Woodward Inc (WWD) 2015 Q4 法說會逐字稿

Thank you for standing by. Welcome to the Woodward Inc. fourth quarter and fiscal year 2015 earnings call. At this time, I would like to inform you that this call is being recorded for rebroadcast, and that all participants are in a listen-only mode. 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. Bob Weber, Vice Chairman, Chief Financial Officer, and Treasurer; and Mr. Don Guzzardo, Director of Investor Relations and Treasury. 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 and fiscal year 2015 earnings conference call. In today's call, Tom will comment on our markets and related strategies, and then Bob 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 net 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 November 23, 2015. The phone number for the audio replay is on the press release announcing this call and will be repeated by the operator at the end of the call.

Before we begin, 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 outlook and assumptions for the global economies and/or and our businesses more specifically. Those elements can and do frequently change. Please consider our comments in light of the risks and uncertainties surrounding those elements. We also direct your attention to the reconciliations of certain non-U. S. GAAP measures included in today's slide presentation and our earnings release and related schedules.

Management uses these non-U. S. GAAP measures in monitoring and evaluating the ongoing performance of Woodward and each business segment.

Turning to our results for the fiscal year, net sales for the fiscal year 2015 were $2.04 billion, an increase of 2% compared to $2 billion in fiscal 2014. On a constant currency rate basis, when compared to the prior year, sales would have been $2.1 billion, an increase of approximately 5%. Earnings per share were $2.75 for the fiscal year, an increase of 12% compared to $2.45 for the prior fiscal year. On a constant currency basis, earnings per share would have been approximately $2.91, an increase of 19%.

Free cash flow for the fiscal year was $1 million compared to $61 million in fiscal year 2014. Fiscal 2015 capital expenditures were $80 million higher than in the prior year. To focus specifically on the quarter, net sales for the fiscal 2015 fourth quarter were $563 million, comparable with the fourth quarter of the prior year. On a constant currency basis when compared to the prior year quarter, net sales would have increased 3%.

Earnings per share were $0.77 for the fourth quarter of fiscal year 2014, consistent with our earnings per share for the fourth quarter of fiscal year 2014. On a constant currency basis, earnings per share to would have been approximately $0.84 per share, an increase of 9%. Now I will turn the call over to Tom to comment further on our results, strategies, and markets.

Thank you, Don. Welcome to those joining us today. 2015 was a challenging year but I am pleased to report that we finished in line with our original full-year expectations, despite difficult market conditions. In aerospace, we saw a solid sales growth across most of our markets, including commercial OEM and after-market general aviation and defense. Segment margins expanded significantly, even with our new facilities being brought online.

Our energy segment delivered solid results in the face of significant headwinds. Volatile Asian markets and negative foreign currency impacts were partially offset by strength in wind turbines and industrial gas turbines. Despite these challenges, we maintained our segment margins compared to the prior year. We accomplished a great deal in fiscal 2015. Most significantly, we signed agreements with Aerocell and Boeing to supply thrust reverser actuation services for two new aircraft; the Airbus A330 NEO, and the Boeing 777X. We also supply the for the A320 NEO, and the Boeing 737 and 737 Max, 777 and 744-8. These winds solidify us as the global leader in thrust reverser actuation systems.

We were awarded the fuel system for the GD9X which will power the Boeing 777X through our announced joint venture with GE Aviation. The joint venture will be the exclusive supplier of fuel systems for GE's large aircraft engines, which will power the Boeing 777, 747-8, 787, and 777X. We generated our first sales related to the next generation aerobody aircraft in preparation for their approaching launches.

On the energy side, despite the headwinds we faced this year, we continued to introduce new products such as all-electric valves and actuators for heavy-frame gas turbines, to improve efficiency and enhance connectivities; and a new expanded portfolio of control solutions for steam turbines. We also launched fuel system controls for dual-fuel engines, and new control for diesel engines, which enable us to help achieve tier-4 emission requirements.

