Q3 2019 Earnings Call
Following the presentation, you will be invited to participate in a question and answer session.
Joining us today from the company Mr., Tom Gendron, Chairman and Chief Executive Officer, Mr., Bob Weber, Vice Chairman and Chief Financial Officer, and Mr. Don.
'cause Arnaud.
Vice President of Investor Relations and Treasurer, I would now like to turn the call over to Mr. 'cause artists.
Thank you operator.
We would like to walk Mobutu Woodward's third quarter fiscal year 2019 earnings call.
In todays call Tom will comment on our markets and related strategies, and then Bob will discuss our financial results as outlined in our earnings release.
At the end of our presentation, we will take questions.
For those who have not seen todays earnings release, you can find it on our website at Woodward Dot com.
We have again included some presentation materials to go along with todays call that are also accessible on our website.
An audio replay of this call will be available by phone or on our website through August 18 2019.
The phone number for the audio replay is on the press release announcing this call as well as on our website and will be repeated by the operator at the end of the call.
I would like to refer to and highlight our cautionary statement as shown on slide three.
As always elements of this presentation are forward looking or based on our outlook and assumptions for the global economy, and our businesses more specifically.
Those elements can and do frequently change.
Please consider our comments in light of the risks and uncertainties surrounding those elements, including the risks we identified in our filings.
Woodward adopted the FASB accounting standards update number 2014 dash zero nine revenue from contracts with customers or S. C six or six effective October Onest 2018.
And results for the third quarter and first nine months of fiscal 2019, including adjusted and organic amounts are presented on that basis, except as specifically stated otherwise.
Prior period amounts are are presented under the previous accounting standard S. C. Six or five we believe the impact of adoption of the new standard will not be material for the full fiscal year, although there will be ongoing quarterly variability of the impacts of assay six or six for both sales and net earnings.
The primary impact of assay 66 is anticipated to be the inclusion of customer provided inventory in net sales with no related earnings.
To better understand the impact of assay six a six on Woodward. We have included tables in the press release and additional materials in the in the quarterly report on Form 10-Q to be filed on or before August nine 2018.
In addition, whatever it is providing financial information as reported under us GAAP as well as on an adjusted basis and an organic basis. Please refer to our press release and related tables as well as the appendix of todays presentation for the definition of adjusted and organic we believe this will help in understanding both historical results and future outlooks.
Direct your attention to the reconciliations of non U.S. GAAP financial measures, which are included in today's slide presentation, and our earnings release and related schedules.
Now turning to our results for the third quarter.
Net sales were $752 million for the third quarter of fiscal 2019 compared to $588 million for the prior year quarter.
Organic mix net sales, which exclude sales attributable to Woodward will launch.
Were $673 million for the third quarter of 2019 compared to 563 million in the prior year quarter, an increase of 20% from the prior year quarter.
Net earnings were $66 million or one dollar and two cents per share compared to $49 million or 77 cents per share in the prior year quarter.
Adjusted net earnings were $84 million or $1.30 cents per share compared to adjusted net earnings of $71 million or $1.12 cents per share for the prior year quarter.
Net cash generated from operating activities for the first nine months of 2019 was $219 million compared to cash generated a $162 million for the same period of the prior year.
Free cash flow was $141 million for the first nine months of 2019 compared to $72 million for the same period of the prior year.
Now I will turn the call over to Tom to comment further on our results strategies and markets.
Thank you Dan welcome to all of you joining us today.
Our performance during the third quarter fiscal 2019 reflect solid fundamentals in both of our segments and aerospace we delivered strong results. Despite continued uncertainty surrounding the prolonged Boeing 737 Maxs grounding.
While our industrial segment demonstrated further year over year improvement in the face of headwinds related to our renewables business.
As a result, we believe we will finish the year with sales and earnings and the upper end of our previous guidance.
Now moving over to our markets. Our aerospace segment continues to perform well on the back of a strong market coupled with the healthy narrow body production ramp increase market share and solid global passenger growth.
