Woodward, Inc. (NASDAQ:WWD) Q4 2019 Earnings Conference Call - Final Transcript

Nov 18, 2019 • 04:30 pm ET


Woodward, Inc. (NASDAQ:WWD) Q4 2019 Earnings Conference Call - Final Transcript


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Thomas A. Gendron

fundamentals of natural gas power generation as well as our ability to drive share gains as we see continued recovery in the turbo machinery market.

Our renewables business remains uncertain, in part due to the ongoing bankruptcy proceedings of our customer Senvion. In September, Siemens Gamesa announced an agreement to acquire part of Senvion and we continue to closely monitor the situation. Senvion platforms remain an important source of aftermarket revenues for us. This has been a challenging market, and we are in the process of determining appropriate actions.

In transportation, consistent with our expectations, production of natural gas trucks were softer in the fourth quarter as the market absorbed the large pre-buy China 5-compliant trucks in our third quarter ahead of China 6 regulations that were implemented in July. We started to see a strong recovery in China-6 compliant truck sales at the end of September, and expect this positive trend to continue into the fiscal year. China's rigorous enforcement of the new regulations, including the restriction of diesel from certain cities, is promoting the rapid transition to the new engines. We are also seeing natural gas engines secure a growing share of the on-highway market with current share rising to approximately 20%. In addition to volumes recovery, we have a higher system content on the China-6 compliant engines.

In marine, we had a very strong year in 2019, mainly driven by aftermarket sales. We expect the strength in aftermarket to continue into fiscal year '20 as robust shipped utilization rates drive the need for replacement parts and service.

Oil and gas markets are pressured due to global economic uncertainty, access to capital, oil price fluctuations and weaker demand. Our products are prevalent in the entire value stream at the wellhead, as well as downstream applications such as pipelines, processing plants and import/export terminals where we have a large installed base that drives aftermarket activity. As the global economy has slowed, utilization expansion in these facilities has also slowed.

In summary, we delivered strong results in 2019, which included robust revenue and earnings growth, significant free cash flow generation, deleveraging of the balance sheet, the addition of new members to accelerate our True North operational excellence journey and good execution on new platform wins, which all translated into strong shareholder returns.

Looking ahead to 2020, we anticipate continued growth in our Aerospace business as the 737 MAX returns to service, defense is expected to remain strong in both OEM and aftermarket. And commercial aftermarket is expected to remain solid.

In our Industrial business, we expect improved profitability in 2020 despite modest to flat revenue growth. We see improving gas turbine market dynamics and accelerating natural gas truck sales in Asia, which will be partially offset by slowing economic growth, China trade headwinds and softening oil and gas investments.

We are optimistic about our ability to deliver another record year in 2020 and remain focused on driving long-term shareholder value through delivering on our financial targets. In particular, we expect