? I imply, clearly you’ve got acquired some good content material on the Joint Strike Fighter. These charges coming down — among the different legacy platforms that you have — huge publicity to V-22 Black Hawk Apaches. I imply, is protection seemingly all manageable? And once more, it appears to be a cautious view. However have you ever contemplated all that into the — into the forecast?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentWe have. We’re well-represented among the new applications you are all conversant in. However there was a brand new purchase for F-15EX together with — the GE F-110 engine. These have good content material for us that maintains good content material. So, a few of these legacy are nonetheless shifting alongside and supply good base for us. We’re sort of in that flattish um space with guided weapons taking us down single digit, low mid single digit as we transfer ahead. I do not suppose the world is getting any safer. So, we may proper now say, hey, extra towards the flats that plus or minus single digit, low single digits up or down round that, that is sort of what we’re planning.Michael Ciarmoli — Truist Securities, Inc. — AnalystGot it.Mark D. Hartman — Chief Monetary OfficerYeah. And the opposite alternative on the protection aspect of the enterprise, in fact is on the aftermarket with improve applications and the like. In order that’s all the time been a very good constructive for us.Michael Ciarmoli — Truist Securities, Inc. — AnalystGot it.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentAnother space that it is probably not protection. We’re not categorized in beneath protection, however we have been making an even bigger push into the house market. So, some comes on the protection aspect with numerous that is business and we’re beginning to win applications there and shifting rapidly on A few of that exercise, so I mentioned over the subsequent few years will fill in some development as properly.Michael Ciarmoli — Truist Securities, Inc. — AnalystGot it. Obtained it. And final one I had simply again to the pricing. Clearly, that — the OE pricing, however what are you seeing within the aftermarket, presumably as a few of this utilized in serviceable materials, Inexperienced Time possibly runs its course can you get sort of actual time worth will increase? Are you seeing a greater pricing surroundings within the business aftermarket?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentWe’re nonetheless in a position to get an inexpensive worth within the aftermarket, so we’re seeing worth will increase. You bought to have a look at among the program by program and what’s being retired or what’s being parted out. And possibly you’ve got seen among the information on this, numerous the plane that we’re on. Some individuals thought we’ll be retired or not, they usually’re in service. They’re being introduced again into service. So proper now, we’re not seeing that strain. Okay. And so we nonetheless have good pricing place.Michael Ciarmoli — Truist Securities, Inc. — AnalystGot it. Excellent. Thanks rather a lot, guys. I am going to soar again within the queue.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. Thanks.Operator[Operator Instructions] Your subsequent query is from Noah Poponak of Goldman Sachs. Your line is open.Noah Poponak — Goldman Sachs & Co. LLC — AnalystGood night, everyone. And congrats and all one of the best to you, Don, with retirement.Don Guzzardo — Vice President, Investor Relations & TreasurerThanks, Noah.Noah Poponak — Goldman Sachs & Co. LLC — AnalystSo the income steering for 2022 add the double digit to mid-teens. Yeah, that might be an acceleration within the quarterly income development fee tempo in comparison with what it has been over the past a number of quarters regardless of the compares getting more durable. I suppose I am questioning, are there some outsized huge contributors to 2022 that you did not have in 2021 that I am lacking, whether or not that is the preliminary spares provisioning on the aftermarket, that may be fairly sizable or simply what’s occurring within the vitality world, in your oil and gasoline enterprise or is there the seize of the slipped income from provide chain and logistics, is that land within the second half of subsequent 12 months and create an enormous development fee within the again half. I suppose I am simply struggling just a little bit on how the tempo would — will speed up on more durable comparability?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. No, really, you are hitting on numerous them.Noah Poponak — Goldman Sachs & Co. LLC — AnalystOkay.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentSo I am going to simply knock all of them off as you went and possibly begin with the latter. And yeah, yeah, our assumption on the availability chain disruption within the previous again there’s that updates within the second half of fiscal 2022. So that might be a tailwind there. But when I step again simply usually to our markets business OE goes to be rising with the construct charges, Tom talked about beforehand, we’re anticipating that the OEMs, each Boeing and Airbus attain the construct charges that they are — have signaled on the market total. So that might be vital development for us on a 12 months over 12 months foundation. I imply, the opposite factor you need to be occupied with is early FY ’21. It was we had been down on the backside, proper.And so what we have been rising off of that, but it surely was a big discount from prior durations. We have talked some already about on the business aftermarket aspect that with the utilization, using the inexperienced time on engine, the fleet that is really flying has extra Woodward content material on it total. So we might anticipate vital aftermarket development in 2022 and ramping because the 12 months progresses, as we have been speaking, the summer season season was a I used to be a busy season total. Anyone that was in an airport touring all I feel noticed that.And so, in that inexperienced time continues to get used. And total that must are available for restore and upgrades as we transfer ahead. Transferring over to the commercial aspect of the enterprise you hit on a few of it. If I begin first begin on the facility era aspect of the enterprise, energy era wants — in Asia and creating international locations is rising. You’ll be able to sort of see that throughout the, numerous numerous the businesses in that house total are anticipating development there, as they both have the era wants or within the extra developed world, attempting to switch coal powered crops along with your pure gasoline, wind generators total can be constructive for us.The opposite, I am going to say, main driver for us is the return of the marine market. The utilization for marine transportation is excessive. So, twofold. One is, the ship order exercise has elevated. And that is a lagging marketplace for us total that it — sometimes takes a few years that as these ships get ordered, that