Although the Paris Air show was little more subdued than prior years, we still added significantly to our backlog and have content on virtually all aircraft orders.
That's bad for Woodward programs continues to strengthen the back of increased military budgets defense OEM and aftermarket performance was driven by continued strength in fixed wing aircraft and guided weapons.
With regard to the gravity the Boeing 737, Max we are experiencing softer initial provisioning as anticipated.
As of today, we are supporting OEM production rates, given what we know we do not anticipate a significant impact related to the grounding, but we will continue to monitor the situation closely.
In spite of this matter our aerospace segment continues to deliver excellent financial results.
Turning to our industrial markets within power generation large natural gas engines and clean burning diesel engines are gaining market share due to their lower emissions and increase efficiency.
The industrial gas turbine market continues to stabilize.
And as it recovers our share gains and increased content will allow us to grow faster than the market.
We remain bullish on the future of natural gas power generation and we believe our strategic positioning will drive superior shareholder returns over the long term.
In regard to renewables the significant reduction in government incentives related to renewable power is impacting the industry.
The announced bankruptcy of our customers tend to be on a German wind wind turbine company. As an example is an ex is an example of the challenges in this market.
Although immaterial to Woodward as a whole.
The loss of this customer would have a significant impact on our renewable business.
We believe there is still considerable value in our renewable business with respect to our intellectual property and large installed base.
The transportation, two bright spots or China, natural gas truck sales and global marine utilization.
In China increased emission regulations and enforcement are driving healthy natural gas truck sales.
Specifically in July the new China, six regulations were implemented as a result demand for China five compliant trucks was unusually strong leading up to the new regulations.
As a result, we anticipate significant softness in the fourth quarter as a market absorbs the large prebuy next generation trying to six compliant trucks are introduced.
Despite the short term transition regulatory environment and economics in China remained very favorable for natural gas trucks for the long term.
In Marine Woodward launch continues to enjoy a strong aftermarket as global trade has remained strong.
In addition, new equipment sales will benefit from IMO 2020 requirements.
Oil and gas markets are solid, although some volatility exists related to fluctuations in both supply and demand.
Specifically with respect to natural gas global globalization continues with increasing numbers of terminals oceangoing tankers and miles of pipeline.
In summary, we delivered strong financial performance this quarter and 2019 is shaping up to be a good year.
Our aerospace business remains well positioned to benefit from the increased demand for commercial aircraft.
While industrial business continues to show improvement across most markets.
We remain confident in our ability to strategically navigate through a challenging market environment and deliver value to our customers and shareholders.
With that I will turn it over to Bob discuss financials.
Thank you Tom.
Aerospace segment net sales for the third quarter fiscal 2019 were $499 million compared to 405 million for the third quarter a year ago, the 23% increase.
Aerospace segment sales benefited from both commercial OEM and aftermarket as well as military OEM and aftermarket volume.
The third quarter of 2019, which is reported under FC six or six included $51 million of Aerospace segment sales that would not have been recognized under his see six or five primarily due to customer provided components.
Commercial aftermarket sales were up 9% compared to the prior year quarter as anticipated initial provisioning was lower due to the grounding of the Boeing 737, Max and compared to a very strong third quarter in the prior year.
Legacy aftermarket showed continued growth more in line with historical trends.
For the full year, we anticipate commercial aftermarket growth to be approximately 15%, which includes the impact of customer provided inventory as required under FC six or six.
Aerospace segment earnings for the third quarter of 2019 were $103 million compared to $84 million for the same quarter prior year.
The increase in Aerospace segment earnings was largely driven by the higher sales volume.
Segment earnings as a percent of segment sales were 20.7% for the third quarter of both 2019 and 2018.
Turning to industrial.
Industrial segment net sales for the third quarter of fiscal 2019 were $253 million compared to $184 million in the prior year period.
Organic industrial segment net sales for the third quarter of 2019 were $175 million compared to $159 million in the prior year quarter, a 10% increase.
