A month has gone by since the last earnings report for Woodward (WWD). Shares have lost about 3.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Woodward due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Woodward Q1 Earnings Miss Estimates, Revenues Up Y/Y
Woodward reported net earnings of 49 cents per share for the first quarter of fiscal 2023, which missed the Zacks Consensus Estimate by 18.3%. In the year-ago quarter, the company reported net earnings and adjusted net earnings of 47 cents and 56 cents, respectively.
Net sales in the fiscal first quarter moved up 14% year over year to $619 million due to higher sales in the Aerospace and Industrial segments. The top line beat the consensus estimate by 2.8%.
However, ongoing supply-chain and labor disruptions and unfavorable foreign currency exchange rates acted as headwinds.
Segment Results
Aerospace: Net sales were $396 million, up 18% year over year. The upside can be attributed to higher commercial OEM (up 32% year over year) and commercial aftermarket sales (up 47% year over year), resulting from improving passenger traffic and fleet utilization. Continued softness in defense OEM and aftermarket sales due to lower guided weapons sales and supply-chain disruptions were headwinds.
The segment’s earnings were $55 million, up from $51 million in the year-ago quarter. The upside was caused by price realization and higher commercial OEM and aftermarket sales. However, it was partly offset by increasing material and labor costs, supply-chain constraints and the annual incentive compensation.
Industrial: Net sales totaled $223 million, up 9% from the prior-year quarter. Higher marine sales from continued utilization of the in-service fleet and solid industrial turbomachinery sales resulted in this upside partly offset by unfavorable forex movement.
The segment’s earnings were $11 million, down from $24 million in the year-ago quarter, mainly due to net inflationary impacts on material and labor costs and increasing costs due to supply-chain disruptions and training of new hires.
Other Details
Total costs and expenses increased to $586.9 million, up 16.5% year over year. Adjusted EBITDA came in at $71.8 million compared with $84.1 million in the year-ago quarter.
Cash Flow & Liquidity
As of Dec 31, 2022, Woodward had $99.3 million in cash and cash equivalents with $649.1 million of long-term debt (less the current portion).
For the first quarter, Woodward generated $5 million of net cash from operating activities, compared with $39 million a year ago. Adjusted free cash flow for the same period came in at ($19) million compared with $27 million in the prior-year period. The downtick was mainly caused by increased capital expenditures, tax payments and rising supply-chain constraints.
Woodward repurchased shares worth $26 million in the first quarter. In January 2022, the company authorized a new $800 million two-year stock repurchase program, reinforcing its financial position and positive outlook. The company has $328 million remaining under the share repurchase authorization.
Fiscal 2023 Overview
For fiscal 2023, net sales are now expected to be between $2.6 billion and $2.75 billion.
The Aerospace segment’s revenues are expected to increase between 14% and 19%, while the Industrial segment’s revenues are expected to remain flat or increase 5%.
Free cash flow is projected to be between $200 million and $250 million. Earnings are likely to be in the range of $3.15-$3.60 per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -12.54% due to these changes.
VGM Scores
Currently, Woodward has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Woodward has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Woodward is part of the Zacks Instruments - Control industry. Over the past month, Badger Meter (BMI), a stock from the same industry, has gained 4.9%. The company reported its results for the quarter ended December 2022 more than a month ago.
Badger Meter reported revenues of $147.32 million in the last reported quarter, representing a year-over-year change of +8.5%. EPS of $0.60 for the same period compares with $0.59 a year ago.
For the current quarter, Badger Meter is expected to post earnings of $0.59 per share, indicating a change of +20.4% from the year-ago quarter. The Zacks Consensus Estimate has changed -7.3% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Badger Meter. Also, the stock has a VGM Score of D.
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