Woodward’s Sales Buoyed By Brisk Commercial Aero, Aftermarket Demand

With the exception of defense OEM sales, which contracted 4%, the rest of Woodward’s A&D business had a strong quarter. Its aftermarket business did particularly well thanks to higher aircraft utilization, with the commercial segment increasing 19% year-on-year and defense 22%. Earnings per share increased to $1.63, the company said, up from $1.37 a year earlier.

Woodward provides energy control and optimization solutions for the aerospace and defense sector, including integrated turbine engine control and combustion systems.

“In the face of a volatile commercial aero [original equipment] ramp, Woodward’s fiscal third quarter results stack up well relative to A&D peers,” Robert Spingarn of Melius Research wrote in a July 29 client note. He added that the Fort Collins, Colorado-based company’s commercial original equipment and aftermarket sales have already surpassed pre-pandemic levels.

While parts shortages remain a challenge for Woodward, the company is benefiting from high utilization of legacy aircraft and engines that is resulting in additional shop visits and repair activity, with “a longer horizon than we would have predicted just a few years ago,” CEO Chip Blankenship said in an earnings call. “Overall, we continue to be pleased with the outlook of our aerospace business,” the CEO added.

In response to an analyst who asked if Woodward was starting to see revenue from Leap engine shop visits “come through,” Blankenship said: “We've seen quite a nice increase in repair and overhaul from [the] geared turbofan [engine] and Leap. And that bodes well for the future because it has picked up, I'd say, doubling year-over-year.”

For his part, Spingarn observed that on the Leap engine that powers the Boeing’ 737 MAX and Airbus A320neo, and the and Pratt & Whitney geared turbofan (GTF) that also powers the A320neo as well as the A220, Woodward has three times the shipset content it had on the predecessor 737NG and A320ceo programs. “Given Boeing’s and Airbus’ delivery delays, the commercial aftermarket will be stronger for longer, and Woodward will see outsized earnings per share and free cash flow growth as Leap and GTF shop visits ramp throughout this decade,” Spingarn said.

In response to a follow-up question about the outlook for Woodward’s defense business in the 2025 fiscal year, Blankenship said the company was not ready to talk about FY2025. However, he observed: “It looks like the defense market itself is growing. And we've stated our strategy is to try and grow our repair and overhaul participation in that market.”