Q4 2023 Woodward Inc Earnings Call

Speaker 1: Thank you for standing by. Welcome to the Woodwork Inc. 4th Qty. Fiscal Year 2023 earnings call. At this time, I would like to inform you that this call is being recorded for rebroadcast.

Thank you for standing by welcome to the woodwork incorporated fourth quarter fiscal year 2023 earnings call. At this time I would like to inform you that this call is being recorded for rebroadcast.

Speaker 1: and that all participants are in a listen-only mode. Following the presentation, you are invited to participate in a question and answer session. Joining us today from the company are Chip Blankenship, Chairman and Chief Executive Officer, Bill Lacey, Chief Financial Officer, and Dan Provisniak, Director of Investor Relations. I would now like to turn the call over to Mr. Provisniak.

And that all participants are in a listen only mode. Following the presentation. You are invited to participate in a question and answer session. Joining us today from the company are chip Blankenship, Chairman and Chief Executive Officer, Bill Lacey, Chief Financial Officer, and Dan provision The act.

Director of Investor Relations I would now like to turn the call over to Mr provision Yak.

Speaker 2: Thank you, operator. We'd like to welcome all of you to Woodward's fourth quarter fiscal year 2023 earnings call.

Thank you operator, we'd like to welcome all of you to Woodward's fourth quarter fiscal year 2023 earnings call.

Speaker 2: In today's call, Chip will comment on our strategies and related markets.

Today's call chip will comment on our strategies and related markets.

Speaker 2: Bill will then discuss our financial results as outlined in our earnings release. And at the end of the presentation, we'll go over the results of our earnings release.

Bill will then discuss our financial results as outlined in our earnings release.

And at the end of the presentation, we will take questions.

Speaker 2: For those who have not seen today's earnings release, you can find it on our website at Woodward.com.

For those who have not seen today's earnings release, you can find it on our website at Woodward dotcom.

Speaker 2: We have again included some presentation materials to go along with today's call that are also accessible on our website.

We have again included some presentation materials to go along with todays call that are also accessible on our website.

Speaker 2: An audio replay of this call will be available by phone or on our website through November 30th, 2023.

An audio replay of this call will be available by phone or on our website through November 30th.

2023.

Speaker 2: The phone number for the audio replay is on the press release announcing this call as well as on our website and will be repeated by the operator at the end of the call.

Phone number for the audio replay is on the press release announcing this call as well as on our website and will be repeated by the operator at the end of the call.

Speaker 2: I'd like to refer to and highlight our cautionary statement as shown on slide.

I'd like to refer to and highlight our cautionary statement as shown on slide three.

Speaker 2: As always, elements of this presentation are forward-looking or based on our current outlook and assumptions for the global economy and our businesses more specifically. Those elements can

As always elements of this presentation are forward looking or based on our current outlook and assumptions for the global economy, and our businesses more specifically.

Those elements can and do frequently change.

Speaker 2: Our forward-looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify.

Our forward looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify in our filings.

Speaker 2: In addition, Woodward is providing certain non-U.S. GAAP financial

In addition, Woodward is providing certain non U S GAAP financial measures.

Speaker 2: We direct your attention to the reconciliations of non-U.S. GAAP financial measures, which are included in today's slide presentation and our earnings release and related schedule.

We direct your attention to the reconciliations of non U S. GAAP financial measures, which are included in today's slide presentation, and our earnings release and related schedules.

Speaker 2: We believe this additional financial information will help in understanding our results. Now I'll turn the call over to Joe.

We believe this additional financial information will help in understanding our results now.

Now I'll turn the call over to Joe.

Thank you Dan and good afternoon, everyone.

Speaker 3: Improved execution, coupled with robust demand and progress on our strategic priorities, delivered strong top line growth in fiscal 2023.

Improved execution, coupled with robust demand and progress on our strategic priorities and delivered strong topline growth in fiscal 2023.

Speaker 3: Our focus on improving operations resulted in increased output, which allowed us to serve customers better and deliver enhanced margin.

Our focus on improving operations resulted in increased output, which allowed us to serve customers better and deliver enhanced margins.

Speaker 3: I'd like to thank our team members for their hard work in a challenging environment.

I'd like to thank our team members for their hard work in a challenging environment there.

Speaker 3: Their commitment to Woodward and our customers resulted in a strong finish to fiscal 2023, and frankly, a strong start to our fiscal 2024.

Their commitment to Woodward and our customers resulted in a strong finish to fiscal 'twenty, three and frankly, a strong start to our fiscal 2024.

Speaker 3: As anticipated, the strategic investments we made to strengthen our supply chain

As anticipated the strategic investments, we made to strengthen our supply chain.

Speaker 3: resulted in significant improvements in the second half of the year.

Resulted in significant improvements in the second half of the year.

Speaker 3: A robust supplier escalation process proactively identifies at-risk suppliers and creates mitigation plans to ensure continuity of supply.

Our robust supplier escalation process.

So actively identifies at risk suppliers and creates mitigation plans to ensure continuity of supply.

Speaker 3: Our rapid response machining centers are working as designed, and we continue to leverage our machining capabilities to offload suppliers

Our rapid response machining centers are working as designed and we continue to leverage our machining capabilities to offload suppliers.

Speaker 3: and our internal shops, as they run into short-term capacity.

And our internal shops as they run into short term capacity constraints.

Speaker 3: Woodward's full engagement in proactive problem solving with our suppliers has vastly improved the stability and performance of our supply base.

Words full engagement and proactive problem solving with our suppliers has vastly improved the stability and performance of our supply base as become integral to our overall supply chain management process.

Speaker 3: has become integral to our overall supply chain management process. We believe we are well positioned.

We believe we are well positioned to deliver on future demand.

Speaker 3: Earlier in the year, we streamlined the aerospace and industrial segments and added experienced leadership to the company to accelerate our lean transformation.

Earlier in the year, we streamlined the aerospace and industrial segments and added experienced leadership to the company to accelerate our lean transformation.

Speaker 3: We integrated the turbine and reciprocating engines business units into one industrial business.

We integrated the turbine in reciprocating engines business units into one industrial business we.

Speaker 3: We reduced structural costs and achieved pricing to offset significant inflation.

We reduced structural costs and achieved pricing to offset significant inflation.

Speaker 3: We initiated a product portfolio rationalization effort, which focused on pruning lower performing products to both simplify operations and improve profitability overall.

We initiated a product portfolio rationalization effort, which focused on pruning lower performing products to both simplify operations and improve profitability overall.

Speaker 3: Through the fiscal year end, we eliminated approximately 18,000 SKUs.

Through the fiscal year, and we eliminated approximately 18000 skus.

Speaker 3: While these were relatively easy actions to take, the next wave will require more finesse and a customer-connected approach to product lifecycle management.

While these were relatively easy actions to take the next wave will require more finesse and a customer connected approach to product lifecycle management.

Speaker 3: This is a multi-year project and we will provide updates along the way.

Is a multiyear product project and we will provide updates along the way.

Speaker 3: We integrated the engine and airframe business units into one aerospace business.

We integrated the engine and airframe business units into one aerospace business we.

Speaker 3: We brought the hydraulic and fuel systems business units closer together with the combined engineering and program management structure.

We brought the hydraulics and fuel systems business units closer together with our combined engineering and program management structure.

Speaker 3: The Electromechanical Systems and Electronics team is also part of the streamlined organization, which uniquely positions Woodward to be competitive across the entire spectrum of aircraft electrification scenarios.

The electro mechanical systems and electronics team is also part of the streamlined organization, which uniquely positions woodward to be competitive across the entire spectrum of aircraft electrification scenarios.

Speaker 3: We simplified the way we interact with aerospace customers with one commercial team calling on and supporting customers.

We simplified the way, we interact with aerospace customers with one commercial team, calling on and supporting customers.

Speaker 3: In its first year as an integrated organization, productivity improved as new members became proficient and pricing actions were successful in offsetting the material and labor inflation that we faced in 2023.

In its first year as an integrated organization productivity improved as new members became proficient and pricing actions were successful in offsetting the material and labor inflation that we faced in 2023.

