Woodward, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Performance: Woodward reported strong second quarter results with net sales up 6% year-over-year and adjusted earnings per share up 4%. Excluding China on-highway, revenue was up 12% and operating earnings up 22%.
• Aerospace Operations: Aerospace plants achieved significant month-over-month sales growth, with Zealand plant reaching record fuel nozzle shipments. Lean transformation is aiding aerospace volume commitments for the second half of the year.
• Industrial Operations: Industrial achieved operations improvements, with the MicroNet platform reaching a key milestone with a Navy contract. Risk of fleet utilization decrease in the marine market due to trade tensions exists.
• Tariffs and Mitigation: Woodward's production footprint and supply base are region-for-region, reducing tariff exposure. The company is proactively mitigating tariff impacts and managing economic downturn effects.

Segment Performance

• Aerospace: Second quarter 2025 sales were $562 million, an increase of 13% year-over-year. Defense OEM sales were up 52% due to increased demand for smart defense programs. Commercial aftermarket sales were up 23% due to price and higher volume, while commercial OEM sales were down 9% due to Boeing work stoppage response. Defense aftermarket sales were down 8%. Earnings in the second quarter for the Aerospace segment were $125 million, with margins expanding 240 basis points to 22.2% of segment sales.
• Industrial: Second quarter 2025 sales were $322 million, a decrease of 5% year-over-year. China on-highway sales were $21 million, a $45 million decrease from the prior year. Core industrial sales (excluding China on-highway) were up 11% with Oil & Gas up 21%, Marine Transportation up 13%, and Power-Gen up 4%. Industrial segment earnings were $46 million or 14.3% of segment sales compared to $65 million or 19.3% of segment sales in the prior year.

Guidance

• Woodward is reaffirming the top end of its guidance and pulling up the bottom end of the revenue and adjusted EPS ranges. For fiscal year 2025, consolidated sales are expected to be $3.375 billion to $3.5 billion (aero sales growth 8%-13%, industrial sales decrease 7%-9%), and adjusted EPS is expected to be between $5.95 and $6.25. All other elements of the guidance remain unchanged.

Risks

• Trade tensions may affect China on-highway, marine transportation, and oil and gas markets. Potential decrease in fleet utilization in the marine market due to trade tensions. Sales order quantity reductions for spare parts from Chinese airlines have been experienced this month.

Question and Answer

• Q: Scott Deuschle with Deutsche Bank asks to decompose commercial aftermarket growth and marine transportation backlog A: Chip Blankenship responds that commercial aftermarket growth was across the board, with spare parts orders to MRO facilities contributing, and marine transportation backlog is extended but trade tensions could cause drop-off
• Q: Scott Mikus with Melius Research asks about China on-highway market and aerospace portfolio A: Chip Blankenship states they are examining the portfolio but focused on serving customers with best technology and managing through downturn
• Q: David Strauss with Barclays asks about commercial aftermarket and currency impact A: Chip Blankenship notes commercial aftermarket growth moderating, and Bill Lacey says currency translation balances out and doesn't majorly impact results
• Q: Noah Poponak with Goldman Sachs asks about Aerospace segment margins and LEAP aftermarket A: Bill Lacey explains margin guide unchanged due to defense OE share and tariffs, and Chip Blankenship mentions LEAP aftermarket volume doubling and outlook
• Q: Matthew Akers with Wells Fargo asks about commercial OE and aftermarket growth A: Chip Blankenship updates that commercial OE and aftermarket growth will align over the year with defense OE strong in second half
• Q: Christopher Glynn with Oppenheimer asks about Industrial segment and commercial aftermarket A: Chip Blankenship and Bill Lacey discuss Oil & Gas lumpy nature, commercial aftermarket moderation, and pricing outperformance
• Q: Sheila Kahyaoglu with Jefferies asks about tariffs and aerospace defense OE A: Bill Lacey and Chip Blankenship discuss tariff mitigation and defense OE growth driven by smart defense, with defense aftermarket delayed inputs
• Q: Spencer Breitzke with TD Cowen asks about JDAM pricing and volumes A: Bill Lacey states JDAM demand strong, supply chain healthy, with higher price lots expected in Q4
• Q: Louis Raffetto with Wolfe Research asks about corporate expenses and industrial sales benefits A: Bill Lacey and Chip Blankenship explain non-segment adjustments and onetime gains not repeating in sales