Woodward(US:WWD)2022-05-06 16:48PART I Item 1. Financial Statements Woodward, Inc.'s unaudited condensed consolidated financial statements for March 31, 2022, show $1.13 billion in net sales and $78.2 million in net earnings for the six months Condensed Consolidated Statements of Earnings Net sales for the three months ended March 31, 2022, increased slightly to $586.8 million, while net earnings decreased to $47.9 million Condensed Consolidated Statements of Earnings (Unaudited) | Metric | Three-Months Ended March 31, 2022 (in millions) | Three-Months Ended March 31, 2021 (in millions) | Six-Months Ended March 31, 2022 (in millions) | Six-Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $586.8 | $581.3 | $1,128.4 | $1,118.9 | | Earnings before income taxes | $54.1 | $78.5 | $91.8 | $126.1 | | Net earnings | $47.9 | $68.3 | $78.2 | $109.9 | | Diluted earnings per share | $0.74 | $1.04 | $1.21 | $1.68 | Condensed Consolidated Balance Sheets As of March 31, 2022, total assets decreased to $3.89 billion from $4.09 billion, primarily due to reduced cash and cash equivalents Key Balance Sheet Items (Unaudited) | Metric | March 31, 2022 (in millions) | September 30, 2021 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $208.4 | $448.5 | | Total current assets | $1,331.4 | $1,464.7 | | Total assets | $3,890.5 | $4,091.0 | | Total current liabilities | $369.0 | $366.3 | | Long-term debt | $728.2 | $734.1 | | Total liabilities | $1,838.7 | $1,876.2 | | Total stockholders' equity | $2,051.9 | $2,214.8 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities for the six months ended March 31, 2022, significantly decreased to $50.1 million from $219.0 million in the prior year Cash Flow Summary (Unaudited) | Metric | Six-Months Ended March 31, 2022 (in millions) | Six-Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $50.1 | $219.0 | | Net cash (used in) provided by investing activities | ($12.8) | $0.6 | | Net cash used in financing activities | ($276.8) | ($87.8) | | Net change in cash and cash equivalents | ($240.1) | $134.3 | - Payments for repurchases of common stock were $273.5 million in the first six months of fiscal 2022, compared to zero in the same period of 202117 Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, financial instruments, debt, and segment performance, including $709.2 million in Aerospace revenue and $419.2 million in Industrial revenue for the six months ended March 31, 2022 - The company's remaining performance obligations related to firm orders were $1.45 billion as of March 31, 2022, up from $1.28 billion as of September 30, 2021, with the majority relating to the Aerospace segment35 - In January 2022, the Board authorized a new $800 million stock repurchase program, terminating the previous $500 million program; during the first half of fiscal 2022, the company repurchased 2,047 shares for $245.4 million under the new authorization109 Net Sales by Segment (Six-Months Ended March 31) | Segment | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Aerospace | $709.2 | $686.4 | | Industrial | $419.2 | $432.6 | | Total | $1,128.4 | $1,118.9 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, noting ongoing COVID-19 impacts, supply chain constraints, and labor shortages, which negatively affected Q2 2022 sales by approximately $100 million, while maintaining strong liquidity - The company's financial performance in the first half of fiscal 2022 was adversely affected by industry-wide COVID-19 related disruptions, including supply chain constraints, labor shortages, and customer-initiated shipment delays133 - On April 16, 2022, CEO Thomas A. Gendron announced his retirement effective May 9, 2022, with Charles Blankenship, Jr. appointed as the new CEO, President, and Chairman of the Board136137 - Sales to Russia were less than 1% of total sales in the first six months of fiscal 2022 and 2021, but the company acknowledges potential indirect impacts from the Russia-Ukraine conflict such as supply chain disruptions and inflationary pressures135 Results of Operations For Q2 2022, consolidated net sales increased 1.0% to $586.8 million, but net earnings fell 29.9% to $47.9 million, with gross margin compressing to 22.7% due to higher lower-margin sales and increased manufacturing costs - Aerospace segment net sales were negatively impacted by approximately $60 million in Q2 2022 due to ongoing industry-wide COVID-19 related disruptions145162 - Industrial segment net sales were negatively impacted by approximately $40 million in Q2 2022 due to supply chain constraints and labor shortages146167 - Gross margin decreased to 22.7% in Q2 2022 from 25.3% in Q2 2021, attributed to a higher mix of commercial OEM sales, increased manufacturing costs from COVID disruptions, and inefficiencies from hiring and training148 Segment Results In Q2 2022, Aerospace segment sales grew 2.2% to $372.8 million but earnings fell 13.3% to $59.8 million, while Industrial segment sales decreased 1.2% to $214.1 million with earnings dropping 38.2% to $17.2 million, both impacted by inflation and manufacturing costs Aerospace Segment Performance (Q2) | Metric | 2022 (in millions) | 2021 (in millions) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $372.8 | $364.7 | +2.2% | | Segment Earnings | $59.8 | $69.0 | -13.3% | | Earnings as % of Sales | 16.0% | 18.9% | -290 bps | Industrial Segment Performance (Q2) | Metric | 2022 (in millions) | 2021 (in millions) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $214.1 | $216.6 | -1.2% | | Segment Earnings | $17.2 | $27.9 | -38.2% | | Earnings as % of Sales | 8.1% | 12.9% | -480 bps | Liquidity and Capital Resources The company maintains strong liquidity with $208.4 million in cash and $989.6 million available under its revolving credit facility as of March 31, 2022, despite a significant decrease in net cash from operations to $50.1 million for the first half of fiscal 2022 - As of March 31, 2022, the company had total outstanding debt of $728.7 million and additional borrowing availability of $989.6 million under its revolving credit facility173 - In January 2022, the Board authorized a new $800 million stock repurchase program; in the first half of fiscal 2022, the company repurchased 2,047 shares for $245.4 million under this new program179 Free Cash Flow Reconciliation (Six-Months Ended March 31) | Metric | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $50.1 | $219.0 | | Payments for property, plant and equipment | ($24.2) | ($13.3) | | Free cash flow (Non-U.S. GAAP) | $26.0 | $205.7 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that its exposures to market risks, including interest rate, foreign currency, and commodity price risk, have not materially changed from those disclosed in its most recent Form 10-K - The company's market risks, including interest rate, foreign currency, and raw material costs, have not materially changed since the filing of its most recent Form 10-K200 Item 4. Controls and Procedures Based on an evaluation as of March 31, 2022, the Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2022202 - No changes in internal controls over financial reporting occurred during the quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls203 PART II – OTHER INFORMATION Item 1. Legal Proceedings Woodward is involved in various legal proceedings arising in the normal course of business, which management believes will not have a material effect on the company's liquidity, financial condition, or results of operations - The company is involved in routine claims and litigation, but management does not expect the outcomes to have a material impact on its financial condition or results of operations205206 Item 1A. Risk Factors The company reports that there have been no material changes to the risk factors previously disclosed in its most recent Form 10-K - There have been no material changes to the risk factors disclosed in the company's most recent Form 10-K207 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activities, including the authorization of a new $800 million program in January 2022 and the repurchase of approximately 2.4 million shares for about $119 per share during the quarter ended March 31, 2022 - In January 2022, the Board terminated the 2019 stock repurchase authorization and approved a new program for up to $800 million, ending in January 2024209 Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Weighted Average Price Paid Per Share ($) | | :--- | :--- | :--- | | Jan 2022 | 363 | $110.27 | | Feb 2022 | 1,140,840 | $116.52 | | Mar 2022 | 907,313 | $123.94 | Item 6. Exhibits This section provides an index of the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and interactive data files