Q1 2025 Woodward Inc Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to the Woodward Incorporated first quarter fiscal year 2025 earnings call.
Speaker Change: At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. Following the presentation, you are invited to participate in a question-and-answer session.
Speaker Change: Joining us today from the company are Chip Blankenship, Chairman and Chief Executive Officer, Bill Lacey, Chief Financial Officer, and Dan Provaznik, Director of Investor Relations. I would now like to turn the call over to Dan Provaznik.
Dan Provaznik: Thank you, operator. We'd like to welcome all of you to Woodward's first quarter fiscal year 2025 earnings call.
Chip Blankenship: In today's call, Chip will comment on our strategies and related markets. Bill will then discuss our financial results as outlined in our earnings release.
Chip Blankenship: At the end of our presentation, we will take questions. For those who have not seen today's earnings release, you can find it on our website at Woodward.com.
Chip Blankenship: We've included some presentation materials to go along with today's call that are also accessible on our website.
Chip Blankenship: A webcast of this call will be available on our website for one year.
Chip Blankenship: And all references in this call, all references to years in this call are references to the company's fiscal year unless otherwise stated.
Thank you for watching!
Chip Blankenship: I would like to highlight our cautionary statement as shown on slide 2 of the presentation materials.
Chip Blankenship: As always, elements of this presentation are forward-looking, including our guidance, and are based on our current outlook and assumptions for the global economy and our businesses more specifically.
Those elements can and do frequently change.
Chip Blankenship: Our forward-looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify in our filings with the SEC.
Chip Blankenship: These statements are made as of today and we do not intend to update them except as required by law.
In addition, we're providing certain non-US GAAP financial measures.
Chip Blankenship: We direct your attention to the reconciliation of non-U.S. GAAP financial measures, which are included in today's slide presentation and our earnings release.
Chip Blankenship: We believe this additional financial information will help in understanding our results.
Now, I'll turn the call over to Chip.
Chip Blankenship: Thank you, Dan, and thanks to everyone for joining us today.
Chip Blankenship: I'm pleased to report that the first quarter of 2025 was a strong start to our year, with robust market demand from most corners.
and results that highlight the strength of our strategy.
Continued improvement in execution.
and our members' commitment to serving our customers.
Chip Blankenship: While our first quarter reported results are down slightly compared to last year, we delivered strong growth in both our aerospace segment and core industrial business.
Chip Blankenship: while our aerospace team managed through a pause in deliveries of some product lines to Boeing.
Chip Blankenship: We were able to balance the labor across other product lines in both aerospace and industrial.
Chip Blankenship: We made the most out of the situation with additional Kaizen events and workstation rearrangement for improved flow in the facility prior to Boeing's restart of 737 MAX production.
Chip Blankenship: Woodward now has clear demand signals from airframe and engine OEMs that represent growth, and we will be ready to meet that demand.
Chip Blankenship: We have some direct labor hiring to do ourselves, and we have a lot of work to do with suppliers to support the increased demand signal.
Chip Blankenship: As other companies have acknowledged, there are still some suppliers struggling with output and quality.
Chip Blankenship: We remain forward-deployed, working with our suppliers on problem-solving to ensure we are able to serve customers.
Chip Blankenship: Core industrial performance was strong in the quarter with sustained robust demand across power generation, oil and gas, and marine transportation markets.
Chip Blankenship: The $65 million dollar year-over-year decline in China on-highway sales overshadowed the 7% core industrial growth.
Chip Blankenship: Across industrial and aerospace, I'm pleased to see tangible results of our operational improvements.
and the acceleration of our lean transformation.
Chip Blankenship: This progress is enabling us to achieve stable operations and disciplined rate increase planning to keep pace with customer demand.
Chip Blankenship: As I visit our sites, I see a shift in mindset as our members build lean muscle and apply their problem-solving skills to improve in areas such as safety, quality, delivery, and cost.
Chip Blankenship: I'm also pleased with the progress we're making on our automation journey.
Chip Blankenship: The team at Rock Cut Campus commissioned an industry-leading bank of automated deburring stations last quarter with multiple cobots and a myriad of end-effect tools to accomplish tasks that we earlier dismissed as likely impossible.
Chip Blankenship: I'm extremely proud of our Rockford team and all our members contributing to automation across our Woodward production sites.
Chip Blankenship: I'd like to take a moment to highlight some strategic decisions that we made in the first quarter.
Chip Blankenship: These will contribute to shareholder value creation, strengthen our competitive position, and expand our technology offerings for the next single-aisle aircraft.
Chip Blankenship: In December, we signed a definitive agreement to acquire Saffron's Electronics and Defense Electromechanical Actuation business.
Chip Blankenship: This includes technology, operational assets, and long-term customer agreements for the Horizontal Stabilizer Trim Actuation, or HSTA, system.
Chip Blankenship: The acquisition also includes electromechanical components for braking, steering, de-icing, and auxiliary power, and importantly, increases our ship set content on the Airbus A350.
Chip Blankenship: While this acquisition significantly bolsters our existing electromechanical flight controls capabilities,
We're also investing organically in hydraulic flight control actuation.
Chip Blankenship: These investments enhance our ability to participate in single-aisle aircraft trade studies and development programs with airframe OEMs, and provide valuable insight with design experience,
and product pedigree on both sides of the trade study.
