Why is Woodward (WWD) up 14.1% since its last earnings report?

About a month has passed since Woodward’s (WWD) last earnings report. Shares have risen about 14.1% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Woodward headed for a recession? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to better understand the important catalysts.

Woodward’s best second-quarter earnings and revenue estimates

Woodward reported adjusted net earnings per share (EPS) of $1.62 for the second quarter of fiscal 2024, which beat the Zacks Consensus Estimate by 26.6%. In the year-ago quarter, WWD reported adjusted net EPS of $1.01.

Quarterly net sales increased 16% year-over-year to $835 million. Continued growth in end-market demand and improved operating performance drove this growth. The top result beat the consensus by 4.1%.

The company raised its 2024 guidance due to expected improvement in operating performance in the second half of fiscal 2024 combined with insight into fiscal third-quarter demand for its China natural gas truck business.

Net sales are now expected to be in the range of $3.25 billion to $3.35 billion, compared to previous guidance of $3.15 billion to $3.3 billion.

Adjusted free cash flow is expected to be between $325 million and $375 million (previous guidance: $300 million to $350 million).

EPS is expected to be in the range of $5.70 to $6.00. EPS was previously forecast in the range of $5.00-5.40.

Aerospace segment revenues are expected to grow in the range of 12, compared to the previously expected range of 10. Industrial segment revenues are expected to grow in the range of 13, compared to the previously expected range of 8.

Segment results

Aerospace: Net sales were $498 million, up 14% year over year. The positive impacts can be attributed to higher commercial OEM and commercial aftermarket sales resulting from higher OEM production rates, improved passenger traffic and fleet utilization.

Defense OEM sales have also increased thanks to higher ground vehicles. Defense aftermarket sales benefited from supply chain stabilization and higher production.
Segment profits were $98 million, up from $73 million a year earlier. Higher volume and net price realization drove the rally.

Industry: Total net sales were $338 million, up 20% year-over-year due to transportation developments, particularly in the natural gas truck industry in China, combined with solid sales in power generation and price execution. An additional factor supporting development is the high demand for alternative fuels in the entire maritime industry.

Demand for heavy natural gas trucks in China was solid. Sales of highway natural gas trucks in China amounted to $65 million in the quarter under review. However, management expects fiscal third-quarter sales to be between $35 million and $40 million.

Segment profits were $65 million, up from $38 million in the same quarter last year. This was mainly due to increased demand for highway natural gas trucks in China and operational improvements (such as higher efficiency and other efficiency gains).

Other details

Gross margin increased 600 basis points year-over-year to 22.1%.

Total costs and expenses increased to $714.7 million, an increase of 5.4% year-over-year.

Adjusted EBITDA was $117 million compared to $164 million a year earlier.

Cash flow and liquidity

As of March 31, 2024, Woodward had cash and cash equivalents of $316.9 million and long-term debt of $649 million (net of current portion).

In the first half of fiscal 2024, WWD generated $144 million of net cash from operations, up from $40 million in the prior-year period.

Adjusted free cash flow was $90 million. In the prior-year quarter, the company reported adjusted free cash flow of $1 million. The increase was mainly due to an increase in profits, partially offset by higher capital expenditure.

Woodward did not repurchase any shares during the quarter under review. During the first half of fiscal 2024, the company paid a $28 million dividend.

How have estimates changed since then?

Investors have witnessed an upward trend in estimate revisions over the last month.

As a result of these changes, the consensus estimate moved by 16.32%.

VGM results

Meanwhile, Woodward has a weak Growth Score of D, although it lags slightly behind its Momentum Score with a Value of F. Plotting a somewhat similar path, the stock is given a D on the Value side, placing it in the bottom 40% for this strategy investment.

Overall, the company’s overall VGM score is F. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for the stock are trending upwards, and the scale of these revisions looks promising. It’s no surprise that Woodward carries a Zacks Rank #1 (Strong Buy). We expect an above-average rate of return on shares in the coming months.

Industry player performance

Woodward belongs to the Zacks Instruments – Control industry. Another stock in the same industry, Badger Meter (BMI), has gained 7.2% over the past month. More than a month has passed since the company announced its results for the quarter ended March 2024.

Badger Meter reported revenue of $196.28 million in the most recent quarter, representing a year-over-year change of +23.4%. EPS of $0.99 for the same period compared to $0.66 a year ago.

Badger Meter is expected to report earnings per share of $0.98 for the current quarter, which would represent a year-over-year change of +29%. The Zacks Consensus Estimate has remained unchanged over the past 30 days.

Badger Meter has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Rating of D.

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