Fiscal Year 2016 First Quarter Results

Transcription

1 Fiscal Year 2016 First Quarter Results JANUARY 19, 2016 PROPRIETARY INFORMATION WOODWARD, INC.

2 Today s Agenda Highlights & Market Review Financial Results & Outlook Q&A Tom Gendron Bob Weber PROPRIETARY INFORMATION WOODWARD, INC. PAGE 2

3 Cautionary Statement Information in this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, including, but not limited to, statements regarding our strategic actions and their proposed effect, savings in the remainder of the fiscal year as a result of special charges in the quarter, future sales, earnings, liquidity, tax rate, and relative profitability, expectations regarding our markets and the impact of economic conditions and downturns on Woodward. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Factors that could cause actual results and the timing of certain events to differ materially from the forward-looking statements include, but are not limited to, a decline in business with, or financial distress of, Woodward s significant customers; global economic uncertainty and instability in the financial markets; Woodward s ability to manage product liability claims, product recalls or other liabilities associated with the products and services that Woodward provides; Woodward s ability to obtain financing, on acceptable terms or at all, to implement its business plans, complete acquisitions, or otherwise take advantage of business opportunities or respond to business pressures; Woodward s long sales cycle, customer evaluation process, and implementation period of some of its products and services; Woodward s ability to implement and realize the intended effects of any restructuring and alignment efforts; Woodward s ability to successfully manage competitive factors, including prices, promotional incentives, competitor product development, industry consolidation, and commodity and other input cost increases; Woodward s ability to manage expenses and product mix while responding to sales increases or decreases; the ability of Woodward s subcontractors to perform contractual obligations and its suppliers to provide Woodward with materials of sufficient quality or quantity required to meet Woodward s production needs at favorable prices or at all; Woodward s ability to monitor its technological expertise and the success of, and/or costs associated with, its product development activities; Woodward s ability to integrate acquisitions and manage costs related thereto; Woodward s debt obligations, debt service requirements, and ability to operate its business, pursue its business strategies and incur additional debt in light of covenants contained in its outstanding debt agreements; Woodward s ability to manage additional tax expense and exposures; risks related to Woodward s U.S. Government contracting activities, including liabilities resulting from legal and regulatory proceedings, inquiries, or investigations related to such activities; the potential of a significant reduction in defense sales due to decreases in the amount of U.S. Federal defense spending or other specific budget cuts impacting defense programs in which Woodward participates; changes in government spending patterns, priorities, subsidy programs and/or regulatory requirements; future impairment charges resulting from changes in the estimates of fair value of reporting units or of long-lived assets; future results of Woodward s subsidiaries; environmental liabilities related to manufacturing activities and/or real estate acquisitions; Woodward s continued access to a stable workforce and favorable labor relations with its employees; physical and other risks related to Woodward s operations and suppliers, including natural disasters, which could disrupt production; Woodward s ability to successfully manage regulatory, tax, and legal matters; risks related to Woodward s common stock, including changes in prices and trading volumes; risks from operating internationally, including the impact on reported earnings from fluctuations in foreign currency exchange rates, and compliance with and changes in the legal and regulatory environments of the United States and the countries in which Woodward operates; fair value of defined benefit plan assets and assumptions used in determining Woodward s retirement pension and other postretirement benefit obligations and related expenses; industry risks, including increases in natural gas prices, unforeseen events that may reduce commercial aviation and increasing emissions standards; Woodward s operations may be adversely affected by information systems interruptions or intrusions; certain provisions of Woodward s charter documents and Delaware law that could discourage or prevent others from acquiring the company; and other risk factors described in Woodward's Annual Report on Form 10-K for the year ended September 30, 2015, and any subsequently filed Quarterly Report on Form 10-Q. PROPRIETARY INFORMATION WOODWARD, INC. PAGE 3

4 Q1 Fiscal Year 2016 Highlights Net sales of $445 million, 9% decrease Compared to $488 million last year EPS of $0.40 per diluted share Compared to $0.66 last year EPS of $0.56, excluding special charges of $16 million EBIT of $34 million Compared to $63 million last year EBIT of $51 million, excluding the special charges Free cash flow of $4 million Compared to outflow of $9 million last year Capital expenditures decreased $13 million PROPRIETARY INFORMATION WOODWARD, INC. PAGE 4

5 Business Highlights - Aerospace Commercial OEM Strong market air traffic, utilization, backlogs Next generation aircraft will drive growth in coming years Regional and business jets showing weakness Rotorcraft continues to decline due to oil and gas Commercial Aftermarket Increased 11% for quarter, compared to prior year Defense Defense budget increases and global instability Strong OEM and aftermarket Formal creation of joint venture with GE Aviation Joint venture awarded fuel system for GE9X engine PROPRIETARY INFORMATION WOODWARD, INC. PAGE 5

6 Business Highlights - Industrial Long term trends remain strong Near term, many markets challenged Power generation Industrial gas turbine market robust, driven by aftermarket Transportation and Machinery Natural gas truck market in Asia - returned to favorable price spreads in China between diesel and natural gas Oil and gas Challenging market price declines and increasing supplies limiting capital investment Broad market impacts due to economic slow down in Asia and currency headwinds PROPRIETARY INFORMATION WOODWARD, INC. PAGE 6

7 Q1 Fiscal Year 2016 Consolidated Results Q1 FY 16 *EBIT defined as Earnings Before Interest and Taxes ** Operating Margins defined as (EBIT)/(Net Sales) PROPRIETARY INFORMATION WOODWARD, INC. PAGE 7 Q1 FY 15 Variance Q1 FY 15 Net Sales (mils) $ $ % EBIT (mils) * % Operating Margins ** 7.7% 12.9% Net Earnings (mils) $ 25.6 $ % Earnings Per Share (diluted) %

