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MOAG Copper Gold Resources Inc (MOG.A)

Q3 2013 Earnings Call

July 26, 2013 10:00 am ET

Executives

Ann Marie Luhr

John R. Scannell - Chief Executive Officer, Director and Member of Executive Committee

Donald R. Fishback - Chief Financial Officer and Vice President

Analysts

Julie Yates - Crédit Suisse AG, Research Division

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Tyler Hojo - Sidoti & Company, LLC

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division

Karl Oehlschlaeger - RBC Capital Markets, LLC, Research Division

Neal Dihora - Morningstar Inc., Research Division

Presentation

Operator

Good day, everyone, and welcome to the Moog Third Quarter Fiscal '13 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn things over to 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 July 26, 2013, our most recent Form 8-K filed on July 26, 2013 and in certain of our other public filings with the SEC.

We've 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 homepage and webcast page at www.moog.com. John?

John R. Scannell

Thanks, Ann. Good morning. Thanks for joining us. This morning, we'll report on the third quarter of fiscal '13 and update our guidance for the full year. We'll also provide our first look at fiscal '14.

This quarter has quite a few headlines.

First, our operations came in on plan at $0.90 per share, in line with our last forecast. This is exclusive of a couple of asset write-downs which I'll describe later. In the quarter, our Aircraft and Components businesses were strong, and we've not yet seen any appreciable impact from sequestration.

Second, our Industrial business is improving. The benefits of our restructuring efforts are starting to filter through.

Third, our Medical business had its strongest operating quarter in 5 years. We benefited from some strong sales in our enteral pump line, combined with the continued focus on cost control.

Fourth, our Space and Defense group had a very tough quarter. One of our recent acquisitions has turned up a significant technical challenge on a particular program, and we ended up taking a $5 million program charge to fix the problem.

Fifth, we had 2 write-offs of note in the quarter. In our Medical segment, we took a $7 million pretax write-down on the divestiture of the Buffalo Ethox operations. And in our Industrial segment, we took a $2 million write-down on a technology investment that we made a couple of years ago.

Sixth, we announced a strategic review of the remainder of our Medical segment in collaboration with the Royal Bank of Canada. We think this process will take 6 to 12 months.

Finally, we're providing a first look at fiscal '14 this morning. We think sales will be up marginally next year, but margins and earnings will be up nicely. We're projecting EPS in a range of $3.90 to $4.10 per share on sales of $2.7 billion.

Now let me provide you with some numbers, starting with the third quarter results.

Q3 fiscal '13. Sales in the quarter of $671 million were up 10% from last year. We saw higher sales in every segment, except Industrial. Acquisitions contributed the majority of the $60 million sales increase. Excluding the effect of the write-downs I mentioned earlier, adjusted net earnings of $41 million were up 7% from last year and adjusted earnings per share of $0.90 were $0.60 higher.

Taking a look at the P&L, our gross margin is down slightly, primarily as a result of the program charge taken in the Space and Defense segment in the quarter. R&D remains elevated as the A350 program continues to move to certification, but other G&A expenses came in lower as a percentage of sales. We incurred $5 million in restructuring expense in the quarter, mostly in our Industrial segment. Our effective tax rate was up slightly from last year. The overall results, after restructuring and the write-offs I mentioned earlier, was net earnings of $34 million and earnings per share of $0.75. The Medical write-down was equivalent to $0.11 per share, and the Industrial write-down was another $0.04 per share. Adding these back gives us the adjusted earnings per share of $0.90, in line with our April forecast.

Fiscal '13 outlook. Last quarter, we forecast that the year would finish out with earnings per share in the range of $3.40 to $3.50 on sales of $2.6 billion. Sales for the year should be pretty much on plan, and the underlying operating performance of the businesses should end the year at the low end of this range. We also need to include the $0.15 per share of write-downs in the third quarter in our projection for the full year. And taken all together, EPS for fiscal '13 will be $3.25.

Fiscal '14. For next year, we're projecting a 3% increase in sales and a significant improvement of profitability with earnings per share up 23% from fiscal '13. This year, our Industrial business has struggled with the significant slowdown in demand and our Space business has suffered from some technical challenges at a couple of our recent acquisitions. We've spent the year repositioning our businesses, and we'll see the benefits in our margins in fiscal '14.

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