The prior year quarter included one month of Woodward launch sales.
Foreign currency exchange rates had an unfavorable impact on organic sales of approximately $6 million for the third quarter of 2019.
On a constant currency basis organic sales would have increased approximately 14%.
Industrial segment sales were fueled by the addition of Woodward Mirage and strengths in most markets, partially offset by lower renewables.
Industrial segment earnings for the third quarter of 2019 were $26 million or 10.4% of segment sales.
Adjusted and industrial segment earnings were $29 million for the third quarter of 2019, or 11.4% of segment sales compared to $19 million or 10.5% of segment sales in the prior year period.
Industrial segment earnings growth was due to the increased organic sales volume and the addition of rush.
At the Woodward level, R&D and selling general administrative expenses were in line with our expectations and our increased slightly largely due to the inclusion of Woodward launch.
Non segment expenses reflect normal quarterly variability and for the full year as a percent of total sales were largely in line with our expectations and historical run rate.
The effective tax rate for the third quarter of 2019 was 28.4% compared to 9.7% in the third quarter of 2018, the effective tax rate for the current quarter was impacted by $11 million of tax expense related to transition impacts of the change in us tax legislation.
For the first nine months of 2019, the effective tax rate was 21.0% compared to 24.7% for the same period of the prior year.
We expect our fiscal 2019 and effective tax rate to be approximately 19%.
Looking at cash flows net cash generated from operating activities for the first nine months of 2019 was $219 million compared to $162 million for the prior year period.
Capital expenditures were $78 million for the first nine months of 2019 compared to $90 million for the first nine months of 2018.
For the full year, we expect capital expenditures to be slightly below $120 million.
Free cash flow for the first nine months of the year was $141 million compared to $72 million for the same period of the prior year.
The increase in free cash flow was primarily driven by increased earnings.
During the first nine months of 2019, we returned $139 million to stockholders, which included $110 million in the form of repurchase shares with the balance in dividends.
This puts us on track to deliver on our commitment over to turning 50% of net earnings to stockholders for the fiscal year.
Lastly, I'd like to return I'd like to turn to our fiscal 2019 outlook.
We are confident in our ability to execute and deliver on our outlook for fiscal 2019, and although some uncertainty remains we believe our guidance.
Guidance adequately reflects it.
Total net sales are now expected to be approximately $2.9 billion for fiscal 2019.
Aerospace sales are now projected to be up approximately 19%.
Primarily due to higher customer provided components at zero margin.
And industrial sales are still expected to be up approximately 35% both as compared to the prior year.
Aerospace segment earnings as a percent of sales remain unchanged and are expected to be approximately 20%.
Adjusted Industrial segment earnings as a percent of sales are now expected to be slightly under 14%.
We do anticipate a headwind to sales and earnings in our fourth quarter as a result of the timing of recognizing some revenue in earlier quarters under NSC six of six.
For the full year, we continue to believe the difference between NSC, six or six and six or five will not be material.
Adjusted earnings per share is now expected to be between $4.70 and $4.80 based on approximately $65 million of fully diluted weighted average shares outstanding.
Free cash flow is still expected to be approximately 300 million.
This concludes our comments on the business and results for the third quarter of fiscal 2019.
Operator, we're now ready to open the call to questions.
Thank you ladies and gentlemen at this time if you have a question. Please press Star then one on your Touchtone phone. If your question has been answered or you would like to remove yourself from the queue. You May press the pound key to prevent any background noise. We ask that you. Please place your line on mute. Once your question has been stated.
Our first question comes from.
Sheila.
Hello with Jefferies. Your line is open.
Hi, Good afternoon, guys and thanks for the time you Rick you raise your revenue guidance for aerospace and I think part of that increase was after market. If I recall. It was previously high single digit low double digit growth and now it's 15% growth for aftermarket maybe can you talk about what's driving that growth.
Yes.
Initial provisioning of only 10% and then if you could elaborate on that a bit.
