Q2 2025 Woodward Inc Earnings Call
Operator: Thank you for standing by.
Thank you for standing by welcome to the Woodward, Inc. Second quarter fiscal year 2025 earnings call.
Operator: Welcome to the Woodward Inc. Second Quarter Fiscal Year 2025 Earnings Call. At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in listen-only mode.
At this time I would like to inform you that this call is being recorded for rebroadcast and that all participants are in listen only mode.
Operator: Following the presentation, you're invited to participate in a question and answer session.
John Providenza: Following the presentation, you're 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 John provided make director of Investor Relations I would now like to turn the call over to John provide snake.
Daniel Provaznik: Joining us today from the company are Chief 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. Thank you, operator.
John Providenza: Thank you operator wed like to welcome all of you towards second quarter fiscal year 2025 earnings call.
Daniel Provaznik: We'd like to welcome all of you to Woodward's second quarter fiscal year 2025 earnings call. 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 report. At the end of our presentation, we will take questions.
Today's call, Jeff will comment on our strategies and related markets.
John Providenza: Bill will then discuss our financial results as outlined in our earnings release.
John Providenza: The end of our presentation, we will take questions.
Daniel Provaznik: For those who have not seen today's earnings release, you can find it on our website at www.woodward.com. We've included some presentation materials to go along with today's call that are also accessible on our website, and a webcast of this call will be available on our website for one year. All references to years in this column are references to the company's fiscal year, unless otherwise stated.
John Providenza: For those who have not seen today's earnings release, you can find it on our website at <unk> Dot com.
John Providenza: We have included some presentation materials to go along with todays call that are also accessible on our website.
John Providenza: And a webcast of this call will be available on our books.
John Providenza: Website for one year.
John Providenza: All references to years in this call are references to the company's fiscal year unless otherwise stated.
Daniel Provaznik: I would like to highlight our cautionary statement as shown on slide 2 of the presentation material. 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. Our forward-looking statements are subject to a number of risks and uncertainties surrounding those elements, including risks related to potential changes in the macroeconomic environment and risks related to terrorist retaliatory trade actions, in addition to the risks we identify in our filings with the SEC. These statements are made as of today and we do not intend to update them except as required by law.
John Providenza: I would like to highlight our cautionary statement as shown on slide two of the presentation materials.
John Providenza: As always elements of this presentation are forward looking including our.
John Providenza: Guidance and are based on our current outlook and assumptions for the global economy, and our businesses more specifically.
John Providenza: Those elements can and do frequently change.
John Providenza: Our forward looking statements are subject to a number of risks and uncertainties surrounding those elements.
John Providenza: Risks related to potential changes in the macroeconomic environment.
John Providenza: Risks relating to terrorists.
John Providenza: Jewelry trade actions in addition to the risks identified in our filings with the SEC.
John Providenza: These statements are made as of today, and we do not intend to update them, except as required by law.
Daniel Provaznik: In addition, we're providing certain non-US GAAP financial measures. We direct your attention to Reconciliations of Non-U.S. Gap Financial Measures, which are included in today's slide presentation and our earnings report. We believe that additional financial information will help in understanding our results.
John Providenza: In addition, we are providing certain non us GAAP financial measures.
John Providenza: We direct your attention to reconciliation.
John Providenza: S GAAP financial measures, which are included in today's slide presentation, and our earnings release.
John Providenza: We believe this additional financial information will help in understanding our results.
Daniel Provaznik: Now, I'll turn the call over to Chip. Thank you, Dan.
Now I'll turn the call over to chip.
John Providenza: Thank you Dan Good evening, everyone and thank you for joining us.
Charles Blankenship: Good evening, everyone. And thank you for joining us. We are pleased to report strong performance in the second quarter, with results in line with our expectations. Woodward's net sales were up 6% year over year. Adjusted earnings per share were up 4%, reflecting steady growth. Spiked headwinds from China on highway volume and mid. Excluding China on highway, our company posted revenue up 12% and operating earnings up 22%. These results are a testament to the outstanding efforts of our Woodward team members worldwide, even as we operate in a challenging and uncertain environment. As we enter the second half of the year, we remain on a steady growth trajectory.
John Providenza: We are pleased to report strong performance in the second quarter with results in line with our expectations.
John Providenza: <unk> net sales were up 6% year over year.
John Providenza: And adjusted earnings per share were up 4%, reflecting steady growth despite headwinds from China on highway volume and mix.
Speaker Change: Excluding China.
Speaker Change: Our company posted revenue up 12% operating earnings up 22%.
Speaker Change: These results are a testament to the outstanding efforts weren't Woodward team members worldwide, even as we operate in a challenging and uncertain environment.
Speaker Change: As we enter the second half of the year, we remain on a steady growth trajectory.
Charles Blankenship: with our Lean Transformation continuing to pay dividends. Our aerospace plants continue to gain ground. During the quarter, we achieved new highs with significant month-over-month sales growth at some of our facilities. For example, the combination of our two plants in Rockford, Loves Park and Rock Cut, achieved record sales to OE and services customers combined, facilitated by accelerated onboarding of new frontline members and model line transformations reaching new levels of performance. Additionally, our Zeeland plant also reached new levels of output in a quarter on total fuel nozzle shipments, thanks to continued growth in GTFOE and service volume.
Speaker Change: Our lead transformation continuing to pay dividends.
Speaker Change: Our aerospace plants continue to gain ground during the quarter, we achieved new highs with significant month over month sales growth at some of our facilities.
Speaker Change: For example, the combination of our two plants in Rockford lowest part Brian.
Speaker Change: Achieved record sales to OEM services customers combined facilitated by accelerated onboarding of new frontline members.
Speaker Change: Our lives transformations, reaching new levels of performance.
Speaker Change: Additionally, our Zeeland plant also reached new levels of output quarter on total fuel nozzle shipments. Thanks to continued growth in GTS.
Speaker Change: And service volumes.
Charles Blankenship: The LEAP and GTF maintenance cycle continues to develop, and LRU inputs and return shipments to customers double again year over year in the second quarter. In smart defense, we've made significant progress on our challenges with supplier quality, which enabled us to align production rates to customer demand. Our lean transformation has created the capacity and the forward momentum to deliver on aerospace volume commitments in the second half of the year. Our outlook for aerospace market remains bullish, even in the face of uncertainty. Despite concerns around soft forward bookings in the U.S. and some international routes, passenger traffic continues to grow and OEM bill rates continue to increase.
Speaker Change: The leap in GTS maintenance cycle continues to develop.
Laura: Laura you inputs and returned shipments to customers doubled again year over year in the second quarter.
Laura: And smart defense, we've made significant progress on our challenges in the supplier quality, which enabled us to align production rates to customer demand.
Laura: Our lean transformation has created the capacity and the fall.
Laura: Our momentum to deliver on aerospace volume commitments in the second half of the year.
Laura: Our outlook for aerospace market remains bullish even in the face of uncertainty.
Laura: Despite concerns around soft forward bookings in the U S and some international routes passenger traffic continues to grow and OEM build rates continue to increase.
Charles Blankenship: We are keeping an eye on inputs to MRO shops and fleet capacity reduction.
Laura: We are keeping an eye on inputs to MRO shops and fleet capacity reductions.
Charles Blankenship: Like others, we see a slower commercial services growth rate in the second We expect to see substantial growth continue in Defense OE, driven mainly by smart In industrials, we also achieved operations improvements that translated into financial performance. We increased output by 20 to 50% in various gas turbine systems value streams to support our customers power generation growth plans through lean transformation efforts on our model lines, and with select equipment additions for capacity and efficiency improvement.
Laura: Like others, we see a slower commercial services growth rate in the second half.
Laura: We expect to see substantial growth continue and defense OE, driven mainly by smart defense.
Laura: In industrial we also achieved operations improvements translated into financial performance.
Laura: We increased output by 20% to 50% and various gas turbine systems value streams to support.
Laura: Our customers power generation growth plans through lean transformation efforts on our bottom lines.
Laura: With select equipment additions for capacity and efficiency improvements.
