It has been about a month since the last earnings report for Woodward (WWD). Shares have lost about 0.4% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Woodward due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Woodward Q2 Earnings Lag Estimates, Revenues Up Y/Y
Woodward reported tepid second-quarter 2022 results. Adjusted net earnings came in at 72 cents per share, declining 30.8% year over year. The bottom line missed the Zacks Consensus Estimate by 16.3%.
Net sales in the fiscal second quarter moved up 1% year over year to $587 million due to higher sales in the Aerospace segment. Despite recovery across most of its end markets, nearly $100 million in sales were hampered due to ongoing industry-wide COVID-19-related disruptions. The top line lagged the consensus estimate by 2.2%.
Aerospace: Net sales were $373 million, up 2% year over year. The upside can be attributed to higher commercial OEM (up 21% year over year) and aftermarket sales (up 40%) resulting from improving passenger traffic and aircraft utilization along with higher OEM production rates. Higher utilization of the commercial fleet aided the segment’s quarterly results. Continued softness in defense aftermarket sales and guided weapons due to supply chain disruptions were headwinds.
The segment’s earnings were $60 million, down from $69 million in the year-ago quarter. The downside was caused by net inflationary pressures, including higher manufacturing and labor costs.
Industrial: Net sales totaled $214 million compared with $217 million in the prior-year quarter. The decline was due to the negative impact of unfavorable foreign exchange and weakness in China’s natural gas engines. However, it was mitigated by higher marine sales and increased utilization of the in-service fleet.
The segment’s earnings were $17 million, down from $28 million in the year-ago quarter mainly due to net inflationary impacts.
Total costs and expenses increased to $532.7 million, up 5.9% year over year. Adjusted EBITDA came in at $90.8 million compared with $118.9 million in the year-ago quarter.
Cash Flow & Liquidity
As of Mar 31, 2022, Woodward had $208.4 million in cash and cash equivalents with $728.2 million of long-term debt (less the current portion).
For the six months ended, Woodward generated $50 million of net cash from operating activities compared with $219 million a year ago. Free cash flow for the same period came in at $26 million compared with $206 million in the prior-year period. The downtick was mainly due to increased working capital to support the anticipated growth in 2022.
Woodward repurchased shares worth $245 million in the quarter under review. In January 2022, the company authorized a new $800-million, two-year stock repurchase program, reinforcing its financial position and positive outlook.
For fiscal 2022, net sales are now expected to be between $2.4 billion and $2.55 billion compared with the earlier guidance of $2.45-$2.65 billion.
While the Aerospace segment revenues are likely to increase low double digits to mid-teens, the Industrial segment revenues are expected to increase between 5% and 10%.
Adjusted free cash flow is projected to be between $200 million and $230 million. Adjusted earnings are likely to be in the range of $3.20-$3.60 per share compared with the earlier projection of $3.55 to $3.95.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -11.8% due to these changes.
Currently, Woodward has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Woodward has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Woodward belongs to the Zacks Instruments - Control industry. Another stock from the same industry, Sensata (ST), has gained 2.3% over the past month. More than a month has passed since the company reported results for the quarter ended March 2022.
Sensata reported revenues of $975.77 million in the last reported quarter, representing a year-over-year change of +3.5%. EPS of $0.78 for the same period compares with $0.86 a year ago.
For the current quarter, Sensata is expected to post earnings of $0.84 per share, indicating a change of -11.6% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
Sensata has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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