Speaker 3: We doubled down on strategic investment in operations excellence and talent development to accelerate our lean transfer.

We doubled down on strategic investment and operations excellence and talent development to accelerate our lean transformation.

Speaker 3: We started with one value stream analysis in each of the...

We started with one value stream analysis in each of the segments.

Speaker 3: motors in aerospace, and gas flow valves for land-based turbines in our industrial segment.

<unk> and aerospace and gas flow valves for land based turbines in our industrial segment.

Each of these actions required application of significant resources with more than 30 people organize to detail all the process steps lead times and inventory positions from customer order entry to shipping the product and collecting cash the.

Speaker 3: application of significant resources, with more than 30 people organized to detail all the process steps, lead times, and inventory positions from customer order entry to shipping the product and collecting cash.

Speaker 3: The results of this type of analysis allow us to identify and eliminate waste and deliver more value to customers.

The results of this type of analysis allow us to identify and eliminate waste and deliver more value to customers.

Speaker 3: The output from each week-long event is a 12-month transformation plan to cut lead time in half and double the inventory turns for the value stream under transfer.

The output from each week long event is a 12 month transformation plan to cut lead time in half and double the inventory turns for the value stream under transformation.

Speaker 3: We have since placed two more value streams under transformation, SOGAV in industrial and servohydraulic valves in aerospace.

We have since placed two more value streams under transformation, so gav in industrial and servo hydraulic valves and aerospace.

Speaker 3: We are going narrow and deep as each of these efforts require dedicated research.

We are going narrow and deep as each of these efforts require dedicated resources.

Speaker 3: Turning to innovation, we continue to invest in and develop technologies that reduce fuel consumption and emissions in both aerospace and industrial applications.

Turning to innovation, we continue to invest in and develop technologies that reduce fuel consumption and emissions in both aerospace and industrial applications.

Speaker 3: Our innovations enable multiple paths for a cleaner future, representing opportunities for Woodward in the years ahead.

Our innovations enable multiple paths for a cleaner future representing opportunities for Woodward in the years ahead.

Speaker 3: Together with our customers, we are developing solutions that utilize a wide variety of alternative fuels to power the engines of tomorrow.

Together with our customers we are developing solutions that utilize a wide variety of alternative fuels to power the engines of tomorrow.

Speaker 3: As we mentioned earlier this fiscal year, we were selected by Airbus to provide a balance of plant control solution.

As we mentioned earlier this fiscal year, we were selected by Airbus to provide a balance of plant control solution.

Speaker 3: for the fuel cell system in their zero E aircraft demonstration.

For the fuel cell system and their zero E aircraft demonstrator.

Speaker 3: This project leverages our leading fuel control technologies to enable sustainable air travel using hydrogen fuel.

This project Leverages, our leading fuel control technologies to enable sustainable air travel using hydrogen fuel.

Speaker 3: The Airbus Demonstrator Program aims to introduce a zero-emission aircraft into service by 2035.

The Airbus Demonstrator program aims to introduce a zero emission aircraft into service by 2035.

Speaker 3: On the industrial side of the business, we have several projects underway with multiple alternative fuels across a diverse array of applications, including power generation, marine, agriculture, and mining.

On the industrial side of the business, we have several projects underway with multiple alternative fuels across a diverse array of applications, including power generation Marine agriculture and mining.

Speaker 3: These projects are targeting new engines as well as conversions and upgrade opportunities for engines and service.

These projects are targeting new engines, as well as conversions and upgrade opportunities for engines in service.

Moving to our markets commercial aircraft utilization rates continue to rise with domestic passenger traffic exceeding 2019 levels and international travel largely recovered.

Speaker 3: Commercial aircraft utilization rates continue to rise with domestic passenger traffic exceeding 2019 levels and international travel largely recovering.

Speaker 3: In defense, due to geopolitical developments and government spending proposals, we expect R&D and procurement to increase.

In defense due to geopolitical developments and government spending proposals, we expect R&D and procurement to increase.

Speaker 3: We continue to see strength across our industrial markets. In power generation, demand remains strong, driven by growth in Asia, increases in global aftermarket activity, and continued demand.

We continue to see strength across our industrial markets and power generation demand remains strong driven by growth in Asia increases in global aftermarket activity and continued demand for backup power.

Speaker 3: In transportation, the global marine market remains healthy with shipyards at capacity and higher utilization driving current and future aftermarket activity.

In transportation, the global Marine market remains healthy with.

With shipyards at capacity and higher utilization driving current and future aftermarket activity.

Speaker 3: Increasing demand for alternative fuels across the marine industry should continue to drive expanded OEM and aftermarket opportunities as multi-fuel engines contain greater woodward content.

Increasing demand for alternative fuels across the marine industry should continue to drive expanded OEM and aftermarket opportunities as multi fuel and jet engines contain greater Woodward content.

Speaker 3: In oil and gas, global investment in LNG infrastructure development continues.

In oil and gas global investment in LNG infrastructure development continues.

Demand for natural gas.

Speaker 3: Heavy-duty trucks in China increased significantly over last year due to a number of factors, including wide LNG diesel price spread and a steady supply of natural gas.

Heavy duty trucks in China increased significantly over last year due to a number of factors including wide.

<unk> diesel price spread and a steady supply of natural gas.

Woodward benefited from this resurgence in demand beginning in our second quarter, followed by a sharp uptick in the third and fourth quarters with sales approximating the historical quarterly peak level of roughly $50 million.

Speaker 3: We converted these orders into sales, utilizing inventory on hand and existing production capacity.

We converted these orders into sales utilizing inventory on hand and existing production capacity.

Speaker 3: Our market analysis, including recent customer visits, indicates continued strong demand for LNG heavy-duty trucks in China.

Our market analysis, including recent customer visits indicates continued strong demand for LNG heavy duty trucks in China. However.

Speaker 3: However, this is a volatile market, and as history has shown, the promise of these sales can evaporate quickly.

However, this is a volatile market and as history has shown the promise of these sales can evaporate quickly.

Speaker 3: We are evaluating the durability of the elevated market demand and are developing an operational plan that allows us to be flexible and resilient to significant swings in volume.

We are evaluating the durability of the elevated market demand and are developing an operational plan that allows us to be flexible and resilient to significant swings in volume.

Speaker 3: In summary, our markets are strong and demand for woodwork products and services remains robust.

In summary, our markets are strong and demand for Woodward products and services remains robust our strategic.

Speaker 3: Our strategic investments to stabilize and strengthen our supply chain and improve operations are yielding sustainable results.

<unk> investments to stabilize and strengthen our supply chain and improve operations are yielding sustainable results.

Speaker 3: The resulting output increases and productivity are reflected in our financial performance.

The resulting output increases and productivity are reflected in our financial performance.

Speaker 3: We have taken a lot of ground in 2023, but we have more work to do.

We have taken a lot of ground in 2023, but we have more work to do as.

Speaker 3: As we look ahead, Woodward remains committed to operational excellence, talent development, and innovation, which we believe will drive long-term growth and deliver value to our customers and shareholders.

As we look ahead Woodward remains committed to operational excellence talent development and innovation, which we believe will drive long term growth and deliver value to our customers and shareholders.

Speaker 3: I will now turn the call over to Bill to review our quarterly and full-year results, as well as our fiscal year 2024 outlook.

I will now turn the call over to Bill to review, our quarterly and full year results as well as our fiscal year 2020 for outlook.

Speaker 4: Thank you, Chip, and good afternoon to everyone. Net sales for fiscal fourth quarter were $777 million, an increase of 21%. Net sales for fiscal year 2023 were $2.91 billion, an increase of 22%.

You chip and good afternoon to everyone.

Net sales for fiscal fourth quarter were $777 million, an increase of 21% net sales for fiscal year 2023 were $2 91 billion, an increase of 22% the increases in the quarter and full year were driven by continued strong demand across.

Speaker 4: The increases in the quarter and full year were driven by continued strong demand across most of our end markets, increased output resulting from the strategic investments we've made in the business, and price realization.

Most of our end markets increased output, resulting from the strategic investments we've made in the business and price realization.

