Projections Conference Call
10 / 30 / 2001Highlights
Recent Conference Calls
Before we begin, we call your attention to the fact that we may make forward-looking statements during the course of this conference call. These forward-looking statements are not guarantees of our future performance and are subject to risks, uncertainties and other factors that could cause actual performance to differ materially from such statements. A description of these risks, uncertainties and other factors is contained in our news release of today’s date, our Form 10-Q for the quarter ended June 30, 2001, and in certain of our other public filings with the SEC.
Good morning. Thank you for joining us. Let me first explain what we’re intending to do this morning. The focus of this discussion will be our prospects for fiscal year 2002, the year we began on October 1st. We are still in the process of closing the books on fiscal year 2001. I’m sure you all appreciate that there are lots of details that have to be reviewed in closing the books for the quarter, particularly in the last quarter of the fiscal year, and that review process is underway. You’re all aware of our guidance with respect to fiscal year ’01 and we’re not expecting any big surprises. But, today, we’re discussing fiscal ’02. We’ll detail the final outcome of ’01 next week.
In our conference call when we were reporting out our third quarter of ‘01 on July 31st, we outlined what we believed, at that time, to be our prospects for fiscal ’02. Looking back, July 31st seems like a long time ago and a lot has changed since then.
At the time of that conference call, our Aircraft business was going strong in terms of revenue growth and margins, and margins were also improving in our Space segment. But, at that time, we were already seeing some weakening in demand in a couple areas of our Industrial business, particularly controls of plastics-making machinery. That part of our business had experienced robust growth over the previous two years as our customers raced to meet the seemingly insatiable demand for injection molding machines to pound out CD’s and DVD’s. But, by the spring of ’01, that demand had been satisfied in Asia and, by early summer, we were seeing a slowdown in Europe as well. So, those were the prevailing trends as we developed and announced our projections for fiscal ’02.
Then came the events of September 11th and, subsequent to that, the announcement by Boeing and Airbus of reduced production targets and a reduction in capacity in the airline industry of around 20%. Beyond that, the argument in the Industrial arena is only whether the current situation is technically a recession or not and, if so, when it began. Those are the negative factors. The positive, of course, is that in the military business we now have renewed national interest in military capability and readiness, and an apparent removal of any serious worry over budgetary constraints. The question for us, at Moog, is “How do these factors balance out and what will be the impact on fiscal ’02 and beyond?” We, of course, have been trying to make sense of our situation over the last month and one-half and the last major piece of the puzzle dropped into place last Friday with the announcement of the selection on the Joint Strike Fighter. That announcement was important for us, not because Lockheed won (we were represented on the Boeing Team as well), but because the announcement was made on schedule, as predicted, and it now appears that the DOD and the Air Force intend to proceed as planned. Three months ago, I was predicting that the decision would be deferred for months while the Congress and the DOD wrestled over a mechanism that would split the business and avert leaving one company in the position that Boeing appears to be in today.
But, let me come back to Moog and fiscal ’02. To relieve the suspense, let me tell you the outcome. In our July conference call, we were predicting that our sales in fiscal ’02 would likely come in at around $755 million, an increase of $55 million, or 8% over fiscal ’01. We now think that number will be $743 million, which is an increase of more like 6%. This reduction of $12 million in our sales increase occurs in this fashion. Compared to our previous forecast, our new forecast accommodates a $35 million reduction in OEM and aftermarket revenues in the Commercial Airplane business and a further $13 million erosion in Industrial machine controls. The revenue offsets are in repair and overhaul in the Military Aircraft business and in increased activity in combat controls for military vehicles. We also have the addition of $6 million in revenue from a small acquisition in the Space segment and, last but not least, a timely program start for the long-awaited Joint Strike Fighter.
Our projection for fiscal ’02 earnings back in July had been net earnings of $31.4 million, or $2.37 per share, after our three-for-two split. The reduction in sales will have an impact but much less than one might expect. We are now projecting earnings of $30.7 million, or $2.32 per share, which will be an earnings per share increase in the neighborhood of 10%, depending on the precise outcome of fiscal ’01. On the earnings side, we are helped by reduced interest rates, a slight improvement in our tax rate, and careful attention to the growth in our cost structure commensurate with our sales increase.
Let me now walk through the segments a little more carefully and then we’ll turn to your questions.
Let’s address the Aircraft segment of our business in more detail. Our previous forecast for the Aircraft business in ‘02 anticipated an increase to $368 million, and our current forecast is only $8 million less at $360 million. But the swing between military and commercial is dramatic. We’re anticipating in our commercial business a decline to $157 million, as opposed to increasing to $194 million. So, we’ve changed the forecast by $37 million. With respect to the Boeing OEM business, we’re now projecting a decline from the $70 million range down to $58 million. We had been projecting a small increase in Boeing OEM revenue. Similarly, we had projected an increase in the commercial aftermarket to about $62 million. We’re now forecasting a decline to $46 million. In the business jet category, given the sliding schedule of the Hawker Horizon, we’ve reduced our ’02 forecast from $9 million to $4 million.
