Moog Inc. Q3 FY2024 earnings call

• Customer focus: Met with commercial and military customers, suppliers, and partners at Farnborough International Airshow and Royal International Air Tattoo; announced new airline support contracts at Farnborough; met defense customers at Eurosatory in Paris; dedicated subsidiary received full facility security clearance.
• People, community and planet: Visited San Jose, Costa Rica medical device facility; initiatives to reduce water consumption, e.g., Bengaluru facility saw 40% reduction; multiple water conservation projects ongoing.
• Financial strength: Driving margin enhancement through pricing and simplification; deploying 80/20 capability to almost half of manufacturing locations, trained over 750 leaders; ongoing footprint and portfolio shaping activities, including consolidation of Radford, Virginia facility into Murphy, North Carolina facility, and sales of small European businesses near completion.

Sales were $905 million, 6% higher than last year's third quarter. Aerospace and Defense sales were up nicely, while Industrial sales were fairly flat. Military aircraft sales were $207 million, up 18% over the third quarter last year, with activity on the FLRAA tiltrotor aircraft program ramping up. Space and Defense sales were $258 million, up 7% over the third quarter last year due to strong defense demand. Commercial aircraft sales were $189 million, up 6% over the same quarter a year ago, reflecting increased production in the widebody business. Industrial sales were $250 million in the third quarter, down 1% from the same quarter a year ago (or flat when considering foreign currency rates), with Industrial Automation down but other sub-segments like Energy, Simulation & Test, and Medical up. Adjusted operating margin was 12.3%, up 210 basis points from the third quarter last year. Adjusted diluted earnings per share increased by almost 40% relative to prior year.

• Increased revenue guidance for FY '24 by $25 million, with sales growth in each segment. Industrial sales guidance increased by $40 million, military aircraft by $50 million, Space and Defense by $10 million, and commercial aircraft reduced by $40 million.
• Adjusted operating margin guidance held at 12.4%, with changes in segment mix. Commercial aircraft operating margin guidance increased, Space and Defense decreased due to planned costs for business pursuits, and other segments marginally down.
• Adjusted diluted earnings per share guidance increased to $7.40, plus or minus $0.10, up $0.15 from 90 days ago, driven by lower effective tax rate and higher operating profit partially offset by higher nonoperating costs.

• Ongoing conflicts in Europe and the Middle East, driving need to replenish depleted arsenals and growing security concerns in Europe and Asia-Pacific.
• Budgetary context in the US could lead to prioritization decisions favoring replenishment and sustainment over some long-term strategic programs in the near-term.
• Change in timing of orders for commercial aircraft causing short-term delay in sales and temporary increase in inventory.

Q: Michael Ciarmoli asked about the change in commercial aircraft revenue and widebody rates.

A: Patrick Roche said it's a timing issue within Q3 and Q4, not a reflection of production rate change; they're delivering to Boeing at about 5 shipsets per month and in communication with Boeing. Jennifer Walter added about constant communication for a healthy supply chain.

Q: Michael Ciarmoli asked about commercial aftermarket.

A: Patrick Roche said aftermarket is strong with additional contracts signed with more airlines. Jennifer Walter mentioned shifts between OE and aftermarket but it's not a trend.

Q: Kristine Liwag asked about free cash flow path and receivables.

A: Jennifer Walter said in Q4, benefits from receivables collection, slight benefit from physical inventories working down, pressure on customer advances, and detailed about negotiations on pricing and terms to impact cash flow