Chip Blankenship: Woodward can remain technology agnostic regarding the winning architecture, as we offer electromechanical, hydraulic, or a hybrid system approach, whichever is best for the aircraft.
Chip Blankenship: In the quarter, we also announced that we were selling our build-to-print industrial fuel nozzle product business in Greenville to GE Vernova.
Chip Blankenship: The Greenville plant serves one customer which owns all service revenues.
Chip Blankenship: The divestiture allows us to concentrate on industrial products that create the most shareholder value while supporting our customers' goals.
Chip Blankenship: We remain focused on our gas and liquid fuel control systems for aeroderivative and heavy frame gas turbine genset applications.
Chip Blankenship: These are industry-leading product lines, critical to our customers' ability to deliver gas turbine power generation growth.
Chip Blankenship: We've made additional progress on industrial product rationalization by selling certain small product lines, primarily legacy small engine diesel products.
Chip Blankenship: We're also strengthening our product management discipline by inserting it directly into our Woodward operating system.
Chip Blankenship: This will enable us to allocate resources more directly to the highest return opportunities throughout the life cycle of our products and actively manage our product offerings in a timely fashion.
Chip Blankenship: These actions support our strategy of building a stronger, more focused Woodward that's both well-equipped to compete in the near term and well-positioned to drive future growth.
Moving to our markets.
In aerospace, commercial passenger traffic continues to grow.
Chip Blankenship: While market demand remains robust, industry supply challenges continue to affect OEM build rates.
Speaker Change: As I stated earlier, we see a stronger OEM demand signal starting in our second quarter, and we will respond accordingly.
Chip Blankenship: Our plan is designed to be flexible and responsive to actual product dynamics.
Chip Blankenship: We are on track to deliver our 2025 guidance and create long term shareholder value.
Chip Blankenship: And now I'll turn it over to Bill who will share our financial results.
Bill Lacey: Thank you chip and good afternoon, everyone. As a reminder, all references to years are references to the company's fiscal year, unless otherwise stated and all comparisons are year over year, unless otherwise stated.
Bill Lacey: Net sales for the first quarter of 2025 were $773 million.
Bill Lacey: A decrease of 2%.
Bill Lacey: Earnings per share for the first quarter of 2025 were $1 42.
Bill Lacey: Compared to $1 46.
Bill Lacey: Adjusted earnings per share for the first quarter of 2025 or $1 35 <unk>.
Bill Lacey: Compared to $1 45.
Bill Lacey: <unk> segment sales for the first quarter of 2025 were $494 million.
Bill Lacey: Compared to $461 million, an increase of 7%.
Bill Lacey: Commercial OEM sales were down 10% largely due to the impact from the Boeing work stoppage.
Bill Lacey: This impact was more than offset by higher sales with commercial aftermarket up 19%.
Defense OEM up 21%.
Bill Lacey: Defense aftermarket up 8%.
Bill Lacey: Aerospace segment earnings for the first quarter of 2025 were $95 million or.
Bill Lacey: Or 19, 2% of segment sales compared to $79 million or 17, 2% of segment sales.
Bill Lacey: The increase in segment earnings was primarily a result of price realization, partially offset by inflation unfavorable.
Bill Lacey: Unfavorable mix and lower volumes.
Bill Lacey: Turning to industrial <unk>.
Bill Lacey: Industrial segment sales for the first quarter of 2025 were $279 million compared to $326 million.
Bill Lacey: A decrease of 15%.
Bill Lacey: Transportation was down 33% due to a decline in China on highway sales, which we had anticipated because of local economic challenges.
Bill Lacey: China on highway sales or $10 million in the first quarter.
Bill Lacey: Our core industrial sales, which excludes China on highway we're up 7% driven by broad based strength across the business with marine transportation power generation and oil and gas each up 7%.
Bill Lacey: Industrial segment earnings for the first quarter of 2025 were $40 million or 14, 4% of segment sales compared to $67 million or 25% of segment sales.
Bill Lacey: Industrial segment earnings decreased primarily due to lower China on highway volume and unfavorable mix, partially offset by price realization and favorable foreign exchange rates.
Bill Lacey: Margins for our core industrial business.
Approximately 15% in the first quarter, we continue to expect core industrial margins of 14% to 15% of sales for the year.
Bill Lacey: Non segment expenses were $22 million for the first quarter of 2025 compared to $26 million. Adjusted non segment expenses were $28 million for the first quarter of 2025 compared to $27 million.
Bill Lacey: At the Woodward level.
Bill Lacey: R&D for the first quarter of 2025 was $30 million or three 9% of sales compared to $31 million or three 9% of sales.
Bill Lacey: SG&A for the first quarter of 2025 was $70 million or 9% of sales.
Bill Lacey: Compared to $75 million or nine 5% of sales.
Bill Lacey: The effective tax rate was 14, 5% for the first quarter of 2025 compared to 17, 9%.
Bill Lacey: The adjusted effective tax rate for the first quarter of 2025 was 14% compared to 17, 7%.
Bill Lacey: Looking at cash flows net cash provided by operating activities for fiscal 2025 was $35 million compared.
Bill Lacey: Compared to $47 million.
Bill Lacey: Capital expenditures were $34 million for fiscal 2025 compared to $42 million.
Bill Lacey: Free cash flow was $1 million.
Bill Lacey: For the first quarter compared to $5 million, which is in line with our typical first quarter levels.