Speaker 4: Aerospace segment sales for the fourth quarter of fiscal 2023 were $455 million compared to $408 million, an increase of 11%.

Aerospace segment sales for the fourth quarter of fiscal 2023 were $455 million compared to $408 million an increase of 11%.

Speaker 4: Commercial OEM and aftermarket sales were up 19% and 21% respectively, driven by higher OEM production rates, continued growth in both domestic and international passenger traffic, increasing aircraft utilization, and price realization.

Commercial OEM and aftermarket sales were up 19% and 21% respectively, driven by higher OEM production rates continued growth in both domestic and international passenger traffic increasing aircraft utilization and price realization.

Speaker 4: Defense OEM sales were down 13% in the quarter, primarily due to lower sales of guided weapons.

Defense OEM sales were down 13% in the quarter, primarily due to lower sales of guided weapons.

Speaker 4: Defense aftermarket sales were up 18%.

Defense aftermarket sales were up 18%.

Speaker 4: Aerospace segment earnings for the fourth quarter of 2023 were $78 million, or 17.2% of segment sales, compared to $63 million, or 15.5% of segment.

Aerospace segment earnings for the FERC fourth quarter of 2023 were $78 million or 17, 2% of segment sales compared to $63 million or.

Or 15, 5% of segment sales.

Speaker 4: The increase in segment earnings was primarily a result of price realization, higher commercial OEM and aftermarket volume, and productivity gains partially offset by inflation and higher annual incentive compensation.

The increase in segment earnings was primarily a result of price realization higher commercial OEM and aftermarket volume and productivity gains, partially offset by inflation and higher annual incentive compensation.

Speaker 4: For fiscal year 2023 aerospace segment sales were $1.77 billion compared to $1.52 billion for the prior year, an increase of 16%.

For fiscal year 2023, Aerospace segment sales were 177 billion.

Compared to $1 five 2 billion for the prior year, an increase of 16%.

Speaker 4: Aerospace segment earnings for fiscal year 2023 were $290 million, or 16.4% of segment sales, compared to $231 million, or 15.2% of segment sales for the prior year.

Aerospace segment earnings for fiscal year, 2023, or $290 million or 16, 4% of segment sales compared to $231 million or 15, 2% of segment sales for the prior year.

Speaker 4: Turning to industrial, industrial segment sales for the fourth quarter of fiscal 2023 were $322 million compared to $232 million, an increase of 39%.

Turning to industrial.

Industrial segment sales for the fourth quarter of fiscal 2023 were $322 million.

Compared to $232 million, an increase of 39%.

Speaker 4: The increase was driven by higher volumes across all markets, as well as price realization.

The increase was driven by higher volumes across all markets as well as price realization.

Speaker 4: In the fourth quarter, sales for on-highway natural gas truck production in China exceeded 10% of total industrial segment sales.

In the fourth quarter sales for on highway natural gas truck production in China exceeded 10% of total industrial segment sales.

Speaker 4: Industrial segment earnings for the fourth quarter of 2023 were $54 million, or 16.9% of segment sales compared to $21 million, or 9% of segment sales. Industrial segment earnings increased due to higher sales volume.

Industrial segment earnings for the fourth quarter of 2023 or $54 million or 16, 9% of segment sales compared to $21 million or 9% of segment sales industrial segment earnings increased due to higher sales volume.

Speaker 4: productivity and efficiency gains, price realization, and favorable product mix, partially offset by inflation and higher annual incentive compensation.

Productivity and efficiency gains.

This realization and favorable product mix, partially offset by inflation and higher annual incentive compensation.

Speaker 4: For fiscal year 2023, industrial segment sales were $1.15 billion compared to $863 million for the prior year, an increase of 33%.

For fiscal year 2023, industrial segment sales were 115 billion.

Compared to $863 million for the prior year, an increase of 33%.

Speaker 4: This represents record sales for our industrial segment.

This represents record sales for our industrial segment.

Speaker 4: Industrial segment earnings for fiscal year 2023 were $162 million, or 14.1% of segment sales, compared to $83 million, or 9.6% of segment sales for the prior year.

Industrial segment earnings for fiscal year, 2023 were $162 million or.

Were 14, 1% of segment sales compared to $83 million or nine 6% of segment sales for the prior year.

Speaker 4: As Chip mentioned, we continue to make progress on strengthening our industrial business.

As chip mentioned, we continue to make progress on strengthening our industrial business.

Speaker 4: The strategic investments we made to improve operational performance, including increased output and price excellence, drove approximately 200 basis points of improvement in industrial segment earnings as a percent of segment sales in fiscal 2023.

Strategic investments, we've made to improve operational performance, including increased output and price excellent drove approximately 200 basis points of improvement in industrial segment earnings as a percent of segment sales in fiscal 2023.

Speaker 4: We are in the early innings of transforming the industrial business, but once fully realized, we expect normalized industrial margins as a percent of sales to be in the mid-teens, depending on the sales.

We are in the early innings of transforming the industrial business.

Once fully realized we expect normalized industrial margins as a percent of sales to be in the mid teens, depending on the sales mix.

Speaker 4: Non-segment expenses were $24 million for the fourth quarter of 2023 compared to $17 million.

Non segment expenses were $24 million for the fourth quarter of 2023 compared to $17 million.

Speaker 4: adjusted non-segment expenses for the fourth quarter of 2022 were $21 million.

Adjusted non segment expenses for the fourth quarter of 2022 were $21 million.

Speaker 4: Non-segment expenses were $131 million for fiscal 2023 compared to $81 million for 2022.

Non segment expenses were $131 million for fiscal 2023 compared to $81 million for 2022.

Speaker 4: Adjusted non-segment expenses were $96 million in fiscal 2023, compared to $78 million, primarily driven by higher annual incentive compensation.

Adjusted non segment expenses were $96 million in fiscal 2023 compared to $78 million.

Primarily driven by higher annual incentive compensation.

Speaker 4: At the Woodward level, R&D for the fourth quarter of 2023 was $32 million, or 4.1% of sales, compared to $30 million, or 4.7% of sales.

At the Woodward level R&D for the fourth quarter of 2023 was $32 million or four 1% of sales compared with $30 million or four 7% of sales.

Speaker 4: For fiscal year 2023, R&D costs were $132 million, or 4.5% of sales, compared to $120 million, or 5% of sales.

For fiscal year, 2023, R&D costs were $132 million or four 5% of sales compared to $120 million.

Or 5% of sales.

Speaker 4: SG&A for the fourth quarter of 2023 was $66 million compared to $50 million.

SG&A for the fourth quarter of 2023 was $66 million compared to $15 million.

Speaker 4: For fiscal year 2023, SG&A was $270 million compared to $203 million.

For fiscal year, 2023, SG&A was $270 million compared.

Compared to $203 million.

Speaker 4: For both the quarter and the year, the increase was primarily due to higher annual incentive compensation.

For both the quarter and the year the increase was primarily due to higher annual incentive compensation.

Speaker 4: The effective tax rate was 15.7% for the fourth quarter of 2023 compared to 6.5%.

The effective tax rate was 15, 7% for the fourth quarter of 2023 compared to six 5%.

Speaker 4: The full year effective tax rate was 15.7% for fiscal 2023 compared to 14.1.

The full year effective tax rate was 15, 7% for fiscal 2023 compared to 14, 1%.

Speaker 4: For fiscal 2023, the adjusted effective tax rate was 16.8% compared to 14.3%.

For fiscal 2023, the adjusted effective tax rate was 16, 8% compared to 14, 3%.

Looking at cash flows.

Speaker 4: Net cash provided by operating activities for fiscal 2023 was $309 million compared to $194 million.

Net cash provided by operating activities for fiscal 2023 was $309 million.

Compared to $194 million.

Speaker 4: Capital expenditures were $77 million per fiscal 2023 compared to $53 million.

Capital expenditures were $77 million for fiscal 2023 compared to $53 million.

Speaker 4: Free cash flow was $232 million for fiscal 2023 compared to $141 million.

Free cash flow was $232 million for.

