Fiscal Year 2019 and Fourth Quarter Results Q4 2019 ASC 606 Q4 2019 ASC 605. Q4 2018 ASC 605. 67. 73

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Transcript of Fiscal Year 2019 and Fourth Quarter Results Q4 2019 ASC 606 Q4 2019 ASC 605. Q4 2018 ASC 605. 67. 73

  • Fiscal Year 2019 and Fourth Quarter Results November 18, 2019

  • 2 |

    Today’s Agenda

    © WOODWARD, INC.

     Highlights

     Market Review

     Financial Results & Outlook

     Q&A

    Don Guzzardo

    Tom Gendron

    Jack Thayer

    PROPRIETARY

  • 3 |

    Cautionary Statement

    PROPRIETARY© WOODWARD, INC.

    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 positon within our markets and ability to compete effectively, expectations related to the performance of our segments and specific markets within those segments, and our future sales, earnings, earnings per share, liquidity, tax rate, and relative profitability. 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 our customers’ business, or our 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; consolidation in the aerospace market and our participation in a strategic joint venture with General Electric Company may make it more difficult to secure long- term sales in certain aerospace markets; 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; changes in accounting standards that could adversely impact our profitability or financial position; risks related to Woodward’s common stock, including changes in prices and trading volumes; impacts of tariff regulations; 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; any adverse effects on Woodward’s operations due to information systems interruptions or intrusions; risks associated with integrating the L’Orange business, including diversion of management time and attention, inability to meet our expectations, unexpected liabilities, loss of employees and difficulties integrating and retaining customers, suppliers and partners; 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 filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and its Annual Report on Form 10-K for the year ended September 30, 2019, which we expect to file shortly, and other risks described in Woodward’s filings with the Securities and Exchange Commission.

  • 4 |

    New Revenue Recognition Standard (ASC 606)

    PROPRIETARY© WOODWARD, INC.

    Adopted October 1, 2018

    Fiscal 2019 results presented under ASC 606

     Prior year results presented under previous standard, ASC 605

    No impact to cash flow

    Refer to slide 11, press release tables and 10-K for 2019

  • 5 |

    Adjusted and Organic Financial Results

    PROPRIETARY© WOODWARD, INC.

    Reporting on U.S. GAAP, adjusted and organic basis

    Organic net sales exclude L’Orange

    Adjusted amounts exclude:

     Transition impacts of change in U.S. tax legislation

     Special charges  Restructuring charges, Duarte move related costs, M&A transaction and integration costs, purchase accounting related to

    inventory step-up and backlog, impairment of Senvion related assets

    Refer to tables in the Appendix

  • 6 |

    Q4 FY 2019 Consolidated Results

    © WOODWARD, INC. PROPRIETARY

    Q4 2019 ASC 606 Q4 2019 ASC 605 Q4 2018 ASC 605

    67 73 7579 85

    89

    Net Earnings (mil $)

    Reported

    Adjusted

    • Refer to the definition of non-GAAP measures in the appendix. • See slide 11 for impacts of ASC 606.

    Q4 2019 Q4 2018 ASC 605

    737 719659 641 733

    Woodward Sales (mil $)

    Reported

    Organic

    ASC 605

    Q4 2019 ASC 606 Q4 2019 ASC 605 Q4 2018 ASC 605

    $1.03 $1.13 $1.16 $1.22 $1.32 $1.39

    Earnings Per Share

    Reported

    Adjusted

    Q4 2019 ASC 606 Q4 2019 ASC 605 Q4 2018 ASC 605

    86 96 92

    103 113 122

    EBIT1 (mil $)

    Reported

    Adjusted

  • 7 |

    Fiscal Year 2019 Consolidated Results

    © WOODWARD, INC. PROPRIETARY

    • Refer to the definition of non-GAAP measures in the appendix. • See slide 11 for impacts of ASC 606.

    FY 2019 FY 2018 ASC 605

    2.90

    2.332.60 2.20

    2.79

    Woodward Sales (bil $)

    Reported

    Organic

    ASC 605

    FY 2019 ASC 606 FY 2019 ASC 605 FY 2018 ASC 605

    260 254

    180

    314 310

    246

    Net Earnings (mil $)

    Reported

    Adjusted

    FY 2019 FY 2018

    292

    172

    Free Cash Flow1 (mil $)

    FY 2019 ASC 606 FY 2019 ASC 605 FY 2018 ASC 605

    $4.02 $3.94

    $2.82

    $4.88 $4.82

    $3.85

    Earnings Per Share

    Reported

    Adjusted

  • 8 |

    Aerospace

    © WOODWARD, INC.

    Aerospace segment performing well  Desire for air travel driving demand for fuel efficient narrowbody

    aircraft

    Boeing 737 MAX grounding  Estimating return to service in Q2 FY20  Build rates in line with Boeing expectations  Expect initial provisioning to ramp up in second half of fiscal year

    Commercial Aftermarket  9% increase for quarter, versus prior year period  Lower initial provisioning, higher aircraft utilization and volume of

    shop visits

    Defense  Favorable defense budgets  Strong aftermarket in support of improving combat readiness

    PROPRIETARY

  • 9 |

    Industrial

    © WOODWARD, INC.

    Power generation  Gas turbine market continues to stabilize due to content wins on new turbines  Mitsubishi content represents new program and share gains  Renewables remains uncertain due to Senvion bankruptcy  Siemens announced agreement to acquire part of Senvion  Considerable value in aftermarket with a large installed base

    Transportation  China natural gas truck production soft in Q4, as expected, due to large pre-buy

    leading up to