PART I Financial Statements Q1 FY23 financial statements show 5% net sales growth to $760.1 million, stable net earnings, increased assets to $3.66 billion, and operating cash flow significantly declined to $8.1 million Consolidated Condensed Statements of Earnings Net sales for Q1 FY23 increased 5.0% to $760.1 million, with gross profit rising to $203.7 million, while net earnings remained flat at $46.0 million due to higher interest expenses and the absence of a prior-year large business sale gain Consolidated Earnings Summary (Q1 FY23 vs Q1 FY22) | Financial Metric | Three Months Ended Dec 31, 2022 (in thousands) | Three Months Ended Jan 1, 2022 (in thousands) | | :--- | :--- | :--- | | Net sales | $760,103 | $724,086 | | Gross profit | $203,686 | $192,880 | | Earnings before income taxes | $60,301 | $61,423 | | Net earnings | $46,016 | $46,265 | | Diluted EPS ($) | $1.44 | $1.44 | - A $9.5 million gain on building sales was recorded, contrasting with a $16.1 million gain on business sales in the prior-year quarter10 Consolidated Condensed Statements of Comprehensive Income Comprehensive income for the quarter was $99.9 million, a significant increase from $43.9 million in the prior-year period, primarily driven by a $50.7 million positive foreign currency translation adjustment, contrasting with a $6.6 million loss in the same quarter last year Comprehensive Income Summary (Q1 FY23 vs Q1 FY22) | Metric (in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Jan 1, 2022 | | :--- | :--- | :--- | | Net earnings | $46,016 | $46,265 | | Foreign currency translation adjustment | $50,735 | $(6,560) | | Comprehensive income | $99,869 | $43,930 | Consolidated Condensed Balance Sheets As of December 31, 2022, total assets stood at $3.66 billion, up from $3.43 billion at October 1, 2022, driven by higher receivables (up $76 million) and inventories (up $60 million), while total liabilities increased to $2.13 billion from $2.00 billion, mainly due to a rise in long-term debt and contract advances Balance Sheet Summary | Metric (in thousands) | December 31, 2022 | October 1, 2022 | | :--- | :--- | :--- | | Total current assets | $1,933,183 | $1,758,310 | | Total assets | $3,658,045 | $3,431,841 | | Total current liabilities | $885,666 | $838,436 | | Long-term debt | $916,058 | $836,872 | | Total liabilities | $2,132,864 | $1,995,028 | | Total shareholders' equity | $1,525,181 | $1,436,813 | Consolidated Condensed Statements of Cash Flows Net cash from operating activities was $8.1 million, a sharp decline from $157.2 million in the prior-year quarter, primarily due to increased cash usage for receivables and inventories, while investing activities used $25.3 million, and financing activities provided $59.4 million, driven by net borrowings on credit facilities Cash Flow Summary (Q1 FY23 vs Q1 FY22) | Cash Flow Activity (in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Jan 1, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,083 | $157,185 | | Net cash provided (used) by investing activities | $(25,293) | $277 | | Net cash provided (used) by financing activities | $59,396 | $(151,585) | | Increase in cash, cash equivalents and restricted cash | $46,678 | $5,812 | Notes to Consolidated Condensed Financial Statements Key notes detail the company's revenue recognition policies, recent acquisitions and divestitures, debt structure, and segment performance, with revenue recognized over time for 63% of sales, total debt increased, and sales growth across all three segments, notably in Industrial Systems' operating profit - As of December 31, 2022, the company had remaining performance obligations of $5.2 billion, with 44% expected to be recognized as sales over the next twelve months45 - The company sold a sonar business, a security business, and its NAVAIDS business in fiscal 2022, impacting year-over-year comparisons484950 - On October 27, 2022, the company amended its U.S. revolving credit facility, extending maturity to October 27, 2027, and increasing capacity to $1.1 billion75 - On February 2, 2023, the company declared a quarterly dividend of $0.27 per share, an increase from the prior rate103 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 5% Q1 sales growth to increases across all segments, despite negative foreign currency impacts and divestitures, with gross margin improving slightly, Industrial Systems' operating profit more than doubling, and the company forecasting 5% sales growth for FY23 to $3.175 billion and diluted EPS of $5.89, while maintaining strong liquidity despite lower operating cash flow Consolidated Results of Operations Consolidated net sales for Q1 2023 increased 5% to $760 million, driven by growth in all segments, with gross margin at 26.8%, interest expense up 65%, net earnings flat at $46 million, diluted EPS unchanged at $1.44, and the twelve-month backlog growing 8% to $2.34 billion Q1 FY23 vs Q1 FY22 Performance | Metric | Q1 2023 | Q1 2022 | % Variance | | :--- | :--- | :--- | :--- | | Net sales (M) | $760 | $724 | 5% | | Gross margin | 26.8% | 26.6% | - | | Interest expense (M) | $13 | $8 | 65% | | Net earnings (M) | $46 | $46 | (1%) | | Diluted EPS ($) | $1.44 | $1.44 | 0% | | Twelve-month backlog (M) | $2,343 | $2,167 | 8% | - Excluding a $17 million negative impact from foreign currency and a $12 million impact from divestitures, sales growth was 9%121 Segment Results of Operations In Q1 