Following the presentation, you will be invited to participate in a question- and- answer session. Joining us today from the company are Mr. Tom Gendron, Chairman and Chief Executive Officer, Mr. Mark Hartman, Chief Financial Officer, Mr. Don Guzzardo, Vice President of Investor Relations and Treasurer, and Mr. Dan Provaznik, Director of Investor Relations. I would now like to turn the call over to Mr. Guzzardo.
Thank you, operator. We would like to welcome all of you to Woodward's fourth quarter fiscal year 2021 earnings call. In today's call, Tom will comment on our markets and related strategies, and Mark will discuss our financial results as outlined in our earnings release. At the end of our presentation, we will take questions. For those who have not seen today's earnings release, you can find it on our website at woodward.com. We have again included some presentation materials to go along with today's call that are also accessible on our website. An audio replay of this call will be available by phone or on our website through December 2, 2021. The phone number for the audio replay is on the press release announcing this call, as well as on our website, and will be repeated by the operator at the end of the call.
I would like to refer to and highlight our cautionary statement as shown on slide three. As always, elements of this presentation are forward-looking or based on our current outlook and assumptions for the global economy and our businesses, more specifically, including the expected and potential effects of the ongoing COVID-19 pandemic. Those elements can and do frequently change. Please consider our comments in light of the risks and uncertainties surrounding those elements, including the risks we identify in our filings. In addition, Woodward is providing certain non-U.S. GAAP financial measures. We direct your attention to the reconciliations of non-U.S. GAAP financial measures, which are included in today's slide presentation and our earnings release and related schedules. We believe this additional financial information will help in understanding our results. Now turning to our results for the fourth quarter.
Net sales for the fourth quarter of fiscal 2021 were $570 million compared to $531 million for the prior year quarter. Net earnings for the fourth quarter of 2021 were $50 million or $0.76 per share, compared to $57 million or $0.89 per share for the prior year quarter. Adjusted net earnings for the fourth quarter of 2021 were $54 million or $0.82 per share, compared to $48 million or $0.75 per share for the prior year quarter. For the full year, net sales were $2.25 billion, compared to $2.5 billion for the prior year.
Net earnings were $209 million or $3.18 per share for fiscal 2021, compared to $240 million or $3.70 per share for the prior year. Adjusted net earnings were $212 million or $3.24 per share, compared to $254 million or $3.96 per share for the prior year. Net cash generated from operating activities for 2021 was $465 million compared to $349 million for the prior year. Free cash flow and adjusted free cash flow for 2021 were both $427 million.
For 2020, free cash flow was $302 million, and adjusted free cash flow was $315 million. Now I will turn the call over to Tom to comment further on our results, strategies, and markets.
Thank you, Don, and good afternoon, everyone. As some of you know, Don has decided to retire at the end of the year after a 31-year career at Woodward. Don has been an important champion of Woodward's growth and transformation story over the past three decades and has been a trusted advisor to management. On behalf of the company, I want to express our sincere gratitude for his dedication to Woodward, outstanding leadership and counsel. We wish you all the best in retirement. Going forward, Dan Provaznik, a 15-year Woodward veteran, will lead our Investor Relations function. We delivered solid results for fiscal 2021 against the headwinds of COVID and global supply chain disruptions. We do expect continued recovery throughout 2022, although uncertainty and volatility around the pace of recovery is anticipated to remain.
We believe our proven resiliency and strong financial position will allow us to capitalize on future market opportunities. Moving to our markets in more detail. Commercial aerospace continues to recover. Bill rates are expected to improve further in 2022 based on announced increases and the anticipated certification of the 737 MAX in China. Commercial aftermarket is being driven by increased passenger traffic and the utilization of a commercial fleet that includes significantly higher Woodward content. Domestic travel is nearing pre-COVID levels, while international travel, although steadily improving, is still significantly lagging. Defense markets remain stable with the exception of guided weapons, which we anticipate will continue to soften in fiscal 2022. Turning to our industrial markets. In power generation, demand for gas turbines continues to increase, driven primarily by growth in Asia and the continued replacement of coal-powered plants.
Additionally, we see strong demand for backup power for data centers. Aftermarket activity has been stable but is expected to increase in 2022. In transportation, the global marine market is seeing improvement in orders for new ships, as well as increased utilization, which will drive aftermarket activity. Demand for China natural gas trucks continued to be soft, as expected, due to the absorption of China V diesel pre-buy activity related to the implementation of new China VI diesel emissions regulations, which took effect July 1st. In addition, global natural gas prices have spiked due to increased demand for power generation and limited supply and weather-related usage. This increase in price is expected to dampen demand for natural gas trucks in the near term. Despite this volatility, China's commitment to reducing emissions is expected to drive long-term demand for natural gas trucks.