Bill Lacey: The decrease in free cash flow was primarily due to lower earnings partially offset by lower capital expenditures.
Bill Lacey: As of December 31, 2024 debt leverage was one five times EBITDA.
Bill Lacey: Our capital allocation strategy remains unchanged, we continue to prioritize investing in organic growth returning cash to stockholders and pursuing strategic M&A during.
Bill Lacey: During the first quarter, we returned $50 million to stockholders comprised of $35 million of share repurchases and $15 million of dividend in aggregate. We are currently planning to return approximately $215 million in 2025.
Bill Lacey: Including approximately $150 million of share repurchases and $65 million in dividends.
Bill Lacey: Turning to our 2025 guidance, we are reaffirming our guidance for 2025 with the exception of adjusted effective tax rate.
Bill Lacey: And adjusted earnings per share based on the favorable tax rate in the first quarter. We now expect the adjusted effective tax rate for 2025 to be approximately 19%.
Bill Lacey: As a result, we are narrowing our adjusted earnings per share range and now expect it to be between $5 85.
Bill Lacey: And $6 25.
Bill Lacey: This concludes our comments on the business and results for the first quarter of fiscal year 2025.
Bill Lacey: Operator, we are now ready to open the call to questions.
Bill Lacey: Thank you.
Question and answer session will begin at this time, if you are using a speakerphone. Please pick up the handset before pressing any numbers.
Speaker Change: Should you have a question. Please press star one on your push buttons on <unk>.
Bill Lacey: Should you wish to withdraw your question Press Star one a second time.
Bill Lacey: To be able to take as many questions as possible. We ask that you. Please limit yourself to one question, we will take follow up questions. If time allows.
Bill Lacey: Your question will be taken in the order is received and please standby for your first question.
Speaker Change: Our first question comes from the line of Scott <unk> with Melius Research. Your line is open.
Speaker Change: Good evening.
Speaker Change: Good afternoon Scott.
Bill Lacey: Chip Bill quick question, just on that guidance in the aerospace segment sales growth.
Bill Lacey: Kind of wide and last quarter I think you mentioned that you expected defense OEM Davita SaaS end market within aerospace followed by commercial OEM and aftermarket and defense aftermarket.
Bill Lacey: Just wondering has there been any change in that pecking order given the strong start you've had in the commercial aftermarket and defense aftermarket.
Bill Lacey: Yes, Scott so we're still keeping that wide range, because it's still early yet from a.
Bill Lacey: A Boeing performance standpoint, and some of the other supply chain issues to <unk>.
Bill Lacey: It's to narrow the upper range yet.
Bill Lacey: Your point is a good one on the strong commercial aftermarket in <unk>.
Bill Lacey: I will remind you that it was.
Bill Lacey: Relatively easy compare <unk> to the last year 124.
Bill Lacey: So as we look forward going on for the rest of <unk>.
Bill Lacey: <unk> thousand 25, we have more difficult compares we think that that high double digits. We showed this quarter will moderate significantly.
Bill Lacey: Sequentially the performance should be similar.
Bill Lacey: I think it will be.
Bill Lacey: Neck and neck between commercial OEM and commercial aftermarket for what second in line, we still expense expect defense to be.
Bill Lacey: The largest driver of growth.
Bill Lacey: For this fiscal year.
Bill Lacey: Okay. That's helpful and then over the past several years, you've invested quite a bit to alleviate some of the supply chain bottlenecks near and production system. So.
Bill Lacey: Just wondering if you could characterize the performance of your supply chain relative to pre Covid you had almost back to normal and then is there any material difference in the performance of your aerospace supply chain versus the industrial segment supply chain.
Speaker Change: So I'd echo the comments of many of my colleagues on earnings calls recently, saying that we really haven't.
Speaker Change: Solved the post COVID-19 supply chain issues yet.
Speaker Change: I don't know that we do get back to a pre COVID-19 normal that we wish for.
Speaker Change: There is still plenty of labor challenges out there and the less experienced labor.
Speaker Change: We're having challenges across the supply chain with with some supplier quality issues that are due to the things people that knew how to do before they retired or left as people come up the learning curves, we're solving those problems and where we're getting more involved.
Speaker Change: As you noted we have invested over $10 million in flexible.
Speaker Change: Manufacturing equipment to temporarily or permanently in source, where our suppliers are having trouble that is still ongoing those machines are are pretty much loaded.
Five days a week two shifts.
Speaker Change: We're continuing to add capacity soft capacity to those as is the supply chain challenges with dictate.
Speaker Change: I'd say, we have similar challenges in industrial to aerospace supply chain.
Speaker Change: We're looking at 15% to 20 suppliers overall on the highly escalated.
Speaker Change: Challenged list on performance.
Speaker Change: And it's about half and half.
Speaker Change: Got it thank you.
Speaker Change: Welcome.
Speaker Change: And our next question comes from the line of Scott <unk> with Deutsche Bank. Your line is open.
Scott: Hey, good evening.
Speaker Change: Good evening good evening Scott.
Speaker Change: As billing restarting purchase orders at a very low rate or are they coming out of the gates relatively strong in terms of the rates, they're asking you to ship to.
Speaker Change: Okay.
Speaker Change: The Boeing demand signal is pretty strong so it's pretty strong out of the gate and as you know there is some inventory in the system. So we're we're responding in a disciplined way to bring our our line rates up to meet that demand.