Charles Blankenship: Moving from operational excellence to innovation, we are proud to announce a key milestone reached in the quarter with our Micronet platform, an advanced turbine control system for critical industrial and marine applications. Woodward delivered the first production Micronet XT advanced gas turbine control system for U.S. Navy DDG-51 class destroyer shipboard gas turbine generator. These warships provide a wide range of defense capabilities, and the Navy production contract covers 30 system deliveries through 2027. Scaling to 135 systems over 10 to 15 years. This collaboration with the Naval Service Warfare Center resulted in a significant upgrade in controller technology and capabilities.
Speaker Change: Moving from operational excellence to innovation, we are proud to announce a key milestone reached in the quarter with there Mike Burnett platform.
Laura: <unk> turbine control system for critical industrial and marine applications.
Laura: We were delivered the first production micro net XT advanced gas turbine control system for the U S. Navy DDG 51 class destroyer shipboard gas turbine generators.
Laura: These warships provide a wide range of defense capabilities and an 80 production contract covers 30 system deliveries through 2027.
Laura: Scaling to 135 systems over 10 to 15 years.
Laura: This collaboration with the naval surface warfare Center resulted in a significant upgrade in control of our technology and capabilities.
Charles Blankenship: The next phase of the DEG51 gas turbine control upgrade consists of the same Micronet XT platform, using additional features and capability, such as a fully redundant architecture to serve as the propulsion system control for GELM2500 gas turbines. Low rate production is preliminarily scheduled for 2026 to 2029 with 70 systems planned. Woodward has also been selected as the preferred propulsion control system supplier on the Korean Navy KDDX program. While the industrial and market outlook is mixed, the Woodward opportunity remains strong. Increasing demand for global power generation capacity continues, including data center power requirements, which represents opportunity for Woodward content in both base load and standby applications.
Laura: The next phase of the DDG 51 gas turbine control upgrade consistent the same micro Ed Mike XD platform.
Using additional features and capability such as a fully redundant architecture to serve as a propulsion system control towards E. L. F. 'twenty 500 gas turbines.
Laura: Low rate production is preliminarily scheduled for 2026 to 2029 70 systems planned.
Speaker Change: Woodward has also been selected as the preferred propulsion control system supplier on the Korean Navy <unk> program.
Speaker Change: While the industrial end market outlook is mixed.
Speaker Change: Third opportunity remains strong.
Speaker Change: Increasing demand for global power generation capacity continues.
Speaker Change: <unk> data center power requirements, which represents opportunity for Woodward content, both base load and standby applications.
Charles Blankenship: The global marine market remains healthy, with strong shipbuild rates creating OEM engine demand and laying the groundwork for future aftermarket activities. While the fleet utilization remains strong, there is risk that utilization could decrease if trade tensions persist. Demand for heavy-duty trucks in China remains subdued. The recent government stimulus could have a positive impact on demand. Although we have not received customer signals to support this connection yet.
Speaker Change: The global Marine market remains healthy with strong ship build rates, creating OEM engine demand.
Speaker Change: Laying the groundwork for future aftermarket activity.
Speaker Change: While the fleet utilization remains strong there is risk that utilization could decrease if trade tensions persist.
Speaker Change: Demand for heavy duty trucks in China remains subdued.
Speaker Change: Recent government stimulus could have a positive impact on demand, although we have not received customer signals support disconnection yet.
Charles Blankenship: Looking ahead, a word about terrorists and how they may affect our second half operations and results. Woodward's production footprint is largely in Region 4 Moreover, our supply base that serves each production site is largely in region as well. This production footprint and supply base strategy results in less exposure to tariffs for Woodward compared to some other aerospace and industrial companies. However, increased cost pressure. on any portion of our operations is worthy of attention. We are proactively working to mitigate pressure on cost and any supply chain disruption. Woodward is closely tracking early indicators from our end markets and customer forecasts.
Speaker Change: Looking ahead are worried about tariffs and how they may affect our second half operation Center results.
Speaker Change: Woodward's production footprint is largely in region for region.
Speaker Change: Moreover, our supply base that serves each production site is largely in region as well.
Speaker Change: This production footprint and supply base strategy results in less exposure to tariffs for Woodward compared to some other aerospace and industrial companies.
Speaker Change: However increased cost pressure.
Speaker Change: On any portion of our operations is worthy of attention.
Speaker Change: We are proactively working to mitigate pressure on cost and any supply chain disruptions.
Speaker Change: <unk> is closely tracking early indicators from our end markets and customer forecasts.
Charles Blankenship: We are putting actions in place to mitigate tariff impacts, as well as manage impacts from a slight economic downturn. We're also monitoring whether trade tensions could increase sales. We have already experienced sales or quantity reductions for spare parts from Chinese airlines this month. And we are watching China on highway, marine transportation, and oil and gas market dynamics closely.
Speaker Change: We were putting actions in place to mitigate tariff impacts as well as managed impacts from a slight economic downturn.
Speaker Change: We are also monitoring whether trade tensions could increase sales risks.
Speaker Change: We have already experienced sales.
Speaker Change: Order quantity reductions for spare parts from Chinese Airlines this month.
Speaker Change: And we are watching China on highway.
Speaker Change: Transportation and oil and gas market dynamics closely.
Charles Blankenship: Based on our strong first half performance and a better understanding of downside risk for the remainder of the year. We are reaffirming the top end of our guidance and pulling up the bottom end of the Revenue and Adjusted EPS Ranking. The low end of the aerospace sales range assumes current level headwinds from supplier performance. Boeing rate break delays or moderate Woodward inventory destocking in the supply chain and slightly lower commercial aerospace services revenue. most likely from lower sales of spare indictment. The low end of the industrial segment sales ranges assumes a sequentially flat overindustrial performance.
Speaker Change: Based on our strong first half performance and a better understanding of downside risk.
Speaker Change: For the year.
Speaker Change: We are reaffirming the top end of our guidance and pulling up the bottom end of the revenue and adjusted EPS ranges.
Speaker Change: The low end of the aerospace sales range assumes current level headwinds from supplier performance.
Speaker Change: <unk> ranked break delays or moderate Woodward inventory destocking in the supply chain.
Speaker Change: Slightly lower commercial aerospace services revenue.
Speaker Change: Most likely from lower sales of spare and items.
Speaker Change: The low end of the industrial segment sales ranges assumes a sequentially flat or industrial performance.
Charles Blankenship: Our guidance ranges for segment margins remain unchanged due to conservative estimates of potential tariff impacts and potential lower commercial aerospace services next. Our outlook does not assume a further escalation of announced tariff levels or a global recession, both of which could significantly impact demand.
Speaker Change: Our guidance ranges for segment margins remained unchanged due to conservative estimates of potential tariff impacts.
Speaker Change: Potential lower commercial aerospace services mix.
Speaker Change: Our outlook does not assume a further escalation of announced tariff levels for a global recession, both of which could significantly impact demand.
Charles Blankenship: If extreme scenarios like these develop, we will re-examine our guidance and communicate any revisions.
Speaker Change: If extreme scenarios like these develop we will reexamine our guidance and communicate any revisions.
Charles Blankenship: We remain confident in our long-term prospects, as well as our ability to meet the medium-term commitments we shared with you at Investor Day in December of 2023.
Speaker Change: We remain confident in our long term prospects as well as our ability to meet the medium term commitments. We shared with you at Investor Day in December 2023.
William Lacey: And now I'll turn it over to Bill some more detail on our second quarter financial performance and the specifics of our refined guide. Positive news cutting through the noise and uncertainty.
Speaker Change: And now I'll turn it over to bill for more detail on our second quarter financial performance and the specifics of our refined guidance positive news cutting through the noise and uncertainty over to you Bill.
William Lacey: Over to you Bill. Thank you, Chip. And good evening to 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. As Chip highlighted earlier, we have a strong second quarter in line with our expectations. Net sales for the second quarter of 2025 were $884 million, an increase of 6%. Earnings per share for the second quarter of 2025 were $1.78 compared to $1.56. Adjusted earnings per share were $1.69 compared to $1.62. Net cash provided by operating activities for the first half of 2025 was $112 million compared to $144 million.
Bill: Thank you chip and good evening to everyone. As a reminder, all references to years are references to the company's fiscal year, unless otherwise stated all comparisons are year over year, unless otherwise stated as Tim highlighted earlier, we had a strong second quarter in line with our expectation.