These accomplishments reflect the success of our system strategy to increase share content on each new platform as they are introduced. As volumes ramp up over the coming years, this will represent significant market share growth for Woodward. Also, we completed our two new aerospace facilities in fiscal 2015, and will complete our any energy facility in the first half of 2016; each coming in on schedule and on budget. As we have noted previously, these facilities were designed to add capacity for the new programs we have been awarded, and also supply lean principles to our manufacturing processes. To process improvements in automation, these facilities will drive a step change in productivity.

Turning specifically to our aerospace markets, the aerospace industry continues to be healthy, driven by increase in demand for more fuel-efficient aircraft, coupled with increased growth and passenger miles and utilization. Commercial aerospace remains strong with back logs at record levels. Large transport aircraft orders continue to be positive. Day 320 NEO is on track, and the first flight on 737 Max is expected in early 2016.

Commercial aftermarket continues to be driven by higher utilization and growth in global passenger traffic. Defense market remains stable with some growth in aftermarket and smart weapons related to the continued turmoil in the Middle East. Boeing also made its first flight at a KC46A which includes significant content. Overall, our aerospace segment continues to perform well, and a long-term outlook in this market remains bright.

Turning to energy, the heavy frame gas turbine market continues to be driven by the demand for aftermarket parts and services as gas turbines for power generation are seeing higher utilization due to low natural gas pricing. The increased desire for renewable power is driving growth in the wind turbine market, and we expect steady growth in the coming years. The economic slow-down in Asia has negatively impacted many of our industrial markets.

The natural gas truck and bus market in Asia continues to be soft as government incentives, natural gas supplies, and other factors have dampened demand. We believe this business has strong long-term potential, and we understand an energy policy initiatives in China are being proposed that would incentivize use of natural gas vehicles.

Similar to large industrial companies with exposure to Asia, we are seeing softness in many of our markets in the region, and we anticipate this it continue into 2016. Near term, share gain realization and aftermarket growth are helping to offset a challenging operating environment.

The long-term secular trends of increased electric power demand, greater use of natural gas, and more stringent emission regulations that drive our energy business remain positive. In summary, in both segments, market share gains are contributing to sales growth and we continue to expand our margins with our focus on lean manufacturing principles and operational improvements. 2016 will be an exciting year as we transition from an investment cycle to a return cycle. We will complete the significant capital investment project for the last three years and launch the programs that have required a significant amount of R&D.

While we believe the economic environment in 2016 will also be challenging, we are well-positioned for growth and will remain proactive in addressing an uncertain and challenging and changing environment. Let me turn it over to Bob to discuss our financials.

Thank you, Tom. We finished a challenging fiscal 2015 with a solid fourth quarter and we delivered earnings for the year within our original expectations. In aerospace, sales increased 5% in the quarter, mainly due to strong commercial OEMs and aftermarket; with both up in the fourth quarter more than 10% compared to the prior year quarter. Defense sales for the quarter were comparable to a very strong prior year quarter, and for the fiscal year commercial aftermarket sales were up approximately 6%.

Aerospace segment earnings were $60 million for the quarter, a 5% increase compared to the prior year quarter. Segment earnings were primarily driven by the increased sales volume and favorable mix, which were partially offset by higher manufacturing costs, including costs associated with the start-up of two new facilities.

Segment earnings as a percent of sales were 17.9% for the quarter, consistent with a strong prior year quarter. Segment earnings as a percent of net sales for fiscal 2015 were 16.2%, compared to 14.7% in fiscal 2014, exceeding our 1-point margin improvement goal. Our aerospace segment was not impacted by foreign currency. In our energy segment, sales decreased $20 million or 8% compared to the prior year quarter. Strength in both wind and gas turbine markets was offset by negative sales volume impacts from a weak economy in Asia and negative foreign currency exchange rate impacts.

Foreign currency exchange rate impacts had a $19 million impact on sales for the quarter. On a constant currency basis compared to the prior year, energy segment sales for the full fiscal year would have been $941 million, compared to $917 million in the prior year, an increase of 3%.

