Woodward (WWD)

Aerospace and defense company Woodward (NASDAQ:WWD) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 5.8% year on year to $883.6 million. The company’s full-year revenue guidance of $3.44 billion at the midpoint came in 1% above analysts’ estimates. Its non-GAAP profit of $1.69 per share was 15.4% above analysts’ consensus estimates.

Company Overview

Initially designing controls for water wheels in the early 1900s, Woodward (NASDAQ:WWD) designs, services, and manufactures energy control products and optimization solutions.

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

Woodward’s peers and competitors include Moog (NYSE:MOG.A) and Collins Aerospace (NYSE:COL).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Woodward grew its sales at a sluggish 2.8% compounded annual growth rate. This was below our standards and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Woodward’s annualized revenue growth of 13.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

This quarter, Woodward reported year-on-year revenue growth of 5.8%, and its $883.6 million of revenue exceeded Wall Street’s estimates by 5.7%.

Looking ahead, sell-side analysts expect revenue to grow 5.5% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will face some demand challenges.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Woodward has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 11%.

Analyzing the trend in its profitability, Woodward’s operating margin rose by 3.4 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Woodward generated an operating profit margin of 17.7%, up 3.7 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Woodward’s weak 3.1% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Woodward’s two-year annual EPS growth of 43.1% was fantastic and topped its 13.8% two-year revenue growth.

In Q1, Woodward reported EPS at $1.69, up from $1.62 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Woodward’s full-year EPS of $6.08 to grow 9%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Woodward has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 10.9% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Woodward’s margin dropped by 12.9 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Woodward’s free cash flow clocked in at $59.41 million in Q1, equivalent to a 6.7% margin. The company’s cash profitability regressed as it was 3.2 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Woodward historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.2%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Woodward’s ROIC has increased over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Woodward reported $364.1 million of cash and $911.9 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $606.3 million of EBITDA over the last 12 months, we view Woodward’s 0.9× net-debt-to-EBITDA ratio as safe. We also see its $24.62 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Woodward blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad it lifted its full-year revenue and EPS guidance, although the EPS outlook slightly missed. Overall, we think this was a solid quarter with some key metrics above expectations. The stock traded up 3.2% to $187.42 immediately after reporting.

Updated: July 10, 2025 at 11:18 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Woodward.

There are some bright spots in Woodward’s fundamentals, but its business quality ultimately falls short. Although its revenue growth was weak over the last five years, its growth over the next 12 months is expected to be higher. And while Woodward’s cash profitability fell over the last five years, its organic revenue growth has been marvelous.

Woodward’s P/E ratio based on the next 12 months is 37.2x. This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $261.31 on the company (compared to the current share price of $250.66).