Moog Inc.’s third-quarter profits fell by 12 percent as write-downs related to its struggling medical device business and an investment in a technology start-up canceled out what otherwise would have been a 7 percent improvement in its earnings.
The Elma motion-control equipment maker’s earnings, excluding write-downs that totaled more than $14 million, were better than analysts had expected. The company also issued earnings guidance for the coming fiscal year that forecast a 13 percent increase in earnings from its remaining operations – roughly in line with what analysts were predicting – along with a 3 percent improvement in sales.
“Our underlying operations were strong, and our restructuring efforts are paying off,” said John Scannell, Moog’s chief executive officer.
Moog said it earned $34.2 million, or 75 cents per share, during the quarter that ended in June, down from $38.9 million, or 85 cents per share, a year earlier.
The earnings were depressed by a $7 million write-down, equal to 11 cents per share, stemming from the sale of its Ethox medical device business in Buffalo, along with a $2 million write-down from a technology investment in its industrial business. Moog also had a $5 million write-down in its space and defense business
Excluding those write-downs, Moog earned $41 million, or 90 cents per share, which was better than the 83 cents per share that analysts were expecting.
Moog’s Class A shares dropped 41 cents, or 0.7 percent, to $56.82 Friday.
“There’s a lot of moving pieces in 2013, but I think 2014 shows where we think the business is going,” Scannell said Friday. “It’s not an impressive sales forecast, but quite a nice improvement on the earnings side.”
Moog’s sales rose by 10 percent to $671 million from $611 million.
Operating profits at Moog’s aircraft controls business improved by 12 percent to $31 million, while sales grew by 13 percent to $273 million, due partly to a 42 percent increase in sales for the F-35 fighter jet program and a 16 percent increase in commercial airline revenues.
Scannell said sequestration has had little impact on Moog’s business, so far. “We haven’t been able to see a measurable, direct impact from sequestration yet,” he said. “It’s a worry for the future, but so far, for this year, it’s turned out OK.”
Earnings at the company’s space and defense business tumbled by a third to $6.7 million, but all of the decline was due to a $5 million charge on a satellite program that wiped out what otherwise would have been about an 18 percent increase in the unit’s operating profits. Space and defense sales grew by 15 percent to $100 million.
The company’s industrial systems business’ operating profits dropped by 42 percent to $9.3 million, but most of the decline was due to $3 million in restructuring charges and the $2 million write-down of Moog’s investment in the technology start-up, which is being sold to its private-equity firm owner at a lower valuation than the value that was established at the time Moog first invested in the business. Industrial sales fell by 7 percent to $147 million.
Moog’s components business’ earnings jumped by 45 percent $18.4 million as demand soared for the products it makes for energy companies involved in offshore drilling. Sales from the components business grew by 25 percent to $113 million.
Moog’s medical device business, which the company is thinking about selling, lost $2.8 million because of the $7 million loss the company absorbed on the Ethox sale.
Medical device sales grew by 13 percent to $38 million, but Scannell said those revenues were inflated by the timing of a few orders.
He expects medical device sales to return to the mid-$30 million range in the current quarter and said the spike in third-quarter sales did not change the company’s interest in divesting the business.
“One reasonable quarter doesn’t change that in any way,” he said.