Yes, a couple of things one obviously the.
The grounding of the Max is one of the uncertainties, but really a lot of the growth and that's what we tried to call out is really related to NSC six of six and so it's the.
The non cash consideration or customer provided components that don't carry earnings.
So that's a part of the growth that we're seeing.
The aftermarket has been strong.
It has come down a bit in the third quarter and in the fourth quarter and a lot of that also is related to six or six.
Okay. Thanks for the clarification and then.
Bob Another one for you on on free cash flow seen Q4 weighted up year over year. So what are you looking for to meet the 300 million target for the year.
It will be a tight target, but we're confident that we've got a real shot at it.
As you know we had stronger sales in the first three quarters of the year than our normal pattern has dictated and that's largely on the back of strong first quarter for the rush. So we anticipate that a lot of that cash will come in in the fourth quarter.
So that will also cause some increase overall and working capital well and then in relation to the soft fourth quarter on our China vehicle sales.
We believe that we're going to see some bank draft maturities in the fourth quarter that will also add to free cash flow in the quarter.
And lastly, a little bit lighter on capex in the quarter.
And all of those things kind of combining to give us some confidence on.
Having delivering a really strong fourth quarter did in the 300 million.
Great. Thank you for the color.
Sure.
Thank you and our next question comes from Chris How of Barrington Research. Your line is open.
Good afternoon, everyone. Good afternoon.
Thank you.
I had two questions here, one just touching on the industrial segment segment and the second on aerospace.
In regard to the industrial segment can you, perhaps parse out or break out.
In more detail the industrial growth that you saw by end market.
Excluding the range and then just following up on that quickly as far as the.
The wind turbine manufacturer is there any sort of timeline for this resolution and how should we think about its magnitude or its percentage of mix.
For the renewables business.
Sure let me start with the last one first.
So the timeline is a little bit on certain we've already passed one day. When we were promised further information on the information that's been given so far is fairly unclear they've kind of outlined a lot of different options.
But some of them whenever very dramatic impact.
On our business.
From a dramatic impact to no impact so.
They are currently calling out a September date for further information.
And so that's that's what we know with respect to what the the courts and so on May announce give you some idea of perspective.
We'll see on the Q, where we breakout desegregated revenue that our renewables business is approximately 14 million in sales in the quarter that kind of gives you an idea where we'll end up for the full year.
It wont be a significantly larger fourth quarter, so somewhere in that $50 million to $60 million range somebody on has gone from about 30% in last years.
Renewables sales totaled less than 10% in 2019, so it's been a dramatic drop and so from you can tell from that number it's not as significant as it used to be.
And so would not have a significant impact on Woodward, but would have a significant impact on the renewables business. So we're watching closely to see what happens there.
With respect to color on the other parts of the business.
The industrial business in particular.
We saw some nice growth this quarter because of the pre buy in the small natural gas engine space.
Large gas engines have been doing very well large diesel engines, particularly those.
Have woodward fuel systems, and our clean burning.
I have been really solid.
Industrial gas turbines.
Have been stabilizing we saw a little bit of increase I would not call that a trend necessarily yet.
But we are encouraged that it has not gone down.
And 21 night 2020, and 21, our look positive in terms of what our long term.
View is obviously the wildcard is the renewables business and we'll have to see where that goes.
Okay.
Thank you for the color and then secondly on aerospace.
Previously you had commented about it.
But just seeking some additional color on the opportunity within military defense activity.
What's how should I think of the upside here and how material could this be.
In the interim and the long term as a growth driver for the aerospace business.
Yeah right right now.
Well, we're looking at the defense market were seeing.
Solid.
Mid double digit teens.
Type of growth rate both.
On the OEM side and supported the installed fleet.
So our anticipation with the defense budget that.
Went through.
We got a good two years ahead of us with nice growth. So it's a it's quite a positive tailwind to the business.
Okay. That's all I have right now thanks again for taking my questions.
Thank you and our next question comes from Robert Spingarn of Credit Suisse.