In oil and gas, prices have returned to pre-2020 levels from pandemic lows, due in part to energy demand increases. Capital expenditures have increased steadily since early 2021, and this level of investment is expected to continue. In summary, we delivered solid performance in a challenging macroeconomic environment. We are seeing improvement in most of our markets. However, COVID-related impacts, including ongoing labor and supply chain challenges and regional market fluctuations, continue to pressure global economic recovery. Looking ahead to 2022, we expect ongoing recovery and improved profitability in our Aerospace business as OEM production rates and passenger traffic continue to grow. In Industrial, we expect a modest improvement in profitability as our markets continue to recover. Marine cargo rates and volumes are improving, demand for industrial gas turbines is increasing, and rising oil and gas prices are driving investment.
We are optimistic about the continued recovery across our markets and look forward to continued progress in 2022. I'll turn the call over to Mark Hartman.
Thank you, Tom. Net sales for the fourth quarter of fiscal 2021 were $570 million, an increase of 7%. Sales for the quarter and the full year were negatively impacted by approximately $32 million due to global supply chain disruptions, which delayed orders scheduled for shipment. Aerospace segment sales for the fourth quarter of fiscal 2021 were $371 million, an increase of 12% from the prior year quarter. Commercial OEM and aftermarket sales were up compared to the prior year quarter by 67% and 23% respectively, driven by elevated build rates and continued recovery in domestic passenger traffic. Defense OEM sales were down 6% and defense aftermarket sales were down 20% in the fourth quarter of 2021 compared to a strong prior year quarter.
Aerospace segment earnings for the fourth quarter of 2021 were $66 million or 17.4% of segment sales, compared to $58 million or 17.4% of segment sales for the fourth quarter of 2020. Segment earnings were positively impacted by higher commercial sales volume. For fiscal year 2021, Aerospace segment sales were $1.40 billion compared to $1.59 billion for the prior year, a 12% decrease. Aerospace segment earnings for fiscal year 2021 were $234 million or 16.7% of segment sales, compared to $310 million or 19.5% of segment sales for the prior year. Turning to Industrial.
Industrial segment sales for the fourth quarter of fiscal 2021 were $193 million compared to $195 million in the prior year period, a decrease of 1%. The decrease in Industrial sales was primarily due to lower industrial gas turbine sales, as well as weakness in natural gas engines in China, partially offset by improvements in marine. Industrial segment earnings for the fourth quarter of 2021 were $21 million or 10.7% of segment sales, compared to $19 million or 9.6% of segment sales for the same period of the prior year. The increase is primarily due to favorable impact of foreign currency exchange rates.
For fiscal 2021, Industrial segment sales were $842 million compared to $905 million for the prior year, a 7% decrease. Excluding the renewable power systems and related businesses, which I will refer to as RPS and were divested in the third quarter of 2020, Industrial segment sales for fiscal 2020 were $837 million. Foreign currency exchange rates had a favorable impact on Industrial segment sales for 2021 of approximately $33 million. Industrial segment earnings for fiscal 2021 were $109 million or 12.9% of segment sales. Industrial segment earnings for 2020 were $100 million or 11.1% of segment sales.
Excluding RPS, Industrial segment earnings for fiscal 2020 were $97 million or 11.6% of segment sales. Non-segment expenses were $17 million for the fourth quarter of fiscal 2020, compared to non-segment expenses of $0.2 million for the same period in the prior year. Adjusted non-segment expenses for the fourth quarter of fiscal 2021 and fiscal 2020 were both $12 million. Adjusted non-segment expenses for the fourth quarter of 2021 excludes the restructuring charges. Adjusted non-segment expenses for the fourth quarter of 2020 primarily excludes the gain on sale of properties. Non-segment expenses for fiscal 2021 were $64 million compared to $95 million for fiscal 2020. Adjusted non-segment expenses totaled $59 million for fiscal 2021 compared to $67 million for fiscal 2020.
At the Woodward level, R&D for the fourth quarter of 2021 was $28 million, or 4.9% of sales, compared to $27 million or 5.1% of sales for the prior year quarter. For fiscal 2021, R&D expenses were $117 million, or 5.2% of sales, compared to $133 million or 5.3% of sales in fiscal 2020. SG&A and adjusted SG&A for the fourth quarter of 2021 were both $38 million compared to SG&A of $41 million and adjusted SG&A of $43 million for the fourth quarter of 2020.
