Moog Inc. Q4 FY2025 earnings call

• Fiscal 2025 ended with exceptional fourth quarter performance, including record quarterly sales over $1 billion, an all-time high 12-month backlog of $3 billion, and highest quarterly adjusted operating margin, EPS, and free cash flow. - End markets: The Defense market had secular growth in spending; Commercial Aerospace had strong backlogs and production rate increases; Industrial showed stability with growth in medical and data center cooling. - Leadership priorities: Customer focus with awards like Crystal Excellence and Lockheed Martin supplier award; notable contract wins in SGT Stout, Australia missile production, and collaborative combat aircraft; investment in employees and communities with a training center and waste collection; financial strength with 80/20 implementation, voice of customer focus, and simplification initiatives including divestitures and facility consolidation.

Fiscal 2025 saw Moog achieve record sales of $3.9 billion, a 7% increase from FY '24. The Aerospace and Defense segments drove growth. Commercial Aircraft sales rose 15% due to strong aftermarket sales and wide-body program ramp-up. Space and Defense sales grew 9% from broad-based Defense demand. Military Aircraft sales increased 9% with activity on the MV-75 and new production programs. Industrial sales decreased 4% due to divestitures. In the fourth quarter, sales exceeded $1 billion, with Commercial Aircraft up 27% to $252 million, Space and Defense up 17% to $307 million, Military Aircraft up 10% to $236 million, and Industrial up 5% (7% adjusted for divestitures and foreign currency effects).

For FY '26, Moog projects sales of $4.2 billion, a 9% year-over-year increase. Commercial Aircraft sales are expected to grow 15% to $1.0 billion, Space and Defense 11% to $1.2 billion, Military Aircraft 7% to $1.0 billion, and Industrial 3% to $1.0 billion. Adjusted operating margin is projected at 13.4%, a 40 basis point increase from FY '25. Military Aircraft margin will increase 200 basis points to 14.3%, Industrial margin will be 14.3% (80 basis points over FY '25), Space and Defense will remain flat at 13.5%, and Commercial Aircraft margin will decrease 90 basis points to 11.5% due to tariffs. FY '26 adjusted EPS is projected at $10 plus or minus $0.20, up 15% from FY '25, and free cash flow conversion is projected at 60%.

• Tariff headwinds pose a significant challenge, particularly impacting the Commercial Aircraft segment. - Supply chain issues, including fixed purchase orders with suppliers and long cash conversion cycles, present challenges related to managing demand variations and cash flow.

Q: Could you focus more on cash flow, phasing through following quarters, and underlying items addressed?

A: Jennifer Walter discussed free cash flow conversion at 60%, noting working capital initiatives like pushing out material receipts and destocking in Commercial Aircraft. Patrick Roche mentioned changing supplier purchase order structures to address demand variations.

Q: On negative incremental margin in Commercial Aircraft for '26, mix impact?

A: Jennifer Walter stated there is negative mix due to commercial aftermarket being a smaller percentage of segment sales, with tariffs being a significant impact.

Q: Growth platforms, M&A?

A: Patrick Roche said Moog is active in maintaining acquisition targets, interested in growing the Defense side, and using organic footprint in Australia to build its missiles business, with opportunities in Europe.

Q: Tariffs impact on Aerospace vs Industrial?

A: Patrick Roche explained Commercial Aircraft is more impacted due to its global manufacturing and supply chain structure, Section 232 tariffs on steel and aluminum, and some customer contracts not shielding from impact.

Q: Commercial Aircraft growth, aftermarket vs OE?

A: Jennifer Walter mentioned destocking is managed on the supply chain side, and Patrick Roche noted OE growth is contributing to '26 growth, including narrow-body volumes.

Q: Confidence in 60% free cash flow conversion in '26?

A: Jennifer Walter said Moog is confident due to sales growth, customer advances in sight, and progress on pushing out material receipts.