Please ensure Javascript is enabled for purposes of website accessibility

Moog Ekes Out an Earnings Win on Aerospace Strength

By Dan Caplinger - Apr 29, 2016 at 10:55AM

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

Revenue for the component maker fell in most areas due to sluggish economic conditions.

Image source: Moog.

Producers of components are always vulnerable to the conditions of the industry they supply, and Moog (MOG.A 1.07%) (MOG.B 0.00%) has had to deal with several headwinds in key customer groups it serves. Although the aerospace sector has done reasonably well lately, signs of topping out have emerged at some companies, and coming into Friday's fiscal second-quarter financial report, Moog investors expected flat earnings and a sizable decline in the bottom line. What Moog said wasn't as downbeat as that, and the company actually posted a respectable increase in earnings per share despite seeing falling sales. Let's look more closely at how Moog did this quarter and whether conditions are set to improve in the near future.

Moog works through tough times
Moog's fiscal second-quarter results largely bounced back from a tough performance last quarter. Revenue was down 4% to $611.1 billion, but that wasn't quite as bad as investors had feared the company would report. Net income also declined, falling 3% to $31.1 million. But a drop in outstanding share count more than offset the drop in net income, and earnings per share rose to $0.85, beating the consensus forecast by a nickel per share.

A closer look at Moog's key segments showed few bright spots on the revenue front. The aircraft controls segment was the only one to post an increase in net sales, and it only managed a half-percent rise. The worst drops were in the components area, where revenue plunged by nearly a fifth, and space and defense controls with its 4.4% decline.

Interestingly, though, operating profits looked a lot different. For aircraft controls, segment operating profit fell 15%, and the same figure for components dropped by nearly half. Yet space and defense controls operating profit nearly tripled from year-ago levels, and medical devices also posted a 250% increase. The industrial systems segment had the least volatile performance, with sales falling less than 1% and operating profits posting a 5% gain.

Moog's explanations for the disparate performance also added color to the report. Sales to Airbus were strong in the controls arena, but Boeing sales dropped, as did business jet sales. For military aircraft sales, original-equipment manufacturer sales rose, but aftermarket sales fell. Sales of simulation and test products like flight training simulators jumped by double-digit percentages, but sales of components for the energy, industrial, and medical markets showed slowdowns in many programs. Lower demand for satellite controls hurt the space segment as well.

CEO John Scannell focused on the company's successes. "We came in at the high end of our guidance and had strong cash flow," Scannell said. "We're maintaining our sales and EPS forecast for the full year."

Can Moog fly higher?
Scannell's comments indicate that Moog investors can continue to rely on past guidance from the company with respect to 2016 results. That includes a projected $2.47 billion forecast in revenue for the year. Meanwhile, full-year fiscal 2016 earnings should weigh in at $3.35 per share, with possible variance of $0.15 per share in either direction.

One key to Moog's success is to keep winning contracts. Earlier in April, the company said that its aircraft group won its bid to be a supplier for Northrop Grumman (NOC 1.63%) for the flight control systems for its Tern unmanned developmental aircraft. The project, which is part of a joint program between the Defense Advanced Research Projects Agency and the U.S. Office of Naval Research, involves having Moog design and make the flight control actuation system for the demonstration aircraft, including control electronics and accessories along with the physical actuators themselves. Demonstrating its ability to follow through on work like that is crucial to maintain Moog's reputation and keep its business moving forward.

Moog investors were happy with the company's performance, sending the stock up about 3% in morning trading following the announcement. Yet in the long run, Moog will need to try to do an even better job of tapping into the high demand for aerospace products as well as working toward broadening its target audience of buyers for its diverse offerings.

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

Moog Inc. Stock Quote
Moog Inc.
$80.24 (1.07%) $0.85
Moog Inc. Stock Quote
Moog Inc.
$79.80 (0.00%) $0.00
Northrop Grumman Corporation Stock Quote
Northrop Grumman Corporation
$486.37 (1.63%) $7.80

*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 07/03/2022.

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.