Big write-downs stemming from a debt refinancing and an investment in its industrial systems business led to a 6 percent drop in Moog Inc.’s profits during the final three months of last year, prompting the company to warn that its earnings this year won’t be as strong as originally forecast.
The one-time expenses offset what otherwise would have been a solid quarter for the Elma-based motion control equipment maker, with a 17 percent increase in its adjusted earnings and a 4 percent increase in sales.
But even those adjusted earnings, which amounted to 88 cents per share, were a penny weaker than analysts had expected. And Moog executives warned that the company’s sales and profits would not rise as rapidly as they predicted three months ago.
The company also said that it has the authorization to spend up to $275 million at today’s prices to buy back as many as 4 million shares of its Class A and Class B stock.
John Scannell, Moog’s chairman and chief executive officer, said while the company’s commercial aircraft business is strong, its defense and industrial markets are weaker than company officials had expected.
“We’re off to a slow start,” he said, in the fiscal year that began in October. “We will continue to focus on cost reductions and margin improvement as we move through the year.”
Moog’s profits slipped by 6 percent to $32.1 million, or 70 cents per share, from $34.1 million, or 75 cents per share, a year earlier, as the write-downs shaved $8.2 million off its earnings. The costs of refinancing Moog’s high-yield debt cost the company $5.5 million, or 12 cents per share, while the write-down of the investment in the industrial products business reduced its earnings by $2.7 million, or 6 cents per share.
Without those expenses, Moog’s earnings would have improved to $40.3 million, or 88 cents per share, which still was slightly less than the 89 cents per share that analysts were expecting.
Moog also warned that its profits for the entire fiscal year would fall about 10 percent short of what both the company and analysts were forecasting. Moog now said it expects its profits to rise to $169 million, or $3.65 per share. That’s less than the $3.95 to $4.10 per share that the company forecast last fall and below the $4.06 per share that analysts were forecasting, but still an improvement from the $3.50 it earned last year.
Moog said it now plans to spend an additional 15 cents per share on research and development expenses for its aircraft business, while its business system conversion also is forecast to cost about 10 cents per share more than expected. The company also trimmed its sales forecast for the year by nearly 2 percent, or $45 million, to $2.63 billion from the previous prediction of $2.67 billion. That’s still up from $2.61 billion last year. The expectation of lower sales growth led to a reduction of about 10 cents per share in the company’s earnings forecast.
“We continue to invest in programs that will deliver long-term benefits,” Scannell said.
The company’s expanded stock buyback program, which could reduce the number of Moog shares in circulation by as much as 9 percent, also is a reflection of the softer market.
“Today, we find ourselves in a relatively slow growth, slow acquisition environment,” Scannell said.
While Scannell said the stock buyback is the best way to create value for Moog’s shareholders in the short run, he said he still sees significant growth opportunities for the company in the long term. “In parallel with our buyback program, we will continue to make significant investments in research and development and seek adjacent acquisitions that complement our organic growth strategy,” he said in a statement.
At today’s prices, the buyback program would cost about $275 million if all 4 million shares were repurchased and it comes at a time when the company’s shares have jumped by 50 percent over the past year. The company currently has almost $180 million in cash on its books.