Okay.
Hey, guys.
Just the accounting makes it a little bit tough to fall this but I'm trying to figure out if there is some conservatism as I try to reconcile the guidance with the with what the earnings guidance against the revenue and margins and I'm wondering if it if it happens in non segment expenses, what what happens there 'cause unless theres a market uptick there.
I.
You know I get now above the high end of your range by not a small amount.
Well, you're correct kind of on both fronts, the apparel and don't hold me to the half of that 50 50 sort of thing, but there is an impact related to six or six.
We do anticipate anticipate that in the fourth quarter that could be a headwind to us.
In at all just a function of what orders that we received in the quarter and what earnings are we able to recognize.
Over time in that quarter, and so we do anticipate that could be a headwind.
The operational side.
Really kind of comes down to the impacts of the 77 Maxs grounding, we don't really know what we've seen the news that you guys are seeing in terms of what the impact could be.
Tom mentioned that we are currently supporting their production schedules and you know kind of remains to be seen where that goes so thats still some uncertainty.
Trying to trade and the impact of the last few days and.
Few months.
Our also a point of uncertainty for us and really the extent of the pre buy and what impact that may have on.
Natural gas vehicle sales in China, and then lastly, the renewables business. So yes. There is some conservatism there is some uncertainty.
I would say a related to all of those events, including the accounting issues associated with it.
And is this what brings that that 14% number for industrial margin down a little bit it still seems to me you're going to have a pretty big fourth quarter. So was just curious as to.
Yes, the volatility and all this so thats predominantly the renewable side and also the uncertainty on the natural gas in China.
Okay, and then just one for preferred Tom Hi level, So triple seven acts and the G nine X. and.
Potential delays there to what extent does could this develop into an issue.
Well I think the issue we would have is.
Yes. This the later introduction into service.
Obviously.
That wouldn't impact sales and.
I see those early sales include initial provisioning so.
Yes, we're watching that.
We're putting together a long range plan and outlook.
We're going to have to push out some of that forecast, but long term I think triple seven acts as a great program and it will materialize I think as planned.
But it'll be a little delayed.
Okay.
Thank you.
Thanks.
Thank you.
And our next question comes from.
Pete.
Good bits can you give us a little bit.
Global your line is open.
Yes, hi, guys.
Okay.
Couple of follow ups in for Bob first.
Just corporate expenses are running just a phone to Rob's question is it looking like.
$100 million on the corporate expense line for this year and then.
Should we think directionally it should be down next year, just on the lack of Duarte costs.
That would be part of it.
Obviously, we continue to try to streamline the non segment area.
We have had some quarterly variation.
But you know we're always in around that 2.5% of sales.
And we anticipate long term that will stay in that range.
Okay, Okay, and then on the cash flow.
Just had a pretty big receivables build this year.
Is that we've kind of mentioning earlier on the call is that mostly China.
And.
Are we nervous at all about collecting that in the fourth quarter.
No no nervousness about collection actually it's kind of the other way round, we we've talked about backdrops and so on and we've never had any issues with them.
The works just like cash, but they have a longer term on them. So we anticipate we will see some net maturities in the fourth quarter, which is why that's a positive.
In those debt maturities are caused by the fact that because of the pre buy we think that the sales during the quarter will be down a bit in the fourth quarter.
So and we did it wasn't.
Only the.
Sales to the accounts receivables gives me impact. So far has been launched has include increased that as well. So they had a very strong first quarter.
And then in general the businesses had strong first and second quarter strength and so we see some of those receivables coming back down again in the fourth.
Okay got it and then just one for Tom Tom kind of top level, just seeing people write about things like some of these public utility oversight boards that a lot of the boards are kind of.
Wanting to invest more in renewables, so they're they're investing in battery farms for renewables it may be less so in.
Natural gas type utilities are you guys seeing does it does it concern you at all long term in terms of you guys have talked a lot historically about coming from coal to natural gas.
I'm just wondering about maybe what peoples political views are that good.