Speaker Change: Okay. So should we expect commercial OE revenue to return to growth in the second quarter or could it still be down given the tougher comp that you've seen in the second quarter.
Speaker Change: While we don't give quarterly guidance I do I do I have more confidence in the second half of this year it will be in a growth mode from an OE standpoint.
Speaker Change: That's fair and then have the retrofits for the leap engines, new reverse plead valve system contributed very materially to the company's aftermarket growth over the last few quarters and then does that normalize at some point if that has been a driver of the aftermarket growth. Thank you.
Speaker Change: The reverse bleed valve.
Speaker Change: Fleet program has not contributed significantly to our aftermarket.
Speaker Change: Growth.
Speaker Change: Right. Thank you Youre welcome.
Speaker Change: And your next question comes from the line of Sheila <unk>.
Speaker Change: With Jefferies. Your line is open.
Speaker Change: Hey, good afternoon, guys and thank you.
Speaker Change: Okay.
I think last quarter, you guys on the call that aftermarket would level off but apple full first quarter off to a great start 20%.
Speaker Change: Can you maybe talk about what drove that.
Speaker Change: When you said you would level occupants shop visits when we think about the 9000.
Speaker Change: In general.
How do we think about those shop visits coming in your percentage of those shop visits and you start out Doug if you could provide.
So I think the guidance that we that we sent was about the full year from a commercial aftermarket standpoint.
Speaker Change: So.
Speaker Change: Pointing back to that it was a relatively easier compare in the first quarter than it is two three and four for the year. So just want to draw your attention to that.
Speaker Change: And it was sort of across the board, where our lean transformation is allowing us to.
Speaker Change: To show better turn times and get more product out back to the customers in the aftermarket.
Speaker Change: Supply chain alleviating some of the issues as well.
Speaker Change: So those contributed to our ability to serve the market a little bit better in first quarter 'twenty five than we did in first quarter 'twenty. Four of course, there is some price in there as well which shows up on the top line.
Speaker Change: And what was the rest of your question Sheila I'm sorry.
Speaker Change: Yes.
Speaker Change: Whats the shop visit revenue, we can think about with Woodward is it like 10% of your overall content and like how do we think about when that cadence really picks up.
Just given the current book.
Speaker Change: So I'd like to remind you also that much of our our aftermarket content is line replaceable units. So while shop visit rate is interesting and some customers do route DLR used for component repair during a shop visit we also see about.
Speaker Change: I'd say just largely a 50 50 split from LR use whether it's shop visit or line removal.
And it's really.
Speaker Change: Better correlated with overall engine hours.
Speaker Change: Then we are event driven shop visits so I want to make sure everyone's still understands that that's the case for Woodward content we.
Speaker Change: We are seeing leap in GTS.
Speaker Change: Inputs grow year over year.
Speaker Change: We're on track for that that growth like we've modeled it so we're very pleased.
Ed: Ed how thats developing.
Ed: Okay, and then maybe if I can ask one on industrial for some gears, a little bit profitability Hoffman and better core margins at 13%.
Ed: Can you walk us through.
Ed: How will that improve what drove the deceleration and I think in your prepared remarks, you mentioned Jordan.
Ed: Zinc sales, but I didnt catch if it was industrial Lynn or are allocated to clarify that.
Ed: I'll clarify that point, and then I'll turn it over to Bill.
Ed: But we did divest of some small product lines in industrial and that's adjusted out of our our earnings Youll Youll see that in the in the GAAP results.
Ed: But it's relatively small amount.
Ed: Not a big driver not included in that margin number.
Bill Lacey: Over to Bill on the makeup of the 50, yes. So so yeah, we're real pleased with.
Bill Lacey: Core industrial coming out of the gate at 15% as you know Sheila our guide on core industrial margins is between 14% to 15.
Bill Lacey: This quarter, we did in Q1, we did see some favorability related to foreign exchange rates and.
So backing that out.
Bill Lacey: Core industrial margins were closer to 14%.
Bill Lacey: And we expect through the quarter that through the year, we will see their margin rates go between 14 and 15 with those finishing strong in Q4.
Bill Lacey: Pending on sort of the volume and the mix that comes through any given quarter. So we feel really good about all the work that we've done I remember when I started here core industrial margins were in the single high single digits, 9% and so all the work that we've done.
Bill Lacey: In operational excellence working on price driving lean we are seeing that improvement.
Bill Lacey: And we really feel good about our guide on core industrial $14 15 for the year.
Bill Lacey: Awesome. Thank you.
Bill Lacey: Youre welcome.
Bill Lacey: Yes.
Speaker Change: And your next question comes from the line of Matthew acres with Wells Fargo. Your line is open.
Matthew Acres: Yeah, Hey, guys. Good afternoon. Thanks for the question.
Matthew Acres: Wanted to ask about.
Speaker Change: The Safran acquisition.
Speaker Change: Any more color you can give there and maybe what the new <unk> hundred 50 content as I think you said that we boosted that I think it was like 40% to 50000 pre.
Speaker Change: Previously and just curious how should we think of this as sort of a one off opportunities that came up or do you still see M&A as.
Speaker Change: Kind of a decent part of the capital allocation strategy here.
Speaker Change: So taking the last part first I mean, I think we still.
Speaker Change: We still see.