For fiscal 2021, SG&A and adjusted SG&A expenses were both $187 million compared to SG&A expenses of $218 million and adjusted SG&A expenses of $196 million for fiscal 2020, which primarily excludes merger and divestiture transaction costs. For the fourth quarter of 2021, the effective tax rate was 18.2%, and the adjusted effective tax rate was 18.8%. For the fourth quarter of 2020, the effective tax rate was 16.0%, and the adjusted effective tax rate was 13.8%. The full year effective tax rate was 15.1% for fiscal 2021 compared to 14.7% for fiscal 2020.
The adjusted effective tax rate was 15.3% for fiscal 2021 compared to 17.8% for fiscal 2020. Looking at cash flows, net cash provided by operating activities for fiscal 2021 was $465 million compared to $349 million for the prior year period. Capital expenditures were $38 million for 2021 compared to $47 million for the prior year period. Free cash flow and adjusted free cash flow for 2021 were both $427 million. For fiscal 2020, free cash flow was $302 million and adjusted free cash flow was $315 million. The increase in free cash flow and adjusted free cash flow was primarily related to effective working capital management, partially offset by lower net earnings.
Leverage w as 1.7x EBITDA at the end of the fourth quarter. We also have significant liquidity available through approximately $1.4 billion of combined cash on hand and revolver capacity. During fiscal year 2021, $82 million was returned to stockholders in the form of $36 million of dividends and $46 million of repurchased shares under the previously authorized $500 million share repurchase program, of which $441 million remained available at the end of fiscal year 2021. Lastly, turning to our fiscal 2022 outlook. End markets and supply chain disruptions are anticipated to improve in fiscal year 2022, although the uncertainty and volatility around the pace of the recovery is expected to persist.
Growth and profitability in both segments could be negatively affected if COVID and supply chain disruptions do not improve, or if the pace of inflation puts additional pressure on labor and material costs. Total Woodward net sales are expected to be in the range of $2.45 billion-$2.65 billion. Aerospace and Industrial sales growth percentages are each expected to be in the low double digits to mid-teens. Our aerospace outlook assumes further improvement in build rates in alignment with announced increases in the anticipated 737 MAX certification in China. In addition, continued recovery in flight traffic is assumed to drive growth in commercial aftermarket. Guided weapon sales are anticipated to decline while the remainder of the defense is expected to be generally consistent with 2021.
Industrial growth is expected to be driven by higher demand for power generation equipment, rising oil and gas investments, and increased ship utilization. China natural gas truck sales are expected to be flat year- over- year, with quarterly volatility continuing due to uncertainty around natural gas prices. Aerospace segment earnings as a percent of segment sales are expected to increase by approximately 200 basis points-300 basis points, primarily due to the increased sales volume in both commercial OEM and aftermarket, partially offset by lower guided weapon sales, the return of annual variable incentive compensation costs, and inflationary cost pressures. Industrial segment earnings as a percent of segment sales are expected to be approximately flat to up 150 basis points, primarily due to increased sales volume, partially offset by the return of annual variable incentive compensation costs and inflationary cost pressures.
The effective tax rate for the year is expected to be approximately 21%. Earnings per share is expected to be between $3.55 and $3.95 based on approximately 66 million fully diluted weighted average shares outstanding. The favorable impacts of sales growth and productivity improvements in both segments are being partially offset by the expected return of annual variable compensation costs, inflationary pressures, and a higher tax rate. Free cash flow is expected to be approximately $315 million, generating a free cash flow conversion rate of greater than 100%. As sales growth returns, we anticipate higher working capital requirements, primarily driven by accounts receivable. Also, capital expenditures are expected to increase by approximately $30 million.
This concludes our comments on the business and the results for the fiscal year and fourth quarter of 2021. Operator, we are now ready to open the call to questions.
Thank you. The question-and-answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have any question, please press star on your push button phone. Should you wish to withdraw your question, press the pound key. Your question will be taken in the order it is received. Please stand by for your first question, sir. Your first question is from Sheila Kahyaoglu of Jefferies. Your line is open.
Thank you guys for the time, and Don, congratulations on an amazing 31 years.
Thank you.
Maybe if we could start off with just guidance implications. I'm gonna actually focus on industrial because I think low double digits is pretty robust, just considering what the segment's done over the last decade. What gives you the confidence? How's the backlog looking? Can you maybe talk about sub-segment moving pieces there?
