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Moog's business is strong, but political uncertainty casts a shadow over it

Moog CEO John Scannell likes what he sees at the Elma company's business.

It's what's happening in Washington and other world capitals that makes him uneasy.

The motion control equipment maker reported profits from operations that jumped by 25 percent during the first quarter and easily topped analyst forecasts.

But between the federal government shutdown, tariffs imposed on certain goods and products in a trade skirmish with China, and the unknowns about how Great Britain's pullout from the European Union will play out, Scannell said there is plenty of uncertainty swirling around Moog's business.

While those issues aren't having a direct impact now, they could in the coming months, depending on how events unfold.

"We're watching them," Scannell said Friday. "But right now, business is very positive."

Moog earned $44.1 million, or $1.25 per share, during the quarter that ended in December, up from $1.3 million, or 4 cents per share, a year ago, when its profits were depressed by changes in the federal tax law. Excluding those changes, Moog's profits were up from $1 per share a year ago and topped the $1.13 per share that analysts were expecting.

After the strong first quarter, Moog executives also are sticking with their previous forecast that its profits this year would rise to around $5.25 per share during the fiscal year that ends in  September, with sales approaching $2.88 billion.

But there is an unusual amount of uncertainty swirling around Moog's markets.

"It's the political turmoil in Washington. It's the shutdown and it's tariffs and it's Brexit," Scannell said.

The monthlong federal government shutdown isn't having much of a direct impact on Moog, since the Defense Department is fully funded and most of its military projects are long-term in nature, he said.

But as it drags on, it could lead to delays in new programs or replacement part purchases and other government activity, he said.

"The longer it goes on, it's a real mess," Scannell said. "In 90 days time, we may be saying some things that we thought would happen in the second quarter didn't happen."

Scannell said the tariffs imposed by the Trump administration have had only a very small direct impact on some metal purchases that Moog makes, but he is watching to see if the new duties create a ripple effect among its customers that could start to hit Moog in the coming quarters.

"It's kind of the second or third order effects that could impact us," he said.

And then there's Brexit, with the uncertainty over how Great Britain will manage its pullout from the European Union. Moog has plants in Great Britain, and there are concerns that, in a worst-case scenario, a hard break with the EU could shut off the flow of goods between Britain and most of Europe.

"We don't know how that will play out," Scannell said.

Despite those concerns, Scannell said he was pleased with the way Moog's business is performing.

Operating profits were up at all three of Moog's business units, led by a 39 percent increase at its industrial systems segment, where sales grew by 2 percent.

With rising production from the F-35 fighter jet fueling a major expansion at Moog's Elma campus, earnings from its aircraft group rose 7 percent. Sales from military aircraft products jumped by 22 percent during the quarter, while revenues from spare parts grew by 11 percent. That offset a slower 2 percent growth rate in its commercial aircraft sales.

Earnings from its space and defense unit rose 12 percent as sales increased 17 percent, mostly because of higher defense-related revenues from missile systems, defense controls and systems to track drones and other unmanned aerial vehicles.

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