Moog Inc. (MOG.A)

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Moog Inc. (MOG.A)

F2Q08 Earnings Call

April 29, 2008 11:00 am ET

Executives

Ann Marie Luhr - Investor Relations

Robert T. Brady - Chairman, President and Chief Executive Officer

John R. Scannell - Chief Financial Officer

Analysts

Ron Epstein - Merrill Lynch

Cai von Rumohr – Cowen

Eric Hugel - Stephens

Presentation

Operator

Welcome to the Moog second quarter full year 2008 earnings conference call. (Operator Instructions) At this time, I would like to introduce Ann Luhr of Moog Inc.

Ann Marie Luhr

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 most recent Form 10-Q filed on February 5, 2008 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.

Robert Brady

This morning we will review the results of our second quarter and of course, we’ll update our guidance for the year. On the face of it, this quarter we appeared to be just another steady as she goes quarter, sales up 22% to $469 million and earnings $28.6 million, earnings per share $0.66, an increase of 16%.

And as we go through the segments, you’ll notice that there were some unusual puts and takes in the quarter. lots of good news, some not so good news. A quick summary goes like this. Aircraft had higher sales, but the sales increase was mostly the F-35 development program, a cost plus program was very low margins. So the higher aircraft sales generated about the same operating profit as the similar quarter last year.

Space and defense had the benefit of the recent QuickSet acquisition. QuickSet sales were outstanding, and provided enough profit to overcome a reserve that we set up in the satellite business.

Our industrial segment and our components group both had very strong margins on higher sales. Then on the other hand our new medical devices segment had a disappointing quarter both in sales and in profits.

If you look at our consolidated P&L gross profits up $21 million, in spite of an increase in cost of sales percentage, R&D at $26 million up less than 2% from a year ago. SG&A down as a percentage of sales, interest expense up to $9 million, reflecting our additional borrowings to support working capital, CapEx, and our recent acquisitions. The result, a net earnings increase was 17%.

Now I’ll go over to segments, aircraft, aircraft Q2, total aircraft sales up 11% to $162 million, increased all on the military side and primarily on the F-35 development program. F-35 sales in this quarter were $26.6 million, almost double last year’s $13.8. Every quarter I remind you that on the F-35 development program, we’re the lead contractor and work done by our partners, Parker Hannifin, Hamilton Sundstrand, and Curtiss-Wright, becomes cost to us, which we then pass on to Lockheed.

However, in this quarter $17 million of the $26.6 in sales with work done in our company, an increase of over $9 million from a year ago. Over the last couple of quarters, there has been a sizable increase in the staff devoted to this program. We are finishing up qual testing on the conventional take-off aircraft, the CTOL. We are building and delivering the hardware for the short take-off aircraft, the STOVL and we’re progressing the design work for flight controls on the carrier version.

The effect of this increased revenue on a cost-plus program is much higher sales but not much benefit on the profit line. There were small increases in sales on a number of other programs including F-18, V-22 and Blackhawk and on the military side a nice 13% increase in aftermarket, with a total of $30.2 million. So in total, the military sales increased 28% in the quarter to $98 million.

Virtual aircraft sales, on the other hand, were down from the second quarter of last year, sales $63.8 million down 8%, a reduction primarily related to Boeing commercial. Last year in our second quarter, we received our initial contract for the 787, resulting in a very strong quarter with over $8 million in sales. This year, given what’s going on in the 787, our revenues were $5.1 million. In addition, OEM revenues on the Boeing production airplanes were also down a couple of million dollars, $13.3 million.

Our sales to Boeing for their production aircraft are triggered by specific orders for equipment on specific airplanes. And they vary somewhat with the Boeing build schedule in those airplanes and the Boeing inventory position on each.

Sales on our business jet product line were up 7% to nearly $13 million, increases on the Premier and revenue generated by an as yet unannounced platforms offset reduced sales on the Hawker 4000. The other bizjet news was Gulfstream’s announcement of the G650. I’m happy to announce our participation. We’re doing the flap actuation system on that airplane. And as you probably know, the aircraft’s reception in the market has been outstanding.

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