Speaker Change: M&A strategy.
As a good opportunity to bolt on when we're looking for technology adds.
Speaker Change: The market for customer adds to the portfolio.
Speaker Change: So we're very excited about this one it brings us some unique additions to our electromechanical mechanical actuation.
Speaker Change: Business from a technology standpoint.
Speaker Change: And we do.
Speaker Change: We do look forward to having the.
Speaker Change: The horizontal stabilizer trim actuation system.
Speaker Change: For the <unk> hundred 50, and Thats Thats the content add for the <unk> hundred 50 that I was referring to.
Speaker Change: We didn't quantify what that means from a ship set standpoint, though.
Yes got it Okay, and then I guess as a follow up.
Speaker Change: I think you called out $215 million of cash you plan to return this year.
Speaker Change: Hey, just curious that your free cash flow.
Speaker Change: As above that are you.
Speaker Change: The remainder kind of earmarked for something or should we think of that as maybe potential upside to deployment.
Speaker Change: Depending on our market.
Speaker Change: Opportunity yet.
Speaker Change: Yes, Matt.
Matt: Again, we do think that we have capacity if there is a possibility for us to do more.
Matt: And we don't have a earmarked right now we're going to see how things progress we feel good about our where we are from a on our shares and if theres opportunity to buy some more we will take a look at it if there are the other areas of organic growth investment.
Matt: We will look at potentially doing some more so $2 15, right now represents about 150 of share repurchases that deal with offsetting our dilution and then we'll see how things develop over the over the rest of the year.
Matt: Great. Thank you.
Matt: Youre welcome welcome.
Speaker Change: And your next question comes from the line of Pizza.
Speaker Change: Alembic Global partners Advisors. Your line is open.
Speaker Change: Hey, good afternoon guys good.
Speaker Change: Good afternoon.
Speaker Change: Yes, Hey, Jim just wondering.
Speaker Change: Ongoing CR in defense has that impacted your bookings at all or are the Oems being pretty.
Speaker Change: Pretty forward leaning in order flow.
Speaker Change: We haven't seen any impact on that Pete.
Speaker Change: Okay.
Speaker Change: Just a follow up on.
Speaker Change: I get the sense that maybe your multiyear visibility and guided weapons that maybe thats improving.
Speaker Change: The current outlook for defense spending is sort of low double low single digits should we expect guided weapons on a multiyear basis to kind of meaningfully exceed that as that kind of.
Speaker Change: The target that you would put out there or is it visibility just not there yet.
Speaker Change: I don't think we have much visibility past early 2026, and thats kind of what we've limited or <unk>.
Speaker Change: Comments on.
Speaker Change: Okay fair enough thanks, guys.
Speaker Change: Youre welcome.
Speaker Change: Your next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open.
Speaker Change: Okay.
Christopher Glynn: Thanks, Good evening afternoon.
Speaker Change: So.
Speaker Change: Power Gen market <unk> had a pretty steady consistent drumbeat.
Speaker Change: Curious if you could just go into some of the long term demand signals, a little bit I think caterpillar announced.
Speaker Change: Substantial capacity plans for Simpson gas turbines.
Speaker Change: Is that pretty telling how you're looking at the market over the next handful of years.
Speaker Change: Yes. It is I mean, our customers are all.
Speaker Change: Pushing us to demonstrate what our capacity actions would be to meet the investments that they're making and we're aligned pretty darn well with both our reciprocating engine and gas.
Speaker Change: Gas turbine customers, we're we're very bullish on that net market.
Speaker Change: The math alone tells us that there should be a gas Renaissance in terms of the power demands both for grid stability due to renewables, but also just for base gigawatts per year growth required to support.
Speaker Change: Industry, but also the data center and AI demand.
Speaker Change: All of the.
Speaker Change: Deep seek.
Speaker Change: The turmoil aside we still see big big demand and growth for gas power generation and we're poised to take part in that.
Speaker Change: Okay.
Speaker Change: Great.
Also wanted to ask about.
Speaker Change: The guided weapons JDM area is still expected a pretty steady cadence through the year looks like maybe you had some load in the fourth quarter.
Speaker Change: I don't know what how the seasonality comes to bear on a program that is ramping up but is that a consistent ramp through the year or kind of level, while the loaded.
Speaker Change: Yes.
Speaker Change: I'll start and then turn it to Bill we plan it pretty level, but there is a lot of supply chain issues in that part of the world to its not limited just to commercial aircraft or industrial so.
Speaker Change: There can be some puts and takes from a production rate standpoint based on supplier performance and also other suppliers of our customer can cause them to.
Speaker Change: To not pull is.
Speaker Change: However, demand as they initially transmit for that month or that quarter.
Speaker Change: Okay. Thank you.
Speaker Change: Welcome.
Speaker Change: And your next question comes from the line of David Strauss with Barclays. Your line is open.
David Strauss: Thanks, Good evening.
Speaker Change: Evening.
Speaker Change: Kipp has there been any change in your thinking around China on highway and how that.
Speaker Change: How that develops this year.
Speaker Change: Unfortunately, I report no change to my thinking.
Speaker Change: It's <unk>.
Speaker Change: Just a volatile.
Speaker Change: Product line that we're in.
Speaker Change: Our team is working hard to control fixed costs when.
Speaker Change: Volumes are down and ready to respond.
Speaker Change: Should there be an uptick.
