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Moog Inc. (MOG.A)

F2Q09 (Qtr End 3/28/09) Earnings Call

April 24, 2009 10:00 am ET


Ann Marie Luhr – Investor Relations

Robert T. Brady – Chairman, President & Chief Executive Officer

John R. Scannell – Vice President & Chief Financial Officer

Donald R. Fishback – Vice President – Finance


Cai von Rumohr – Cowen & Co.

Tyler Hojo – Sidoti & Company

Michael Ciamoli – Boenning & Scattergood

J B Groh – D. A. Davidson & Co.

Eric Hugel – Stephens Inc.

Chip Rewey – Cramer Rosenthal McGlynn, LLC

Elizabeth Parrella – Merrill Lynch



Ladies and gentlemen, thank you for standing by and welcome to the Moog second quarter fiscal year 2009 earnings call. Now at this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator instructions). As a reminder today's call is being recorded and your hosting speaker, Ann Luhr. Please go ahead.

Ann Marie Luhr

Good morning. 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 April 24, 2009, our most recent Form 8-K filed on April 24, 2009, and in certain of our other public filings with the SEC. We have provided some financial schedules to help our listeners better follow along with the prepared comments. For those of you who do not already have the document, a copy of today's financial presentation is available on our Investor Relations home page and webcast page at Bob?

Robert T. Brady

Thanks Ann. Good morning. Thank you all for joining us. This morning we will report on the second quarter of ’09 and we will describe in more detail the guidance that we provided two weeks ago on April 9. Many of you know it’s our practice at the end of each quarter to conduct a thorough review of major programs and product lines, in terms of technical performance, contract performance, and profitability. Having completed that exercise I’m happy to report that the quarter came in about where we expected and we’re able to confirm the guidance that we provided on April 9.

We've made a small change in our sales forecast for business jets to reflect some recent schedule changes and we've toned down medical sales somewhat, but there won’t be any noticeable effect on overall profitability. So, those of you who are adjusted to the numbers that we described two weeks ago you can relax now I’ll provide a little more detail on the situation, but there is no more bad news, there isn't another shoe to drop. Onto the quarter results, second quarter earnings came in at $23.7 million, $0.55 a share, right in the middle of the range that we were expecting and projecting two weeks ago.

Earnings per share were down 17% from a year ago. Sales for the quarter $453 million were down 3% from last year and the decline was all in exchange rates. On a constant currency basis, sales were actually flat. Cost of sales 70% instead of last year's 68%, as a result our gross profit was down 9% or about $14 million. R&D at $24.2 million was down 7%, SG&A $68.8 million down 6%. Interest at $9.4 million up ever so slightly. In other income, we had a gain mostly reflecting our minority ownership of LTiREEnergy. Tax rate 35.1%, a little bit higher than last year and the result net earnings $23.7 million, 5.2% of sales.

If you compare our net earnings this quarter with the $28.6 million we made in Q2 last year, the difference has all to do with the industrial sales that are $25.7 million lower resulting in a $7.4 million reduction in industrial operating profit and a $4.8 million reduction in net earnings were it not for the global industrial recession our earnings would have been about the same as last year. I will go to the segments. Aircraft Q2 ’09 total Aircraft sales $162 million, exactly the same as last year's second quarter. The outcome though was the result of a 9% increase in military sales, a 16% decline in commercial sales and the addition of $1.9 million in sales from our recent acquisition of Fernau Avionics Limited.

Military aircraft sales for the quarter $107 million, up $9 million from a year ago. There were some volume changes in OEM programs, F-18 sales up 16% to $9.4 million, V-22 up 20% to $8.9 million. On the other hand revenue on the F-35 was down $2.2 million from a year ago. The change in F-35 revenue has mostly to do with reduced activity in the development program on our part. We're winding down our development programs, our partners seem to be still pushing to complete theirs.

The big increase in military aircraft sales was in aftermarket, a part of that change was an increase in sales of Tactical Air Navigation equipment we call TACAN. This is a product line that came to us in 1998 in our acquisition on Raytheon's Montek division. We have always included TACAN sales in military aftermarket since what we acquired back then was an aftermarket product. Over the last 18 months, we have updated our design and we are now selling new TACAN systems on an OEM basis.

And with the acquisition of Fernau Avionics, we intend now to combine those TACAN sales with Fernau and make air navigation equipment a product line focus. Setting aside the TACAN sales, the military aftermarket came in this quarter at $35.8 million, up $7.3 million from a year ago. The major military aftermarket programs for us are the overhaul of the F-18 leading edge actuators, overhaul of flight controls for the C-5 and repair work on V-22 Swashplate actuators.

Commercial aircraft sales of $53 million were down $10 million from a year ago. We saw in this quarter some of the sales reductions we talked about in the conference call, a couple of weeks ago. Sales in the Boeing 7-Series production airplanes, $8.1 million were down over $5 million from last year, a reduction of 39%. We slowed down our production activity on the 87 (sic) [787] and our sales in the quarter were $2.3 million less than half of last year's revenue. Airbus sales were just under $6 million, on the other hand were up 24% from last year. The increase is partly the buildup on the A380 on which we sell some brake system components, but also Airbus places orders in a somewhat erratic fashion.

Business jet sales $13.1 million in the quarter were actually up 2% from last year, but we are anticipating declines in the near future and revenues to Gulfstream, Bombardier and Hawker Beechcraft. The other big change in our commercial aircraft revenues was a $3.6 million decline in the aftermarket. Aftermarket came in at $18.8 million, down 16%. Our revised aftermarket forecast of $77 million presumes that the next two quarters will maintain the second quarter level, in which case we finish the year down 14%. I mentioned a minute ago, our acquisition of Fernau Avionics, we completed the acquisition in early March. Fernau is a leading supplier of ground-based air navigation systems for military, naval and civil aviation.

These systems transmit signals that are used to calculate bearing and range information to aid pilot navigation. They're generally referred to as "Navigation Aids or Nav Aids" if you're in the business. In the one-month that we’ve owned Fernau sales were $1.9 million. For seven months of the year '09 we expect Fernau will generate $17 million plus in sales. The TACAN products that were part of our Montek acquisition are a perfect complement to the Fernau business. Sales of those products were $4.5 million in the quarter and our forecast for the year is $10.8 million. So, adding these sales to the Fernau forecast takes the Nav Aids product line to $28 million for the year.

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