Moog Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Results: Delivered record sales, adjusted earnings per share, built record backlog, strong adjusted operating margins, and solid free cash flow despite tariffs.
• Defense End Market: Secular increase in defense spending in U.S., NATO, and Indo-Pacific; urgency to replenish missile stocks; NATO commitment to raise defense spending to 3.5% of GDP.
• Commercial Aerospace: Stable production, aftermarket strength from increased airline activity, wide-body fleet utilization, and long-term support contracts.
• Industrial Markets: Relative stability, bookings exceed sales, backlog growth, Industrial Automation resilient, Medical growing.
• Tariffs: Impact from steel/aluminum and key suppliers; mitigations in place (U.S.-Mexico-Canada agreement, repair goods management, price adjustments), but expecting tariff increase in Q4.
• Initiatives: Customer focus (Paris Air Show, contract renewals, acquisition of COTSWORKS), ESG recognition (EcoVadis bronze medal), margin enhancement through pricing and simplification, divestitures of noncore product lines, footprint rationalization

Segment Performance

• Commercial Aircraft: Sales of $219 million, up 16% y-o-y. Aftermarket sales reached a record level driven by 787 and A350 fleet utilization; OE sales flat due to disruptions in some programs but offset by noncore product line sales. Revenue contribution: Significant from aftermarket strength.
• Space & Defense: Sales of $288 million, up 11% y-o-y. Strong defense demand, particularly in satellite components and missile controls. Revenue contribution: Substantial from defense applications.
• Military Aircraft: Sales of $225 million, up 8% y-o-y. Growth driven by FLRAA program ramp. Revenue contribution: From major production and development programs.
• Industrial: Sales of $240 million, down 4% y-o-y due to divestitures. Industrial Automation resilient, Medical continuing to grow. Revenue contribution: Moderate, with stability in industrial markets

Guidance

• Sales: Projected to be $3.8 billion, an $80 million increase from 90 days ago, with growth in all segments.
• Operating Margin: Projected at 12.8%, down 20 basis points due to 50 basis points of tariff pressure, but underlying business strength remains.
• Adjusted EPS: Projected at $8.25, plus or minus $0.10, reflecting business strength and tariff pressure.
• Free Cash Flow: Moderated to 30%-50% conversion due to working capital needs for elevated growth

Risks

• Tariffs: Uncertainties including potential Q4 increase and impact on cost base.
• Supply Chain: Disruptions affecting certain commercial aircraft programs.
• Competitive: Challenges in medical market impacting market share for competitors

Question and Answer

Q: Kristine Liwag asked about free cash flow guide.

A: Jennifer Walter explained that increased sales led to higher working capital needs, inventory management to support growth, and focus on customer advances in Q4 Q: Jon Tanwanteng inquired about defense budget and NATO spending.

A: Pat Roche discussed alignment with defense priorities, urgency in missile demand, and opportunities in Golden Dome programs Q: Mike Ciarmoli asked about free cash flow and '26 guidance.

A: Jennifer Walter mentioned customer advances in Q4 and tax reform providing a tailwind for '26 free cash flow Q: Tony Bancroft asked about industrial strength.

A: Pat Roche talked about industrial automation resilience, book-to-bill above 1, and medical growth due to strong manufacturing and market share gains Q: Gautam Khanna asked about A350 actuation and medical.

A: Pat Roche stated A350 actuation loss was not meaningful, and medical growth resulted from strong manufacturing and market share gains Q: Mike Ciarmoli followed up on headcount and 80/20 sites.

A: Pat Roche discussed productivity improvements from tight headcount management and 80/20 deployment covering 85% of revenue