We will also be mindful in terms of.
Speaker Change: Now how we respond to demand signals from customers, we don't want to get in a position, where we load up a lot of inventory like we did.
Speaker Change: Last year, so we're going to be very mindful of that I think.
Speaker Change: The other thing is we will try to level load. So we can better.
Speaker Change: Amortize our fixed costs when when volume comes back so.
Speaker Change: Yes, those were refinements to the thinking but not changes.
Speaker Change: Okay. So youre still thinking minimal sales in the second quarter, and then $10 million to $15 million a quarter in Q3 Q4.
Speaker Change: Ryan we still feel best about the $40 million.
Speaker Change: <unk> that we've put out there for China on highway.
Speaker Change: Okay.
Speaker Change: Kip.
Speaker Change: Tariffs.
Speaker Change: I don't think you have any manufacturing in Canada, and Mexico other than maybe it looks like the safran business has done any any exposure.
Speaker Change: Congrats on behalf.
Speaker Change: Well as it turns out we're largely in regions for regions. We've got some things that go go back and forth globally, but mostly.
Speaker Change: Our manufacturing footprint and supply chain is in the region that it serves.
Speaker Change: So we don't see any substantial <unk>.
Speaker Change: Risk at this moment on this day at this time, but as you know, it's a fairly fluid environment.
Speaker Change: Okay.
Speaker Change: Yes, exactly alright, thank you very much.
Speaker Change: Welcome Thanks, Dave.
Speaker Change: And your next question comes from the line of Gavin Parsons with UBS. Your line is open.
Gavin Parsons: Hey, guys good afternoon.
Speaker Change: Hey, Gavin.
Speaker Change: I appreciate the color on the Aero guide, but just wanted to kind of ask what pieces might take you to the high versus low end and it sounds like you have some destocking considered in there and is that just airframe or is that also on the engine side. Thanks.
Speaker Change: So I think the things that take us towards the high side as the supply chain performance quite frankly.
Speaker Change: On the commercial and the defense OE side of the business that that could take us to the high side.
Speaker Change: Things that would take us to the low side or.
Speaker Change: Nonperformance or additional headwinds from a supply chain standpoint.
Speaker Change: Okay, Great and then on Aero revenue I guess, you guys called out price with volume down just don't have good visibility into price for the rest of the year or does that start to start to lap.
Speaker Change: Yes, Gavin as we talked about last quarter, we're expecting price at the total woodward level to be around 5% and.
Speaker Change: And we expect aero to be to deliver stronger price than industrial so we've.
Speaker Change: We've got pretty good visibility as you remember we were dealing with a number of.
Speaker Change: Fixed contracts that came due last year that got renegotiated. So we'll see some of that continue to come through the year.
Speaker Change: And we're mostly through those contracts, but we still have.
Speaker Change: A few to deal with this year.
Thanks.
Speaker Change: Yes.
Speaker Change: Welcome.
Speaker Change: Your next question comes from the line of Noah <unk> with Goldman Sachs. Your line is open.
Speaker Change: Hello, everyone.
Speaker Change: Okay.
Speaker Change: What was the leap in GTS aftermarket revenue contribution in the quarter.
Speaker Change: Yes, no. It continues to grow real nice very nicely and we're seeing very strong growth. There again, no it's still off of a lower base.
Speaker Change: But obviously as we continue to see these very strong growth rates.
Speaker Change: As we get into 'twenty six 'twenty seven we won't be talking about a low base.
Speaker Change: And as we see in these early quarters it continuing to grow so so it's performing as we had expected it to perform and we're really pleased with with what we're seeing.
Speaker Change: Is it correct to assume that the full year guidance.
Speaker Change: Doesn't actually assume.
Speaker Change: Ton of growth contribution from that.
Because even though you have very specific 2027 guidance or a framework.
Speaker Change: That's because you know youll have reached critical mass by then whereas right. Now you are kind of waiting to see when you flip to critical mass.
Speaker Change: Youre just not sure what it contributes to 'twenty five or do you have a very specific assumption in the 25 got it.
Speaker Change: Yes.
Speaker Change: Yes.
Chip Blankenship: Ill jump I'll speak on that no. One then turn it over to chip.
Chip Blankenship: The team has a good feel for from a range standpoint of what we expect a leap in GTS to contribute to the aftermarket.
Chip Blankenship: So far the team who have are very experienced with this have been have been pretty accurate with their estimates. So far. So so again I feel comfortable that we have a good range of what we expect.
Chip Blankenship: That piece of the business to deliver in 'twenty five chip.
Chip Blankenship: Yes, I think it's fair to say that.
Chip Blankenship: We're pretty good at modeling it and that we're tracking as Bill said.
Chip Blankenship: And what we shared at Investor Day was it's really more like the 2028 timeframe, where we would see.
Chip Blankenship: Leap in GTS be equal to legacy fleet in.
Chip Blankenship: In terms of their contributions to our market now we think legacy will come down some by that time also but thats, where we would see maybe a changeover in the 28 plus timeframe.
Chip Blankenship: Leap in GTS is starting to contribute.
Chip Blankenship: And be less of a footnote in more of a base load into our into our shop. So I don't want you to think it's not meaningful yet, but as bill said the numbers really aren't.
Chip Blankenship: Moving the needle in a big way from a growth standpoint, yet.
Chip Blankenship: Okay.