Sure, Sheila. You know, one of the reasons you see that type of growth rate is we're definitely coming off a bottom, as you know, in some of our markets, where power, you know, power generation was down, oil and gas was down, China natural gas was down. As you look at it, we see good growth in our turbomachinery business, so covering, you know, gas turbines for power, compressors, steam turbines used in process plants. We're also seeing good recovery in the marine market, and we're starting to see aftermarket pickup in the marine market, but also across the board. Some of the auxiliary engine applications, such as backup power, is increasing. Equipment sales are increasing. We're starting to see the economic recovery flow through to demand.
You know, a lot of that has shorter order cycles. We are seeing orders come in, but a lot of it in discussions with our customers are looking at volume increases, and, you know, we're building the plans around that.
Okay, thank you. Then maybe on just aerospace OEM in particular. You know, how do we think about 737 MAX rates and 787s that you've built into your plan? Is it fair to say you're kind of assuming, you know, 25 a month on the 737 MAX and two or three a month on the 787? Where are you at currently?
Yeah, you know, on that, Sheila, for you know, the MAX and the Neo, the 787, you know, obviously the MAX and the 787, you know, have had those disruptions everybody's aware of. We're really tracking, you know, to the Boeing and Airbus production rates. I think as most of you know, especially the ones that have toured our facilities, we're capacitized for much higher rates than they're announcing right now. So, we're in good shape to handle the rates. We're planning to meet the rates that they're looking at. You know, there definitely is the uncertainties. You know, will those rates materialize? You know, are heavily dependent on, you know, the FAA releasing, you know, the production quality issues on the 787 and also for China to certify the MAX.
You know, the rates that have been quoted by our customers, you know, both plan on those happening, you know, as we move forward in the following quarter. That's what our plans are built around, that those are going to recover and those rates are going to be met.
Okay. Thank you, guys.
You bet.
Your next question is from Pete Skibitski of Alembic Global. Your line is open.
Hey, good afternoon, guys. Don, best wishes.
Thanks, Pete.
I guess. Yeah. I guess, you know, Tom, coming off of two quarters of the supply chain issues, it kind of feels like you guys maybe feel like the worst of that is behind you because you've given fiscal 2022 guidance. Can you kind of walk us through why you feel like the worst of these supply chain issues are in the past maybe? And maybe you can even ballpark your expectation for the first quarter revenue too in case there's any residual impact.
Yeah. First, I'll answer that last question, Pete. You know, I think it'll take into the second half of the fiscal year to recover a lot of the past due that was driven by supply chain disruptions. The reason we have some confidence, you know. There are mechanical type components, and then we got electronics. I think everybody's real familiar with the electronics shortages and disruptions. You know, we're seeing some improvement in that happening. We anticipate as the year moves on that we'll see electronics starting to recover. The mechanical side, you know, if you say, look at that, a lot of that disruption was tied to our supply base, you know, reacting to the pandemic, cutting back, closing, you know, consolidating factories, laying off, you know, workers.
Then demands returning and, you know, there's disruptions there beyond what we could overcome. I think I shared in the past that we put together at Woodward and invested in what we call a rapid response team to, you know, we knew there were gonna be supplier disruptions, and we mitigated quite a few, but there were more than we had anticipated. We have a full team working with those suppliers. We got recovery plans. We have some confidence in those recovery plans. They're, you know, like I said, they take a little bit of time, but we'll overcome those. You know, we're kind of dependent on the global electronics supply chain, but we see, you know, promising improvements there.
That's why I have some faith that we're gonna see as we move in the second half of the year that we have recovery.
Anything on the first quarter in terms of, you know, level setting us on the revenue side?
Well, you know, we don't give, you know, or talk really quarter- to- quarter. I think it'll follow our normal pattern, Pete. You know, we always have the holidays, shorter amount of work days, you know, in the first quarter, as you know, and that pattern will continue.
Okay. Last one for me, you know, there's chatter that for the defense department, we could have potentially a full year continuing resolution. It sounds like your expectations are fairly modest for defense or just, you know, maybe kind of flattish to down, it sounds like overall. Would you guess if there's any, you know, risk to that from a full year CR, if we have one?
Yeah. No, not overall. Pete, you're definitely in the ballpark with what we're anticipating on overall defense, that you know, there will be some softness as we've pointed out on the guided weapons. You know, down slightly is what we're anticipating.
Okay. Thanks, guys.
Yep. Thanks, Pete.
Your next question is from Matt Akers of Wells Fargo. Your line is open.
Hi. It's actually Eric Yan on for Matt. Thanks for the question. Just on the guided weapons, I think you mentioned, yes, there will be a much decline in 2022. So just thinking where we are in the JDAM slowdown, or any other guided weapons, if we're at a normal run rate or further to fall?
