Moog Inc. Q1 FY2026 earnings call

• The company started fiscal '26 with over 20% revenue growth relative to the prior year, with record quarterly sales in all segments and a 30% increase in 12-month backlog.
• Defense market is strong with increased government spending in regions like the U.S., Europe, Australia, and Japan. Commercial aerospace customers have strengthened backlogs and are driving increased production rates. Industrial markets show signs of recovery with strength in data center cooling pumps and medical pumps.
• Received BAE Systems Gold Supplier of the Year Award for 2025, recognized for 100% quality and 100% on-time delivery. Secured over $1 billion in Commercial Aircraft orders, over $100 million for the PAC-3 missile program, and over $50 million of missile orders across PAC-2 and FAD programs.
• Strengthened leadership team with addition of Chief Strategy and Corporate Development Officer. Recognized by Glassdoor as a 2026 Best Places to Work Award and received Business of the Year award from the Buffalo Niagara partnership.
• Deploying 80/20 principles across manufacturing locations, focusing on portfolio reviews, voice of the customer feedback, and pricing reviews.
• Made progress on optimizing balance sheet, including shifting suppliers to more agile arrangements and aligning material supply to production plan needs, reducing expected material receipts for 2026.

In the first quarter, Moog had outstanding results. Space and Defense segment had record sales of $324 million, up 31% compared to the prior year's first quarter. Commercial Aircraft segment reported sales of $268 million, a 23% increase year-over-year. Industrial segment saw sales of $261 million, up 14% from the same period last year. Each segment achieved record quarterly sales.

• Updated guidance for fiscal '26 reflects excellent first quarter performance and positive market outlook. Increased sales and adjusted earnings per share, while affirming adjusted operating margin and free cash flow conversion.
• Increased Space and Defense guidance by $30 million, Commercial Aircraft by $15 million, and Industrial by $15 million. Held adjusted operating margin at 13.4% for FY '26, increased Space and Defense operating margin to 13.9%, and moderated military aircraft operating margin to 13.8%.
• Increased FY '26 adjusted earnings per share guidance by $0.20 to $10.20 plus or minus $0.20. Forecasted second quarter earnings per share to be $2.25 plus or minus $0.10. Projected free cash flow conversion to be about 60%, with expectation to generate at least equal free cash flow in the second quarter as used in the first quarter.

• Tariff pressure in Commercial Aircraft, particularly high in the first quarter due to issues with airlines completing paperwork for bonded areas to avoid tariffs. Potential impact of operational issues on margins if not managed properly. Timing of payments affecting cash flow in the first quarter.

Q: Could you comment on the guidance increase for the year, especially the mismatch between Q1 beat and full-year guidance?

A: Jennifer Walter stated that while Q1 was strong, there were pull-ins from later in the year, especially Defense-related items like the V-22 spares order which was a year's worth of orders in the first quarter.

Q: What's the reason for the decrease in military aircraft margin outlook?

A: Jennifer Walter explained it's due to fine-tuning based on Q1 performance, where military aircraft had 11.9% margin in Q1, leading to a decrease from 14.3% to 13.8% for the full year.

Q: What was the reason for better cash flow in the quarter?

A: Jennifer Walter said it was attributable to slowing down material receipts as part of working capital initiatives.

Q: On Commercial Aircraft margins, what's the other headwind besides tariffs?

A: Jennifer Walter noted tariffs were about 300 basis points of the impact, but operationally the business is up nicely with increased sales volume and pricing benefits. Patrick Roche added that aftermarket repair costs with tariffs were higher due to airlines not completing paperwork properly, but efforts are being made to tighten the process.

Q: Are there other ways to mitigate tariff pressure?

A: Patrick Roche mentioned changing supply chain routes, like using a U.K. facility with a Belgian supplier to avoid U.S. tariffs, resulting in single-digit million savings.

Q: How much of the $2.3 billion bookings are beyond 12 months?

A: Patrick Roche said about half was Commercial Aircraft (including C919 orders), 1/4 was Space and Defense, and 60% was military aircraft, with some orders stretching over years.

Q: Any uptick in Defense orders in the current quarter?

A: Jennifer Walter said the V-22 order was an acceleration of expected yearly orders, with military side seeing some acceleration due to readiness needs. Patrick Roche added there's urgency in Defense to accelerate capacity for missile programs.

Q: How advanced are conversations with Defense primes to increase capacity?

A: Patrick Roche said the need to build capacity has been apparent for 18-24 months, with investments in facilities like Salt Lake City for PAC-3 and other missile programs, including capital investments in circuit card assembly lines.

Q: Total company price realization year-over-year in the quarter?

A: Jennifer Walter said pricing benefit contributes nicely but volume and demand are the biggest factors, complemented by price increases.

Q: How big could data center cooling business be for Moog?

A: Patrick Roche said data center cooling sales were $25 million in 2025 and expected to double in 2026, with pumps used in cooling distribution units having differentiated features, and plans to double production volume by standing up a second production line.