Speaker Change: <unk>.
Speaker Change: Net sales for the second quarter of 2025 were $884 million, an increase of 6% earnings per share for the second quarter of 2021 were $1 78.
Speaker Change: Compared to $1 56.
Speaker Change: Adjusted earnings per share share were $1 69 compared to $1 62.
Speaker Change: Net cash provided by operating activities for the first half of 2025 was $112 million compared to $144 million capital.
William Lacey: Capital expenditures were $52 million for the first half compared to $56 million. Free cash flow was $60 million for the first half of 2025 in line with our expectations compared to $88 million. The decrease in free cash flow was primarily due to an increase in working capital caused by a slow start to the quarter. As Chip mentioned, we exited the second quarter with strong sales, which will be collected in the third quarter. As of March 31st, 2025, debt leverage was 1.5 times EBITDA. Regarding capital allocation, our strategy is unchanged. We continue to prioritize investing in organic growth, returning cash to stockholders, and pursuing strategic M&A.
Speaker Change: Expenditures were $52 million for the first half compared to $56 million.
Speaker Change: Free cash flow was $60 million from the first half of 2020 in line with our expectations compared to $88 million. The decrease in free cash flow was primarily due to an increase in working capital caused by a slow start to quarter.
As chip mentioned, we exited the second quarter with strong sales, which will be collected in the third quarter.
Speaker Change: As of March 31, 2025 debt leverage was one five times EBITDA.
Speaker Change: Regarding capital allocation our strategy is unchanged, we continue to prioritize investing in organic growth.
Speaker Change: Returning cash to stockholders.
Speaker Change: Pursuing strategic M&A.
William Lacey: During the second quarter, we returned over $61 million to stockholders, including $44 million in share repurchases and $17 million in dividends. Through the first half of 2025, we've returned $111 million to stockholders, including $79 million in sharing purchases and $31 million in dividends. We are on track to achieve our goal of returning approximately $215 million to stockholders in 2025. $150 million of sharing purchases and $65 million in dividends. We will continue to manage this with flexibility as conditions evolve. We have $130 million remaining on our $600 million stock repurchase authorization.
Speaker Change: During the second quarter, we returned over $61 million to stockholders.
$44 million in share repurchases and $17 million in dividends.
Speaker Change: Through the first half of 2025, we returned $111 million to stockholders, including $79 million in share repurchases and $31 billion in dividends.
We are on track to achieve our goal of returning approximately $215 million to stockholders in 2025.
Speaker Change: $150 million of share repurchases and $65 million in dividends, we will continue to manage this with flexibility as conditions evolve.
Speaker Change: We have $130 million remaining on our $600 million stock repurchase authorization.
William Lacey: Returning capital to stockholders is a key component of our capital allocation strategy, reflecting our confidence in the business and our ability to generate strong cash Turning to arrows Aerospace segment sales for the second quarter of 2025 were $562 million compared to $498 million, an increase of 13%. Defense OEM sales were strong in the quarter, up 52% primarily due to increased demand for our smart defense programs. Commercial aftermarket sales were up 23% in the quarter due to both price and higher volume. As Chip mentioned, we anticipate that commercial aftermarket sales growth will moderate in the second half of the year.
Speaker Change: Returning capital to stockholders is a key component of our capital allocation strategy, reflecting our confidence in the business and our ability to generate strong cash flow.
Speaker Change: Turning to aerospace Aerospace segment sales for the second quarter of 2025 or $562 million compared to $498 million an increase.
Speaker Change: <unk> of 13% defense OEM sales were strong in the quarter up 52%, primarily due to increased demand for our smart defense programs.
Speaker Change: Aftermarket sales were up 23% in the quarter due to both price and higher volume.
Speaker Change: As chip mentioned, we anticipate that commercial aftermarket sales growth will moderate in the second half of the year.
William Lacey: Commercial OEM sales were down 9% primarily due to a measured production ramp to customers demand following the Boeing work stoppage. We anticipate that commercial OEM sales will return to growth in the second half. Defensive aftermarket sales were down 8%. Earnings in the second quarter for the aerospace segment were the highest on record at $125 million. Margins expanded 240 basis points over the previous year to 22.2% of segment sales. The increase in segment earnings was primarily a result of price realization in higher volume, partially offset by inflation and unfavorable net.
Speaker Change: Commercial OEM sales were down 9%, primarily due to a measured production ramp to customers' demand following two Boeing work stoppage.
Speaker Change: We anticipate that commercial OEM sales will return to growth in the second half.
Speaker Change: Aftermarket sales were down 8%.
Speaker Change: Earnings in the second quarter for the aerospace segments were the highest on record at $125 million margins expanded 240 basis points over the previous year to 22, 2%.
Speaker Change: <unk> sales.
Speaker Change: Increase in segment earnings was primarily a result of price realization and higher volume, partially offset by inflation and unfavorable mix.
William Lacey: Turning to industrial. Industrial segment sales for the second quarter of 2025 were $322 million compared to $338 million, a decrease of 5%. Transportation was down 18% due to the expected decline of China on-highway sales. China on highway sales were $21 million in the second quarter, a $45 million decrease from the prior year.
Speaker Change: Turning to industrial.
Speaker Change: Industrial segment sales for the second quarter of 2025 were $322 million compared.
Speaker Change: Compared to $338 million.
Speaker Change: A decrease of 5% transportation was down 18% due to the expected decline of China cord Highway sales.
China on Halloween sales were $21 million in the second quarter, a $45 million decrease from the prior year.
William Lacey: Our core industrial sales, which exclude China on highway, were up a healthy 11%, with oil and gas up 21%, marine transportation up 13%, and power gen up 4%. Industrial segment earnings for the second quarter of 2025 were $46 million or 14.3% of segment sales compared to $65 million or 19.3% of segment sales. Industrial segment earnings decreased primarily due to lower China on highway volume and unfavorable mix. partially offset by price realization. Margins for our core industrial business were 14.8% in the second quarter, in line with our expectations. We continue to expect core industrial margins of 14 to 15% of sales for the year.
Speaker Change: Our core industrial sales, which exclude China Huawei.
Speaker Change: A healthy 11%.
Speaker Change: With oil and gas up 21% Marine transportation of 13% and power Gen up 4%.
Speaker Change: Industrial segment earnings for the second quarter of 2025 were $46 million or 14, 3% of segment sales compared to $65 million or.
Speaker Change: Or 19, 3% of segment sales.
Speaker Change: <unk> segment earnings decreased primarily due to lower China off highway volume and unfavorable mix.
Speaker Change: Partially offset by price realization.
Speaker Change: Margins for our core industrial business were 14, 8% in the second quarter.
Speaker Change: In line with our expectations, we continue to expect core industrial margins of 14% to 15% of sales for the year.
William Lacey: Non-statement expenses were $27 million for the second quarter of 2025 compared to $33 million. Adjusted non-segmented expenses were $34 million for the second quarter of 2025 compared to $29 million.
Speaker Change: Non segment expenses were $27 million for the second quarter of 2025.
Speaker Change: <unk> to $33 million.
Speaker Change: Adjusted segment expenses were $34 million for the second quarter of 225 compared to $29 million.
William Lacey: Turning to our 2025 guide. We are raising the low end of our sales and adjusted EPS guidance while reaffirming the other elements of our four-year outlook. This updated guidance reflects our strong year-to-date performance and the expected impact of announced tariffs. Our revised guidance does not incorporate potential effects from further escalation of announced tariff levels, significant changes in customer demand, or a recession in the U.S. or globally.
Speaker Change: Turning to our 2020 guidance, we are raising the low end of our sales and adjusted EPS guidance, while reaffirming the other elements of our full year outlook.
Speaker Change: This updated guidance reflects our strong year to date performance and the expected impact of announced tariffs.
<unk> guidance does not incorporate potential effects from further escalation of announced tariff levels.
Speaker Change: And changes in customer demand or a recession in the U S or globally.
William Lacey: For fiscal year 2025, we now expect consolidated sales of $3.375 billion to $3.5 billion, which includes aerospace sales growth between 8 and 13 percent and a decrease in industrial sales from 7 to 9 percent. We now expect adjusted EPS between $5.95 and $6.25. All other aspects of our guidance remain unchanged.