Kind of throw a wrench into that.
Yes, I think you know.
Our opinion on that is that you will see some batteries.
Coming in to this battery storage support renewables.
The economics, so are very challenged on those.
And I think it's going to be very much a niche and that you're going to definitely need to support.
The grid and.
Power demand with natural gas so we're still bullish on natural gas.
We will see some of those come in but.
Unless there is a huge breakthrough in battery technology that we havent seen.
Yes, it's hard to see that really getting to be a large market.
And also you have to look at the rest of the world where.
Natural gas turbines or natural gas engines are really the right.
Emission friendly.
Power generation at the right cost they can afford.
These other technologies.
Okay I appreciate the color.
Welcome.
Thank you.
And our next question comes from David Strauss of Barclays. Your line is open.
Thanks, I think on.
On the Max you talked about supporting the OEM rate, but.
Can you clarify are you still at 52 are you somewhere below 52, a month on the Max.
Yes, it varies based on the products were supporting.
As we move forward.
We're we're looking at and outlook after 42, that's our planning.
The remainder of the year and going into next year until we start to see the.
Anticipated ramp up when it comes off of ground.
Okay.
And then Bob I think the plan was to de lever down to two times growth by the end. The year is that I don't I don't think you're quite there yet is that still the plan. So we're really close with two one at the end of this quarter. So we anticipate.
Being there or a little bit ahead of target.
Okay alright, thank you.
Mhm.
Thank you.
And our next question comes from Gautam Khanna of Cowen and co. Your line is open.
Hey, good afternoon, guys I got it.
Just to follow up on Davids question.
On the engine side. The CFM side are you guys. At 42 are you at 52 Im just curious what.
Is this advanced caution or have you actually been taken down in rate on the leap one b.
Now right right now on the engine side, we're above 42.
But.
Sensitive above you know there is some movement.
Really what's happening is depending on.
Inventory positions and the like.
Those numbers will fluctuate for planning purposes, we're planning 42.
But for continued presumably.
Last quarter, you were low 52 is that a fair assessment that I'm just trying to get the slogan.
Fair.
Yes.
Okay.
And then the 42, that's you're expecting for all of fiscal Q4.
That's what we're looking at and.
As Bob highlighted.
As we look in the fourth quarter, we look as we move into next year.
We're going to take a conservative view on the the rate and the ramp up for planning purposes, We will plan accordingly, so that we support our customers no matter what the rate. They go to so we will be able to support him, but or highlighting is that given the unknowns and given that that production at Boeing.
That's what we're looking at.
And then just curious how fluid is that with your call stromal GE most is that something low.
Month to month week to week changes.
No.
Moves or they're very good with their planning and consistent and we're constantly in dialog with them on what's required what they need.
Okay.
Bob maybe for you I am just curious what are the add backs. This year one pad thought we thought the purchase accounting step that would be excluded would equate to about $20 million, but I want to make sure we have the.
Adjusted EPS add backs correct in fiscal Q4, so what should we expect.
The two main areas.
Our our Duarte to Drake.
Transition.
And so we called that out as well as the backlog and you're pretty much right on with the backlog amortization.
And then.
We anticipate that Duarte Drake is largely complete.
There may be some spillover into the fourth quarter, but.
We're pretty much out of the facility. So most of those costs should be behind us.
Same thing with the backlog amortization, that's behind us as well so fourth quarter, hopefully will be fairly clear in 2020.
Those items will be gone.
Okay.
And then.
To follow up on an earlier question I think she'll asked about the aftermarket you mentioned they think that there were some real time slowdown.
Anything you can generalize about.
Where why and what might be driving that.
Maybe we should geography or product area or anything yes, yes, let me clarify it's not a slowdown.
Repair and overhaul type work is actually strong we had very tough comps from a year ago.
So.
If we didnt make that signal that it's down actually the market is incredibly healthy.
The one area that has slowed down for us as we had planned more initial provisioning tied to the Max.
