Woodward(US:WWD)2022-05-03 02:41Financial Data and Key Metrics Changes - Net sales for Q2 2022 were $587 million, an increase of 1% compared to $581 million in Q2 2021 [7] - Net earnings decreased to $48 million or $0.74 per share from $68 million or $1.04 per share in the prior year [8] - Adjusted net earnings for Q2 2022 were $47 million or $0.72 per share, with no adjustments in the prior year [8] - Net cash provided by operating activities for the first half of fiscal 2022 was $50 million, down from $219 million [9] - Free cash flow for the first half of fiscal 2022 was $26 million, compared to $206 million in the previous year [9] Business Line Data and Key Metrics Changes - Aerospace segment sales for Q2 2022 were $370 million, up 2%, but negatively impacted by approximately $60 million due to COVID-19 disruptions [27] - Commercial OEM and aftermarket sales increased by 21% and 40% respectively, driven by recovery in passenger traffic [28] - Defense OEM sales decreased by 28% primarily due to lower sales of guided weapons, while defense aftermarket sales were down 12% [28] - Industrial segment sales for Q2 2022 were $214 million, a decrease of 1%, impacted by approximately $40 million from COVID-19 disruptions and unfavorable foreign currency [31] Market Data and Key Metrics Changes - Commercial Aerospace is recovering, with U.S. and European domestic passenger traffic nearing pre-COVID levels, while China’s traffic has collapsed due to lockdowns [18] - Demand for gas turbines in power generation is strong in Asia, with increasing aftermarket activity [20] - The oil and gas market remains favorable due to elevated prices, leading to increased utilization and aftermarket demand [22] Company Strategy and Development Direction - The company is focused on addressing market recovery challenges while enhancing operational excellence and delivering shareholder value [24] - Long-term outlook remains positive, with expectations of recovery in markets and improved profitability in Aerospace and Industrial businesses [24] Management's Comments on Operating Environment and Future Outlook - Management anticipates ongoing market volatility due to COVID-19 disruptions, supply chain challenges, and inflationary pressures [15] - The company has reduced its fiscal year outlook due to these challenges but remains optimistic about long-term recovery [17] - Orders are up across nearly all market segments, indicating strong recovery momentum [14] Other Important Information - The company is experiencing labor inefficiencies due to onboarding approximately 400 new employees since January [15] - R&D costs for Q2 2022 were $32 million, or 5.5% of sales, compared to $28 million, or 4.8% of sales in the prior year [36] Q&A Session Summary Question: On OE sales and commercial aero profitability amidst inflationary pressures - Management confirmed that OE sales remain profitable and that price increases are being implemented to offset inflation [51] Question: Impact of inflation on aerospace margins - Management indicated that margin drops are due to inflation, mix issues, and labor efficiencies, with expectations for recovery in the second half of the year [66] Question: Update on supplier capacity issues and chip shortages - Management reported ongoing challenges with suppliers, particularly in semiconductors, with recovery expected in 2023 [72] Question: Changes in full-year revenue guidance - Management highlighted that the reduction in guidance was primarily due to impacts from China lockdowns and supply chain disruptions [109] Question: Confidence in second half sales improvement - Management expressed confidence in achieving sales improvement in the second half, with expectations for a stronger fourth quarter [100]