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

Nov 18, 2019 • 04:30 pm ET

Previous

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

Share
Close

Loading Event

Loading Transcript

Q & A
Operator
Operator

Thank you, sir. The question-and-answer session will begin at this time. [Operator Instructions] And our first question is going to come from Sheila Kahyaoglu with Jefferies. Your line is now open.

Analyst
Sheila Kahyaoglu

Hi, good afternoon everyone and congratulations, Bob, and Jack.

Executive
Jack Thayer

Thank you, Sheila.

Executive
Robert F. Weber

Thank you.

Analyst
Sheila Kahyaoglu

I guess the first question for you, Industrial earnings just below, you had some one-time items in there. How do you think about your guidance for 2020? And I think you talked about a 16% target. You're holding to that long term, just the puts and takes and what are the options for the renewables business from here?

Executive
Jack Thayer

Right. So Sheila, as you'll know from our prepared remarks, we're expecting margins of about 14% in that business versus the 11.2% in 2019. And of that improvement, we would expect about half to be related to the renewables business; the other half to be True North improvements that will make to our operations. This really gets us back to the margins that we were experiencing in the first half of 2019. So absent these -- the headwinds related to Senvion and some of the other issues, we're really getting back to where we'd expect the business to be longer term. And then we see -- as Tom mentioned, we are accelerating our True North journey and that's where we really expect the longer-term improvement to 16% margins.

Analyst
Sheila Kahyaoglu

And did you quantify the engine product warranty expense for the quarter?

Executive
Jack Thayer

We did not, but it is a relatively speaking one-time item and we wouldn't expect to Turkey.

Analyst
Sheila Kahyaoglu

Okay. And then Tom, you have -- you're guiding towards, I think, 33% free cash flow growth, a big number out there with $400 million versus low-double-digit EPS growth, so, very good. I guess, how do you think about what you do with all that cash? As you mentioned, you're coming off the major CapEx spend and investment period. Like, how do you think about cash deployment from here?

Executive
Thomas A. Gendron

Yeah. The first thing is, we've got a commitment of returning 50% of net income to shareholders. So that will be the first use of the cash. Then we'll be looking at both organic growth and then potential inorganic growth if we see things that make sense and that can deliver our -- in excess of our cost of capital. So we probably lean more towards the growth side, but if we don't have the growth opportunity Sheila, we're going to return more to shareholders.

Analyst
Sheila Kahyaoglu

Great. Thank you.

Executive
Thomas A. Gendron

Thanks, Sheila.

Operator
Operator

Thank you. And our next question comes from Pete Skibitski from Alembic Global. Please state your question.

Analyst
Pete Skibitski

Hi guys. If you have Bob, best of luck. It's been a pleasure.

Executive
Robert F. Weber

Thank you.

Analyst
Pete Skibitski

I mean, just getting back to the Industrial margins and the engine issue, if we exclude the warranty expense, did you still come in below your expectations. And if so, I just want to understand what the biggest surprise was for you guys, if it was kind of oil and