Moog Inc. Chief Executive Robert T. Brady thinks the Elma aerospace company's slow growth days are coming to an end.
With the rebounding Euro likely to make Moog's European sales more lucrative and its industrial and aircraft businesses expected to gain strength, Brady predicted Wednesday that the company should come close to returning to a double-digit growth rate.
"As we look forward, I think our future growth prospects are substantially brighter," Brady told shareholders at the company's annual meeting.
That improvement didn't show up during the company's first quarter, when Moog's earnings rose by just 3 percent, but Brady said profits would have been even stronger if not for a $6 million hit to its sales from the strong dollar and component shortages that delayed some shipments.
"It is reasonable to expect sales increases more in the 8 percent to 10 percent range -- more like our history," Brady said. And earnings growth of 12 percent a year "may be a realistic expectation."
That more upbeat outlook showed last week, when Moog raised its forecast for its earnings during the current fiscal year to $3.16 per share from its old prediction of $3.10.
Yet despite a 58 percent surge in Moog's stock price during the last year, Brady continued to lament that the shares, which trade at about 10.4 times the company's earnings from last year, are undervalued.
If Moog can deliver on its promise of steady, double-digity growth, Brady said he hopes investors will place a higher valuation on the company's shares, which would allow the stock to trade at an earnings multiple of 14 to 15.
Moog expects its industrial business, which gets more than half its sales from outside the United States, to be one of the biggest sources of growth this year, thanks to three recent acquisitions and rising sales of components used in the injection moulding machines that make CD-ROMs and DVDs.
The acquisitions, which cost a total of $27 million and are expected to add about $51 million to the company's annual sales, have rounded out Moog's industrial product lines and expanded its presence in Europe.
Marty Berardi, Moog's vice president of industrial controls, said the company's industrial business is expected to hit $268 million this year and grow at a double-digit pace after that.
The company's satellite business, which has been stung by the failure of two big communications satellite projects that were expected to be a big source of growth, is expected to rebound this year. Sales are forecast to reach about $25 million this year, which is up from $20 million last year but down from its peak of $27 million in 1998.
"We're now beginning to see growth in this business," said Jay Hennig, deputy general manager of Moog's systems group.
The company expects its aircraft business, which accounts for about half of Moog's sales, to experience a small increase in its military sales and stronger sales for commercial aircraft, led by an expected increase in production at its biggest customer, Boeing.
Brady also gave a vigorous defense of the military's V-22 tilt-rotor aircraft program, which has been rocked by a pair of recent crashes. The Marine Corps blamed an April crash on pilot error and a December accident on a broken hydraulic line and a software glitch.
While no Moog equipment has been implicated in the crashes, an audit by the Pentagon's top weapons tester late last year found problems with some of the key parts the company makes for the Osprey -- and its hydraulic systems.
The Moog-engineered swashplate actuators -- flight controls that guide the helicopter rotors -- "seemed to be especially vulnerable to leaks," according to a report by the Defense Department's Director of Operational Test and Evaluation.
The crashes and a scandal involving falsified maintenance records have raised speculation that the Osprey program could be in jeopardy. "These kinds of accidents historically have not been uncommon when these new aircraft are developed and are being debugged," Brady said.
While the cancellation of the V-22 project would have only a modest immediate impact on Moog because the plane is only on a slow initial production schedule, it could have a significant impact on the company's future growth because the program eventually could involve 200 to 300 Moog workers at peak production.
Moog supplies about $1 million in equipment for each V-22.
"In my view, it would be foolish to terminate the program as an emotional response to the accidents," Brady said.
"The aircraft performs its mission admirably . . . Our hardware has performed perfectly," aside from the small leaks in the swashplate actuators, which have since had their seals redesigned to reduce the chance of leaks.
"These are problems that can be addressed and will be addressed," he said.