Moog Keeps Gaining Altitude

By Dan Caplinger Markets Fool.com

The aviation industry has gone through a renaissance in recent years, with airline demand for new aircraft pushing manufacturing activity in aerospace into overdrive. Moog (NYSE: MOG-A) (NYSE: MOG-B) has benefited from that trend because of the various components and systems it produces for aircraft and space vehicles, and over the past year, investors have been pleased with the progress Moog has made in capitalizing on opportunities in the industry.

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Coming into Friday's fiscal second-quarter financial report, Moog investors were ready for a pause in the growth that the company has found over the past several years. Yet Moog managed to give investors more, with modest rises in sales and profits that point to the forward momentum the aerospace supplier has built up. Let's take a closer look at Moog to see what's happening with the company and what lies ahead.

Image source: Moog.

Moog throttles up

Moog's fiscal second-quarter results were solid. Sales of $632.4 million were up more than 3% from year-ago levels, heartening those who had expected flat top-line performance compared to the previous year's fiscal second quarter. Similarly, net income climbed 3% to $32 million, and that produced earnings of $0.88 per share. That figure was $0.03 higher than the consensus forecast among those following the stock.

Looking more closely at the report, Moog saw most of the same trends in its business continue during the quarter. Sales climbed in three of the company's four main segments, with a 6% rise in aircraft controls revenue having the biggest absolute upward impact on Moog's revenue. Sales in space and defense controls jumped 14%, and the basic components segment enjoyed 3% revenue growth. Only the industrial systems segment saw declines, with sales falling about 10%. From a profitability standpoint, aircraft controls again took center stage, seeing a nearly 60% lift from the year-ago quarter. Operating profit for the other three businesses was down, with space and defense seeing the biggest hit.

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Moog saw contributions from most of its key projects. Military aircraft sales rose in large part because of a large boost in F-35 joint strike fighter sales. On the commercial aircraft side, Moog's relationship with Airbus continued to pay dividends, with sales of original equipment manufacturer components jumping by nearly half. Increased demand for ground vehicle programs and naval and security products helped bolster sales for the defense business, and sales of medical components were extremely strong as well. For the industrial sector, weakness in energy was the biggest part of what held Moog back.

What's ahead for Moog?

CEO John Scannell expressed enthusiasm about Moog's future. "Our premier military and commercial aircraft programs continue their production ramps," Scannell said, "and we've seen sales gains in several of the defense programs in our portfolio." The CEO also said that things look encouraging going forward, and the company's backlog of $1.2 billion was consistent with what it has seen in recent quarters.

Moog made a slight upward revision to some of its guidance for the full 2017 fiscal year. A boost to the revenue projection of $30 million brought Moog's new expectations up to $2.45 billion in sales for the year. The company didn't make any changes to the target of $3.50 per share in earnings, but it did narrow the size of its anticipated range, expecting somewhere between $3.35 to $3.65 per share as the company gets more clarity on the opportunities it has and the way it seeks to capitalize on them.

Moog investors have been excited about the company's prospects, and the stock is now within a short distance of eclipsing its all-time record high levels from 2015. As long as conditions in the key aerospace industry remain favorable, Moog will have the chance to keep expanding its relationships with the companies it supplies, and that has plenty of positive implications for the likelihood of fundamental improvement in the months and years ahead.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Moog (A shares). The Motley Fool has a disclosure policy.