For fiscal 2023 compared to $141 million.

Speaker 4: Adjusted free cash flow was $238 million for fiscal 2023 compared to $144 million.

Adjusted free cash flow was $238 million for fiscal 2023 compared to $144 million.

Speaker 4: The increase in free cash flow and adjusted free cash flow was primarily due to increased earnings.

The increase in free cash flow and adjusted free cash flow was primarily due to increased earnings.

Speaker 4: partially offset by higher capital expenditures.

We offset by higher capital expenditures.

Speaker 4: Leverage was 1.5 times EBITDA at the end of the fourth quarter compared to 2.1 times EBITDA.

Leverage was one five times EBITDA at the end of the fourth quarter compared to two one times EBITDA.

Speaker 4: During fiscal 2023, $177 million was returned to stockholders in the form of $51 million of dividends and $126 million of repurchased shares under a board-authorized share repurchase program.

During fiscal 2023 $177 million.

It was returned to stockholders in the form of $51 million of.

Of dividends and $126 million.

Our repurchase shares under a board authorized share repurchase program.

Speaker 4: Lastly, turning to our fiscal 2024 outlook.

Lastly, turning to our fiscal 2020 for outlook.

Speaker 4: Woodward's fiscal 2024 outlook includes a continued strong demand environment and improving operational performance throughout the year.

Woodward's fiscal 2024 outlook include includes and continued strong demand environment and improving operational performance throughout the year.

Speaker 4: Total net sales for fiscal 2024 are expected to be between $3.1 and $3.25 billion.

Total net sales for fiscal 2024 are expected to be between three one and $3 billion to $5 billion.

Speaker 4: Our aerospace segment outlook includes increasing revenue and margin expansion driven by continued strength in commercial markets and increased defense activity.

Our aerospace segment outlook includes increasing revenue and margin expansion driven by continued strength in commercial markets and increased defense activity.

Speaker 4: For fiscal 2024, aerospace sales growth is expected to be between 10% and 14%.

For fiscal 2020 for aerospace sales growth is expected to be between 10 and 14%.

Speaker 4: And Aero's earnings are expected to be 18 to 19% of Aerospace sales.

And arrows earnings are expected to be 18% to 19% of aerospace sales.

Speaker 4: Our industrial segment outlook includes broad-based market strength and improving operational performance.

Our industrial segment outlook includes broad based market strength and improving operational performance.

Speaker 4: Given the volatility and limited visibility into the China on-highway natural gas truck market, the outlook assumes peak sales levels for the first quarter with minimum activity through the remainder of 2024.

Given the volatility and limited visibility into the China on highway natural gas truck market. The outlook assumes peak sales levels for the first quarter with minimum activity activity through the remainder of 2024.

Speaker 4: For fiscal 2024, we expect industrial sales growth between 4% to 6%.

For fiscal 2024, we expect industrial sales growth between 4% to 6% industrial.

Speaker 4: Industrial segment earnings are expected to be 13% to 14% of industrial segment sales.

Industrial segment earnings are expected to be 13% to 14% of industrial segment sales.

Speaker 4: At the Woodward level, the adjusted effective tax rate is expected to be approximately 21%.

At the Woodward level, the adjusted effective tax rate is expected to be approximately 21%.

Speaker 4: We expect free cash flow to be between $275 and $325 million, and capital expenditures to be approximately $100 million.

We expect free cash flow to be between 275, and $325 million and capital expenditures to be approximately $100 million.

Speaker 4: Earnings per share is expected to be between $4.70 and $5.15 based on approximately 62 million fully diluted weighted average shares outstanding.

Earnings per share is expected to be between $4 70.

And $5 15 based on approximately 62 million fully diluted weighted average shares outstanding.

Speaker 4: This concludes our comments on the business and results for the fourth quarter and fiscal year 2023. Operator, we are now ready to open the call.

This concludes our comments on the business and results for the fourth quarter and fiscal year 2023.

Operator, we are now ready to open the call to questions.

Speaker 1: Thank you. The question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers.

Thank you the question and answer session will begin at this time, if you're if you are using a speakerphone. Please pick up the handset before pressing any numbers.

Speaker 1: Should you have a question, please press star 1 on your push-button phone.

Do you have a question. Please press star one on your push button fallen.

Speaker 1: should you wish to withdraw your question, please press star one. Your question will be taken in the order it is received. Please stand by for your first question, sir. Our first question comes from Scott Mekas from Malleus Research. Please state your question.

Should you wish to withdraw your question. Please press Star one your question will be taken in the order. It is Christine. Please standby for your first question. Sir Our first question comes from Scott Marquez from Melius Research. Please state your question.

Speaker 5: Hi, Chip. I was wondering, the balance sheet's pretty solid. LEAP and GTF shop visits are going to be ramping up. So you should have a lot of cash flow growth over the next few years. So I'm just wondering, what are your latest thoughts on capital deployment? And then if you're thinking about M&A, is there a preference for aerospace or general industrial?

Hi, Chip I was wondering balance sheets pretty solid leap in GTS shop visits are going to be ramping up.

You should have a lot of cash flow growth over the next few years. So I'm just wondering what are your latest thoughts on capital deployment and then if youre thinking about M&A is there a preference for aerospace or general industrial.

Speaker 3: Good afternoon, Scott. Good to hear from you. So we are looking at that cash generation opportunity and.

Good afternoon, Scott good to hear from you so.

Looking at that cash generation opportunity in.

Speaker 3: You know, like we shared before, we're taking a balanced view on capital allocation. You can see that we're inching up the capital expenditure planning to take advantage of things that we believe are high return opportunities in automation and other margin expansion opportunities inside our factories and supply chain.

Like we've shared before we're taking a balanced view on capital allocation you can see that we're inching up.

The capital expenditure planning to take advantage of things that we believe are high return opportunities in automation and other margin expansion opportunities inside our factories and supply chain.

Speaker 3: And we're looking at all the other levers and capital allocation in a balanced way. We're very active in terms of looking for really.

And we're looking at all the other levers and capital allocation in a balanced way, we're very active in terms of looking for relief.

Speaker 3: outstanding strategic fits of companies to consider for acquisition opportunities, but we don't have anything specific to discuss at this time. But we remain very active there to make sure that we can take advantage of high return opportunities that are great fits.

Outstanding strategic fits of companies to consider for acquisition opportunities.

But we don't have anything specific to discuss it at this time, but we remain very active there to make sure that we can take advantage of high return opportunities that are great fits with the company.

Okay, and then I have a question for bill and looks like the aerospace segment missed the low end of the margin guide by about 20 bps for the full year and I think if my math is correct. The commercial OE sales were down quarter over quarter. So I was just wondering if you could provide a little bit of color on that.

Speaker 4: Sure, thanks for the question. Again, as you know, our aero business in Q4, overall our business had a strong quarter on top line with 21%.

Sure. Thanks for the question.

Again, as you know our Aero business.

In Q4 overall, our business had a strong.

A strong quarter on topline with 21%.

Speaker 4: Q3 was even stronger at 30%.

Q3 was even stronger at 30% Scott.

Speaker 4: Scott, and so when we talk about our Q3 specifically, some of that strong growth is a tribute to a new component that achieved certification in the customer demand.

Scott.

As we sorry, Steven and so when we talk about our <unk>.

Q3, specifically some of that strong growth is attributed to a new component that achieved certification.

And the customer demand.

Speaker 4: was steep. And at that point in time, we recognized a lot of the initial production. And over time, we will achieve a more stable rate. So it was really that strong Q3 in Arrow and a little bit of timing that caused us to miss that kind of quarter over quarter sales. But again, it was a very strong quarter for Arrow.

With steep and at that point in time.

We recognized a lot of the initial production and overtime, we will achieve a more stable rate. So it was really a strong Q3 in arrow in a little bit of timing that caused us to miss that.

Kevin quarter over quarter sales, but again it was a very strong quarter for arrow.

Okay got it thank you.

Speaker 1: Your next question comes from the line of Scott Deschelle from Deutsche Bank. Please state your question.

Your next question comes from the line of Scott <unk> from Deutsche Bank. Please state your question.