And obviously that kind of ground to a halt it till the.
Aircraft is back in service. So those sales are not lost.
They are delayed and we anticipate that we will see those next year, but on the maintenance side, the MRO side, it's robust and going forward.
Commercial.
MRO look strong going into next year as well.
The fleet dynamics as we've highlighted for while our very favorable to our company the.
The shop visits are going up.
It's just that we have as you can tell in the last couple years, we've had very strong performance here. So each year that the comps are tougher, but it's a it's a robust number and there is no slowing down there we're seeing at the moment.
Thank you appreciate it.
You're welcome thank you.
And our next comp.
Question comes from Christopher Glynn Oppenheimer. Your line is open.
Hey, Thanks, good afternoon.
A question on the.
737, Max is there any impact to your cash flows are cash timing that impacted your initial free cash flow outlook that maybe you're making up elsewhere.
Well the one that we were anticipating and highlighting the initial provisioning sales those are spare sales said airlines by the support their new aircraft.
You know those carry a nice margin and.
Those sales have.
And.
Primarily of dried up.
So those were in our free cash flow projection.
But at the same time, our MRO is doing well.
And as Bob highlighted we see.
Working capital improvements happening in the fourth quarter and also slightly lower capex. So combination of all that is how we are still holding on to the 300 million.
Okay, and just curious how you're thinking about learn cyclicality I think it's been grown 15, 20% range.
Hi, how are you thinking about the kind of baseline run rates that you're exiting this year with in terms of what that business supports.
Long term in terms of cyclicality versus its may be ongoing expansion prospects.
Yes, well.
Yes, a lot of our markets are cyclical right now as we're looking at that.
The the fundamentals for the launch market are strong.
Well, we anticipate being able to do is add some additional customers we talked about that with.
Launch being part of Woodward being independent from any engine manufacturer we are.
Seeing a lot of customer interest, we're working on some new programs.
That'll start migrating into new revenue streams over the next couple of years, because these programs take a while to develop.
In the meantime.
Tougher emission regulations around the world are driving.
For more complex.
Fuel injection systems control systems that favors and Raj. So we're seeing continued growth there and then.
Is very nice aftermarket and as utilization goes up we're seeing higher utilization driving spare parts. So overall, we're seeing.
Raj.
Probably in the low double digits.
The 15% to 20% we think of the lower end of that range is probably where it will end up for the full year and our accretion is still at around that 60% 60 cents.
Target.
Great. Thank you.
Thank you.
As a reminder, ladies and gentlemen that star one to ask a question. Our next question comes from Michael Ciarmoli of Suntrust. Your line is open.
Hey, good evening guys. Thanks for taking the questions Nice result.
HM.
Well, maybe housekeeping did I catch the tax rate is that down a 100 basis points now for this year and it looks like in the quarter I'm still shuffling through this but it was 10 and a half million positive adjustment for taxes in the quarter was that all as expected or was there anything incremental that change there, yes on the first and reversed on the.
On the second part so.
Okay.
We are a 100 basis points roughly down and the overall rate.
And.
For the.
I've said was that just lost my train of thought in the second part of the question transition the transition tax was actually a hit to us.
In the quarter, it's noncash now as an eight year period. So eventually those cash related to it but in the current quarter its a non cash.
Increased tax expense.
Got it got it and then just on the on the Mac. So just I guess calibrate our expectations.
So as we go into next year should we assume that you're keeping that rate moderated at 42, because I mean, it would seem like it would be then up a pretty decent headwind I mean, I don't know what your your blended rates year might be for or your annual deliveries for fiscal 19, but.
Assuming for planning purposes, 42, I mean that could be 30 to 40 million dollar headwind potentially is that how should we we should be thinking about next year.
With that conservatism in mind.
I don't know that that's the exact number for the headwind. We're we're looking at supporting the line rates and then planning for the announced 42 with.
Material planning and production planning to support.
The higher ramp.
Occurs or be prepared if it goes lower.
Got it okay, yes.
