Moog Inc. Q4 FY2025 earnings call

• Fiscal 2025 ended with an exceptional fourth quarter performance, achieving record results including over $1 billion in quarterly sales, a $3 billion 12-month backlog, and highest quarterly adjusted operating margin, EPS, and free cash flow. - End markets: The Defense market had a secular increase in spending; Commercial Aerospace customers had strong backlogs and intended to increase production rates; Industrial markets were stable with growth in medical and data center cooling. - Leadership priorities: Customer focus with awards like the Crystal Excellence Award and Lockheed Martin supplier award; notable contract awards in SGT Stout, Australia missile program, and collaborative combat aircraft; investment in employees and communities with a training center and waste collection efforts. - Financial strength: 80/20 was embedded in approximately 80% of businesses by revenue; key customers were prioritized; operations were simplified with asset disposals and facility consolidation, driving margin benefits.

Fiscal 2025 saw record sales of $3.9 billion, a 7% increase from FY '24. The Aerospace and Defense segments drove this growth. Commercial Aircraft sales rose 15% due to strong aftermarket sales and the ramp-up of wide-body programs. Space and Defense sales grew 9% from strong broad-based Defense demand. Military Aircraft sales increased 9% with increased activity on the MV-75 and new production programs. Industrial sales decreased 4% as a result of divesting two businesses at the start of FY '25. In the fourth quarter, sales exceeded $1 billion for the first time. Commercial Aircraft sales were $252 million, up 27% year-over-year. Space and Defense sales were $307 million, up 17%. Military Aircraft sales were $236 million, up 10%. Industrial sales were $253 million, up 5% (7% when adjusting for divestitures and foreign currency effects).

• Fiscal 2026 sales were projected at $4.2 billion, a 9% year-over-year increase. Adjusted operating margin was projected at 13.4%, a 40 basis point increase from FY '25. EPS was projected at $10 ± $0.20, up 15% from FY '25. Free cash flow conversion was expected to be 60%. - Commercial Aircraft sales were projected to grow 15% to $1.0 billion; Space and Defense sales to increase 11% to $1.2 billion; Military Aircraft sales to rise 7% to $1.0 billion; Industrial sales to increase 3% to $1.0 billion. - Margin details: Military Aircraft margin was projected to increase 200 basis points to 14.3%; Industrial margin was projected to be 14.3%, 80 basis points higher than FY '25; Space and Defense margin was flat at 13.5%; Commercial Aircraft margin was projected to decrease 90 basis points to 11.5% due to tariffs, but excluding tariffs would expand 60 basis points.

• Tariff headwinds impacted the Commercial Aircraft margin. - Supply chain complexities existed, with challenges in reflecting customer demand variations through to suppliers due to fixed purchase order structures with suppliers.

Q: Could you focus more on cash flow phase through the following 3 quarters after Q1 and the underlying items?

A: Jennifer mentioned working capital initiatives such as pushing out material receipts and destocking later in the year; Patrick discussed structural changes in the supply side purchase orders to deal with demand variation.

Q: On the negative incremental margin in Commercial Aircraft for '26, any mix component?

A: Jennifer said there was a negative mix as the commercial aftermarket became a smaller percentage of the segment sales; Patrick added about manufacturing plant configuration and product movement affecting the cash conversion cycle.

Q: On growth platforms and M&A in the Defense space?

A: Patrick said they were active in maintaining acquisition targets, interested in growing the Defense business both organically and through acquisitions, for example, using the Australia footprint to build out the missiles business.

Q: On tariffs impact being more concentrated in Aircraft?

A: Patrick explained it was due to the global manufacturing/supply chain structure of the Commercial Aircraft being different from the mostly North American-based Military Aircraft, and Section 232 tariffs on steel and aluminum affecting materials.

Q: On cash flow conversion confidence for 60% in '26?

A: Jennifer said they were confident due to sales growth, backlog, customer advances in sight, and progress in pushing out material receipts.