Moog Inc (MOG.A) Q1 2025 Earnings Call Highlights: Strong Sales Growth Amidst Cash Flow Challenges

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Sat, Jan 25, 2025, 12:02 AM 4 min read

Revenue: $910 million, up 6% from last year's first quarter.
Military Aircraft Sales: $213 million, up 15% year-over-year.
Commercial Aircraft Sales: $221 million, up 14% year-over-year.
Space and Defense Sales: $248 million, up 8% year-over-year.
Industrial Sales: $228 million, down 7% year-over-year.
Adjusted Operating Margin: 11.8%, up from 11.3% last year.
Adjusted Earnings Per Share: $1.78, up 16% year-over-year.
Free Cash Flow: Used $165 million in the first quarter.
Capital Expenditures: $33 million in the first quarter.
Share Repurchase: 220,000 shares, spending over $40 million.
Dividend Increase: 4% to $0.29 per share.
Leverage Ratio: 2.4 times at the end of the first quarter.
FY25 Revenue Guidance: $3.7 billion, a 3% increase from FY24.
FY25 Adjusted Operating Margin Guidance: 13.0%.
FY25 Adjusted Earnings Per Share Guidance: $8.20, plus or minus $0.20.
FY25 Free Cash Flow Conversion Guidance: 50% to 75% range.

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Release Date: January 24, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Moog Inc (NYSE:MOG.A) reported strong sales growth in the first quarter, with a 6% increase compared to the previous year.
The company secured record quarterly bookings of over $450 million in the space and defense segment, highlighting significant program wins.
Moog Inc (NYSE:MOG.A) achieved an adjusted operating margin of 11.8%, up from 11.3% in the same quarter last year.
The commercial aircraft segment saw a 14% increase in sales, driven by strong aftermarket sales and provisioning for spares.
The company is making progress on sustainability initiatives, including CO2 emission reduction and water conservation efforts.

Negative Points

Moog Inc (NYSE:MOG.A) experienced a $165 million use of free cash flow in the first quarter, driven by working capital requirements.
Industrial sales decreased by 7% due to divestitures and soft market conditions in the industrial automation business.
The company recorded an out-of-period warranty expense, which impacted operating margins by 80 basis points.
There is uncertainty regarding the impact of potential new tariffs introduced by the new administration in Washington.
The Tewkesbury facility experienced severe damage due to extreme weather, affecting production capacity temporarily.

Q & A Highlights

Q: Can you discuss Moog's involvement in Collaborative Combat Aircraft (CCA) programs and how it compares to other large programs like FLRAA or F-35? A: We are engaged in several CCA programs, focusing on proving our concepts in the early stages. Our role as a mechanical component supplier, particularly in flight control, is valuable. Currently, our involvement is with one or two platforms, not all players.

Q: Regarding Boeing's investment in the 787 production line, how does this impact their capacity and future production rates? A: Boeing aims to achieve a production rate of 10 for the 787 wide-body aircraft by fiscal '26, with their investment in the Charleston facility supporting this goal.

Q: How did Moog manage to drive aftermarket orders in the commercial space despite the Tewkesbury facility being down? A: Our repair work is distributed across multiple facilities globally, allowing us to maintain a strong aftermarket business. We also provisioned airlines with spares to ensure fleet readiness, contributing to the sales boost.

Q: Why didn't Moog adjust out the warranty expense, and is the 14.4% margin sustainable? A: The warranty expense is a one-time adjustment, not reflective of ongoing operations. The strong aftermarket performance drove the high margin, but we don't expect the same level of provisioning to repeat in subsequent quarters.

Q: Can you provide insights into the industrial segment's bookings and market conditions? A: The industrial automation business is stable, with a book-to-bill ratio greater than 1. While the German economy's softness affects orders, our medical pumps business reached record sales, offsetting some declines.

Q: What factors contribute to the second-quarter earnings guidance being sequentially down from the first quarter? A: The guidance reflects a similar operating margin to Q1, excluding the out-of-period warranty expense and extraordinary commercial aftermarket strength seen in Q1.

Q: How does Moog plan to achieve its free cash flow conversion guidance after burning $165 million in Q1? A: Improvements in Q2 will come from better inventory management, compensation payment timing, and defense advances. Significant cash generation is expected in the second half of the year through operational performance and receivables collection.

Q: What is the outlook for Moog's medical device business, given the competitor's challenges? A: We expect to maintain the market share gained due to competitor issues, as our products are relatively sticky once deployed. The impact is expected to last six to nine months.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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