Oh, yeah. What you have with our guided weapon portfolio, the JDAM and the current lot buy by the government is down. Our other controls for guided weapons are actually gonna go up. Net-net, it's still down because JDAM is the largest program. I think we're starting to approach, you know, maybe the steady state going forward on JDAM. The one thing that could change a little bit on that is we are seeing some activity around foreign military sales that could add some volume, but that has not come through yet. We do anticipate as we move forward in 2022 and to 2023, we might see some foreign military sales start to fill in. Those are still unknown at the moment, but we do think that could happen.
Okay, got it. If I could do one more. Just regarding the magnesium shortage people recently talked about, do you see metal supply as a potential risk for you guys going into 2022?
Not really a risk in terms of the metals we use and our ability to procure them. We are seeing inflationary pressures around materials as well as labor. That's one headwind. We right now are not anticipating that we'll have shortages of required materials.
Okay, thanks.
You're welcome.
Your next question is from Christopher Glynn of Oppenheimer. Your line is now open.
Thanks. Good afternoon.
Good afternoon.
I apologize for the dog in the background. Nothing I can do. Price cost. I'm curious about price cost timing. I think you have a fair amount of OEM relationships and customers in industrial, and typically there's a lag to price realization run off some old contracts. I wonder if there's a dynamic where you know that kind of rolls into new pricing, you know, maybe into the new year, your fiscal second or you know however you want to comment on that.
Sure. You know, logistics costs, you know, have risen as you're pointing out. Most of our OE sales are tied to long-term agreements. The ability to move price is limited. Now, however, our long-term agreements have escalation clauses in them. You know, once a year we do reset based on indices and, you know, inflation. We will see some recovery. Other parts of our business, where we have shorter cycle, not LTAs or aftermarket, we do have the ability to have some price realization in those areas. It's a mix, but you know, the benefit of long-term agreements, you know, we have, like I said, is. They're there. We know we have the programs, but we do have to wait once a year for prices to be adjusted per the escalation indices.
Okay. On the net equation, what I'm understanding is, you know, you're within the lag effect though, so it's a little pinchier presently than it's likely to be.
Yeah.
You know, a quarter or two out maybe. Is that-
Yeah.
Yeah, yeah.
If you see. Yeah, you know, one of our outlook charts that you see there is, you know, we do have, without a doubt, we're experiencing inflation, you know, whether you know, you look at materials, wages, logistics, you know, across all these categories. We're also offsetting a lot with productivity, and we're driving through. You know, we still have that pressure. That combined with, you know, the contracts coming through, we're really netting and offsetting, you know, mostly all of that.
Okay. That's helpful. Thank you.
Mm-hmm.
The $32 million of kind of holdback from supply chain issues, I'm presuming that's mostly in the Industrial segment, but I didn't really catch it if that was clarified at all.
Yeah. It's split generally evenly across both Industrial and Aerospace.
Great. Thanks for the color.
You're welcome.
Your next question is from Gautam Khanna of Cowen. Your line is open.
Hey, I echo my thanks and congratulations to Don. It's a pleasure working with you.
Thank you, Gautam.
You'll be missed. Tom, I was just gonna follow up on the aftermarket. What are you seeing month-to-month? You know, were you seeing kind of an improvement throughout the quarter? Are you seeing fits and starts still? You know, how would you characterize kind of the trend line? You know, was it still kind of spotty?
Yeah. We're seeing. Yeah.
Would you-
Okay. Sorry, Gautam. Yeah, no.
Yeah. No, please. Go ahead.
Good question. We're seeing accelerating aftermarket activity. You're asking, you're specifically on commercial aerospace, I take it?
Yes.
Yeah.
Yes, I was. Yeah.
Yeah. On commercial aerospace, we're seeing, you know, accelerating activity. We're also seeing initial provisioning pickup, so, you know, all good signs. You know, obviously, fleet utilization is a big driver of that. We feel, you know, very positive that, you know, the fleet flying has very good Woodward content, so, you know, that's a positive tailwind. Initial provisioning, like I said, has come back. You know, we anticipate, you know, good increase in 2022. That also still is dependent on, you know, the production rates being met and China certification coming through. You know—
Yeah.
— we believe those will happen. Yeah, aftermarket's looking good. We still anticipate, you know, tail end of 2023 is where you know you see closer to 2019 levels.
Okay.
We're on a good path.
