Higher U.S. defense spending could boost Moog Inc., in what the company already expects to be a solid year.
"There's more and more talk about, the U.S. has to increase the military budget," said John Scannell, chairman and CEO of the Elma-based aerospace manufacturer. "We think it's also going to be a positive in the long term."
In the past, when the federal government has increased or reduced defense spending, the effect tends to show up first in the aftermarket, or replacement parts, for aircraft, he said. Those parts ensure that planes already built and in the military's fleet can be maintained and are available to fly.
"So if they started to say, 'We've got to get the F-18 [jets] fleet flying, we've got to get more V-22 [Ospreys] available to fly,' we could see a pickup in our aftermarkets as we go through the year.," Scannell said. "The bigger, longer-term [original equipment manufacturer] programs, that typically takes a little longer to ramp up."
Moog isn't basing its financial outlook on the potential for higher defense spending, "but it could be an upside," Scannell said.
In fact, Moog on Friday maintained the same full-year earnings outlook it provided three months ago, projecting sales of $2.62 billion and earnings per share of $4.10. Moog's fiscal year ends Sept. 30.
The company reported only a $1.3 million profit in its fiscal first quarter, due to a one-time big tax hit. Its sales rose 6 percent, to $628 million. Excluding the tax hit, though, Moog's profits were 93 cents per share - five cents better than analysts were expecting.
"We're off to a good start, we're a little bit ahead of what we said, but for the fiscal year we're keeping our guidance unchanged," Scannell said. "But I would say we're feeling more confident about it than we were three months ago.
"If you compare the general sentiment versus 12 months ago, we're much more confident, I think, in the longer-term outlook for the business," he said.
At the same time, Moog doesn't want to "overpromise," Scannell said.
"There's always pluses and minuses," he said. "In every business, you've got a big portfolio of different markets. There's always ones that are a little bit of a challenge. You can have surprises here and there, so we don't want to get ahead of ourselves too quickly."