Moog's Q4 2025: Contradictions Emerge on Tariffs' Impact on Commercial Aircraft, Free Cash Flow Conversion, and Aftermarket vs. OE Growth

Date of Call: November 21, 2025

Financials Results

• Revenue: $3.9B FY'25, up 7% YOY; Q4 sales >$1.0B, up 14% YOY
• EPS: Adjusted EPS $8.69 for FY'25, up 11% YOY; Q4 adjusted EPS $2.56, up 19% YOY
• Operating Margin: Adjusted operating margin FY'25 13.0%, up 30 bps vs FY'24; Q4 adjusted operating margin 13.7%, up 20 bps YoY; FY'26 guidance 13.4% (14.2% excl. tariffs), +40 bps vs FY'25

Guidance:

• FY'26 sales $4.2B, +9% YOY; adjusted operating margin 13.4% (+40 bps vs FY'25; 14.2% excl. tariffs).
• Adjusted EPS $10.00 ± $0.20, +15% YOY; Q1 EPS $2.20 ± $0.10.
• Free cash flow conversion ~60%; long-term target 75%-100%; expect Q1 cash use >$100M.
• Segment targets: Commercial +15% to $1.0B; Space & Defense +11% to $1.2B (COTSWORKS ~+3ppt); Military +7% to $1.0B; Industrial +3% to $1.0B.
• CapEx ~ $160M (~same % of sales as FY'25); effective tax rate ~25.0%.

Business Commentary:

• Record Financial Performance:
• Moog Inc. achieved record-breaking results for fiscal 2025, including over $1 billion in quarterly sales and an all-time high 12-month backlog of $3 billion.
  

• This strong performance was driven by focused customer value propositions, operational excellence, and strategic investments.

• Defense and Aerospace Demand:

• Sales in the Space and Defense segment increased by 9% due to strong broad-based Defense demand, with missile control and satellite components being particularly strong.

• The company's position in the Defense market, particularly in the U.S., NATO Nations, and Indo-Pacific allies, contributed to this growth, supported by increased industrial capacity demands.

• Commercial Aerospace Production Ramp-up:

• Commercial Aircraft sales increased by 15%, driven by volume on major production programs like Boeing's 787 and 737 MAX, and aftermarket sales from increased fleet utilization.

• This growth reflects stable production plans and confidence in demand outlook, despite tariff pressures.

• Industrial Market Stability:

• Industrial sales grew by 3%, driven by increased demand for data center cooling pumps and steady growth in the medical end market.
• The stability in the industrial market is attributed to Moog's focus on growth areas and steady backlog increases in the past two quarters.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management described an "exceptional fourth quarter" with "record results," noting >$1B quarterly sales, highest adjusted operating margin and EPS, and FY'25 adjusted EPS $8.69 (+11%). They guided FY'26 higher (sales +9%, EPS +15%, FCF conversion ~60%), signaling confidence in continued improvement.

Q&A:

• Question from Jonathan Tanwanteng (CJS Securities, Inc.): How do you expect cash flow to phase through the next three quarters, what underlying items (factor improvement, supply chain, customer terms) drive this over 1-2 years, and when do you expect to hit 75%-100% conversion?
  Response: They expect ~60% FCF conversion in FY'26 and are executing working-capital actions (pushing out material receipts, later-year destocking) now; these structural initiatives will reduce trade NWC over several years toward the 75%-100% long-term target.

• Question from Jonathan Tanwanteng (CJS Securities, Inc.): On the negative incremental margin in Commercial Aircraft for FY'26, is mix a component or is it mainly tariffs?
  Response: The margin decline is driven primarily by tariff pressure, with a secondary negative mix impact as the higher-margin aftermarket becomes a smaller portion of segment sales.

• Question from Michael Ciarmoli (Truist Securities, Inc., Research Division): Can you quantify working capital targets as a percent of revenue, bridging items to cash in '26, CapEx expectations, and how customer advances look?
  Response: They aren't disclosing a specific working-capital percent yet; expect modest working-capital use in FY'26, customer advances positive but less than FY'25, and CapEx around $160M (~same % of sales).

• Question from Michael Ciarmoli (Truist Securities, Inc., Research Division): What's the return profile and timing for CapEx projects and when will CapEx trend lower?
  Response: Project returns vary: production-related investments recover over ~2-3 years; automation and capacity projects enable current volume increases and are already delivering efficiency gains.