Speaker Change: For fiscal year 2025, we now expect consolidated sales of $343 75 to $3 5 billion, which includes aerospace sales growth between eight and 13% and a decrease in industrial sales from 7% to 9%.
Speaker Change: We now expect adjusted EPS between $5 95.
Speaker Change: And $6 and 25 seconds.
Speaker Change: All other aspects of our guidance remained unchanged.
William Lacey: This concludes our comments on the business and results for the second quarter of fiscal year 2025.
Speaker Change: This concludes our comments on the business and results for the second quarter of fiscal year 2020.
Operator: Operator, we are now ready to open the call to questions. Thank you. The question and answer session will begin at this time.
Speaker Change: Operator, we are now ready to open the call to questions.
Speaker Change: Thank you the question and answer session will begin at this time, if you are using a speaker phone. Please pick up the handset before pressing any numbers.
Operator: If you are using a speakerphone, please pick up the handset before pressing any number. Should you have a question, please press star 1 on your push-button phone. Should you wish to withdraw your question, press the pound sign. Your question will be taken in order it is. Please stand by for the first question.
Speaker Change: Have a question. Please press star one on your push button.
Speaker Change: The risks are to grow your question press the pound key.
Speaker Change: Your question will be closing in order. It is proceed please standby for the first question.
Scott Deuschle: Our first question comes from Scott Deuschle with Deutsche Bank. Hey, good evening, that's. Hey, Scott, thanks.
Speaker Change: Our first question comes from.
Scott: Scott <unk> with Deutsche Bank. Please go with your question.
Speaker Change: Hey, good evening and nice results.
Scott: Hey, Scott Thanks Chip.
Charles Blankenship: Chip, can you further decompose the commercial aftermarket growth in the quarter a bit further in terms of the platforms or customer geographies that drove that strength? It was a, you know, Scott, really, it was across the board growth there. It is the jump that we that we saw late in the quarter were some drop in spare parts orders from MRO facilities. So we had some quick ship opportunities for spare parts to serve, you know, our part of the MRO network. The rest of the ways we serve customers, whether it's spare end items or our own repair and overhaul was fairly strong.
Speaker Change: Chip can you further decompose the commercial aftermarket growth in the quarter a bit further in terms of the platforms or customer geographies that drove that strength.
It was.
Speaker Change: Is that really across the board growth there.
If this.
Speaker Change: The jump that we that we saw late in the quarter were some drop in spare parts orders from.
Speaker Change: MRO facilities, so we had some.
Speaker Change: Quick ship.
Speaker Change: Opportunities for spare parts to search.
Speaker Change: <unk> network the.
Speaker Change: The rest of the <unk>.
Speaker Change: We serve customers later spirit items or.
Speaker Change: Our own repair and overhaul was fairly strong, but I think that the.
Charles Blankenship: But I think that Something that contributed to that 23% was the spare parts at the end.
Speaker Change: Some of the contributing to that 23% was the was the spirit and the spare parts at the end.
Charles Blankenship: Okay, was that mostly shipments to China? No, in fact, China is looking a little bit slower. They're, you know, I think moderating the quantities that they're purchasing. At least that's what we see in their activity with us. Okay.
Speaker Change: Okay was that mostly shipments to China.
Speaker Change: No in fact.
Speaker Change: China is looking at a little bit slower there.
Speaker Change: Thank you.
Speaker Change: Moderating what theyre the quantities that they're purchasing at least that's what we see in their activity with us.
Speaker Change: Okay.
Charles Blankenship: And Chip, how far does the backlog run in marine transportation at this point? Just trying to get a sense for what your visibility looks like in that market if we see a reduction in global shipping and trade activity. The OE is quite extended, as you might imagine, you know, it's out into the 2029 type ship build slot.
Speaker Change: And chip how far does the backlog Ron in Marine transportation at this point I'm, just trying to get a sense for what your visibility looks like in that market. If we see a reduction in global shipping and trade activity.
The OE is quite extended as you might imagine.
Speaker Change: Out into the 2029 tight ship build slot.
Speaker Change: C tourist order standpoint, right now.
Speaker Change: But as far as utilization of the fleet is still it looked strong up to this point.
Speaker Change: I would point out that.
Speaker Change: Extended trade tensions between the U S and China with C C.
Speaker Change: See some of that drop off and that's probably the biggest risk in marine aftermarket that we face right now.
Speaker Change: <unk> been some calls.
Speaker Change: See in the news about.
Speaker Change: The West coast Port activity, maybe getting to be softer. So these are the type of signal signals, we're looking at.
Charles Blankenship: getting to be softer. So these are the type of signals we're looking at.
Charles Blankenship: Okay, thank you.
Speaker Change: Okay. Thank you.
Speaker Change: You bet.
Scott Mikus: Your next question comes from the line of Scott Mikus with Milius Research. Please stay tuned.
Speaker Change: Your next question comes from the line of Scott <unk> from the Argus Research. Please go with your question.
Charles Blankenship: Good afternoon. Good afternoon, Bill. Chip, Bill, um, the past couple of years, a larger portion of the earnings call and the Woodward story is It's also created a lot of volatility. Given that Woodward is an aerospace company, and the broader trade tensions It makes sense to maybe find... We're always examining our portfolio, Scott, and trying to decide exactly, you know, what makes sense for us and our shareholders and our customers going forward. So I don't have any comments at this time about any actions that we might consider. I can assure you, we continue to look at the portfolio as we go forward.
Speaker Change: Good afternoon.
Scott: Good afternoon, Phil Chip.
Speaker Change: Chip Bill.
Last couple of years, a larger portion of the earnings call and the Woodward story is kind of focus on the outlook for China on highway natural gas truck market. Its also created a lot of volatility in the financial results.
Speaker Change: Given that Woodward is an aerospace company and the broader trade tensions between the U S and China does it make sense to maybe find a different owner for that product line.
Speaker Change: We're always examining our portfolio Scott.
Speaker Change: Trying to decide exactly what makes sense for us and our shareholders and our customers going forward.
Speaker Change: So I don't have any comments at this time about any actions.
Speaker Change: My considerably I can assure you we continue to look at the portfolio.
Speaker Change: As we go forward.
Charles Blankenship: Like I said in prior earnings calls. What we're focused on operationally is trying to make sure that we're in the best position to serve our customers there with the best technology. When that when that market is good, we generate a lot of cash and a lot of earnings. And we want to be in a position to do that on an uptick. And right now we're focused on managing through this downturn as efficiently as we can with that.
Speaker Change: I've said in prior earnings calls.
Speaker Change: What we're focused on operationally is trying to make sure that we are in the best position to serve our customers there.
Speaker Change: Best Technology.
Speaker Change: When that when that market is good we generate a lot of cash and let our earnings and we want to be in a position to do that on an uptick.
Our focus on managing through this downturn.
Speaker Change: <unk> as we can with them.
Charles Blankenship: Okay, and then on the commercial OE side, when Hexel reported, they noted some changes in planned ship set deliveries on the 787 and contracts. Can you just give us color on what rate you were shipping on the 787? Are you receiving orders from Boeing? So we're in close contact with Boeing because we provide a number of chipset materials directly to them on certain programs. On the 787, largely, we're supplying through GE on the GENX powered 787. So we have a lot less direct visibility to how our order book correlates to their build rate. But I can tell you that we are satisfying the GE order rate on the GENX and the outlook looks good.
Speaker Change: Okay, and then on the commercial OE side, when Hetzel reported de noted some changes in plan chipset deliveries on the 787 in contrast, <unk> heat exchangers on that program are now where they need to be.
Speaker Change: Can you just give us color on what rate you were shipping on the 787 in this most recent quarter now you're receiving orders from Boeing to support the production rate hike to seven per month later this year.
Speaker Change: So we're in close contact with Boeing because we provide a number of chipset materials directly to them on certain programs.
Speaker Change: On the 787% largely we're supplying through GE.
Speaker Change: <unk> Nx powered 787, so we had a lot less direct visibility to how our order book correlates to their build rate but.
I can tell you that we are satisfying the GE order rate on the <unk>.
Speaker Change: The.
Speaker Change: The outlook looks good.
