Woodward(US:WWD)2022-11-18 02:22Financial Data and Key Metrics Changes - Net sales for Q4 2022 were $640 million, an increase of 12% year-over-year, with $29 million in price gains contributing approximately 5% to this growth [25] - Sales were negatively impacted by approximately $85 million due to ongoing global supply chain and labor disruptions, and approximately $24 million from unfavorable foreign currency exchange rates [25] - For fiscal year 2022, net cash provided by operating activities was $194 million compared to $465 million in the previous year, with free cash flow decreasing to $141 million from $427 million [36] Business Line Data and Key Metrics Changes - Aerospace segment sales for Q4 2022 were $408 million, an increase of 8%, driven by a 34% increase in commercial aftermarket sales and a 24% increase in OEM sales [26] - Industrial segment sales for Q4 2022 were $232 million, a 20% increase, driven by higher marine sales and strong industrial turbomachinery sales [29] - Aerospace segment earnings for Q4 2022 were $63 million, or 15.5% of segment sales, down from $66 million or 17.4% of segment sales in the prior year [27] Market Data and Key Metrics Changes - Demand from aerospace and industrial customers remains strong, with commercial airline fleet utilization rates rising and U.S. and European domestic passenger traffic returning to near 2019 levels [19] - In the defense market, a slight increase in U.S. procurement is anticipated, while geopolitical tensions may lead to increased international defense spending [19] - Industrial markets are seeing robust demand in power generation, driven by strong growth in Asia and ongoing demand for backup power at data centers [20] Company Strategy and Development Direction - The company is focused on operational excellence, talent development, and innovation to drive performance and create shareholder value [9] - Specific actions have been taken to mitigate supply chain risks, including redeploying talent, reinforcing the global sourcing team, and in-sourcing selected machine components [10][11] - The company is committed to developing innovative technologies that reduce fuel consumption and emissions, with rising interest in alternative fuels across industries [15][16] Management's Comments on Operating Environment and Future Outlook - Management expects improvements in fiscal 2023, with supply chain and labor disruptions anticipated to subside, particularly in the second half of the year [38] - The strong demand environment is expected to continue, with total net sales for fiscal 2023 projected to be between $2.60 billion and $2.75 billion [39] - Aerospace sales growth is expected to be between 14% and 19%, while industrial sales growth is expected to be flat to up 5% [40] Other Important Information - The effective tax rate for fiscal 2022 was 14.1%, with an expected increase in interest expense of approximately $10 million due to rising interest rates [35][46] - The company plans to invest $10 million in new capital to create rapid response machining centers at four sites to alleviate supply chain constraints [12] Q&A Session Summary Question: Guidance for Aerospace growth and price expectations - Management anticipates continued growth in commercial OEM and aftermarket sales, with price increases consistent across both Aerospace and Industrial segments [52][53] Question: Supply chain improvements and operational normalization - Management is taking specific actions to address supply chain issues, but remains cautious about claiming sustained improvements [63][64] Question: FX headwinds and impact on industrial guidance - FX is expected to have a mid-single-digit headwind, primarily due to translation effects, impacting the industrial side of the business [75] Question: Variable incentive compensation costs - The increase in variable incentive compensation is a return to normal levels after being absent during the pandemic [78] Question: Cash flow and working capital assumptions - Management anticipates working capital to be neutral in 2023, with higher tax cash payments due to changes in R&D expense deductions [92][94]