Hey, good afternoon.

Afternoon Scott.

Speaker 6: Bill, I think you're guiding to higher incremental margins of aerospace in 2024 than what you did in 2023. So I was wondering if you can talk a bit about what enables that higher incremental margin rate. Thank you.

Bill I think you're guiding to higher incremental margins at aerospace in 2024 than what you did in 2023. So I was wondering if you can talk a bit about what enables that higher incremental margin rate. Thank you.

Speaker 4: Sure. As we will get into a little bit more of that, Scott, as we get into our investor relations, our investor day on December 7.

Sure.

As we will get into a little bit of more of that.

Scott as we get into our Investor Relations.

Our Investor day on December seven.

Speaker 4: But again, as we look at the strong markets in the commercial side, in the volume there, that will definitely help in that guide as we head to 2024.

But again as.

As we look at the strong.

Markets and in the commercial side.

The volume there that will definitely help in that guide as we head into 2020.

Speaker 3: And and Scott, just to add a little bit to that, you know, we've we've deployed.

Four.

And Scott just to add a little bit to that.

We've deployed a lot of effort into the lean transformation, we anticipate plus the learning curve of these newer newer teammates. So we anticipate continuing to get cost out of our operations, we're actually facing a little bit of a mix headwind from 'twenty three.

Speaker 3: a lot of effort into the lean transformation. We anticipate, you know, plus the learning curve of these newer teammates.

Speaker 3: So we anticipate continuing to get cost out of our operations. We're actually facing a little bit of a mixed headwind from 23 to 24, as the strong OE demand and the build rates dictate that we'll have to sort of rise to that occasion, but we still anticipate with our strong lean transformation programs being able to generate productivity, and we have some, you know, pricing year over year that we're also considering.

24.

Strong OE demand in the build rates dictate that we'll have to sort of rise to that occasion, but we still anticipate with our <unk>.

Strong lean transformation program being able to generate productivity and.

And we have some pricing.

Year over year that we're also counting on.

Speaker 6: Okay, yeah, and just on that last point, I think last year when you, when we got the guide, you gave a sense for what those price realizations would be. And so I was wondering if you can say, you know, what you expect that price realization number to be this upcoming year and fiscal twenty five.

Okay, Yeah, and just on that last point I think last year. When you. When we got the guide you gave a sense for what those price realizations would be and so on.

I'm wondering if you can say what you expect that price realization number to be this upcoming year in fiscal 'twenty five.

Speaker 3: We're not we're not ready to do that just yet, Scott, but we'll we anticipate to improve. We're also facing some inflation in the supply chain. So.

We're not we're not ready to do that just yet Scott, but we will we anticipate to improve we're also facing some inflation in the supply chain. So.

Not able to share more of that right now.

Speaker 6: Okay, and the last question is, is the revenue from guided weapons that trough yet?

Okay and then last question is the revenue from guided weapons at trough yet.

The trial yet.

Speaker 4: We continue to look at that. And in 2024, we are expecting it to reach that point. And so we'll continue to see how that all goes. But in 2024, yes, we expect it to hit its stride.

We continue to.

Look at that in in 'twenty, four we are expecting it to reach that point.

So.

So we will we will continue to see how that all goes but in 2024, yes, we expect it to hit its trough.

Thank you.

Speaker 1: Your next question comes from the line of Sheila Kahayolu from Jeffries. Please state your question. Thank you. Good afternoon, guys. So, I wanted to ask about industrial. Hi. You gave great color there in the prepared remarks. You also mentioned $50 million of sales from China natural gas sales and

Your next question comes from the line of Sheila <unk> from Jefferies. Please state your question.

Good afternoon guys.

Your line of inquiry without industrial alright.

Great color there in the prepared remarks.

Also mentioned $50 million of sales from China natural gas sales and.

Speaker 7: normalized margins in the mid-teens. So I guess two-part question on this industrial margin. When you back that out, it implies about 50% drop through on the China business. I guess, is that fair to say? What are you assuming on China natural gas sales for 2024? And what do we think drives the core business to mid-teens given you've averaged about 10% over the last decade?

Normalized margins in the mid teens. So I guess two part question on industrial margin when you back that out it implies about 50% drop through on the China business.

I guess is it fair to say what are you assuming on China natural gas sales for 2024.

And.

What do we think drive the core business.

Given you've averaged about 10% of that Bob.

Yeah, Hey, Sheila Thanks for the question.

Speaker 4: Yeah, in our preparatory remarks, we did discuss that we did hit our historically quarterly peak of around $50 million, and so that kind of...

Yes in our prepared remarks, we did discuss that.

We did hit our historically.

Quarterly peak of around.

Around 50 around $50 million.

And so that's kind of.

Speaker 4: where we're willing to discuss. We also, as it relates to OH, continue to feel that it's a very volatile business. And we discussed what we were willing to include in our 2024 guide. So we felt like we provided, as you said, some increased detail on OH. And we're going to leave it at that for now.

Where we're willing to discuss we also as it relates to OE inch.

Continue to feel that its a very volatile business and we.

We discuss what we are willing to include in our 2020 for 2024 guide. So we felt like we provided.

As you said some increased detail on OE and we're going to leave it to leave it at that for now.

Speaker 3: So, I guess to get to the just to get to the rest of your question, Sheila, you know, the, the under underlying performance of the other product lines and components of the industrial.

So I guess to get to yes, just to get to the rest of your question Sheila the.

<unk> performance of the other product lines and components of the industrial business, we're seeing good.

Speaker 3: business. We're seeing good improvement on the operations and we've had some strong pricing on long-term agreements come through over the past year that we believe will, you know, connect for us over the next term and provide that lift to margins in the industrial sector.

Improvement on the operations.

<unk> had some strong pricing on long term agreements come through over the past year that we believe will.

Connect for us over the next.

Term and provide that lift to margins in the industrial business.

Speaker 7: Okay. And then just sticking to industrial, then I guess, what drives the biggest deceleration year over year on the top line in your view? Can you go through the bits of what you've kind of baked into those, that assumption?

Okay, and then just sticking to industrial than I guess, what trends the biggest deceleration year over year on the top line in your view can you go ahead.

To the best of what you've kind of baked into that assumption.

Yes.

Speaker 4: Yeah, again, as we spoke, Sheila, about the way we're assuming China on highway business in 2024 is near peak historical sales in the first quarter, minimum amount in the remainder of the year.

Yes, again as we as we spoke about.

About our the way we are assuming.

China.

On highway business in 2024.

Is.

Near peak historical sales in the first quarter minimal amount in the remainder of the year.

Okay. Thank you.

Speaker 1: Your next question comes from the line of Pete Skibiski from Alembic Global Advisors. Please state your question. Hey, good afternoon, guys. Nice quarter.

Your next question comes from the line of Pete Kubicki from Alembic Global Advisors. Please state your question.

Hey, good afternoon, guys nice quarter.

Thanks, Steve.

Speaker 8: Just to follow up on Sheila's question again, as it relates to China's CNG, given that one quarter will have an ongoing kind of peak level of China's CNG in it, is the first quarter going to be the high revenue and margin quarter for the year for industrial?

Just to follow up on Sheila's question again on.

As it relates to China, CMG, so should we given that one quarter will have.

An ongoing kind of peak level of China's CMG and it is the first quarter are going to meet our high revenue and margin quarter for the year for industrial.

Speaker 3: You know, we don't know the answer to that, Pete. I mean, that's just what we're honestly trying to say is that we have visibility to orders in the first quarter that we think we can count on shipping past that. It's upside opportunity for us. We're positioning our supply chain to try and be able to deliver that on a sustainable way if that demand continues. But what we're forecasting and kind of committing to guidance wise is just what we can.

We don't know the answer to that Pete I mean, that's just what we're honestly trying to say is that we have visibility to orders in the first quarter that we think we can count on shipping past that its upside opportunity for us we are positioning our supply chain to try and be able to deliver that on a sustainable way if that demand continues.

But what we're forecasting and kind of committing to guidance wise is just what we can see.