8 Impact of Special Items Reported EPS was 40 cents this quarter, compared to 66 cents in the prior year Excluding special charges of $16 million Earnings per share would have been 56 cents per share this quarter Tax rate impact of R&E credit reinstatement $5 million credit in both the current and prior year quarters Expected full year tax rate of 28 percent unchanged PROPRIETARY INFORMATION WOODWARD, INC. PAGE 8

9 Aerospace Q1 Fiscal Year 2016 Results Q1 FY 16 Q1 FY 15 Variance Q1 FY 15 Segment Net Sales (mils) $ $ % Segment Earnings (mils) % Segment Margins 16.2% 14.0% Net Sales Strong defense Higher commercial aftermarket Earnings Higher sales volume Strong aftermarket PROPRIETARY INFORMATION WOODWARD, INC. PAGE 9

10 Industrial Q1 Fiscal Year 2016 Results Q1 FY 16 Q1 FY 15 Variance Q1 FY 15 Segment Net Sales (mils) $ $ % Segment Earnings (mils) % Segment Margins 12.2% 16.9% Net Sales Lower natural gas truck systems, negative foreign currency impact, slow Asian economy, depressed oil and gas Partially offset by higher industrial gas turbine systems Earnings Lower sales volume Unfavorable impacts of foreign currency PROPRIETARY INFORMATION WOODWARD, INC. PAGE 10

11 Selected Financial Items Q1 FY 2016 Quarter Comparatives * Gross margin defined as (Net Sales less Cost of Goods Sold) / (Net Sales); ** EBT defined as Earnings Before Taxes *** EBIT defined as Earnings Before Interest and Taxes **** EBITDA and Free Cash Flow calculations are shown in the appendix Q1 FY 16 Q1 FY 15 Sales (in millions) $ 445 $ 488 Net Earnings Per Share $ 0.40 $ 0.66 Gross Margin * 25.1% 29.5% SG&A Expenses - % of Sales 9.2% 8.2% R&D Expenses - % of Sales 7.1% 7.0% Ratio of Debt-to-Debt-Plus-Equity 43.7% 37.6% Tax Expense - % of EBT ** 8.4% 23.3% EBIT *** (mils) $ 34 $ 63 EBITDA **** (mils) $ 51 $ 81 Cash Flow from Operations (mils) $ 37 $ 38 Capital Expenditures (mils) $ 33 $ 47 Free Cash Flow **** (mils) $ 4 $ (9) PROPRIETARY INFORMATION WOODWARD, INC. PAGE 11

12 Fiscal Year 2016 Outlook Unchanged Revenue Increase between 1% and 2%, compared to 2015 Earnings before interest and taxes Increase approximately 5%, compared to 2015 Earnings per diluted share In the range of $2.75 to $2.95 per share PROPRIETARY INFORMATION WOODWARD, INC. PAGE 12

13 Appendix PROPRIETARY INFORMATION WOODWARD, INC. PAGE 13

14 Non-U.S. GAAP Measures Q1 FY 16 Q1 FY 15 (mils) (mils) Net Earnings $ 25.6 $ 43.8 Income Taxes Interest Expense Interest Income (0.4) (0.1) EBIT* Amortization of Intangibles Depreciation Expense EBITDA* $ 51.5 $ 81.5 Q1 FY 16 Q1 FY 15 (mils) (mils) Cash From Operations $ 37.1 $ 37.9 Payments for PP&E (33.1) (46.6) Free Cash Flow* $ 4.0 $ (8.8) (Unaudited) (Unaudited) * See comments on following page PROPRIETARY INFORMATION WOODWARD, INC. PAGE 14

15 Explanation of Non-U.S. GAAP Measures Non-U.S. GAAP Financial Measures: EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation and amortization) and free cash flow are financial measures not prepared and presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). We have also presented certain financial measures net of special charges taken in the quarter. Management uses EBIT to evaluate Woodward s operating performance without the impacts of financing and tax related considerations. Management uses EBITDA in evaluating Woodward s operating performance, making business decisions, including developing budgets, managing expenditures, forecasting future periods, and evaluating capital structure impacts of various strategic scenarios. Management uses free cash flow, which is derived from net cash provided by operating activities less payments for property, plant, and equipment, in reviewing the financial performance of Woodward s various business segments and evaluating cash generation levels. Management presented financial measures net of special charges because such charges are not part of the Company s usual operations and therefore, management used such amounts to review the Company s core operational performance. Securities analysts, investors, and others frequently use EBIT, EBITDA and free cash flow in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets that are subject to amortization. The use of any of these non-u.s. GAAP financial measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. Because EBIT and EBITDA exclude certain financial information compared with net earnings, the most comparable U.S. GAAP financial measure, users of this financial information should consider the information that is excluded. Free cash flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Management s calculations of EBIT, EBITDA, and free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures. We refer to certain financial measures excluding the impact of currency exchange rate fluctuations as constant currency basis. We calculate financial measures on a constant currency basis by removing any realized or unrealized currency gains or losses on working capital from the particular measure in the current period and then converting our current period local currency financial results using the foreign currency exchange rates in effect during the prior year period. The financial measures, when calculated on a constant currency basis, are intended to supplement our reported operating results and, when considered in conjunction with the corresponding GAAP measures, facilitate a better understanding of changes in the metrics from period to period and the core operations of the Company. PROPRIETARY INFORMATION WOODWARD, INC. PAGE 15

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