Please ensure Javascript is enabled for purposes of website accessibility

Moog Takes a Hit on Shrinking Sales, Gloomy Guidance

By Dan Caplinger - Jan 30, 2016 at 7:48AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Earnings fell more than expected as the component maker couldn't even get more sales from its once-hot aerospace business.

Signs of a cyclical downturn have been popping up in earnings reports lately, and Moog (MOG.A) (MOG.B) has definitely felt the pinch from weakening conditions in its core markets. Coming into Friday's fiscal first-quarter financial report, Moog investors were expecting slight declines in sales and net income. What they got, though, was a much more downbeat assessment than what we've seen recently from TransDigm Group (TDG) and other companies that serve the aerospace industry. Let's take a closer look at Moog and what its results say about its future.

Moog sees big drops
Moog's fiscal first-quarter results were a lot worse than most investors were prepared to see. Revenue of $568 million was down 10% from year-earlier results, and represented a major shortfall from the $610 million consensus forecast among investors. Net income dropped by more than 25%, weighing in at $26 million, and that produced earnings of $0.71 per share. That result was more than a dime per share lower than investors had expected.

Most of Moog's most important segments suffered sales declines. Aircraft controls revenue dropped 4%, with weakness both from falling commercial original-equipment and aftermarket sales and from weakness in military-related revenue. The space and defense controls segment suffered a much larger decline of 17%, and the company blamed what it called a cyclical decrease in demand for components for satellites. Lower sales related to security also weighed on the segment.

The industrial systems segment took a 6% revenue hit, with the energy industry contributing to the decline from lower volumes of oil and gas exploration equipment sales. Industrial automation equipment demand also fell, and the components segment saw revenue plunge 26% on a combination of falling oil prices and the rising dollar. Only the medical devices segment managed to pick up gains, rising 13% due to high demand for IV and enteral pumps.

CEO John Scannell didn't seem all that surprised by the company's performance. "We expected a slow start too the year," Scannell said, "and we came in at the low end of our guidance for the quarter." Nevertheless, the CEO pointed to deteriorating conditions over the past three months that have led the company to become more pessimistic about certain aspects of its business in the short-term, especially in areas outside aerospace and defense.

What's next for Moog?
Still, Moog isn't slowing down its efforts to keep moving forward. As Scannell said, "We're still investing in the long-term future across all of our markets, and we're promoting more efficient processes in our operations. Over the past couple of years, we've seen improvements in several operating segments." Moog thinks it can work harder to take advantage of more opportunities in the future.

Nevertheless, Moog expects to hit further roadblocks in the near-term. In its projected guidance, Moog cut its sales forecast for the year by $100 million, and the resulting $2.47 billion forecast will be lower than what it posted in its previous fiscal year. Similarly, full-year fiscal 2016 earnings of $3.35 per share is well below the $4 per share that the company had guided investors toward just three months ago.

Perhaps the worst news is that Moog is suffering where other players in the industry are thriving. TransDigm Group, for instance, produced solid gains in revenue and earnings in its most recent quarter, and it has been able to sustain positive momentum even in the tough economic environment. TransDigm's approach includes a heavily acquisition-based strategy, but partnerships with aircraft makers have also helped TransDigm distinguish itself in the space.

Moog investors were extremely disappointed with the company's results, sending the stock down more than 17% following the announcement. Given concerns about its ability to take advantage of the booming aerospace market, Moog needs to reassure investors in the future that it will find new ways to grow that can help pull it out of the revenue and earnings tailspin that it saw during the first quarter.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends TransDigm Group. The Motley Fool recommends Moog (A shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

TransDigm Group Incorporated Stock Quote
TransDigm Group Incorporated
Moog Inc. Stock Quote
Moog Inc.
Moog Inc. Stock Quote
Moog Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.