It has been about a month since the last earnings report for Woodward (WWD). Shares have added about 0.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Woodward due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Woodward Q3 Earnings & Revenue Miss

Woodward reported tepid third-quarter fiscal 2022 results. Adjusted net earnings came in at 64 cents per share, declining 13.5% year over year. The bottom line missed the Zacks Consensus Estimate by 29.7%.

Net sales in the fiscal third quarter moved up 10.2% year over year to $614 million due to higher sales in the Aerospace segment. In the quarter under review, sales were affected by nearly $100 million due to ongoing supply-chain and labor disruptions. Also, unfavorable foreign currency exchange rates affected sales by $18 million. The top line lagged the consensus estimate by 3.1%.

Owing to supply-chain and labor disruptions; and inflation, the company has lowered its guidance for the fiscal 2022. For fiscal 2022, net sales are now expected to be between $2.35 billion and $2.4 billion compared with the earlier guidance of $2.4 billion and $2.55 billion.

The Aerospace segment revenues are expected to increase between 8% and 10%, while the Industrial segment revenues are expected to remain flat. Earlier, the Aerospace segment revenues were expected to increase low double digits to mid-teens, while the Industrial segment revenues were expected to increase between 5% and 10%.

Adjusted free cash flow is projected to be between $100 million and $120 million. Earlier, adjusted free cash flow was projected to be between $200 million and $230 million.

Adjusted earnings are likely to be in the range of $2.55-$2.75 per share compared with the earlier projection of $3.20-$3.60.

Segment Results

Aerospace: Net sales were $402 million, up 18% year over year. The upside can be attributed to higher commercial OEM (up 37% year over year) and aftermarket sales (up 44%) resulting from improving passenger traffic and aircraft utilization along with higher original equipment manufacturer (OEM) production rates. Continued softness in defense OEM and aftermarket sales due to supply-chain disruptions were headwinds.

The segment’s earnings were $57 million, up from $53 million in the year-ago quarter. The upside was caused by higher commercial OEM and aftermarket sales, partly offset by increasing material and labor costs and supply-chain constraints.

Industrial: Net sales totaled $213 million compared with $216 million in the prior-year quarter. The decline was due to the negative impact of unfavorable foreign exchange and weakness in China’s natural gas engines. However, it was mitigated by higher marine sales and increased utilization of the in-service fleet.

The segment’s earnings were $21 million, down from $27 million in the year-ago quarter, mainly due to net inflationary impacts on material and labour costs; and increasing costs due to supply-chain disruptions and training of new hires.

Other Details

Total costs and expenses increased to $564 million, up 13.3% year over year. Adjusted EBITDA came in at $88.4 million compared with $99 million in the year-ago quarter.

Cash Flow & Liquidity

As of Jun 30, 2022, Woodward had $99.7 million in cash and cash equivalents with $716.7 million of long-term debt (less the current portion).

For the nine months ended, Woodward generated $86 million of net cash from operating activities compared with $318 million a year ago. Free cash flow for the same period came in at $49 million compared with $297 million in the prior-year period. The downtick was mainly caused by increased working capital due to production delays from supply-chain constraints.

Woodward repurchased shares worth $156 million in the quarter under review. In January 2022, the company authorized a new $800 million, two-year stock repurchase program, reinforcing its financial position and positive outlook. The company has $399 million remaining under the share repurchase authorization.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -30.27% due to these changes.

VGM Scores

At this time, Woodward has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Woodward has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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