On the other hand, whereas we had been projecting an increase in military aircraft sales to $174 million, we now see the potential for over $202 million, an increase of $28 million over our previous forecast.
Good morning. Thank you for joining us. Let me first explain what we’re intending to do this morning. The focus of this discussion will be our prospects for fiscal year 2002, the year we began on October 1st. We are still in the process of closing the books on fiscal year 2001. I’m sure you all appreciate that there are lots of details that have to be reviewed in closing the books for the quarter, particularly in the last quarter of the fiscal year, and that review process is underway. You’re all aware of our guidance with respect to fiscal year ’01 and we’re not expecting any big surprises. But, today, we’re discussing fiscal ’02. We’ll detail the final outcome of ’01 next week.
In our conference call when we were reporting out our third quarter of ‘01 on July 31st, we outlined what we believed, at that time, to be our prospects for fiscal ’02. Looking back, July 31st seems like a long time ago and a lot has changed since then.
At the time of that conference call, our Aircraft business was going strong in terms of revenue growth and margins, and margins were also improving in our Space segment. But, at that time, we were already seeing some weakening in demand in a couple areas of our Industrial business, particularly controls of plastics-making machinery. That part of our business had experienced robust growth over the previous two years as our customers raced to meet the seemingly insatiable demand for injection molding machines to pound out CD’s and DVD’s. But, by the spring of ’01, that demand had been satisfied in Asia and, by early summer, we were seeing a slowdown in Europe as well. So, those were the prevailing trends as we developed and announced our projections for fiscal ’02.
Then came the events of September 11th and, subsequent to that, the announcement by Boeing and Airbus of reduced production targets and a reduction in capacity in the airline industry of around 20%. Beyond that, the argument in the Industrial arena is only whether the current situation is technically a recession or not and, if so, when it began. Those are the negative factors. The positive, of course, is that in the military business we now have renewed national interest in military capability and readiness, and an apparent removal of any serious worry over budgetary constraints. The question for us, at Moog, is “How do these factors balance out and what will be the impact on fiscal ’02 and beyond?” We, of course, have been trying to make sense of our situation over the last month and one-half and the last major piece of the puzzle dropped into place last Friday with the announcement of the selection on the Joint Strike Fighter. That announcement was important for us, not because Lockheed won (we were represented on the Boeing Team as well), but because the announcement was made on schedule, as predicted, and it now appears that the DOD and the Air Force intend to proceed as planned. Three months ago, I was predicting that the decision would be deferred for months while the Congress and the DOD wrestled over a mechanism that would split the business and avert leaving one company in the position that Boeing appears to be in today.
But, let me come back to Moog and fiscal ’02. To relieve the suspense, let me tell you the outcome. In our July conference call, we were predicting that our sales in fiscal ’02 would likely come in at around $755 million, an increase of $55 million, or 8% over fiscal ’01. We now think that number will be $743 million, which is an increase of more like 6%. This reduction of $12 million in our sales increase occurs in this fashion. Compared to our previous forecast, our new forecast accommodates a $35 million reduction in OEM and aftermarket revenues in the Commercial Airplane business and a further $13 million erosion in Industrial machine controls. The revenue offsets are in repair and overhaul in the Military Aircraft business and in increased activity in combat controls for military vehicles. We also have the addition of $6 million in revenue from a small acquisition in the Space segment and, last but not least, a timely program start for the long-awaited Joint Strike Fighter.
Our projection for fiscal ’02 earnings back in July had been net earnings of $31.4 million, or $2.37 per share, after our three-for-two split. The reduction in sales will have an impact but much less than one might expect. We are now projecting earnings of $30.7 million, or $2.32 per share, which will be an earnings per share increase in the neighborhood of 10%, depending on the precise outcome of fiscal ’01. On the earnings side, we are helped by reduced interest rates, a slight improvement in our tax rate, and careful attention to the growth in our cost structure commensurate with our sales increase.
Let me now walk through the segments a little more carefully and then we’ll turn to your questions.
Let’s address the Aircraft segment of our business in more detail. Our previous forecast for the Aircraft business in ‘02 anticipated an increase to $368 million, and our current forecast is only $8 million less at $360 million. But the swing between military and commercial is dramatic. We’re anticipating in our commercial business a decline to $157 million, as opposed to increasing to $194 million. So, we’ve changed the forecast by $37 million. With respect to the Boeing OEM business, we’re now projecting a decline from the $70 million range down to $58 million. We had been projecting a small increase in Boeing OEM revenue. Similarly, we had projected an increase in the commercial aftermarket to about $62 million. We’re now forecasting a decline to $46 million. In the business jet category, given the sliding schedule of the Hawker Horizon, we’ve reduced our ’02 forecast from $9 million to $4 million.
On the other hand, whereas we had been projecting an increase in military aircraft sales to $174 million, we now see the potential for over $202 million, an increase of $28 million over our previous forecast.
© Moog Inc.
