Moog Inc. is pulling the plug on most of its wind energy business.
The Elma motion control equipment maker said Friday it is winding down the vast majority of its money-losing wind energy equipment business over the next six months after failing to find a buyer.
"It was a great business for the first few years," said John Scannell, Moog's chairman and CEO in an interview. "But it's been a financial drain for quite some time."
Moog executives had hoped to jumpstart the wind energy business by developing a new line of more reliable pitch control systems for wind turbines. By tapping into Moog's motion control expertise and designing new systems that used fewer components, the company believed its products would save wind farm operators money in the long run by lasting longer and reducing operating and maintenance expenses.
But Moog's new products cost more upfront, and wind turbine manufacturers, mainly based in China, were reluctant to adopt new systems that would push up the price of their turbine systems at a time when the wind energy market is highly competitive, Scannell said.
As a result, Moog sold only about half as many of the new systems as it had hoped, leading to the decision to wind down the business after it couldn't find a buyer.
Moog plans to close a free-standing plant in Germany and will scale back operations at a factory in China as a result of the decision, Scannell said.
The decision to wind down the pitch control business will reduce Moog's revenues by about $50 million a year, Scannell said. The company will continue to produce other wind energy products, but those items only account for about 10 percent of Moog's overall wind energy business.
The impending exit from the wind pitch control market reduced Moog's pre-tax earnings by about $31 million during the second fiscal quarter that ended in March. That reduced Moog's after-tax profits by almost two-thirds, or 72 cents per share, on top of a 5 cent per share charge related to the new federal tax law.
Without those one-time items, Moog's profits would have strengthened to $1.16 per share, up from $1.10 per share a year earlier. That was better than the $1.06 per share that analysts expected. Moog's stock rose by 1 percent in early trading on Friday.
With the charges, Moog's profits fell to $14 million, or 39 cents per share, from $32 million, or 88 cents per share, a year ago.
"The rest of the business is doing nicely," Scannell said.
Operating profits from its aircraft controls unit grew by 7 percent on an 8 percent increase in sales. Earnings from its space and defense controls business jumped 48 percent on a 3 percent increase in revenues. Moog's industrial business, which includes the wind energy products, had an operating loss of $6 million after earning $22 million a year ago.