Speaker 3: Does that make sense? Right. Yeah. Yeah. There's no downside risk from China CNG in your guidance. It's only kind of upside opportunity, I think, is what you're saying. That's what we're trying to say. And also, really, all of our end markets that we're serving, we believe we'll have growth in sales. And so that's kind of – it looks good to us, but we just don't want to get out in front of ourselves with our experience on the China OH before.

Does that makes right.

Yes, there is no downside risk from China's TNG in your in your guidance it sounds like kind of upside opportunity.

That's what we're trying to say and also really all of our end markets that we're serving we believe we will have growth in sales and so that's kind of it looks good to us, but we just don't want to get out in front of ourselves with our experience on the China H before.

Speaker 8: OK, and there's one follow up for me on the marine market.

Okay, and just one follow up for me on the marine market.

Speaker 8: You know, it seems like China exports are slowing and Europe , especially Germany, seems pretty weak in terms of growth. So I'm trying to understand what's driving the strength in the marine market. Are we just sort of going through kind of a replacement cycle for aftermarket demand? You know, can you shed any, any color on that market?

It seems like China exports are slowing in Europe, especially Germany seems pretty weak in terms of growth. So.

Im trying to understand what's driving the strength in the marine market or are we just sort of going through kind of a replacement cycle for aftermarket demand.

Can you shed any any color on that market.

Visibility.

Speaker 3: Yeah, I mean, there are a lot of lot of sub segments to that market. There's cruise ships, there's, you know.

Yes, I mean, there are allowed us let us sub segments to that market Theres cruise ships there is.

No.

Speaker 3: ferries and and and like you said the container ships and you know there's auxiliary engines and there's main engines and so when you look at what Woodward's scope of supply is.

Ferries and <unk> and.

And like you said the container ships and Theres auxiliary engines and Theres main engines and so when you look at what Woodward scope of supply is.

Speaker 3: We've got a lot of places that can still be growing, even if China Freight drops off or the pricing changes and makes people have a little less utilization on that specific sub-market. Okay. Okay, great.

We've got a lot of places that can still be growing even if china freight drops off or the pricing changes and it makes people.

Have a little less utilization on that specific submarket.

Okay, Okay, great. Thanks, guys.

Yep. Thank you.

Speaker 1: Your next question comes from the line of Christopher Glenn from Oppenheimer. Please state your question.

Your next question comes from the line of Christopher Glynn from Oppenheimer. Please state your question.

Speaker 9: Hey, yeah, good afternoon. Chip, Bill, Dan. I was curious if you could go a little bit deeper into what you're seeing into the defense markets. I know, you know, you expect procurement to increase. That's pretty straight. You also mentioned expect R&D to increase. Does that refer to internal and external? And what are kind

Hi, Yes, good afternoon Chip Bill Dan.

Chris take us.

A little bit deeper.

Deeper into what you're seeing into the defense market.

You expect procurement to increase that's pretty straight.

I also mentioned expect R&D to increase.

<unk> refer to internal and external and what are kind of the.

Speaker 9: you know, 2024 drivers and longer term, you know, next couple of years that you're seeing as defense demand starts to take a little shape here.

2024 drivers and longer term next couple of years that Youre seeing is defense demand starts to take a little shape here.

Speaker 3: So we've seen, I think I said this in the last quarterly call as well, we've seen an increase in quote activity, you know, requests for Woodward to quote components and subsystems and systems for different types of defense vehicles. We've seen that activity go up in terms of the number of quotes we get, and we've also seen the urgency and the turning of those quotes go faster than in recent times.

So we've seen I think I've said this in the last quarterly call as well, we've seen an increase in quote activity.

Requests for Woodward to quote.

Components, and subsystems and systems for different types of defense vehicles we've.

We've seen that activity go up in terms of the number of quotes we get and we've also seen the urgency and the the turning of those quotes go faster then.

In recent times.

Speaker 3: So, not really referring to IRAD, our internal R&D, that's pretty stable in terms of our platform development, but as far as specific customer requests, we've seen that increase and hold steady at an increased rate.

So not really referring to Iraq, our internal R&D, that's pretty stable.

In terms of our platform development, but as far as specific customer requests we've seen that increase in hold steady at an increased rate.

Speaker 9: Okay, great. And just taking a look at big picture, you know, you have new management team working on lots of execution and portfolio streamlining. How's everything coming together? I mean, it looks great, but, you know, from a cultural perspective, middle-level managers, how's that translating down from the C-suite?

Okay great.

Just.

Taking a look at.

Big Picture, you have new management team working on lots of execution and portfolio streamlining.

Has everything coming together I mean, it looks great but.

From a cultural perspective middle level managers, how does that translating down from the.

C suite.

Speaker 3: Well, these things always take time, Chris. But what I've been really pleased with is the lean transformation activities when we engage a full team of these 30-plus people in a value stream analysis. We have that team includes front-line operators, first-level supervisors. It includes supplier managers, customer service reps.

These things always these things always take time, Chris, but what I've been really pleased with is the.

Is the the lean transformation activities when we engage a full team of these 30 plus people in a <unk>.

<unk> stream analysis, we have.

That team includes frontline operators first level supervisors it includes <unk>.

Supplier managers customer service reps.

Speaker 3: plant entire VP of operations, plant managers, and I even participated in one. So we're sort of doing the full-on engagement approach to moving the needle from that focus on reducing lead times and serving customers better and eliminating waste. And so far, so good on that. But these things take time and it'll take a multi-year journey to get where we wanna go, just to be candid.

Plant entire VP of operations plant managers and I, even participated in one so.

We're sort of doing the full on engagement approach to move.

Moving the needle from.

That focus on reducing lead times, and serving customers better and eliminating waste.

So far so good on that.

But.

These things take time and.

It will it will take.

A multi year journey to get where we want to go just to be candid.

Speaker 9: Yeah, great. Well, it sounds like you have four very productive processes, two at each segment underway. Is that something where you develop leaders and muscle memory, and you have eight or ten of them, and 24, and 15, or 20, and 25? Is that…?

Yes, great well it sounds like you have four very productive processes too.

At each segment underway is that something where you develop leaders in muscle memory and <unk>.

Eight or 10 of them in 'twenty, four and 15 or 20, and 25 is that reasonable way to think about it yes.

Speaker 3: Yes, sir, you've seen this movie before and, you know, each one of these activities before a value stream can qualify to be under transformation, they need to be able to identify 3%, you know, of dedicated resources that are going to be with that activity for a year. And so it takes a lot of pre work and it, and like you said, we then generate leaders that have been through the process to take on the next one.

<unk> seen this movie before in.

Each one of these activities before value stream can qualify to.

B under transformation, they need to be able to identify a 3%.

Dedicated resources that are going to be with that activity for a year and so it takes a lot of pre work in it and like you said, we then generate.

Leaders that have been through the process to take on the next one.

Great. Thanks for the explanations thanks.

Thanks, so much.

Speaker 1: Your next question comes from the line of David Strauss from Barclays, please state your question. Thank you.

Your next question comes from the line of David Strauss from Barclays. Please state your question.

Thanks, Good afternoon, everyone.

Afternoon definitely David.

Speaker 10: Uh, Kip, I, you, you mentioned the, the headwind that you'll have, uh, on the arrow margin side from, uh, from higher growth. Could you give a little bit more. Uh, granularity in terms of what you're forecasting within that 10 to 14% for arrow between. Arrow aftermarket, and then maybe just defense bucketed all together.

Kipp, you mentioned that the headwind that youll have.

On the Aero margin side from from higher OE growth could you give a little bit more.

Granularity in terms of what you are forecasting within that 10% to 14% per arrow between Aero OE aftermarket and then maybe just defense pocketed altogether.

Speaker 3: Yeah, this is the kind of headwind that we really like, because from a long-term perspective, we're creating an install base that will pay back dividends over time. So it's the kind of headwind we'll take every time. I don't think I'm prepared to break down exactly how that works. And really, to some extent, it'll play out over time. And we'll be able to do that.

Yes. This is the kind of headwind that we really like because from a long term perspective, we're creating an installed base that will payback dividends over time. So it's the kind of headwind will take every time.