Energy segment earnings decreased $6 million for the quarter. Segment earnings as a percent of sales were 13% for the quarter compared to 14.2% for the prior year quarter. The decrease in earnings was primarily driven by the negative impacts of foreign currency exchange rates. On a constant currency basis, energy segment earnings as a percent of sales for the quarter would have been consistent with the prior year at 14.2% for the fourth quarter. Energy segment earnings as a percent of net sales for the full year 2015 were 14.4% compared to 14.6% for the prior year, reflecting strong cost control and a very difficult environment.

On a constant currency basis, energy segment earnings as percent of sales for fiscal 2015 would have been 15.1%, in line with our margin improvement goal. At the Woodward level, gross margin for the fourth quarter of 2015 was 28.4% compared to 29.7% in the prior year period. Gross margin for fiscal 2015 was 28.7%, consistent with the prior year. For the full year, we absorbed approximately $10 million of planned start-up costs related to our two new aerospace facilities. Research and development costs for the fourth quarter of 2015 were approximately $37 million, or 6.5% of sales; compared to $38 million, or 6.7% of sales in the prior year period.

For fiscal 2015, research and development was 6.6% of sales compared to 6.9% for fiscal 2014. For fiscal 2016, we expect our R&D expense as a percent of sales to be down slightly compared to fiscal 2015. Selling general and administrative expenses for the fourth quarter of 2015 were approximately $39 million, or 7% of sales; compared to $42 million, or 7.5% of sales in the prior year period. For fiscal year 2015, selling general and administrative expenses were 7.7%, consistent with the prior year.

The effective tax rate for the fourth quarter of 2015 was 27.2%, compared to 31.2% for the fourth quarter of 2014, primarily reflecting impacts related to international tax matters. For fiscal year 2015, the effective tax rate was 24.7%, compared to 27% for fiscal 2014. For fiscal 2016, we expect our effective tax rate to be approximately 28%.

Looking at cash flows, we generated $287 million of cash flow from operations for fiscal 2015, compared to $268 million for fiscal 2014. The increase is primarily the result of improved earnings. Free cash flow for fiscal 2015 was $1 million compared to $61 million in fiscal 2014. The decrease is attributable to a $80 million increase in capital expenditures in fiscal 2015, related to increased spending on our capacity expansion projects.

Capital expenditures were $287 million for fiscal 2015, compared to $207 million for fiscal 2014. For fiscal 2016, we anticipate capital expenditures to be approximately $180 million. In the second half of fiscal 2016, we expect to see a significant reduction in capital expenditures related to our investments in additional production capacity. These investments are related to our awards on the new narrow-body aircraft, and market share gains related to the globalization and expanded use of natural gas. Free cash flow for fiscal 2016, excluding the impact of cash related to the formation of our joint venture with GE, is anticipated to be approximately $75 million.

In fiscal 2015, we returned $182 million to our shareholders through share repurchases and dividends. In May, 2015, we announced a plan to repurchase $250 million of our common stock by approximately May of 2016. In the fourth quarter, we completed the repurchase of $125 million of our common stock, and anticipate completing the remainder in the first half of fiscal 2016.

Turning to our outlook, overall in the coming year we expect the positive demand and momentum in our aerospace segment to continue. And our energy segment to show slight improvement despite the considerable market uncertainty we face. We anticipate fiscal 2016 sales to be up 1% to 2% from 2015. We continue to see margin expansion as a result of our focus on lean initiatives, process improvements, and cost controls. For 2016, we anticipate our aerospace segment margins to increase 50 to 100 basis points compared to fiscal 2015. While in our energy segment, we expect margins to be flat to up 50 basis points compared to fiscal 2015, despite a challenging economic environment in 2016.

We anticipate earnings before interest and taxes to be up approximately 5%, and earnings per share to be in the range of $2.75 to $2.95, assuming approximately $63 million fully diluted shares outstanding. Historically, our fiscal first quarter is sequentially lower as a result of normal business trends and a lower number of working days due to holidays and plant shutdowns.