Charles Blankenship: I'm bullish on that program, getting to those kind of, you know, seven rates that you're talking about, where we have the capacity and the ability to deliver that.
Speaker Change: I am bullish on that program get into those kind of seven rates that youre talking about.
Speaker Change: We have the capacity and the ability to deliver that.
Speaker Change: Alright, thanks for taking the questions.
Scott Mikus: Thanks for taking the Good day.
Operator: Thank you.
You bet. Thank you.
David Strauss: Your next question comes from the line of David Strauss at Barclays. Please take. Thanks, Captain. Good afternoon, David. Chip, could you, uh, you know, maybe touch on the aftermarket in terms of what's come through. I mean, I think going back to your initial guidance call for this year, you kind of downplayed the aftermarket growth you might see this year. obviously come through really, you know, really strongly, particularly in Q2 when you had a really tough comp. So can you maybe just talk at a high level what's come through better than what you were anticipating? Yeah, David, I think, you know, you're, you're right.
Speaker Change: Your next question comes from the line of David Ross with Barclays. Please state your question.
Speaker Change: Okay.
David Ross: Thanks, Dan.
Speaker Change: Good afternoon.
Speaker Change: Chip could you.
Speaker Change: Maybe touch on the aftermarket in terms of what's come through I mean, I think going back to your initial guidance call for this year, you kind of downplayed the aftermarket growth you might see this year and it's.
Speaker Change: Obviously come through really.
Speaker Change: Really strongly particularly in Q2, when you had a really tough comps and can you maybe just talk at a high level what's come through.
Speaker Change: Better than what you were anticipating.
Speaker Change: Yeah.
Speaker Change: Yes, David I think you are.
Speaker Change: Youre right in that our call was we thought it would get in a little bit softer in Q with that tough compare.
David Strauss: And then our call was we thought it would get a little bit softer in 2Q with that tough compare.
Speaker Change: What came through a little bit ahead of or in addition to our forecast for the spare parts orders to satisfy MRO facilities that look like potentially they're getting a better throughput and higher higher volume through their shops, and thus had.
Charles Blankenship: What came through a little bit ahead of our, you know, in addition to our forecast were these spare parts orders to satisfy MRO facilities that look like potentially they're getting a better throughput and higher, higher volume through their shops and thus had, you know, sort of a little bit of a short cycle demand on spare parts from us, and so that that helped us have quite a good second quarter. Those kind of things don't often repeat, so I think I'm going to like just move one quarter to the right on on our prediction that it's going to be a little bit softer going forward with tough compares as well as probably some spare end items softness as you look at two factors for that.
Speaker Change: Sort of a little bit of a short cycle demand on spare parts from us and so that helped us have quite a good second quarter.
Speaker Change: Those kind of things don't often repeat so I think I'm going to just move one quarter to the right on on our prediction that.
Speaker Change: It's going to be a little bit softer going forward with tough compares.
Speaker Change: Well as probably some spare and items softness as.
Speaker Change: As you look at two factors for that one.
Charles Blankenship: One, you know, the China part of the equation. We're now thinking that there's going to be less, you know, LRU orders to support provisioning of those fleets as well as we'll probably see the U.S. customers pull back a little bit on their order of LRUs, spare end items, because that's the easiest thing to defer and push to the right really when you think about it. If there's an engine in the shop and the LRUs are routed for repair, they're probably going to finish that activity. So it's the spare end items and the China piece that I think, you know, we could see some softness in the second half plus the tough compare.
Speaker Change: China part of the equation.
Speaker Change: We're now thinking that theres going to be less <unk> orders to support provisioning of those fleets as well as.
Speaker Change: We will probably see the U S customers pull back a little bit on their order book.
Speaker Change: Hello reuse spirit, that's the easiest thing to deferred and pushed to the right really when you think about it if there is mentioned in the shop and the LR used around its for repair, we're probably going to finish that activity. So.
Speaker Change: Spirit and items.
Speaker Change: And the China piece that I think.
Speaker Change: We can see some softness in the second half plus the tough compare.
David Strauss: Got it, thanks.
Speaker Change: Got it thanks.
William Lacey: And Bill, on currency, you know, the weakening in the dollar that we've seen here, how could that impact you guys going forward, given, you know, I think a decent footprint in Europe? Yeah, we have seen slightly higher fluctuation. As we think about the translation piece, we obviously will get hit on the top line, but that gets offset down in the cost area. So we typically see that get balanced out and not hit us too much at the operating earnings level. And then there are some cash over in outside of the U.S. that we have to watch the translation, sorry, the transactional aspect of it.
Speaker Change: And bill on currency the weakening in the dollar that we've seen here how could that impact you guys volume quarter, given I think a decent footprint in Europe.
Speaker Change: Yes.
Speaker Change: We haven't seen a slightly higher fluctuation.
Speaker Change: We think about the translation piece, we obviously will get hit on the top line, but think it's offset down in cost areas. So we typically see that good balanced out in that business.
Speaker Change: Too much at the operating earnings level.
Speaker Change: And then there are substantial over and over in non outside of the U S that we have to watch the translation sorry, the transactional aspect of it but again it will not be a major factor on our results.
William Lacey: But again, it will not be a major factor on our results. All right, thanks very much.
Speaker Change: <unk>.
Speaker Change: Alright, thanks very much.
William Lacey: You're welcome.
Speaker Change: Youre welcome.
Noah Poponak: Our next question comes from Noah Poponak with Goldman Sachs.
Our next question comes from Noah <unk> with Goldman Sachs. Please state your question.
William Lacey: Please state your question. Hey, everyone. Thank you all. Bill, I'm surprised you left the aerospace segment margin guidance unchanged. It looks like that would require closer to a 25% incremental in the back half versus the over 40 you did in each of the first and second quarter. Can you talk about what drives the aerospace segment margin in the second half? Sure. Yeah, we're really great and happy that we've got over 40% incrementals in the second coordinate, Noah. As we look to the back half, we do expect defense OE to be a much greater share of the volume.
Hi, everyone.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Bill I'm surprised you left the aerospace segment margin guidance unchanged. It looks like that would require closer to a 25% incremental in the back half are still over 40% in each of the first and second quarter.
Speaker Change: Can you talk about what drives the aerospace segment margin in the second half.
Speaker Change: Sure Yes.
Speaker Change: Yes, we were.
Great and happy that we got over 40% Incrementals.
Speaker Change: In the second quarter.
Speaker Change: As we look to the to the to the back half.
Speaker Change: We do expect defense OE to be a much greater share of the loan.
William Lacey: So that will moderate the incrementals that we saw in the second quarter. We've always stated that we like to see our incrementals around 30% to 35%. And so we would expect that to moderate in the second half. Additionally, you know, we talked about tariffs, and it's not a major issue. But we are cautious in that it may impact us some. So we felt it was important to keep that margin guide of where it is currently.
Speaker Change: So that will moderate.
The incremental that we saw in the second quarter. We've always stated that we like to see a our incrementals around 30% to 35%.
Speaker Change: So we would expect that to moderate in the second half. Additionally, we talked about tariffs and it's not a major issue.
Speaker Change: But we are cautious in that it may impact. Some so we felt it was prudent to keep that margin guide.
Speaker Change: Where it is currently.
Noah Poponak: Okay.
Speaker Change: Okay.
Charles Blankenship: What have you seen for leap after market through the first half and what are you expecting in the back half and into 22nd? So as I said in the remarks, you know, we've been a few quarters in a row of seeing that volume double year over year. So, you know, as we look at what our model was for performance at Elite Fleet, we're very pleased with the progress on that. So, new so far, and we feel like that trend will continue for a bit this year, the rest of this fiscal year for us. Of course, that curve may turn over a little bit as the compares get bigger, because it's doubling off a fairly small base, but we feel like we're on track for the Outlook that we gave at the Investor Day where, you know, in the 27 to 28 timeframe, we keep seeing the similar volumes of aftermarket activity from the LEAP GCF compared to the legacy narrowbody fleets.
Speaker Change: What have you seen for leap aftermarket through the first half.
Speaker Change: But are you expecting in the back half and into 'twenty six.
Speaker Change: So as I as I've said in the remarks, we have been a.
Speaker Change: A few quarters in a row of seeing that volume double year over year. So.
