Woodward, Inc. Q4 FY2024 earnings call

• Growth: Aerospace had strong demand across end markets, with significant content on commercial and defense growth programs. Industrial had diversified portfolio with strong results, broke ground on Glotten facility expansion. - Operational Excellence: Implemented human organizational performance (HOP) across sites, plan to roll out HOP further. Accelerated automation journey, supplier simplification program, focused on lean transformation. - Innovation: Focused on solving customer challenges, selected to provide rotary actuation solutions for NASA and Boeing, announced hydrogen fuel cell component testing at Stuttgart Engineering Center

Aerospace segment: Fourth quarter 2024 sales were $553 million, an increase of 22% compared to $455 million in the prior year. 2024 aerospace segment sales were $2.03 billion, up 15% from $1.77 billion the prior year. Aerospace segment earnings for the fourth quarter of 2024 were $106 million, or 19.2% of segment sales, compared to $78 million, or 17.2% of segment sales in the prior year. For 2024, aerospace segment earnings were $385 million, or 19% of segment sales, compared to $290 million, or 16.4% of segment sales the prior year. Industrial segment: Fourth quarter 2024 industrial segment sales were $302 million, a decrease of 6% compared to $322 million in the prior year. 2024 industrial segment sales were a record $1.3 billion, an increase of 13% from $1.15 billion the prior year. Industrial segment earnings for the fourth quarter of 2024 were $38 million, or 12.6% of segment sales, compared to $54 million, or 16.9% of segment sales in the prior year. For 2024, industrial segment earnings were $230 million, or 17.7% of segment sales, compared to $162 million, or 14.1% of segment sales the prior year

• Total net sales for 2025 are expected to be between $3.3 and $3.5 billion. - Aerospace sales growth is expected to be 6% to 13%, and segment earnings are expected to be 20% to 21% of sales. - Total industrial sales are expected to decline 7% to 11%, with segment earnings to be 13% to 14% of segment sales. Core industrial sales are expected to grow 3% to 7%, with earnings at 14% to 15% of core sales. - Earnings per share is expected to be between $5.75 and $6.25, based on approximately 61.5 million fully diluted weighted average shares outstanding. - Free cash flow is expected to be between $350 and $400 million. - Capital expenditures are expected to be approximately $115 million

• Supply chain challenges impacting build rates and operational uncertainty. - Boeing work stoppage negatively impacting direct sales to Boeing. - Deteriorating local economic health and narrowing fuel price spread negatively impacting China on-highway sales

Q: Part of the investment thesis for Woodward is the chipset content gains on the LEAP and GTF relative to the predecessor programs. But Woodward does not have content on the CFM56-7B, which powers the 737 NG. Is there any reason why you could not provide a PMA offering for that engine?

A: We are not historically a PMA supplier. We do not want to be a PMA supplier. But even if we did, investment in that at this juncture of the remaining life of those engines probably is not the best use of capital. We would not prioritize that amongst the other options that we have for pursuing new product introduction Q: You had the defense OEM growth. It was really strong in the quarter. How much of that was driven by JDAMs? Because Boeing received a $7.5 billion order for JDAM tail kits in May. So I am wondering if that drove the growth in the quarter. And then how are you expecting the growth for guided munitions throughout fiscal 2025?

A: JDAM was part of the growth that we saw in Q4 for our defense OEM, but we also saw growth across the other products in the smart defense portfolio. They all contributed. We expect for those products to continue to provide growth throughout 2025 as well Q: You said you paused production a little bit for Boeing during the quarter. Could you just, I guess, confirm if you restarted and kind of what rates you are at now and sort of related to that, what are kind of the puts and takes in terms of the aerospace guidance range? What, you know, what production rates would get you the higher or the low end there?

A: We have not restarted yet. We are waiting to hear from confirmation from Boeing about what their anticipated restart rate targets are going to be. We will be ready to go when Boeing tells us what initial rates they see and what break steps they see. The midpoint of our guidance kind of assumes in the middle of calendar 2025 that Boeing gets to the rates that, you know, they were previously talking about achieving before the work stoppage Q: How much is LEAP aftermarket contributing today? And how do you expect that to grow, and when do you expect it to become meaningful?

A: Earlier in the year, we were starting to have some pretty good year-over-year LEAP and GTF aftermarket. But again, that is off of a small base and is not really moving the needle all that much from a total aerospace commercial aftermarket standpoint for us. As we said in our Investor Day, sort of, you know, the latter 2027, early 2028, we think with our models that LEAP and GTF will be, you know, rivaling the legacy engine lines in terms of aftermarket Q: How should we think about the aerospace growth by the four markets that you report? Maybe just in terms of which is highest, which will be lowest, you know, depends on OEM, depends on customer, I think, commercial, or commercial?

A: We think the military OE would probably be the strongest that we see in 2025, growth year-over-year. And then Boeing is a wildcard, but if they do near what they have said they are going to get back to in 2025, then commercial OE could be the next up in terms of from a growth standpoint. Commercial aftermarket is off of a very strong comp. We still see some growth available there, but very strong comp year-over-year opportunity there is to grow share