Chip Blankenship: And then I just wanted to also ask on the on the aerospace original equipment side.
Chip Blankenship: You had provided the guidance.
Chip Blankenship: With its assumed growth rate, while while Boeing had you turned off so I guess the downturn.
Chip Blankenship: Huge surprise, just curious how the downturn compared to what you were thinking.
Chip Blankenship: A few months ago and then just.
Chip Blankenship: How much.
Chip Blankenship: I guess, I guess Boeing sort of <unk>.
Chip Blankenship: And speaking to maybe a faster recovery in the back half than a lot of us thought.
Chip Blankenship: So, yes, I guess on the one hand, the downturn it needs a lot of growth.
Chip Blankenship: Get to where your guidance was.
Chip Blankenship: But on the other hand, maybe it was Boeing Boeing actually talking about a faster ramp than you anticipated.
Chip Blankenship: There is a lot there Noah, but I'll do my best.
Chip Blankenship: Yes, I think just to start off our guidance.
Chip Blankenship: Is sort of a wide range at the top end on purpose because Boeing was.
Chip Blankenship: Wind down when we when we were developing our guidance.
Chip Blankenship: Why it's sort of a wider range from a revenue standpoint.
First and foremost not really surprised by first quarter being where it is based on that I'm just being turned on.
And taken a pause in a period of time to get workers back certified for the jobs that they're on and all these kinds of things before they really started.
Chip Blankenship: Back to work and move in move in airplanes on the line.
Chip Blankenship: Yes.
Speaker Change: I'm really impressed with the goals that you've set for how they want to come back up and running.
Chip Blankenship: <unk>.
Chip Blankenship: What I understand based on my experience really well is there.
Our six month stabilization and rate breaks that they talk about in the out years, how theyre going to get from where they are right now two to <unk> 38 per month is the is the thing that we're all watching we're all rooting for them as an industry as a customer.
Chip Blankenship: As U S citizens were behind them, all the way and hope that they can achieve those aggressive goals laid out for the second half of 2025.
Speaker Change: Okay. Thank you.
Chip Blankenship: Thanks.
Speaker Change: And your next question comes from the line of Michael ceremony.
Speaker Change: Trust Securities Your line is open.
Speaker Change: Hey, good evening guys. Thanks for taking the questions.
Speaker Change: Chip just on aerospace.
Speaker Change: Margins in the quarter I mean, you had a 21% sequential decline therein.
Held the margins flat, obviously, you got the strong aftermarket mix you mentioned.
Speaker Change: Just flow in kaizen events, but anything else that helped to drive that margin and then just just thinking about win.
Speaker Change: Boeing.
Speaker Change: <unk> really starts to ramp up.
Speaker Change: Kind of have to battle that negative mix shift.
Bill Lacey: So I guess I'll start and I'll hand, it over to bill for the some of the mechanics on the mix because we actually had some mix headwind.
Speaker Change: And there the commercial aftermarket.
Speaker Change: Aftermarket wasn't as.
Speaker Change: Useful as you might you might think.
Speaker Change: But from a from a.
Speaker Change: Sure.
Speaker Change: Overall standpoint.
Speaker Change: Our lean transformation our ability to.
Speaker Change: <unk> product flowing.
Speaker Change: And.
Speaker Change: Delivered a customer.
Speaker Change: Sure.
Speaker Change: Making progress on our model lines, we have people coming up to speed they had been on the job now a.
Speaker Change: A couple of years instead of the six months or 12 months, we talked about before so our members are more productive all of these things are flowing through to the bottom line in <unk>.
Speaker Change: Edition.
Some healthy price.
Speaker Change: On the aerospace, especially the aftermarket side.
Speaker Change: Okay.
Hand, it over to Bill.
Speaker Change: I think just Mike.
Speaker Change: Talked about 90 to 90.
Speaker Change: 2% that arrow delivered and we are also excited validated 200 basis points improvement over last year about flat sequentially.
Speaker Change: And so in kind of year over year good good price.
Speaker Change: <unk> there.
Speaker Change: Due with the with the defense OE. It does provide us with a little bit of a mix headwind for now as that volume continues to increase though that will provide us with some good volume leverage which will drive margin expansion, so really year over year what drove it was.
Speaker Change: Was price and.
Speaker Change: And continued work on our operational excellence initiatives to deliver that margin, which are full year guide of $20 to 21%. We feel good about how this quarter started and allowing us to get to that to that guide.
Okay Chip you mentioned there was actually some negative mix. So with aftermarket can you maybe just elaborate on that a bit.
Speaker Change: What.
Chip Blankenship: No I was just saying that the defense OE.
Speaker Change: Was mixed.
Speaker Change: It wasn't all aftermarket up and no other pressure so that was what I was.
Speaker Change: Got it and then last one for me you called out I think chip in your comments direct labor and hiring what are you guys looking at what do you need to add in terms of head count to kind of meet the objectives are not really get squeezed here just any color on the hiring efforts.
Speaker Change: Yes, nothing really out of the out of the.
Speaker Change: Out of the usual challenges that we have in this environment. So we let attrition kind of walk our number our staffing numbers down a little bit during the Boeing strike and some of the other <unk>.
Speaker Change: Softness in demand and so we saw it come in we saw the demand signal coming back and plenty of time to.