Speaker Change: You look at what our model was for.
Speaker Change: Four months at ALLETE fleet, we're very pleased with the.
Progress on that so.
Speaker Change: So far we feel like that trend will continue for a bit this year rest of this fiscal year for us.
Speaker Change: Of course that Curt may turn over a little bit.
Speaker Change: Impairs get bigger.
Speaker Change: It's doubling off a fairly small base.
Speaker Change: But we feel like we're on track for that.
Speaker Change: Sure.
Speaker Change: Outlook that we gave at the Investor day, where.
Speaker Change: The 2007 to 2008 timeframe.
Speaker Change: Seeing the similar volumes of.
Speaker Change: Aftermarket activity from the elite GPS.
Speaker Change: Third to the legacy narrow body fleets.
Noah Poponak: Okay.
Speaker Change: Okay.
William Lacey: And what was the unit, just unit growth in the aerospace segment in the quarter? Yeah, no, we, we saw good growth from both the price overall price was about 7% at the sorry, yeah, 7% at the Woodward level. Errol's price was a little bit stronger than industrial price, but both contributed. And, and so we did see good volume as Errol delivered that 13%.
Speaker Change: And what was the unit just unit growth in the aerospace segment in the quarter.
Speaker Change: Yes no.
Speaker Change: We saw good.
Speaker Change: Growth from both the price overall price was about 7%.
Speaker Change: Sorry.
Speaker Change: 7% at the Woodward level.
Speaker Change: Aaron's price was a little bit stronger than industrial price, but bone contributed.
Speaker Change: And so.
Speaker Change: So we did see good volume and Aero delivered at 13%.
William Lacey: Okay, great. Thank you so much. You're welcome.
Speaker Change: Okay, great. Thank you so much.
Speaker Change: Thanks, Joe.
Matthew Akers: Our next question comes from Matthew Akers, Vidal Fargo. Please state your Yeah, hi, good afternoon, guys. Thanks for the question. I think you had talked last quarter, within aerospace, I think commercial OE versus aftermarket kind of similar growth for the year could kind of update on where those stack up or, you know, has one of those changed relative to the other for the year? Yeah, thanks for that question, because, you know, second quarter was a little bit out of the ordinary in terms of us seeing higher commercial aftermarket growth than we than we forecast, and then OE being a bit down due to the way we responded to the Boeing return to work challenge.
Speaker Change: Our next question comment for from Matthew at Chris with Wells Fargo. Please state your question.
Matthew: Yes, hi, good afternoon, guys. Thanks for the question.
Speaker Change: I think you had talked last quarter.
Speaker Change: Within aerospace I think commercial OE versus aftermarket kind of similar growth for the year can kind of update on.
Speaker Change: Were those stack up as one of those changed relative to the other for the year.
Speaker Change: Yes, thanks for that question because second quarter was.
Speaker Change: A little bit out of the ordinary in terms of us seeing higher commercial aftermarket growth.
Speaker Change: <unk> forecast and then OA.
Speaker Change: A bit down due to the way we responded to the Boeing.
Speaker Change: Return to work.
Charles Blankenship: So those two, those two things made the second quarter look a little bit unusual, but I think for the fiscal year 25, we're still going to be in about the, in about the.
Speaker Change: Challenging so.
Speaker Change: Those two those two things made the second quarter look a little bit unusual, but I think to the fiscal year 'twenty five we're still going to be about this been about.
Charles Blankenship: Unknown Attendee, Unknown Attendee, Unknown Attendee, Jamie Yeah, okay, thanks. And I may have missed this, but what's the latest full year China on highway expectation? Has that changed at all? Yeah, we came out with around 40. And with the Q2 performance being roughly 10 million more than we expected, we're moving it up to around $50 million. Okay, great. Thank you. You're welcome.
Speaker Change: The same zone for OEM.
Speaker Change: Aftermarket growth in the commercial space, However, defense Oems.
Speaker Change: We think thats going to continue to be.
Speaker Change: Very strong growth for the second half.
Speaker Change: Yeah, Okay. Thanks, and I may have missed this but.
Speaker Change: What's the latest full year.
Speaker Change: Liner on highway expectation has that changed at all.
Speaker Change: Yes.
Speaker Change: We came out with around 40.
Speaker Change: With the Q2 performance fee of roughly $2 million more than we expected, we're moving it up to around $50 million.
Speaker Change: Okay, great. Thank you.
Speaker Change: Sure.
Christopher Glynn: Your next question comes from Christopher Glynn with Oppenheimer. Please state your question. Thank you.
Speaker Change: Your next question comes from Christopher Glynn with Oppenheimer. Please state your question.
Christopher Glynn: Thank you good afternoon.
Charles Blankenship: Good afternoon. I had a question on industrial, you know, oil and gas was, was very strong. Wondering if there are any one time volume benefits or otherwise pulled forward given across the industrial segment given, you know, even at the high end of the full year guide, you're running about 20 million a quarter lower than the second quarter. I realize China is about a 10 million diminution of the run rate. I'll kick it off and maybe hand it over to Bill on the last part of your question, but as far as oil and gas goes, I think we've said this before.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: Good afternoon, I had a question on industrial.
Speaker Change: Oil and gas was was very strong I'm wondering if there are any one time volume benefits or otherwise pull forward given across the industrial segment given even at the high end of the full year Guide you run at about $20 million a quarter lower than the second quarter I realized.
Speaker Change: China is about a $10 million diminution of that run rate.
Speaker Change: I'll I'll kick it off and maybe hand, it over to bill on the last part of your question, but.
Speaker Change: As far as oil and gas goes I think we've said this before it's a bit lumpy for us because.
Charles Blankenship: It's a bit lumpy for us, because quite a bit of what we do in oil and gas is project related. And so it was a strong quarter. A lot of the delivery material that we provide to oil and gas is also power gen related, whether it's powering pumping stations or it's part of power generation for a platform or for a LNG site. So the 21% is a big increase, but I think it moderates through the year and in fact is, like I said, quite lumpy. Okay, that makes sense. I'm sorry. You said you had a question?
Speaker Change: Quite a bit of.
Speaker Change: What we do in oil and gas is project related.
Speaker Change: So it was a strong quarter allowed.
Speaker Change: The delivery.
Speaker Change: Material that we provide oil and gas is also our gen related.
Speaker Change: Whether it's.
Speaker Change: Powering pumping stations or its.
Speaker Change: Part of power generation for a platform or for us.
Speaker Change: LNG site so.
Speaker Change: The 21% is a is a big increase but I think it moderates duty gear.
Speaker Change: Fact is like I said quite lumpy.
Speaker Change: Okay that makes sense.
Speaker Change: <unk>.
William Lacey: Um I think that covers it, Bill. You know, I think, you know, China would be the other piece for the industrial segment bridging the two quarter, second quarter absolute revenue versus the implied back cap.
Speaker Change: I think that covers it bill.
Speaker Change: I think China will be the other piece for the industrial segment bridging the two quarter second quarter absolute revenue for a steam plant back cap.
William Lacey: If I could switch to the commercial aftermarket, I think, you know, that was really a nice spike in the quarter. So I think in the guidance, if I'm hearing everything correctly, probably looking at second half run rates a little lower sequentially for the commercial aftermarket, but still up moderately year over year. Do I have that correct? Yeah, we still think it's, yes, that's correct. We still think it's gonna grow, but it's in the single digit regime, you know, high single digit regime versus the 20% that you saw in the second quarter. Okay, and just a little bookkeeping, the corporate expense a little higher, we're still talking 3.3% I think you cited last year, last quarter for the full year?
Speaker Change: If I could switch to the commercial aftermarket I think that was really a nice spike in the quarter. So I think in the guidance if I'm hearing everything correctly, probably looking at second half run rate's, a little lower sequentially for the commercial aftermarket, but still up moderately year over year do I have that clear we still think.
Speaker Change: Yes, that's correct, we still think it's going to grow but it's.
Speaker Change: In the single digit regime.
Speaker Change: High single digit regime versus the.
Speaker Change: 20% that you saw in the second quarter.
Speaker Change: Okay, and just a little bookkeeping, the corporate expense little higher we still talk and three 3% I think you cited last year last quarter for the full year.
