An accounting snafu and changes in the value of foreign currencies drove a 2 percent drop in first-quarter profits for aerospace and defense contractor Moog, as total revenues across all business lines actually rose slightly without the impact of exchange rates, on the strength of higher commercial aircraft sales.
The East Aurora-based aircraft components maker said net income fell 2 percent from a year ago to $32.1 million, or 80 cents per share, down from $37.7 million, or 82 cents per share, in the same quarter a year ago. But that included 16 cents of special “non-cash” accounting charges. Without those charges, adjusted earnings were 96 cents per share, up 17 percent.
Total sales fell 2 percent or $16 million from a year ago, to $637 million, while the cost of sales was also up 2 percent to $463.7 million.
But the effects of foreign exchange transactions for converting euros, Japanese yen and British pounds to dollars added up to $28 million. Otherwise, sales were up by 2 percent.
“There were a lot of moving parts to this quarter,” Chairman and CEO John Scannell said in an interview. “You have to dig down a layer below to get a sense of the business. The quarter was actually up nicely versus a year ago.”
The non-cash charges included $8 million or 13 cents per share for correcting an accounting mistake in Moog’s Space and Defense business that had accumulated over several years but was only discovered this quarter. The error, which was small in any one quarter but added up significantly over time, related to how certain balance-sheet accounts for one of its facilities were improperly recorded, Scannell explained.
Also during the quarter, Moog sold two small facilities that formerly belonged to Buffalo-based Ethox Corp., located in the Rochester suburb of Rush and in Erie, Pa. The Rush facility, with 40 employees, provides laboratory and testing services, while the Erie facility makes sterilization services, with 10 employees. Both serve the medical device and drug industries, and were part of Moog’s struggling Medical Devices business.
They were acquired for $3 million by investment firm Tartan Holdings LLC, which combined them to form a new company called Iuvo Bioscience. However, Moog had to record a $1 million accounting write-down on the facilities’ value, equal to 3 cents per share. In other areas, total aircraft sales were flat at $274 million, as commercial aircraft sales rose 5 percent to $140 million, while military aircraft sales fell 5 percent or $7 million to $134 million.
Original equipment commercial sales rose 12 percent to $111 million, including $64 million to Boeing Co. and $22 million for the European maker of Airbus planes, but aftermarket sales fell 16 percent to $29 million because Boeing spent heavily a year ago on initial purchases of spares for its 787 aircraft program.
Military original equipment sales fell 2.4 percent or $2 million to $80 million, as lower revenues from the F-18 and KC-46 tanker programs offset higher sales from the F-35 Joint Strike Fighter and V-22 tilt-rotor aircraft. Aftermarket sales fell 8 percent to $54 million.
In Space and Defense, sales fell 2 percent to $93 million. Defense sales rose 2 percent, as strong missile and naval controls revenues overcame weaker security sales, but space sales fell 6 percent.
Industrial revenues fell 15 percent, mostly because of foreign-currency, but also from weaker global industrial markets. Energy controls sales fell 16 percent, while simulation and test products revenues fell 12 percent.