In 2015, we experienced a strong first quarter, and headwinds related to foreign currency impacts and Asian economic uncertainties had not yet materialized. We anticipate the first fiscal quarter of 2016 will be considerably lower than fiscal 2015, and more in line with previous years.

We will continue to aggressively pursue operating improvements and manage our cost structure to deliver improved earnings and cash flow in 2016. In summary, in light of the significant headwinds in fiscal 2015, I believe we delivered a strong year and a solid fourth quarter. Operator, we are now ready to open the call to questions.

Thank you. The question and answer session will begin at this time. (Operator Instructions). Our first question comes from the line of Gautam Khanna. Your line is now open, please proceed with your question.

Yes, thanks. Gautam Khanna of Cowen.

Yes, hello.

Hello, how are you? Thanks for the great color in the prepared remarks. I was hoping you could tease out a little bit more of the segment sales guidance, if you will. What should we anticipate, what are you assuming for the energy segment? And if you could maybe parse out the various end markets within that segment as your expectation

Sure. As we said, aerospace we believe will remain strong, and we are probably looking at approximately 2% to 4% increase in aerospace. We do believe that energy will remain challenging, with really no major changing in any of the assumptions and we are looking at approximately 0% to 2% on segment earnings for our energy segment.

What I did I say, segment earnings? Sorry, sales. Sales, sorry.

0% to 2%, down 0% to 2% and plus 2% to 4% at aero?

No, 0% to 2% up for energy sales, and 2% to 4% up for aerospace sales.

Okay. And within energy, can you talk about some of the major end markets. I assume that you are assuming wind will be much stronger than the other areas, but what are you assuming for Chinese natural gas and truck? Perhaps you can also frame IGT, derivatives, and some of the other power gen markets?

Sure. You mentioned wind first. I would not characterize it as strongly as you characterized. We do believe wind will continue to increase as we have called out in the past, we think it is been nice increases, nothing like the very massive increases of the old days, but much more stable. We expect to see nice increase overall in wind again.

In some of the other segments, we believe most of the underlying assumptions will remain as we have seen this year. So in Asia, we have not seen anything that would indicate a substantial uptick or decline overall in Asia; and in particular, in the Asian C&G natural gas vehicle market, we do not anticipate a change from the current period. So we believe that will be fairly stable, which means it will be -- it was down from 2014 to 2015. We anticipate it will not increase significantly going into 2016 and probably remain in the same general area. We continue to -- sorry, go ahead --

Sorry, please continue. I apologize.

On the ITC side, we continue to believe that the aftermarket side will remain strong and I think you have seen some of the OEM producers indicate that they do believe OEM should return to some growth in 2016, so we believe we will see some growth on the OEM side and remaining strength in the aftermarket side. Let us see, were there any other specific areas you inquired about?

No, that was a very helpful discussion, and I just wanted to ask one last one. You made a comment about Q1 being sequentially down as it typically is but to mirror that of prior years. Were you specifically referencing fiscal 2013 or 2014, and what is actually -- because it is quite a range if you go back prior to Q1.

Yes, if you went back to 2014; 2015 was clearly an exceptionally strong quarter, so we wanted to make sure that the patterns of the past relative to the full year are probably more indicative of the way that we believe this year will pan out.

Okay. Thank you very much.

Thank you. And our next question comes from the line of Sheila Kahyaoglu from Jeffries. Your line is now open

Hi, good afternoon, guys. Thank you for taking my question. Just one follow-up on the energy one quickly. There was some organic improvement in the quarter. Would you attribute that to I guess the IGT business, OEM aftermarket, and that is what is expected to continue?

Yes, we had good aftermarket in the IGT business, the OE side with our customer mix, it is favorable. You know, with the way the order book is flowing, so we see that as a positive. But what we also saw in fourth quarter 2015 and we see going into 2016, the market share gains that we have been talking about the last three years have entered production and we are generating sales from those.