Okay. On the commercial aero OE side, in the past you guys have indicated those shipments are profitable, and I'm just on a follow-up to one of the earlier questions on inflation and your escalators. Are you seeing compression, you know, in OE profitability next year? Or should I say, did you see it throughout this year, and therefore it's a positive year-to-year dynamic next year as price resets more favorably or—
Yeah. No, actually. Right. We will have price changes due to the escalation clauses taking effect in 2022. I would highlight, and, you know, we talked on previous calls that during the downturn, we invested more in our True North continuous improvement activity. We actually did quite good on OE margins, and, you know, we really anticipate driving those up, you know, through productivity improvements. You know, now we have to offset all this inflationary pressure, but I think overall, we're still in good shape there and, you know, we're still working hard to drive that through. Obviously, as volume increases through our factories, that's a big plus as well to get that volume leverage.
Yep. Last one for me. You guys are capacitated, you know, for much higher levels of demand, so CapEx through the cycle from here presumably will be subdued relative to, you know, the last cycle. What is the plan with capital allocation? Kind of like, what are you hoping to do? Is M&A the priority from here? Is it share repurchases? Like, what are you... Besides organic growth and, you know—
Yeah.
— the core business stuff.
Yeah. No, good question. Mark might jump in here with me, but, just to highlight, you're correct on CapEx, and we're, Mark, approximately looking at $50± million , you know.
Yeah. It's just timing on CapEx, right? We've guided in the past. You know, we anticipate to be around $50 million, 'cause you're accurate. We're fully capacitated, so we're in a maintenance mode for CapEx. You know, there's timing differences. That's why, you know, we're lower than $50 million in fiscal 2021, higher than $50 million in fiscal 2022.
Yeah.
You're right on that.
On the capital deployment, you know, we are. Last quarter, we talked about, you know, we were returning to, you know, our capital deployment strategy and, you know, returning, you know, 50% net income to shareholders through, you know, dividends and buybacks. You saw that we were buying back in the quarter. In addition, we do have a very strong balance sheet. With that, we will continue to look for growth, so both in, you know, good investments and organic growth. If we can find attractive M&A that, you know, builds on our strategies, fits, you know, what you know, our business, we will look at that. It's a combo of that.
As everybody knows, you know, M&A is not something you can predict timing of, so if we have excess cash, we'll return it to shareholders.
Thank you.
You're welcome.
Your next question is from David Strauss of Barclays. Your line is open.
Good afternoon, guys. This is Brad Barton on for David. Thanks for taking the question.
Good afternoon, Brad.
I was wondering if you could talk to working capital, and how much of a headwind you expect to see from here?
Yeah. You know, as sales returns, you know, obviously we're anticipating good growth in 2022. We do anticipate having that working capital or need investment, but it's mainly gonna be in receivables. You know, one thing that you've probably seen throughout the last couple years is we've done a very good job of managing our inventory balances. We're anticipating to continue to do that as we move forward. Really, it's just really gonna be related to the sales overall, and as we're growing here quarter to quarter, we will have to invest into accounts receivable overall, and that would be the main working capital component that we'd be speaking to going forward.
Got it. Thanks. Just quickly looking at headcount in aero and industrial, how much have you increased from bottom?
We've been hiring, you know, overall obviously as growth has come. I don't have the number right off the top of my head, but it's been significant, especially as we've anticipated the growth as we're moving forward here. It's mainly been on the direct labor side and, you know, some of that's been bringing back members that were laid off, and then others are bringing in new members and getting them up and trained on the line overall. It's several hundred, you know, across the company over the last year timeframe as growth has been occurring.
We do anticipate the need to hire a significant number of members in the coming year, and we've put together hiring strategies and plans and, you know, to get ahead of the curve. With that growth, yeah, we've got the capital, we've got the facilities, we will have to add headcount to support the growth.
All right. Great. Thanks for taking the question, guys.
You're welcome.
Your next question is from Michael Ciarmoli of Truist Securities. Your line is open.
Hey, good evening, guys. Thanks for taking the call. Congrats, Don. It's been a pleasure working with you over the years. Good luck. I guess, Tom, just on, I guess back to what Gautam was asking around, you know, kind of your facilities, what you're sized for. You mentioned, you know, kind of that end of 2023, you know. But how should we think about aerospace margins? I mean, do you need aerospace revenues to get back to the prior peak, or do you think you can get back to that level of profitability given some of the actions with True North? I realize, you know, inflationary environment, labor costs, that might be a, you know, open-ended kinda challenge right now, but what are the thoughts there?
Yeah. Right now, you know, our outlook is that as we hit the end of 2023, we'll be at that 20%+ run rate on aero.
Got it.
The run rate at the end of 2023 is when we should be done.