Speaker Change: Returning to the staffing levels, we need to to serve that but I just wanted to call. It out because it is part of the challenge we all face right now and we probably have a couple of months worth of hiring to make up as we look at this demand signal.
Speaker Change: Okay perfect. Thanks, guys.
Speaker Change: Youre welcome.
Speaker Change: And your next question comes from the line of Louis Raffetto with Wolfe Research. Your line is open.
Louis Raffetto: Hey, good evening. Thank you.
Louis Raffetto: Giving us Hello Louis.
Bill Lacey: Hey, Bill maybe just a follow up on the last question or two questions go just pricing do you have the pricing for the quarter.
Speaker Change: Yes for the quarter at the total Woodward level it came in around six 6%.
Speaker Change: Again total guide for the year is around 5% and as we talked about for the total year Aero contributed heavily to that 6%, but industrial also provide us with a good contribution.
Speaker Change: Alright, great I appreciate that Phil.
Speaker Change: And then maybe just this is I think maybe fifth quarter now that we are excluding some sort of business development expenses I'm just trying to understand exactly what that is why it's been excluded.
Speaker Change: Yes. This this quarter Louis.
Speaker Change: The business development expenses was related to the activity around.
Speaker Change: The different deals that we talked about.
Speaker Change: And as always we're trying to make sure that we provide you with clear operational.
Speaker Change: Performance and so that is what drove that adjustment.
Speaker Change: Alright, great. Thanks for that clarity and then maybe I may have missed this before but is the acquisition and the divestiture like cash wise are they do they offset or is one larger than the other any way to think about that.
Speaker Change: Yes.
Speaker Change: I don't want to get too far and as these things close we'll provide you with a little more.
Speaker Change: A little more insight into into the financials.
Speaker Change: Alright, Thank you very much.
Speaker Change: You're welcome.
Speaker Change: And your next question comes from the line of Gautam Khanna with TD Cowen Your line is open.
Speaker Change: Yes. Thank you guys, Hey, I was wondering.
Speaker Change: If you could comment on what commercial OE level of profitability was prior to the strike Ludwig.
Speaker Change: We don't really go down at that level of detailed guidance.
Speaker Change: But can you ballpark like relative to.
Speaker Change: A profitable b.
Speaker Change: Sure.
Speaker Change: Our commercial our commercial OE business is profitable.
Speaker Change: It's a good business.
Speaker Change: For sure.
Speaker Change: And so so yes, so hopefully that is ballpark enough.
Speaker Change: Fair enough and then.
Speaker Change: With respect to the tariffs you mentioned kind of being in country, but is there any kind of demand.
Speaker Change: Construction that could come from this.
Speaker Change: And the industrial business, that's factored into your guidance.
Speaker Change: When you say demand destruction, you mean like.
Speaker Change: Customers no longer ordering equipment or canceling orders.
Speaker Change: Yes on the margins weakened demand environment.
Speaker Change: And is that factored in.
Speaker Change: Maybe a better question for one of our customers, but it doesn't jump out at me as a as a big risk.
Speaker Change: Alright, Thank you guys.
Speaker Change: Welcome.
Speaker Change: And your next question comes from the line of Tony Bancroft with Gabelli funds. Your line is open.
Speaker Change: Good evening, gentlemen, great job on the quarter and great job overall.
Speaker Change: The reason you saw the obviously that question today with <unk>.
Speaker Change: And your recent acquisition of Safran.
Speaker Change: SaaS brands.
Accurate.
Speaker Change: Their business.
Speaker Change: And you mentioned in.
Speaker Change: All right a little bit more about customer adds and where you're focused.
Speaker Change: Maybe you could just sort of like just give us a little hit back at like Sean What's the most desirable businesses or customer adds and what that size market. The potential of that market is very obviously very broad strokes, but just wanted to get your view on five years from now do you see yourselves as sort of on the euro side of pure play.
Speaker Change: Pure play.
Speaker Change: Fuel control business with actuation and some defense.
Speaker Change: Weapons system actuation, just maybe you could just give us a picture of that.
Speaker Change: Yes.
Speaker Change: The simplest way and it's broader than this but I think the simplest way to explain it but I think we will shut the most light on our strategy there is.
Speaker Change: We have a stated strategy to increase our ship set content on the next single aisle aircrafts. So a lot of the activities that youll see us talk about from a organic investment standpoint or from a potential bolt on acquisition standpoint is around making sure. We've got a clear path to be very.
Speaker Change: Very competitive win.
When that when that competition starts for content on the next single aisle.
Speaker Change: We love high technology challenging precision manufacturing kinds of.
Speaker Change: Systems and components.
Speaker Change: And we like components that have.
Speaker Change: Healthy.
Speaker Change: Aftermarket opportunity associated with them. So that's kind of how we think about that.
Speaker Change: That's great. Thanks, so much great job.
Speaker Change: Welcome. Thanks, Thank you.
Speaker Change: And ladies and gentlemen that concludes today's question and answer session. Mr. Blankenship I will now turn the conference back over to you.
Chip Blankenship: I'd just like to thank everyone for joining today's call and hope you have a great day.
Speaker Change: Yeah.
Speaker Change: Ladies and gentlemen that concludes our conference call today.
Speaker Change: Broadcast will be available at the company's web site Www Dot Woodward Dot com for one year. We thank you for your participation on today's conference call and ask that you. Please disconnect your lines.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Sure.