So those are offsetting some of the market declines and that covers diesel engines, natural gas engines, as well as steam turbine portfolio and the gas turbine portfolio. So we are starting to see the market share gains, and that is one of the things that is keeping us positive going into 2016 on sales.

Okay. Got it, thank you. And then just in the aerospace business on the margin side, 50 to 100 basis points of improvement, can you maybe elaborate a little bit more on how mix plays factor into that, and also R&D and any start-up manufacturing costs we should be thinking about?

Well, the R&D and start-up manufacturing costs are all built into that. Primarily, what we are seeing is continued margin improvement and I would tell you, the bulk of it is coming from our lean manufacturing initiatives; our new facilities are going to facilitate that as well. So it is all part of the plan we have had. Good aftermarket obviously plays into that, and our aftermarket is holding, and do you want to say progressing as planned. So most of it is coming out of productivity initiatives.

Got it. Thank you very much.

Sure.

Thank you. And our next question comes from the line of William Bremer from Maxim group. Your line is now open

Good evening, gentlemen

Hi, Bill

Hi, Bill

Could you give us a update on the joint venture with GE and how that is playing through in 2016, versus say when it was announced?

Really no significant change whatsoever. We are still on track. We believe we will close at the end of the calendar year. And as we have mentioned in the past, no significant impact to our either top or bottom line. Some geography change and that is about it

Okay, so you basically voiced earlier -- and I am not sure if I heard you correctly, aerospace up 2% to 4% -- that is on a year right? And energy (inaudible) for the two?

That's right.

And first quarter we are voicing pretty much, you know, more historical for first quarter. Is it mixed or what really is the reason behind such a more muted type of first call here on the first quarter?

Bill, it is really volume we are looking at, you know, the delivery books as well as, you know, definitely we have less working days in the quarter; with holidays and shutdowns, we do shut our plants down here in the first quarter. So when we combine all that, we see lower volume which is going to equate to lower earnings in the first quarter than last year. Last year was an abnormal -- well, it was a positive year. We are going to be more traditional, which is our first quarters are generally down.

Okay. Thank you.

Sure.

Thank you. And our next question comes from the line of JB Groh from D.A. Davidson. Your line is now open.

Hey, guys, thanks for taking my call. I think I could probably back into this answer from your guidance, but could you talk about the R&D budget for 2016, and should that kind of mirror what's going on with CapEx? Or is it going to be completely independent?

It would be more independent. So we have had high spend in both the R&D side and the capital side. The capital will be falling off in the first -- at the end of the first half. The R & D spending will be largely flat is what we called out for 2016.

And when you say flat, you mean flat dollars or flat percentage of revenue? I guess when it is flat growth it does not make a difference.

No, you are right. Much to our dismay, but yes.

Okay. All right. Hey, that is all I had. Thank you.

Sure. Thanks.

Thank you. And our next question comes from the line of Michael Ciarmoli from KeyBanc Capital Markets. Your line is now open.

Hey, good afternoon guys. Thanks for taking my questions. Maybe just on the guidance for next year, you know, if I am looking at this and doing the math on a share count of $63 million, 28% tax, you know, to get down to that $2.75, it would almost assume margins have to decline year-on-year. So maybe can you give us the puts and takes to, you know, what needs to happen to hit that low end versus the high end on earnings, or are there any other moving parts in there or anything else going on with corporate?

Just to make sure. So the mid point of the range is $2.85, right?

Right. I am asking about the low end, though.

The low end of the range -- Yes, there as you point out there are a lot of puts and takes potentially. We do believe the energy side of the equation has lots of uncertainty, so further volume reduction on the energy side would probably be what it would take to get down to the low end of that range.

But then would there be revenue downside then on the energy? I mean assuming it seems like then that the EPS bakes in volume declines but the top line does not. I think you guys got it, you said flat to 2% on energy? So would that kind of volume pressure assume energy could be worse than flat next year?

No. I mean we still believe it will be 0% to 2%. I think from the -- obviously there is a lot of mix embedded in that so there are ups and downs and ups and downs. That relative mix even on flat sales could cause to us hit the bottom of that range.

