Moog Inc. Navigates Mixed Q2: Revenue Growth Amid Margin Pressures and Strategic Shifts

Moog Inc. (MOG.A) reported second-quarter 2025 earnings that defied expectations, posting net sales of $934.8 million—$30.9 million above the FactSet consensus of $903.9 million. While the top line held steady year-over-year (YoY), the results masked underlying complexities: margin erosion from the loss of pandemic-era tax benefits, uneven segment performance, and lingering macroeconomic risks.

Revenue Drivers and Margin Pressures

The company’s revenue growth was driven by its Military Aircraft and Commercial Aircraft segments, which rose 6% and 4%, respectively. The FLRAA (Future Long-Range Assault Aircraft) program, a key U.S. Army initiative, fueled military sales, while aftermarket demand for commercial aerospace parts surged 19%. However, setbacks in industrial markets and the absence of a $150 million tax benefit from 2024’s Employee Retention Credit (ERC) clouded profitability.

Adjusted diluted EPS fell 12% to $1.92, reflecting the ERC’s impact and rising operational costs. The adjusted operating margin dropped to 12.5% from 13.6% in Q2 2024, though management emphasized progress in free cash flow, which improved to $2 million from -$84 million a year earlier.

Segment Performance: A Tale of Growth and Challenges

Military Aircraft shone, with sales reaching $214 million and margins expanding to 11.1% due to operational efficiency. The FLRAA program’s ramp-up underscores Moog’s position as a leader in next-generation defense technologies.

In Commercial Aircraft, aftermarket strength offset production delays at OEMs like Airbus, where supply chain bottlenecks constrained original equipment (OE) sales. The segment’s adjusted margin fell slightly to 11.8%, a reminder of the sector’s volatility.

Space and Defense sales grew 1% to $270 million, but margins collapsed 330 basis points to 12.1%, largely due to the ERC loss. Meanwhile, the Industrial segment’s sales dropped 7% to $234 million as Moog strategically exited lower-margin businesses, improving its adjusted margin to 13.4%.

Strategic Priorities and Risks

1. Tariff Mitigation: Management highlighted potential tariff-related headwinds of $10–20 million in 2025, with Commercial and Industrial segments most exposed. Solutions include leveraging USMCA trade agreements and price adjustments.
2. Cash Flow Focus: CFO Jennifer Walter reaffirmed a full-year free cash flow conversion target of 50%, relying on improved receivables management and inventory discipline.
3. Share Repurchases: The company spent $60 million on buybacks in Q2, maintaining a conservative leverage ratio of 2.6x debt-to-EBITDA.

Risks Looming Over the Outlook

Moog’s full-year guidance remains intact—$3.7 billion in sales and $8.20 adjusted EPS—despite headwinds. However, Airbus’s production delays could strain Commercial Aircraft OE sales in the second half, while the Industrial segment’s simplification strategy, while margin-positive, risks further revenue declines.

Conclusion: A Resilient Play in Aerospace, But Not Without Hurdles

Moog’s Q2 results reflect a company navigating a tightening macroeconomic environment with resilience. The top-line beat and strong backlog ($2.5 billion) underscore its position as a critical supplier to defense and aerospace giants. Yet investors must weigh margin pressures and tariff risks against its long-term growth catalysts: the FLRAA program, space exploration demand, and aftermarket stability.

With shares trading at 17x forward P/E, Moog remains attractively valued relative to peers like Honeywell (HON) or Rockwell Collins (COL). However, the stock’s recent underperformance—down 5% year-to-date—hints at investor caution around near-term margin pressures.

The verdict? Moog’s strategic focus on high-margin, defense-oriented programs positions it to outperform in a sector defined by consolidation and innovation. Yet investors should monitor tariff developments and Airbus’s recovery closely. For now, Moog remains a hold for those willing to bet on its long-term prospects in a $2 trillion aerospace market.

Data as of April 25, 2025.