Yep. Got it. Okay. I guess just staying within aero, you know, defense, it sounds like you're pretty cautious in general. Or, you know, aside from the guided weapons, anything incremental, I mean, obviously you've got some good content on the Joint Strike Fighter, you know, those rates coming down. You know, some of the other legacy platforms that you've got, you know, big exposure to, you know, V-22 Black Hawk Apaches. I mean, is, you know, defense seemingly all manageable? You know, and again, it seems to be a cautious view, but have you contemplated all that into the forecast?
We have. You know, we are well represented in, you know, some of the new programs you're all familiar with. You know, there's been a new buy for F-15EX, including, you know, the GE F110 engine. Those have good content for us. F-18's good content. Some of those legacy are still moving along and, you know, provide, you know, good base for us. You know, we're kind of in that flattish area with guided weapons taking us down, you know, low mid-single digit.
As we move forward, I don't think the world's getting any safer, so, you know, we may just right now say, "Hey, it's, you know, more towards the flat, you know, plus or minus single digit, low single digits, up or down around that." That's kind of what we're planning.
Yeah, the other opportunity on the defense side of the business, of course, is on the aftermarket, with you know, upgrade programs and the like. That you know, that's always been a good positive for us.
You know, another area that it's not really defense, but we're not categorizing it under defense, but we've been making a bigger push into the space market. Some is on the defense side, but a lot of that's commercial. We're starting to win programs there and you know, moving quickly on some of that activity. That over the next few years will fill in some growth as well.
Got it. Last one I had, just back to the pricing. Obviously, you know, the OE pricing, but what are you seeing in the aftermarket? You know, presumably as some of this used and serviceable material green time maybe runs its course, are you able to get kind of real time price increases, or are you seeing a better pricing environment in the commercial aftermarket?
We're still able to get reasonable price in the aftermarket. We are, you know, seeing price increases. You gotta look at some of the, you know, it goes program by program on what's being retired or what's being parted out. You know, maybe you've seen some of the data on this. A lot of the aircraft that we're on that some people thought were gonna be retired are not, and they're in service. They're being brought back in service. Right now, we're not seeing that pressure.
Okay.
You know, we still have good pricing position.
Got it. Perfect. Thanks a lot, guys. I'll jump back in the queue.
Yeah. Thank you.
As a reminder, should you have a question, please press star one on your push button phone. Should you wish to withdraw your question, press the pound key. Your next question is from Noah Poponak of Goldman Sachs. Your line is open.
Good evening, everybody, and congrats and all the best to you, Don, with retirement.
Thanks, Noah.
The revenue guidance for 2022 up low-double-digit to mid-teens, you know, that would be an acceleration in the quarterly revenue growth rate pace compared to what it's been over the last several quarters, despite the compares getting tougher. I guess I'm wondering, are there some outsized, you know, big contributors to 2022 that you didn't have in 2021 that I'm missing, whether that's, you know, the initial spares provisioning on the aftermarket that can be pretty sizable, or, you know, just what's happening in the energy world, in your oil and gas business? Or is there the capture of the slipped revenue from supply chain and logistics? Does that land in the second half of next year and create, you know, a big growth rate in the back half?
I guess I'm just struggling a little bit on how the pace will accelerate on tougher compares.
Yeah. Noah, actually, you're hitting on a lot of them, so I'll just,
Okay
knock them all off as you went and maybe start with the latter. Yeah, our assumption on the supply chain disruption and the holdback there is, you know, that abates in the second half of FY 2022, so that would be a tailwind there. If I step back just generally to our markets, you know, commercial OE is gonna be growing, you know, with the build rates. You know, Tom mentioned previously we're anticipating, you know, that the OEMs, both Boeing and Airbus, you know, reach the build rates that they're, you know, have signaled out there overall. That would be significant growth for us on a year-over-year basis.
I mean, the other thing you have to, you know, be thinking about is early FY 2021, you know, we were down at the bottom, right? We've been growing off of that, but it was a significant reduction from prior periods. We've talked some already about on the commercial aftermarket side, you know, that with the utilization, the use of the green time on engine, you know, the fleet that's actually flying has more Woodward content on it overall. So we would anticipate, you know, significant aftermarket, you know, growth in 2022 and ramping as the year progresses. You know, as we've been talking, you know, the summer season was a busy season, overall. Anybody that was at an airport traveling all, I think, saw that.
You know, if that green time continues to get used and, you know, overall that will have to come in for, you know, repair and upgrades as we move forward. Moving over to the industrial side of the business, you know, you hit on some of it. If I first start on the power generation side of the business, you know, power generation needs, you know, in Asia and developing countries is growing. You kind of see that across the, you know, a lot of the companies in that space, overall, you know, are anticipating growth there.