William Lacey: Yeah, Chris, we are still calling that level, we'll have slightly higher sales in the back half. And so we do expect for us to hit that in the full year that we got it on earlier this earlier in the year. Thanks.
Speaker Change: Yes, Chris we are still calling collyn that level, we will have.
Speaker Change: Despite the higher sales in the back half and so we do expect for us to hit that in the full year that we got it.
Speaker Change: Earlier this earlier in the year.
Speaker Change: Thanks, and if I could sneak one more in I think pricing outperformed in the second quarter, probably what you implied previously for the year is that just.
William Lacey: And if I could sneak one more, and I think pricing, you know, outperformed in the second quarter, probably what you implied previously for the year. Is that just, you know, learning curve on value pricing toolkit across the organization? Yeah, we've had two solid quarters of pricing this year. And I think it is us continuing to get a better understanding of our value pricing. And we had some volumes come through the right place that also helped to push up the price that we achieved. Thanks, guys. You're welcome.
Learning curve on value pricing toolkit across the organization.
Speaker Change: Yes, we've had two solid quarters of pricing this year and I think it is.
Speaker Change: It's continuing to get a better understanding.
Speaker Change: Our value pricing.
Speaker Change: And we had some volumes come through the right plays that also helped to push up the price that we achieved.
Speaker Change: Understood. Thanks, guys.
Speaker Change: Youre welcome.
Michael Ciarmoli: Our next question comes from Michael Ciarmoli with Sherwood Securities.
Speaker Change: Our next question comes from Michael <unk> with <unk> Securities. Please state your question.
Charles Blankenship: Please state your Hey, good evening, guys. Thanks for taking the questions. Chip, could we just dig into that? I just want to make sure I understand the arrow, the commercial OE and aftermarket. So aftermarket tracking to maybe high single digits for that second half, that implies something like 14 to 15% growth. Did I hear you earlier say that that OE and aftermarket should grow at the same rate? I mean, those would be pretty heroic growth rates to get commercial OE up on par with the same growth as aftermarket.
Michael: Hey, good evening guys. Thanks for taking the questions.
Speaker Change: Chip could we just dig into that much to make sure I understand the aero the commercial OE and aftermarket so aftermarket track into.
Speaker Change: Maybe high single digits for that second half that implies something like 40% to 50% growth did I hear you earlier say that OE and aftermarket should grow at the same rate I mean, those would be pretty heroic growth rates to get commercial OE up on par with the same growth as aftermarket.
Charles Blankenship: No, I don't think I don't think they'll have what I meant was that they'll, over the year, it'll come back to this, what we said at the beginning of the year, that we kind of, we kind of gave it an order of battle, if you will, in terms of how things would stack up with defense OE being the biggest, biggest growth, followed by commercial aftermarket, followed by commercial OE. But we don't expect commercial OE to be down, which it was this quarter. So sorry about the confusion, but that's just sort of the oracle.
Speaker Change: No I don't think I don't think so.
Speaker Change: What I meant was that bill over the year and we'll come back to this what we said at the beginning of the year that we kind of we kind of gave US an order of battle. If you will in terms of how things stack up with defense OE being the biggest biggest growth okay.
Speaker Change: Followed by commercial aftermarket followed by commercial OE.
Speaker Change: We don't expect commercial OE down, which it was this quarter, so sorry about the confusion, but that's for sure.
Speaker Change: <unk>.
Charles Blankenship: That's helpful. And then maybe just back to the incrementals. I mean, you did that 40% plus, like Noah was talking about. I mean, you did that in the face of really strong OE. You're going to get the commercial OE ramping, which, you know, has never really been truly dilutive to your margins. Is it really just a function of aftermarket kind of normalizing in the second half that's giving you some pause on those high incrementals? Again, on our commercial OE, we do make money. But to the 40% incremental, it is to the 40%. As we talked about, we look to have 30 to 35 in ARUP.
Speaker Change: That's helpful. And then maybe just back to the Incrementals I mean, you did that 40% plus like Noel was talking about I mean, you did that in the face of really strong OE youre.
Speaker Change: You're going to get the commercial OE ramping which is never really been truly dilutive to your margins is it really just a function of aftermarket kind of normalizing in the second half that is giving you some pause on those high incrementals.
Speaker Change: Again, the commercial our commercial OE, we do make money.
Speaker Change: 2% to 40% incremental.
Speaker Change: 40%.
Speaker Change: As we talk about we.
Speaker Change: We look to add 30 to 35 in Europe.
Charles Blankenship: And so what happens in the second half is, again, in Q2, we didn't have as much commercial OE, which helped incrementals. We will have more commercial OE in the second half, and we'll have greater defense OE, and that will translate into still really good incrementals in our 30 to 35, but it will not sustain at the 40%. Got it. That's fair. Perfect. Thanks, guys.
Speaker Change: And so what happens in the second half is again in Q2, we didn't have as much commercially on commercial OE, which helped incrementals.
Speaker Change: More commercial OE unit second half a year and we will have greater defense OE.
Speaker Change: That will translate into.
Speaker Change: Still really good incrementals in our 30 to 35, but it will not sustained.
Speaker Change: 40% level.
Speaker Change: Got it got care.
Unknown Attendee: I'll jump back in the queue.
Speaker Change: Perfect. Thanks, guys I'll jump back in the queue.
Speaker Change: Okay.
Unknown Attendee: Thank you.
Speaker Change: Okay.
Sheila Kahyaoglu: Our next question comes from Sheila Kahyaoglu with Jeffreys, please state your question. Sheila, your line is open. Oh, sorry. Good afternoon, guys. How are you? Thank you. Maybe just first half versus second half, three dollars at essentially both midpoints when you look at the first half and the second half. How are you thinking about the tariff impact? I know you've mentioned in the prepared remarks, localized production largely, how is that embedded into your guidance?
John Providenza: Our next question comes from Sheila <unk> with Jefferies. Please state your question.
John Providenza: Hello Your line is open.
Speaker Change: Sorry, good afternoon, guys how are you.
Speaker Change: Good afternoon.
Speaker Change: Thank you Justin first half versus.
Speaker Change: $3 at essentially.
Speaker Change: Clients.
Speaker Change: You look at the first tackle the second half how are you thinking that the tariff impact.
Speaker Change: Mentioned in the prepared remarks.
Speaker Change: Production largely.
Speaker Change: How is that embedded into your guidance.
William Lacey: Yeah, I'll start it off, Sheila, and kick it over to Chip. But as we look at our tariff situation, as Chip mentioned, our manufacturing strategy really does help to mitigate the overall tariff impact on Woodward. Having said that, we have taken an extensive view of the business and have a good handle of the flows that will cause us some challenges. And as we look at those flows, for 25, fiscal year 25, we feel like we have $10 to $15 million of pressure. Now, that's before we put into action our strategies to mitigate those items. So, based on that, we have baked it into our guidance that we updated here until as long as there's no escalation of those announced tariffs that we will deliver on the guide.
Speaker Change: Yes.
I'll start it off Sheila.
Speaker Change: Kick it over to.
Speaker Change: Chip.
Christopher Glynn: But as we look at our the tariff situation as chip mentioned, our manufacturing strategy.
Speaker Change: It really does help to mitigate the overall tariff impact.
Woodbridge: Woodbridge, having said that we have taken extensive view of the business and have a good handle of inflows that will cause us.
Woodbridge: Some challenges and as we look at it we'll disclose from 25.
Woodbridge: Fiscal year 'twenty, we feel like we have 10% to $15 billion of pressure.
Woodbridge: Now that's before we put into action our strategies to mitigate those items. So so so based on that we will.
Woodbridge: We have baked it into our guidance that we updated here.
Woodbridge: And Phil as long as there is no escalation of those announced tariffs that.
Woodbridge: We will deliver on that.
Woodbridge: The guide.
Sheila Kahyaoglu: Got it. Okay.
Woodbridge: Okay.
Sheila Kahyaoglu: And if I could ask one on aerospace specifically, outside of aftermarket, defense OE growth was pretty phenomenal. What's true of that 52% increase? And why is aftermarket and defense down? So the increase is largely smart defense, but also good health and good growth in the rest of the programs too. So not taking anything away from them, but the large number shows up really due to smart defense. And it's across the entire smart defense portfolio as well. So that's the defense OE story. On defense aftermarket, largely, it can be a little bit lumpy in defense aftermarket.