• Question from George Bancroft (Gabelli ETFs Trust - Gabelli Commercial Aerospace and Defense ETF): On growth platforms (MV-75, CCA, F-47, F/A-XX, satellites, missiles), are you pursuing M&A or other ways to expand these areas?
  Response: They maintain an active acquisition pipeline, are focused on Defense opportunities and geographic expansion (Australia, Europe), and will pursue M&A that fits that strategic agenda.

• Question from Michael Ciarmoli (Truist Securities, Inc., Research Division): Why are tariffs hitting Aerospace harder than Industrial?
  Response: Commercial Aircraft is more globally dispersed (including a Philippines site) and exposed to Section 232 tariffs on steel/aluminum; contracting structures vary so tariffs and global supply movements disproportionately affect Commercial versus more domestic Military.

• Question from Michael Ciarmoli (Truist Securities, Inc., Research Division): For Commercial Aircraft's 15% growth next year, how much is OE vs aftermarket?
  Response: Most of the growth in FY'26 is OE-driven (including rising narrow-body volumes); aftermarket becomes a smaller percentage of segment sales, while destocking is being managed via supply-chain timing.

• Question from Michael Ciarmoli (Truist Securities, Inc., Research Division): How confident are you in the 60% FCF conversion target given past revisions—what's the line of sight?
  Response: Management is confident in the 60% FY'26 projection, citing stronger sales/backlog, visible customer advances (though smaller than FY'25), and already implemented actions (pushing material receipts) that have begun to deliver.

Contradiction Point 1

Tariffs Impact on Commercial Aircraft

It involves differing statements on the impact of tariffs on the Commercial Aircraft segment, which could affect financial projections and investor expectations.

What caused the negative incremental margin in Commercial Aircraft for '26—product mix or other factors? - Jonathan Tanwanteng(CJS Securities, Inc.)

2025Q4: Yes, there is negative mix impact, with the commercial aftermarket being more profitable than OE business. Tariffs are the significant impact, pressuring Commercial Aircraft. - Jennifer Walter(CFO)

How are tariffs affecting the aerospace segment and how you plan to offset rising costs? Is the aerospace segment more exposed to tariffs than the industrial segment? - Michael Ciarmoli(Truist Securities, Inc., Research Division)

2025Q1: Yes, the implementation of the tariffs does include some impact on the Commercial Aircraft segment of about 1% of sales. - Pat Roche(CEO)

Contradiction Point 2

Free Cash Flow Conversion in Fiscal 2026

It involves differing statements on the expected free cash flow conversion rate for fiscal 2026, which is a key financial metric for investors.

Can you detail cash flow expectations and efforts to improve cash conversion in upcoming quarters? - Jonathan Tanwanteng(CJS Securities, Inc.)

2025Q4: Our free cash flow conversion for FY '26 is projected at 60%. - Jennifer Walter(CFO)

What were the key drivers of the free cash flow improvement in Q2 and beyond? - Jack Ayers(TD Cowen)

2025Q1: Our free cash flow conversion for the year is projected to be 65%. - Jennifer Walter(CFO)

Contradiction Point 3

Commercial Aircraft Impact of Tariffs

It highlights differing perspectives on the impact of tariffs on the Commercial Aircraft business, which could affect revenue projections and cost management strategies.

Why are tariffs more impactful in Aerospace than Industrial? - Michael Ciarmoli (Truist Securities, Inc., Research Division)

2025Q4: Commercial Aircraft has a global supply chain, more exposed to tariffs. Also, some customer contracts are not ex-works, exacerbating the impact. - Patrick Roche(CEO)

Can you provide details on the Boeing strike impact and your assumptions about Airbus? - Cai von Rumohr (TD Cowen)

2024Q4: We're not seeing any direct impact from the tariffs on our sales. Some of the contract arrangements that we have with those customers. - Pat Roche(CEO)

Contradiction Point 4

Aftermarket and OE Growth Expectations

It involves differing outlooks on the growth of the Commercial Aircraft business, particularly the balance between aftermarket and original equipment sales, which could influence strategic planning and revenue forecasts.

Can you break down Commercial Aircraft’s aftermarket and OE growth expectations for next year? - Michael Ciarmoli (Truist Securities, Inc., Research Division)

2025Q4: Growth is mainly driven by OE, with narrow-body aircraft production picking up. - Jennifer Walter(CFO)

What specifics should we expect for commercial and military aftermarket growth this year? - Cai von Rumohr (TD Cowen)

2024Q4: In '25, Commercial business will see OE production growth outpacing aftermarket due to favorable production mix. - Pat Roche(CEO)