You know, as they either have the generation needs or in the more developed world, you know, trying to replace coal power plants with, you know, natural gas in, you know, in turbines overall would be positive for us. The other, you know, I'll say major driver for us is the return of the marine market. You know, the utilization for marine transportation is high. So, you know, twofold. One is, you know, the ship order activity has increased, and, you know, that's a lagging market for us overall that typically takes a couple of years as those ships get ordered, that we would see the recognize the revenue and the units shipments there. Overall, you know, we did see that increase.
You know, the other opportunity for us, of course, is with the strong utilization, you know, in the freight world today, those are gonna have to come in. We mentioned it early, I'll say in the pandemic, that you know, a lot of the aftermarket cupboards were run bare. You know, they destocked everything. They used everything they could, and they didn't ramp back up. You know, we're anticipating that to be an opportunity also. You know, the other on the industrial side, Tom mentioned a little bit earlier on the oil and gas. You know, obviously with prices where they're at.
Today on the oil side, you know, we're anticipating that there'll be growth there from you know production needs and you know people actually looking to drill more. That will be positive for us. That's how we get to you know even on tougher comps as you move forward since we've been ramping. You know, with all those opportunities and those favorable market dynamics and the Woodward position in those markets, that's how we get to you know that growth that we're talking about.
Okay. Appreciate all that detail. You know, the first half will have the easier compares but still have the lingering supply chain issues. Second half, maybe you're making that up, you have the tougher compares. I guess, you know, the growth rate, total organic revenue growth rate for the year, should the quarterly progression be, you know, somewhere near that growth rate every quarter? Or is the growth back-end loaded?
Yeah, I mean, Tom mentioned it some earlier too, right? I mean, year-over-year, of course, we're gonna have the Q1, you know, it's gonna both Q1s have a lesser number of working days with all the holidays and all of that. We do see the markets ramping as the year progresses. The supply chain disruption, you know, is gonna be abating, you know, in the back half. You know, I wouldn't anticipate it to be significantly different, but, you know, there will be an upward trend as the year progresses from a sequential basis.
Okay. Then just lastly, going back to the Aerospace segment margin, you know, it looks like the implied incremental and the guidance is kind of 35%, maybe even a little higher. You've done that before, but you know, sometimes it's not quite that robust. Tom, I think you made a comment about getting to the 20%+, you know, on a run rate basis exiting 2023, but it would seem like you know, to get to the guidance, you'd have to kind of be there exiting 2022. Maybe if you could just speak a little bit more to the margin progression this year and you know, how much of it's mix versus cost out versus something else?
Yeah. Well, we definitely have a number of factors coming in. Mix plays in. You know, the aftermarket's picking up, so that's a positive. You know, we're gonna get leverage on the volume that's coming through, so you're gonna see that. As you can see, you know, Mark highlighted, you know, that we do have a nice increase in the margins anticipated in 2022, and we anticipate to continue that improvement as we move forward into 2023. I think we're tracking pretty well. I think that'll be pretty accurate and, you know, I did put a 20%+ on that, so just
When do you think you achieve the 20%+?
Well, that's what we said, you know, on a run rate basis, it'd be, you know, exiting 2023. We'll be making, you know, steady progress through 2022 into 2023 on all that.
Okay. Thanks so much.
Thank you.
You're welcome.
Your next question is from Christopher Glynn of Oppenheimer. Your line is open.
Thanks. I'm curious, have a OE question for the commercial OE markets. You know, looking at the narrow bodies, the MAX and the Neo, obviously, you've got really nice content step-ups from prior cycle. I'm wondering with, you know, the supply chain stresses going way down and then way up, if you're seeing any potential reallocation of awards that might accrue to your narrow body shipsets even more.
You know, we are talking to a variety of our customers where they're having problems with other suppliers and, you know, can we, you know, help them out of those problems. We're looking at those, and we're working some. It does take a little time for, you know, those type of transitions to occur. You know, there is the possibility to add to our content.
Okay, thanks. Good luck. Just a housekeeping question. What are we thinking for corporate spend levels be kind of unallocated expense for fiscal 2022?
Yeah. It's in our normal range, 2.5%-3% of sales, somewhere in there.
Okay, thanks, Mark.
You're welcome.
Mr. Gendron, there are no further questions at this time. I will now turn the conference back to you.
Well, I appreciate everybody joining us today, and we always appreciate the questions. Just as a reminder, you know, we're still planning March to have an investor day in person. We'll get more details out to everybody, and hope many of you can join us for that. Thanks, and I hope you all have a great holiday coming up. Good night.
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