Okay. And then just on aerospace, you know, as the NEO cuts in, should we and we start to see Airbus transition to more production of the NEO, I mean should we be thinking about a different kind of ramp in the aerospace segment, just as the cadence of NEOs versus the current engine ramps up?

Well, definitely as we, you know, the NEO hits in 2016 and the Max in 2017, and you see production rate going up, they are going to be transitioning as you are calling out. So we see really some nice steady growth in the aerospace segment between 2016 and 2018 as the lines or as the production ramps and as the lines switch over from the current version to the new version.

At the same time we also believe we will be seeing, you know, a much higher level initial provisioning tied to the large amount of content we have on these new programs and the launch of a brand new engine. So, as we move from 2016 as the NEO gets going and into 2017 when the Max and then to 2018, that is the future growth profile that we believe we are going to be seeing going forward and it is very healthy.

Got it. You bring up a good point on the provisioning. Do you expect to see any of the NEO provisioning sales this year? Will that move the needle or do you think that will be more of a 2017 event?

Well, we think we are going to start seeing it in 2016 and with provisioning, it is not like a production line so there is a little bit of timing with it. There is quarterly variability, but we will start seeing it in 2016 and definitely in 2017. So it will start this year.

Okay. Perfect. And then just the last one for me, guys. You called out aftermarket being up 10% in the quarter. Were there any -- and I think we are still seeing kind of choppiness out there -- were there any specific platforms that you guys could point to that drove that growth? Was it kind of strength across the board or any color there?

I would say it was strength across the board. When you get out of the summer season, you start to see some maintenance work taking place. So that always helps drive some of the aftermarket and we did have a good spare sale quarter. So it was across the board mix of all sorts. But very healthy aftermarket.

Got it. Perfect. Thank you very much, guys.

Sure.

Thank you. And our next question comes from the line of Jim Foung from Gabelli and Company. Your line is now open, please proceed with your question.

Hi, good morning, guys. Good evening, rather. I was wondering if you are seeing any pressure from Airbus on the narrow body production. The increase to your top rate to 60 a month by 2019, but I think clearly you want to produce more in the early years before 2019. So if you could just comment in you see any pressure on their part, and maybe even Boeing too; because Boeing was going to follow the higher production number not to lose share.

We have had all of our customers in both engine level as well as Airframe level for the, you know, for the narrow bodies as well as the regionals. Doing what they really call readiness reviews, and because of the -- I would say very good planning we did, customers are very pleased. They are coming in and seeing our new facilities, seeing the capacity we put in; and we have been very, very able to show them that we can handle all their ramps, you know, and all the forecasts they have come up with because that is what we planned for.

You know, now obviously as we go to the higher volumes we have to add some more machinery, but we are set to do it so the reviews have gone very well and, all I can say there, Jim, is that we are not going to be the bottleneck. We can handle whatever they put at us.

Okay. But you are not seeing them asking you for more output?

Nothing -- we are not seeing anything different than they are publicly stating.

Right, okay. And just kind of switching gears a bit to the defense business. Could you just talk a little bit about what you are seeing there with the defense budget increasing and kind of potential upside you could see in 2016 with growth in that business?

Yes, we still look at, you know, defense as being stable to up. You know, it is not going to be huge growth, but some of the things that we are seeing, you know, are good; or a lot of activity in smart weapons, and we are also seeing -- if you want to say the maintenance side -- still continuing strong and we are anticipating some of the new programs coming online, from the joint strike fighter to the new tanker to, you know, some of the new -- other new programs that we have good content on. So across the board, you know, defense for us is going to be stable to an upside.

Okay. Great. Thank you, Tom.

Yes, thanks Jim.

Thank you. And our next question comes from the Steve 11son from Stifel. Your line is now open. Please proceed with your question.

Thanks, good afternoon, everybody.

Hi, Steve.

Could you tell us a little bit about the mechanics of closing the joint venture with GE, what is left to do and; you know, how the money comes in and how that relates to the buy-back in your interest expense in 2016, fiscal 2016.

