Strength in aerospace demand has had a huge positive impact on companies that contribute to aircraft production, and Moog's (NYSE:MOG-A) (NYSE:MOG-B) role in producing components for airplanes and spacecraft, as well as the medical industry, has helped the company benefit from surging demand over the years. Yet coming into its fiscal second-quarter report Friday morning, Moog investors worried that last quarter's warnings about tougher conditions ahead could lead to mixed results going forward. Moog's report gave investors good news on the earnings front, but revenue eased lower, painting a cloudy picture for the company's future. Let's look more closely at Moog and how it's moving to improve its results in the rest of 2015.
How Moog got its bottom-line groove back
Moog's fiscal second-quarter results reflected the uncertainty the company discussed last quarter. Revenue fell 2% to $637 million, although those results were slightly better than the 2.5% drop in sales investors following the stock had expected. Generally accepted accounting principles net income also declined, but after adjustments for various noncash charges and other one-time items, adjusted earnings of $0.96 per share were a nickel higher than the consensus estimate.
Moog's various business units delivered mixed performance. Aircraft segment sales were unchanged, with gains in original equipment manufacturer commercial aircraft climbing 12%. But commercial aftermarket sales dropped 16% as tailwinds from last year's production of spare inventory for the 787 program largely disappeared, and military aircraft sales fell about 5%. Space and defense revenue also edged down 2%, as the space-based component fell faster than slight gains in missile and naval-control sales on the defense side could offset. Industrial systems posted the worst decline, a 15% drop in sales, on the back of energy markets and poor currency conditions.
Still, not everything was gloomy for Moog. Components sales climbed 7%, with strength across the board in its target industries. Revenue in the medical devices segment also climbed 16% to $32 million.
Can Moog make it through tough times?
CEO John Scannell expressed his views on Moog's results, noting in the earnings press release that the company "had some unusual charges this quarter" but that "our underlying business performed well in the face of an adverse shift in our aircraft sales and ongoing macroeconomic headwinds." Scannell seemed confident, though, that Moog will successfully make its way through the resulting challenges to produce better earnings numbers in the future.
Still, cuts to Moog's full-year fiscal 2015 guidance could make investors nervous about its future. Moog now expects revenue of $2.54 billion, down from its previous guidance for $2.57 billion, and earnings could come in as low as $3.55 per share, down from the $3.85 figure Moog provided last quarter. Special adjustments make up part of the projected decline, but poor conditions also played a role.
Moog shares responded poorly to the reduced guidance, falling 2% in the first 30 minutes of trading following the announcement. Yet the bigger question Moog faces is whether the aerospace industry will remain healthy into the future. While falling fuel prices have taken away some of airlines' urgency to update their commercial fleets, orders for new models continue to flood in, and Moog should reap its fair share of business from that level of activity. As long as troubling signs of an aerospace slowdown at Moog turn out to be a short-term blip rather than the beginning of a long-term trend, Moog has the ability to bounce back from its setback in the remainder of 2015.