we might see that there acknowledge the income within the items shipments there. However, total, we did improve. However the different alternative for us, in fact, is with the robust utilization, within the freight world right now these are going to have to come back in.And we talked about it early. I am going to say within the pandemic that numerous the aftermarket cabinets had been working naked. They de-stocked the whole lot. They used the whole lot they may they usually did not ramp again up. So, we’re anticipating that to be a chance additionally. The opposite on the commercial aspect, Tom talked about just a little bit earlier on the oil and gasoline and clearly with costs the place they’re at right now on the oil aspect we’re anticipating that there will be development there from, manufacturing wants and folks really seeking to drill extra and in order that shall be constructive for us. And in order that’s how we get to even more durable comps as you progress ahead since we have been ramping, however with all these alternatives in these favorable market dynamics within the Woodward place in these markets, that is how we get to that development that we’re speaking about.Noah Poponak — Goldman Sachs & Co. LLC — AnalystOkay. Recognize all that element. The primary half could have the better compares, however nonetheless have the lingering provide chain points, second half possibly you make that up or you’ve gotten the more durable compares. I suppose, the expansion fee, complete natural income development fee for the 12 months, ought to the quarterly development be someplace close to that development fee each quarter or is the expansion again finish loaded?Mark D. Hartman — Chief Monetary OfficerYeah. I imply, Tom, Tom talked about that a few of earlier too, proper. I imply so year-over-year, in fact we’ll have the Q1, it will, each Q1s have the quantity, much less variety of working days with all the vacations and all that, however we do see the markets ramping because the 12 months progresses, however provide chain disruption goes to be abating within the again half. So, I would not anticipate it to be considerably totally different, however we — there shall be an upward pattern because the 12 months progresses from sequential foundation.Noah Poponak — Goldman Sachs & Co. LLC — AnalystOkay. After which simply lastly going again to the aerospace phase margin it appears just like the implied incremental and the steering is, is sort of $35 million, possibly even little greater, you’ve got executed that earlier than, however typically it is not fairly that sturdy. So and Tom, I feel you made a remark about attending to the $20 million plus on a run fee foundation exiting 2023, however it will look like the — to get to the steering, you’d must sort of be there exiting. To the margin development this 12 months and the way a lot of its combine versus price out versus one thing else?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentYeah. Nicely, we undoubtedly have a variety of components coming in combine place within the aftermarket is choosing up. In order that’s a constructive. We’ll get leverage on the amount that is coming via. So you are going to see that. As you possibly can see Mark highlighted that we do have a pleasant improve in margins anticipated in 2022 and we anticipate proceed that enchancment as we transfer ahead into 2023. So I feel we’re monitoring fairly properly. I feel that’ll be fairly correct. And I did put a 20 plus on that.Noah Poponak — Goldman Sachs & Co. LLC — AnalystWhen do you suppose you obtain the 20 plus?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentWell, that is what we mentioned, on a run fee foundation exiting 2023 and we’ll be making regular progress via 2022 and 2023 and all that.Noah Poponak — Goldman Sachs & Co. LLC — AnalystOkay. Thanks a lot.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentThank you.OperatorYour subsequent query is from Christopher Glynn of Oppenheimer. Your line is open.Christopher Glynn — Oppenheimer & Co., Inc. — AnalystThanks. Curious set of OE query for the business OE markets. You will have a look at this narrowbodies the MAX within the Neo. Clearly, you’ve got acquired very nice content material step up from prior cycle. I am questioning, with the availability chain stress going approach down after which approach up, if you happen to’re seeing any potential reallocation of awards which may accrue to your narrowbody chipsets much more?Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentWe are speaking to a wide range of our clients the place they’re having issues with different suppliers, and may we assist them out of these issues that we’re taking a look at these and we’re working some. It does take a while for these kind of transitions to happen. However yeah, there’s the likelihood so as to add to our content material.Christopher Glynn — Oppenheimer & Co., Inc. — AnalystOkay. Thanks. Good luck. And only a housekeeping query, what are we pondering for company spend ranges be sort of an allotted expense for fiscal 2022?Mark D. Hartman — Chief Monetary OfficerYeah. It is in our regular vary, 2.5%, 3% of gross sales someplace in there.Christopher Glynn — Oppenheimer & Co., Inc. — AnalystOkay. Thanks Mark.Mark D. Hartman — Chief Monetary OfficerWelcome.OperatorMr. Gendron, there aren’t any additional questions presently. I’ll now flip the convention again to you.Thomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentWell, I recognize everyone be part of us right now and we all the time recognize the questions. And simply as a reminder, we’re nonetheless planning March to have an Investor Day in individual. We’ll get extra particulars out to everyone. Hope a lot of you possibly can be part of us for that. Thanks. And I hope you all have an ideal vacation developing. Good night time.OperatorLadies and gents, that concludes our convention name right now. If you want to take heed to a rebroadcast of this convention name, it will likely be obtainable right now at 7:30 PM Jap Normal Time by dialing 1-855-859-2056 for a US name or 1-404-537-3406 for a non-US name and by getting into the entry code 7551843. A rebroadcast can even be obtainable on the firm’s web site, www.woodward.com for 14 days. We thanks on your participation on right now’s convention name and ask that you simply please disconnect your line.Period: 55 minutesCall contributors:Don Guzzardo — Vice President, Investor Relations & TreasurerThomas A. Gendron — Chairman of the Board, Chief Government Officer and PresidentMark D. Hartman — Chief Monetary OfficerSheila Kahyaoglu — Jefferies and Firm — AnalystPete Skibitski — Alembic International Advisors LLC — AnalystEric Yan — Wells Fargo Securities LLC — AnalystChristopher Glynn — Oppenheimer & Co., Inc. — AnalystGautam Khanna — Cowen and Firm, LLC — AnalystBradley Barton — Barclays Capital, Inc. — AnalystMichael Ciarmoli — Truist Securities, Inc. — AnalystNoah Poponak — Goldman Sachs & Co. LLC — Analyst
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