Sure. There is very, very little left to do. We have received regulatory approvals and so on, so there is not a lot other than that final sitting down and signing documents one last time. We will see at that time the $250 million related to the sale of future -- one half of the future cash flows. There will be large tax bill that will go along with that, and then we will see the net of that next year in cash flow. Other than that, there is not a lot of change.

Okay. Good enough, thank you. And what is left to do on the construction; both on aerospace -- I know you have completed the facilities. Are you all moved in, everything already up, and how is the schedule for energy?

On the facilities, we have two aerospace facilities. The one in Niles is fully up, operational, everything is moved in. All equipment is in place. On the one in the Rockford -- we call the Rock Cut campus -- is supporting fuel systems, facility is complete. We are moving people in. We still have a lot of machinery that is going to come in over the next six months, but we have some of the lines getting ready, get the rest of the equipment in, and it would be second half of 2016 in production in that facility.

So that is a little bit what Bob was relating, first half, second half. Most of the large remaining capital will be in the first half and there will be more in what we refer to as normalized maintenance capital in the second half of the year.

Okay. And on the energy side do you expect to see some margin pickup from the move? I mean how quickly do you expect to see some margin pick up from the move?

Yes -- the first thing on the energy side, I did not answer that part. The facility itself is to be completed at the end of the calendar year here, end of December, so it is really close. We have about a five-month move plan, you know, for some of the equipment as well as new equipment being put -- being installed, some of it is being installed right now. So that transition will be really through the first half of the year.

During that transition, it is more expense than it is productivity benefit. We are going to be absorbing just like we did last year, we will be absorbing the move expenses and the like to get the start-up going. But once the start-up gets going, we believe we will start seeing productivity. Really probably more in the last quarter of the year moving into 2017 for that energy facility.

Got it. Thank you very much.

And thank you. (Operator Instructions). Our next question is a follow-up from the line of Gautam Khanna from Cowen and Company. Your line is now open.

Yes, thanks for the follow-up. I was just wondering if you could just expand on your comments about Q1. Are we implying something under $0.40 in earnings in Q1, and if you could talk about the sequential sales level, where are you going to see the greatest sequential decline, which segment?

Yes. One thing that I would like, we are trying to help everybody remind everybody the first quarter is a tough quarter. We do not want to get into -- not going to get into quarterly guidance, but we will see lower sales in both segments in the first quarter relative to last year. And, you know, what we want everybody to do is recognize that, and that there will be more of a traditional flow of sales, revenue, and earnings as we had in past years. And it will not follow the, you know, the what happened in fiscal year 2015. So that is we are just cautioning so everybody can work their models to reflect that.

Can you comment a little bit on whether one segment will be down more sequentially than the other?

Energy will be down more. And the reason for that if you recall, first quarter last year we had not had the hit from Asia yet in there. We had stronger C&G sales, and as we were saying earlier, we are not really seeing a recovery in that. That is built into our outlook and built into the sales guidance that we gave for the full year so first quarter will be tougher on energy.

Okay. Thank you very much.

Yep, you bet.

Thank you. Mr. Gendrom, there are no further questions at this time. I will now turn the conference back to you.

Okay. Well, I appreciate everybody joining us today and thanks for your questions. I would also like to remind all of our investor friends that we do have our upcoming analyst investor meeting in New York City on December 11 and I hope all of you can join us. We will be going into more detail on the year, on our business, on our growth outlook for the next five years. Hope to see you all here in about a month and thanks again for joining us today.

Ladies and gentlemen, that concludes our conference call today. If you would like to listen to a rebroadcast of this conference call, it will be available today at 7^30 PM Eastern Standard Time by dialing 1-888-266-2081 for a U.S. call, or 1-703-925-2533 for a non-U. S. call, and by entering the access code 1664800. A broadcast will be also be available at the Company's website, www.Woodward.com, for 14 days. We thank you for your participation on today's conference call and ask that you please disconnect your line.