I don't think im prepared to breakdown exactly how that works.

Relate to some extent it'll it'll play out over time.

And we will we will be able to.

<unk>.

Speaker 3: Demonstrate our ability to hit those rates and throughout the whole supply chain So I'd be premature to say exactly what it is because I I really don't know exactly how it's going to turn out but I just want people to know that it's a good headwind and That's something we're going to overcome with margin expansion on both the OE side based on our productivity and investment in Getting cost out of those products as well as You know work in the aftermarket as well as

Demonstrate our ability to hit those rates and.

Throughout the whole supply chain, so it'd be premature to say exactly what it is because I really don't know exactly how it's going to turn out but I just want people to know that it's a good headwind in.

That's something we're going to overcome with margin expansion on both the OE side based on our productivity and investment in.

Getting cost out of those products as well as.

Work in the aftermarket as well as we can.

Speaker 10: Okay, um, and then on on guided weapons, um, you know, it sounds like you're expecting at the bottom here, but I mean, should we, or are you expecting that business to start growing again? Given given what's going on, like, with with and. Small diameter bomb, you know, would you would you actually expect that business, or do you plan for that business to start growing again?

Okay.

And then on guided weapons.

It sounds like Youre expecting at the bottom here, but I mean should we or are you expecting that business to start growing again, given given whats going on liquid with <unk> and small diameter bomb.

Do you actually expect that business or are you planning for that business start growing again.

Speaker 3: We don't really have any expectations of that, and we have no firm information along those lines. But customers have called us and asked us about our capacity and ability to respond. And we've done our homework with our supply chain to make sure our suppliers can respond. And, you know, if it does, you know, crank up a higher order rate, then we'll be ready for that. But as of now, we have no orders to move in that direction.

We don't really have any expectations of that.

And we have no firm information along those lines, but customers have called us and asked us about our capacity and ability to respond and we've done our homework with our supply chain to make sure our suppliers can respond in.

If it does.

Crank up a higher order rate than we will be ready for that but.

As of now we have no.

Orders to move in that direction.

Speaker 10: Okay. And then last one for me, I think for Bill, it looks like you're, you know, can't tell exactly, but it does look like your free cash flow guide, cash from office guide for next year includes some sort of working capital headwind, it looks like. Could you just elaborate on what exactly you have assumed from a working capital perspective? Thanks.

Okay, and then last one for me.

I think for Bill it looks like your can't call it guidance, but it does look like your free cash flow guide cash from Ops guide for the for next year includes a some sort of working capital headwind. It looks like could you just elaborate on what exactly you have assumed from a working capital perspective. Thanks.

Speaker 4: Yes, in our working capital, we are,

Yes.

And our working cap and our working capital.

We are.

We are.

Seeing our.

Speaker 4: Inventory, working capital is actually going to be pretty good, it's not going to be a heavy impact, David. AR, we will expect to see some of that will be a bit of a challenge there going up as sales go up and so that will offset some of the other areas and is the headwind that you're seeing there working capital.

Inventory working capital is actually going to be pretty pretty good.

It's not going to be a heavy.

Impact.

David.

<unk>.

We will expect to see some of that.

It will be a bit of a challenge there going up as sales go up and so that will offset.

Some of the other areas.

<unk> is the headwind that youre seeing their working capital.

Okay. Thanks very much.

Youre welcome.

Speaker 1: Your next question comes from the line of Gavin Persons from UBS. Please state your question. Thanks.

Your next question comes from the line of Gavin Parsons from UBS. Please state your question.

Thanks, Good afternoon.

Good afternoon again.

Speaker 11: Can you just talk a little bit about how you position the China truck business to reduce margin volatility if demand does fall off?

Can you just talk a little bit about how you position the China truck business too.

Reduce margin volatility if demand does fall off.

Well.

Speaker 3: There's really no way to position it to reduce volatility if demand falls off. We're just.

There is really no way to position it to reduce volatility if demand falls off we're just.

Speaker 3: We're just trying to say that, you know, when demand strong, it's a profitable, good business. And when demand's not strong, we fall below a certain level, it's a bit of a drag on the overall industrial segment. And so, you know, we're trying to have enough levers in our planning process that we're able to deal with that as it comes through. And that's how we've planned 2024 is.

We're just trying to say that.

When demand is strong it's a <unk>.

Profitable good business and when demands not strong and we fall below a certain level its a bit of a drag on the overall industrial.

Segment and so.

We're trying to have enough levers in our planning process that we're able to to deal with that as it comes through and that's how we planned 2020 for us.

Delivering at that.

Speaker 3: peak volume type of level in the first quarter. The other quarters we planned and are ready to deliver on all of our other product lines and all of our other end markets and make that plan.

Peak volume type of level in the first quarter the other quarters, we planned.

And are ready to deliver on all of our other product lines into all of our other end markets and make that plan.

Speaker 11: Got it. And then maybe just in terms of your price strategy, you've talked about kind of value pricing, where are we today in terms of getting price just as inflation pass through versus implementing your value pricing strategy?

Got it great and then maybe just in terms of your price strategy, you've talked about kind of value pricing.

Where are we today in terms of getting price just as inflation pass through versus implementing your value pricing strategy.

Speaker 3: We're pretty early in the days in terms of value pricing strategy. I think that really comes into play on new product introductions where we're able to

We're pretty early in the days in terms of value pricing strategy I think that really comes into play on new product introductions, where we're able to provide.

Speaker 3: to provide a component or a system to a customer that, you know, provides more value than the last system does. And so that's where the...

Provide a component or a system to a customer that provides more value than the last system does and so that's where that's where that.

Speaker 3: muscle comes into play and competence comes into play. As far as our current portfolio, you know, we have opportunity in the aftermarket in some product lines to price for value there where our products are highly differentiated, have plenty of IP in them to.

Muscle it comes into play and competence comes into play as far as our current portfolio, we have opportunity in the aftermarket and some in some product lines to price for value there, where our products are highly differentiated have plenty of IP in them to to deliver value.

Speaker 3: to deliver value compared to more standard parts that are more of a commodity. We aren't able to command that type of value pricing in the aftermarket. So that's how I think about it right now, but as far as, you know,

Compared to more standard parts that are more of a commodity we are unable to command that type of value pricing in the aftermarket. So that's how I think about it right now but as far as.

Speaker 3: Really developing that capability, it's going to be applied mostly to the new products.

<unk>.

Really developing that capability.

It's going to be applied mostly to the new products.

Okay. Thank you.

Yes.

Speaker 1: Your next question comes from the line of Guatam Kana from TD Cowan. Please state your question.

Your next question comes from the line of Tom corner from TD Cowen. Please state your question.

Speaker 12: Yes, hey, thanks. I was wondering, at the investor day,

Yes, Thanks I was wondering.

The Investor day.

Speaker 12: What might be different in your presentation this year than in prior years? Like what, just give us a sneak preview into what you guys anticipate discussing.

It might be different in your presentation this year than in prior.

Prior year.

And just give us a sneak preview into what you guys anticipate.

Disgusting.

A sneak preview.

Speaker 3: Gautam, I love your questions. You've always got something for us. Yeah, I guess the sneak preview is that you're going to see more players on the stage. And folks are going to talk about their businesses.

Gautam I love your questions, you've always got something for us.

Yes, I guess.

Sneak preview is that youre going to see more players.

On the stage and.

Folks are going to talk about their businesses.

Speaker 3: Experts are going to talk a little bit about their products and what value they provide to customers, and I truly believe we'll tell a compelling story, just like we did last time, about the exciting content that we have on, for example, narrow-body aircraft that is going to pay dividends long into the future, and that our

Experts are going to talk a little about the products and what value they provide to customers and I truly believe will tell a compelling story just like we did last time about.

The exciting content that we have on for example, narrow body.

Aircraft debt is going to pay dividends long into the future.

And that are.

Speaker 3: Industrial alternate fuel solutions are going to be highly valuable no matter what way our customers and energy sources go in the future.

Industrial alternate fuel solutions are going to be highly valuable no matter, where our customers in energy sources go in the future.