Woodbridge: And if I could ask one on aerospace specifically outside of aftermarket defense OE growth was pretty phenomenal.
Woodbridge: That 52% increase and why is aftermarket.
Woodbridge: So the increase is largely smart defense, but also good good health and good growth in <unk>.
Woodbridge: In the rest of the programs too so not taking anything away from them, but with the large number shows up really due to smart defense since across the entire smart defense portfolio as well.
Woodbridge: So that's the defense OE story.
Woodbridge: On defense aftermarket.
Woodbridge: Largely.
Woodbridge: It can be a little bit lumpy in defense aftermarket working with our customers they tend to batch.
Charles Blankenship: Working with our customers, they tend to batch some of their inputs for overall based on how they run the fleet. So we don't see any difference in up-tempo or anything fundamental that would drive defense aftermarket down. This quarter just looks like we're experiencing some delayed inputs. We don't really think that it will be that different the rest of this year with some of the logistics and friction in the system, if you will. So we're thinking that defense aftermarket might stay in that type of volume region for the rest of fiscal 25. Just got it. Thank you.
Woodbridge: Match some of their inputs for overall based on how they run the fleet. So we don't see any difference in up tempo or anything fundamental that would drive defense aftermarket down.
Woodbridge: This quarter. It just looks like we are we're.
Woodbridge: We're experiencing some delayed inputs.
Woodbridge: We don't really think.
Woodbridge: And it will be that different the rest of this year with some of the logistics then.
Woodbridge: Friction in the system. If you will so we're thinking that defense aftermarket might stay in that in that type of volume reached for the rest of fiscal 'twenty five.
Woodbridge: Got it thank you.
Woodbridge: Welcome.
Spencer Briskey: Our next question comes from Spencer Briskey with TD Cullen. Please state your name. Hey, thank you.
Speaker Change: Our next question comes from Spenser <unk> with Cowen. Please state your question.
Spenser: Hey, Thank you I was wondering if you could provide an update on <unk>.
Charles Blankenship: I was wondering if you could provide an update on JDAM and where we are with the higher pricing from the new contract rolling through as well as volume. Yeah, we talked about the JDAM demand has been strong. Secondly, the supply chain has been pretty healthy. So we've been shipping out a pretty good clip here.
Spenser: Where we are with the higher pricing from the new contract rolling through as well as volumes. Thank you.
Spenser: Yes.
Spenser: Yes.
Spenser: As we talked about with J&J on demand has been strong.
Spenser: Currently the supply chain has been pretty healthy so we've been shipping on a pretty good clip here and those things continue we would expect to get through the older lots of J D.
Charles Blankenship: If those things continue, we would expect to get through the older lots of JDAM and get to the higher price lots, sometimes in Q4. I guess I can answer that question.
Spenser: Good.
Spenser: The higher price launch.
Spenser: Sometimes in Q4.
Spenser: I guess I can interpret your question.
Spenser: Okay.
Unknown Attendee: I presume you want to go on to the next question?
Spenser: Operator modular next question.
Louis Raffetto: Our next question comes from Louis Raffetto with Wolf Research.
Our next question comes from Louis Raffetto with Wolfe Research. Please state your question.
Louis Raffetto: Please state your name. Hey, good evening, Chip. So Hello, it's pretty good.
Speaker Change: Hey, good evening chip Phil.
Spenser: Okay.
Spenser: Hey, Louis Lewis.
William Lacey: Unknown Attendee Maybe just to go back to the corporate for a quick second. You know, it was high. Was there anything in there? I know we're adding back the... I think what is like the industrial benefits. And so I'm just curious, are the industrial, is there a benefit running through the industrial segment and you're backing it out in corporate and is there any sales impact from those sort of sales that you're doing? Um, no, uh, no, Louis, I were not is the simple answer. Okay, I know last quarter, you guys last quarter, you said you were backing out the product line sale benefits in the I don't know if that's exactly what it was again this quarter.
Spenser: Maybe just to go back to the corporate for a quick second was high was there anything in there I know, we're adding back.
Spenser: <unk>.
Spenser: I think what is like the industrial benefits and so I'm. Just curious are the industrial is there a benefit running through the industrial segment and you're backing it out incorporate and is there any sales impact from those.
Spenser: Sales that Youre doing.
Spenser: No.
Spenser: No blue inside.
Spenser: We're not this is simple.
Sure.
Speaker Change: Okay. I know I think last further you guys last quarter. You said you were backing out the product line sales benefits in there, but I don't know if that's exactly what it was again this quarter.
Spenser: Yes.
William Lacey: Yeah, so we get back out those benefits in adjustment out last quarter. And in that doesn't repeat, it's a one time gain. Is there a sales benefit running through somewhere as well? No. So, okay, no sales benefits, and then you're just backing out the income. So your question is just on the non-segment? Yes, yeah. So again, on the Greenville, we adjusted that that game out. Sorry, we adjusted to sell a Greenville out this quarter out of nine six. Okay, but I guess, is there a benefit in industrial from the gain and you're just adjusting it out and on out?
Spenser: Yeah, So we subtract out the better.
Spenser: Offense.
Spenser: And adjusted them out last quarter.
Spenser: And that doesn't repeat this onetime gain.
Spenser: Is there a sales benefit running through somewhere as well.
Spenser: No.
Spenser: So those.
Spenser: Those sales benefits and then you're just back out.
Spenser: Yes.
Segment.
Spenser: Yes.
Spenser: Yes, so again on the Greenville, we adjusted that getting out.
Spenser: Alright.
Spenser: We adjusted for sale of Greenville out this quarter.
Spenser: <unk> segment.
Speaker Change: Okay, but I guess just is there a benefit in industrial from the gain in the year just adjusting it out in an hour now.
William Lacey: No, no, no, no, we moved it out to nine segment and then we adjusted out of nine segments. So aero is clean, industrial is clean.
Speaker Change: We removed it out to non segment and then we adjusted out of neurons segment. So arrow is clean industrial is clean.
William Lacey: And so what caused the step-up in non-semi? It's just a big number that we haven't really seen before. The non-segment, some of it is the timing of us dealing with our equity, our long-term incentive program. That gets done in the second quarter. Historically, this switch happened last year from first quarter to second quarter, but other than that, that's it.
Speaker Change: And so what caused the step up in non Sem, It's just a big number that we haven't really seen before.
Speaker Change: The non segment some of it is the timing on those.
Speaker Change: Still with our.
Speaker Change: Equity our long term incentive program that gets done in the second quarter.
Speaker Change: Historically.
Speaker Change: This which happened last year.
Speaker Change: And from first quarter to second quarter, but other than that.
Speaker Change: That's it.
William Lacey: All right, well, that's helpful. Thank you, Bill. And I guess one more, I just want to make sure I heard you right. Was China Industrial $20 million in the second quarter or $29 million in the second quarter? Yeah, $21 million to be exact. All right, great. Thank you very much. You're welcome.
Speaker Change: Alright Thats helpful. Thank you Bill and then I guess, one more I just want make sure I heard you right was China industrial $20 million in the second quarter of 29 million in the second quarter, yes.
Speaker Change: <unk> 1 million to be exactly to be intact.
Speaker Change: Alright, great. Thank you very much.
Speaker Change: Youre welcome.
Operator: Mr. Blankenship, there are no further questions at this time.
Speaker Change: Mr. <unk> there are no further questions for Chris time, I will turn the conference back to you.
Operator: I will turn the conference back We'd like to thank everyone for joining today's call. Ladies and gentlemen, that concludes our conference call today. A rebroadcast will be available at the company's website, www.woodward.com, for one year.
Speaker Change: We'd like to thank everyone for joining today's call.
Speaker Change: Ladies and gentlemen that concludes our conference call today, a rebroadcast will be available at the company's web site Www Dot Woodward Dot com for one year. We thank you for your participation in today's conference call and ask that you. Please disconnect your lines.
We thank you for your participation in today's conference call and ask that you please disconnect.
Speaker Change: [music].
Speaker Change: Yes.
Yes.