2023, Aircraft Controls sales grew 2% to $310 million, Space and Defense Controls sales rose 5% to $218 million, and Industrial Systems sales increased 9% to $232 million, with operating profit falling in Aircraft Controls and Space and Defense, but surging 114% in Industrial Systems due to a building sale and higher volumes Q1 FY23 Segment Performance | Segment | Net Sales (Q1'23, M) | YoY Sales Change | Operating Profit (Q1'23, M) | YoY Profit Change | | :--- | :--- | :--- | :--- | :--- | | Aircraft Controls | $310 | +2% | $30 | -29% | | Space and Defense Controls | $218 | +5% | $20 | -5% | | Industrial Systems | $232 | +9% | $37 | +114% | - Aircraft Controls' operating margin was 9.6%, but adjusted margin was higher than the prior year's 8.5% when excluding a $16 million gain from the NAVAIDS divestiture in Q1 2022130 - Industrial Systems' operating margin was 15.8%, but adjusted margin was 12.3% after excluding a $10 million gain on building sales and $1 million in restructuring charges137 Consolidated Segment Outlook For fiscal year 2023, the company projects total net sales of $3.175 billion, a 5% increase, with operating profit expected to rise 26% to $356 million, operating margin expanding to 11.2%, and full-year diluted EPS forecasted at $5.89, with Industrial Systems anticipating the largest percentage increase in operating profit Fiscal Year 2023 Outlook | Metric | 2023 Outlook (M) | 2022 Actual (M) | % Variance | | :--- | :--- | :--- | :--- | | Net Sales | $3,175 | $3,036 | 5% | | Operating Profit | $356 | $283 | 26% | | Operating Margin | 11.2% | 9.3% | - | | Diluted EPS ($) | $5.89 | $4.83 | - | - The company expects adjusted diluted EPS to range between $5.50 and $5.90, with a midpoint of $5.70139 Liquidity and Capital Resources The company's liquidity remains robust with $709 million of unused borrowing capacity as of December 31, 2022, despite operating cash flow significantly decreasing to $8 million in Q1 2023 from $157 million in the prior year, mainly due to a $90 million prior-year receivables program benefit and $52 million greater inventory investment, with full-year 2023 cash from operations expected at $250 million and capital expenditures at $150 million - Operating cash flow decreased by $149 million YoY, primarily due to a prior-year benefit from the Receivables Purchase Agreement (RPA) program and increased inventory investment due to supply chain constraints143144 - The company is in compliance with all debt covenants, with a leverage ratio that allows for an additional $659 million in net debt160 - The Board has authorized a share repurchase program with approximately 2.2 million shares remaining for repurchase164 Economic Conditions and Market Trends The company operates in varying market conditions, with the defense market stable and potentially increasing due to global tensions, the commercial aircraft market recovering but facing prolonged international travel pressure, and industrial markets experiencing demand but constrained by supply chain issues, all demanding technologically advanced products - Defense market (part of the 70% of sales from aerospace & defense) is stable and could see increased spending due to global tensions170174 - The commercial aircraft market recovery is heavily dependent on the return of global international air traffic, which is expected to face prolonged pressure175 - Industrial markets (30% of 2022 sales) are experiencing recovering demand but are constrained by supply chain issues171179 Quantitative and Qualitative Disclosures about Market Risk The company states that there have been no material changes in its market risk information from what was disclosed in its Annual Report on Form 10-K for the fiscal year ended October 1, 2022 - There have been no material changes in the company's market risk disclosures during the current year193 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2022, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of the end of the quarter195 - No material changes to internal control over financial reporting occurred during the most recent fiscal quarter195 PART II OTHER INFORMATION Risk Factors The company reports no material changes to its risk factors from those disclosed in its Annual Report on Form 10-K for the fiscal year ended October 1, 2022 - There have been no material changes in the company's risk factors during the current year196 Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended December 31, 2022, the company purchased a total of 152,691 shares of its common stock at an average price of $79.90 per share, including 71,849 shares under its publicly announced repurchase program, with approximately 2.2 million shares remaining authorized for repurchase Share Repurchase Summary (Q1 FY23) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | Oct 2 - Oct 29, 2022 | 81,981 | $75.03 | 71,849 | | Oct 30 - Dec 3, 2022 | 67,698 | $85.41 | 0 | | Dec 4 - Dec 31, 2022 | 3,012 | $88.32 | 0 | | Total | 152,691 | $79.90 | 71,849 | - At the end of the quarter, 2,198,081 shares may yet be purchased under the company's publicly announced share repurchase program198199 Exhibits This section lists the exhibits filed with the Form 10-Q, including a form of the Restricted Stock Unit Award, certifications by the CEO and CFO as required by the Sarbanes-Oxley Act, and Interactive Data Files (XBRL)
Moog(MOG_A) - 2023 Q1 - Quarterly Report