Speaker 12: Thanks. And I was wondering if you could talk about visibility in the industrial market outside of CNG, where you've guided, you know, obviously Q2.

Alright.

I was wondering if you could talk about visibility in the industrial market outside and CMG.

Where you guided.

In Q2.

Speaker 12: a lot lower in that business. How do you feel about the other major product categories?

Okay.

How do you feel about the other major.

Product categories and end markets, so reciprocating engines and what have you.

Speaker 12: the reciprocating engines and what happens.

Speaker 3: You know, it still feels relatively strong, Gautam. It feels like from the demand for standby power,

It still feels it still feels relatively strong gautam it feels like.

From the the demand for <unk>.

Standby power.

Speaker 3: remains strong. The equipment businesses in mining and agriculture remain strong. Marine remains mostly strong, per my earlier comments. We haven't received any market softening.

We remained strong.

The equipment businesses in mining and agriculture remained strong.

<unk> remains mostly strong per my earlier comments.

We haven't received any market softening.

Speaker 3: signals from our customers. We've received some signals to reduce or push out orders in marine.

Signals from our customers, we have received some signals to reduce or push out orders in marine.

Speaker 3: But we feel like that signal was largely due to some over-ordering. Now with relatively better confidence in the supply chain, it's normalizing, as well as we think end-of-the-calendar year inventory management.

But we feel like that signal was largely due to some over ordering now with rep relatively better confidence in the supply chain.

It's normalizing.

As well as we think end of the calendar year inventory management.

Speaker 3: So we feel like every signal that we test in the marine oil and gas and power generation market

So we feel like every signal that we test in the marine oil and gas in.

Power generation market still.

Speaker 3: feedback to us that they want us to deliver at the rates we're projecting. And we still have past due that we're trying vigorously to burn down.

Feedback to us that.

They want us to deliver it at the rates, we're projecting and we still have past due the workshop that we are trying.

Vigorously to burn down.

Thank you.

Yep.

Speaker 1: Your next question comes from the line of Lewis Refetto from Wolf Research. Please state your question.

Your next question comes from the line of Louis Raffetto from Wolfe Research. Please state your question.

Hey, good evening guys how are you.

Giving Louis how are you.

Speaker 13: Good. I apologize. I may have missed some of these, but.

Good I apologize I missed some of these.

Speaker 4: Did you tell us what the full pricing was? I know you had upped it from 5% to 7%. Did you actually say what it would end up being for the year? No. No, we did not, Louis, did not get that.

Did you tell us what the full pricing was I know you had uptick from 5% to 7% that you actually say, what it would end up being for the year.

No we did not Lewis did not give that update.

Speaker 4: And can you give it or we have to wait for the, okay. We will say we met what we discussed and exceeded it.

Can you give it or we have to wait for that.

Okay.

We will say, we met what we discussed and exceeded it.

Okay.

Speaker 13: And then, I guess, just for you, Bill, the tax step-up, what's driving that step-up in 24?

And then I guess just rebuilt the tax step ups.

What's driving that step up in 'twenty four.

Speaker 4: Yeah, as we see our earnings increase, Louis, our tax rate increases along with that. And so that's really the key driver there is the increased earnings.

Yes.

As we see our our earnings increase.

Lewis.

Our tax rate increases along with that and so that's really the key driver there is the increased earnings.

Speaker 13: All right, and then one more, just going to name this, the step up in CapEx.

Alright, and then one more just Ken may have missed the step up in Capex.

Yes.

Speaker 4: Yeah, on the CapEx piece here, we continue, again, as we talk about our capital allocation and where we can get returns, we see that in an area where we have automation opportunities. We want to continue to invest in the maintenance of our machines to continue to drive productivity as well as safety. So that's really where we're looking at in investing in our CapEx.

Yes on the Capex piece here.

We continue again as we talked about our capital allocation and where we can get returns we see that in an area, where we have automation opportunities.

We want to continue to invest in our in the maintenance of our machines to continue to drive productivity.

As well as safety. So so that's really what we're looking at.

Investing in our Capex increase.

Speaker 13: Okay, and then just last 1, I know you gave the, the growth for the end markets and industrial, but did you have the segment growth numbers for the year for reciprocating engines and industrial?

Okay, and then just last one I know you gave the gross margin.

For the end markets in industrial but the judge this segment growth numbers for the year.

For <unk> engines and industrial machinery.

Speaker 4: No, no, don't don't have that we did not get that

No no don't don't have that we do not give that.

Speaker 2: And Louis, just for the end of the year, this is Dan Provastnik.

Okay.

For the for the end of the year. This is Dan <unk>.

Yes.

Speaker 10: You'll see in our K tomorrow, we're going to be making a switch and showing that information in our K based on the three markets, transportation, oil and gas, and power generation. It really reflects how we're running the business now.

Youll see in our K tomorrow, we're going to be making a switch and showing that information in our K based on the three markets transportation oil and gas.

Our power generation it really reflects how we're running the business now okay.

Speaker 13: Makes sense. All right. Thank you very much. Welcome.

Makes sense makes sense alright, thank you very much.

Welcome to <unk>.

Speaker 1: Your next question comes from the line of Gavin Persons from UPS. Please state your question.

Your next question comes from the line of Gavin Parsons from UBS. Please state your question.

Speaker 14: Hey, guys, thanks for the follow up. Again, just wanted housekeeping. What is the industrial book to bill for the year?

Hey, guys. Thanks for the follow up.

Okay, and just one housekeeping what does the industrial book to Bill for the year.

I don't think we have that front of us.

Kevin.

Speaker 10: Okay, no worries. It's a case coming out shortly. Great. Yeah, it's strong. We're receiving lots of plenty of orders to cover our build rates, but I just can't quote you a number in a fraction right now.

Okay.

Ladies coming out shortly great.

Yes.

Strong, we're receiving lots of plenty of orders to cover our build rates, but I can't quote you a number and a fraction right now.

Speaker 11: No worries. I'll wait. And then it looks like no buybacks implied in share count. I know we talked about capital deployment at the beginning of the call, but are you assuming you accumulate cash that year?

No worries.

Great.

Then.

It looks like no buybacks implied in your share count I know, we've talked about capital deployment at the beginning of the call but are you assuming you accumulate cash at the year.

Speaker 4: Yeah, right, Gavin, we don't assume that through the year, and we'll just continue to monitor it and make decisions as we go as it relates to share buybacks.

Yes.

Gavin we don't assume that through the year and we'll just continue to.

Monitor it and make decisions.

As we as we go.

<unk>.

As it relates to share buybacks.

Okay. Thanks again.

Welcome.

Speaker 1: Mr. Blankenship, there are no further questions at this time. I will now turn the conference back to you.

Mr. Blankenship there are no further questions at this time I will now turn the conference back to you.

Speaker 3: Thank you and thanks to everyone for joining us today. As a reminder, our investor day is scheduled for December 7th in New York City, and I look forward to seeing you there and sharing more at that time.

Thank you and thanks to everyone for joining us today as a reminder, our Investor day is scheduled for December seven in New York City, and I look forward to seeing you there and sharing more at that time.

Have a good day.

Speaker 1: Ladies and gentlemen, that concludes our conference call today. If you would like to listen to a rebroadcast of this conference call, it will be available today at 7.30 p.m. Eastern Time.

Ladies and gentlemen that concludes the conference call today, if you would like to listen to a rebroadcast of this conference call. It will be available today at 730 PM Eastern time.

Speaker 1: by dialing 1-800-770-2030 for a U.S. call or 1-647-362-9199 for a non-U.S. call and by entering the access code 427-8216.

Dialing one 800 770.

030 for a U S call or.

164736 to 91994.

Non U S call and by entering the access code four to seven eight to one six.

Speaker 1: A rebroadcast will also be available at the company's website, www.woodward.com, for 14 days. We thank you for your participation on today's conference call and ask that you please disconnect your

A rebroadcast will also be available.

At the company's website www Dot Woodward Dot com for 14 days, we thank you for your participation on today's conference call and ask that you. Please disconnect your line.

[music].

Yes.

Yes.

Okay.

[music].

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