Yeah.
Good.
No I was just looking at your content you know assuming 290000 and if were at 102000 fewer units. It works out to about 35 million or so right.
Okay.
Yes.
Okay.
Got it and then just the last one on Laronde, obviously, some global growth pressure out there and anything you guys are seeing in the aftermarket and then they've got a big component there anything in that channel.
Any update on ordering rates that would give you guys received for pause that there might be any destocking are you seeing pretty firm trends out there.
We're seeing pretty good trends there is.
It's definitely variability in the aftermarket, especially if you go quarter to quarter.
But you had to utilize the aftermarkets really driven by utilization utilization is still strong.
With that.
Overall, we see pretty good spare outlook spare parts outlook.
So right now that that's going well.
And there's multiple end markets as you know.
The Rochester.
Good presence and power particular data centers.
Very good presence in marine.
We also have oil and gas. So you have to look at the dynamics in each of those markets.
Both from an OE and aftermarket and utilization standpoint, Green Utilizations been good oil and gas has been good Datacenters don't drive a whole lot aftermarket.
Good on the OEM side.
So.
Got it.
All right good stuff thanks, guys.
Thank you.
Thank you.
And Mr. Gendron there are no further questions at this time I will now turn the conference back to you.
Oh.
It looks like a couple of questions have come up operator, do you have that in front of Oh, Yes, I do Weve got a Christopher I'm, sorry, Christopher Nolan Your line is open.
Yes. Thanks, I was just wondering on the China natural gas truck. If you think that the fourth quarter will have pretty much cleaned up the.
Kind of five inventory clear the way for China, six or if it's more likely to take that.
Couple of quarters.
I think a large part will be.
Cleaned up in the fourth quarter and as we move into fiscal 2020 that start ramping.
Great Thats, all I had to try to fix will start trying to six engines and trucks will start gaining in 2020.
Okay. Thanks.
Thank you.
And our next question comes from Gautam Khanna of Cowen and co. Your line is open.
Hey, Thanks for taking the follow up.
One thing I was trying to understand was on.
Provisioning sales engine provisioning sales on the three seven Max.
Do you know can you trace what is in fact the.
Provisioning sale versus an OE, so you're given the visibility by the customer.
Okay, we know that we know exactly what what it is.
So one of the things I was trying to square as they've talked about they general electric has talked about.
Using what part of the reasons. They were captured 52 ish a month was to catch up on provisioning spares.
Yeah, because there were lagging the rate the whole supply chain, so I would actually think.
Yes, there is a difference on that got a richer mix, yeah, there's a little bit different.
For clarity.
A spare initial provisioning and Jim you want to say spare engine, we do not.
We did not have as a spare to Woodward.
Well, we get its fair.
Hardware Woodward Heller use to the airlines.
Okay. So there is little bit different so you're hearing is an engine spare not of Woodward spare.
That makes sense.
Got it so the airline buys the Woodward spare that goes in the engine separate and apart from what they are buying some CFO .
Correct.
Okay, and so that's what's actually changed because I would think the mix you participate as a split do you get better pricing on what CFM cells as a spare engine or not.
No.
We do not got it so that's a no resale, okay fair enough that actually clarifies a lot. Thank you okay you're welcome.
Helpful.
Thank you.
And there are no further questions at this time I will turn the conference back to you Mr. Gendron.
Okay, well I appreciate everybody joining us today and.
Thank you for your questions and we look forward to seeing you between now and our next conference call at the end of our fiscal year.
So thanks have a good evening.
Ladies and gentlemen that concludes our conference call today, if she would like to listen to the rebroadcast of this conference will be available today at 730, P.M. Eastern daylight time by dialing 18558, fivenine choosing real five six free last call or one 404 three.
53734, 061, non U.S. cough and by entering the access code 459 to 857, a rebroadcast will be available at the company's website www Dot dot com for 14 days. We thank you for your participation on today's conference call and ask that you. Please disconnect your lines everyone have a great day.