Don Guzzardo - Woodward, Inc. Thomas A. Gendron - Woodward, Inc. Robert F. Weber - Woodward, Inc..

Drew Lipke - Stephens Inc. Sheila Kahyaoglu - Jefferies LLC Christopher Glynn - Oppenheimer & Co., Inc. Gautam Khanna - Cowen and Company, LLC Peter John Skibitski - Drexel Hamilton LLC Michael Ciarmoli - SunTrust Robinson Humphrey, Inc..

Thank you for standing by. Welcome to the Woodward Incorporated Fiscal Year 2017 and Fourth Quarter 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 fiscal year 2017 and fourth quarter earnings 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've 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 November 24, 2017.

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 3.

As always, elements of this presentation are forward-looking or based on our outlook and assumptions for the global economy 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.

Now turning to our results for the fourth quarter. Net sales for the quarter were $607 million compared to $591 million for the fourth quarter of last year, an increase of 3%. Earnings per share were $0.98 for the quarter compared to $0.99 for the fourth quarter of 2016.

And for the full year, net sales were $2.1 billion, an increase of 4% compared to the prior year. Earnings per share were $3.16, an increase of 11% compared to the prior year. Net cash generated from operating activities for 2017 was $308 million compared to $435 million for the prior year.

Free cash flow was $215 million compared to $260 million in 2016. The prior year included $155 million of after-tax proceeds from the formation of the joint venture. Capital expenditures for 2017 were $92 million; $83 million lower than the prior year. 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. Overall our results for the year were strong and largely in line with our guidance. Importantly, we grew our earnings at nearly three times the rate of our top line growth, while more than doubling our free cash flow after excluding the impacts of the joint venture proceeds in 2016.

Our Aerospace group outperformed expectations and Industrial delivered solid results in some challenging market conditions. Before I get into our specific markets, I'd like to spend a minute discussing some of the macro changes going on in our two segments.

In the Aerospace segment, much has been said about the new supply chain initiatives announced by Boeing, Airbus and others. Specifically, OEMs have communicated their desire to explore new sourcing models. Overall, we see these industry shifts its opportunities to strengthen Woodward's position in the industry.

We are already seeing opportunities opening up to bid on programs that were previously sourced from other suppliers. A good example of this is our announcement in September of the award of the Thrust Reverser Actuation System commonly known as TRAS and on the Airbus A320neo.

When launched, we will supply the TRAS on all Airbus A320neos as well as all Boeing 737 MAX aircraft.

In our Industrial segment, positive long-term secular trends remained fully intact, population growth and economic development are driving regional power expansion, emission standards are becoming increasingly strict, natural gas growth is outpacing other traditional fossil fuel sources, and renewables continue to gain market share.

Although, gas turbine power generation is confronting near-term challenges, our strategies and investments are closely aligned with the long term secular trends, position us to benefit while the landscape continues to shift.

Focusing on our markets in more detail, commercial aerospace markets remained very healthy with both global passenger and cargo traffic growth continuing to track at record levels at 8% and 10% respectively.

Production rates on the Boeing 737 MAX and the Airbus A320neo are ramping up and we expect this to continue along with related initial provisioning in 2018. As these narrow body volumes are increasing, we're seeing the expected improvement in both productivity and efficiency, and the related return on our investments.

Shifting to defense, defense OEM and aftermarket activity continues to be solid with particular strength in smart weapons. It was recently announced that JDAM production rates may increase as much as 25% in 2018. Global tensions continue and we believe this will result in increased defense spending.

Turning to Industrial, after several years of industrial recession, it appears that many of our markets are now recovering. Global economic data is improving, and recent comments by many of our customers are encouraging. However, pockets of weakness remain.

In power generation, we were beginning to see recovery in short cycle markets in particular; as a result of emission regulations, large natural gas engines are gaining market share, which is favorable to Woodward. On the other hand, long cycle markets such as gas turbines and renewables remain volatile.

Our content on newer gas turbines has increased significantly, but the overall market has weakened near-term due to the excess inventory in the channel, increased efficiency and the impact of renewables. In transportation, demand for natural gas fueled vehicles in Asia is increasing.

We expect this trend to continue for the foreseeable future, as improving air quality remains a key priority for the Chinese government. Activity in the oil and gas industry is once again picking up as rig counts and capital investments are favorably impacting the demand for large engines both diesel and natural gas.

Increased utilization is also supporting stronger aftermarket activity. In summary, we delivered solid results for the quarter and full year. As we look out to 2018, we expect positive momentum in both aerospace and our short-cycle industrial markets to continue.

We believe our strategic priorities to expand our technology market leadership that position Woodward for sustained long-term growth, robust cash generation, and increased shareholder value. Now, let me turn over to Bob to discuss our financials in more detail..

Thank you, Tom. For 2017, full year earnings before and after tax grew at almost three times the rate of sales growth and cash generation was on target. Aerospace sales for the quarter increased 9% compared to the prior-year quarter, driven by the ramp up of next generation aircraft programs.

Combined commercial aftermarket sales for the quarter, which we define as including aftermarket sales made through the joint venture, were up 15% compared to the prior-year quarter, and up 14% year-to-date. Narrowbody initial provisioning and record passenger and cargo traffic were the major contributors to this growth.

Smart weapon sales were again the primary driver behind our defense sales growth. As Tom mentioned, we expect this strength to accelerate in 2018 as the JDAM program expands and build rates on other key platforms edge up. Aerospace segment earnings for the quarter were 21.4% of sales compared to 22% in the same period last year.

This year's fourth quarter contained a higher proportion of OEM sales than the same period last year. We believe our focus on productivity and cost control initiatives coupled with strong initial provisioning will continue to support our commitment to maintain Aerospace profitability throughout the narrowbody launches.

Turning to Industrial, Fourth quarter Industrial segment sales were down 8% compared to the fourth quarter of fiscal 2016. Strength in natural gas-fueled vehicles in Asia and large engines were not enough to offset weakness in industrial gas turbines and renewables.

Although segment sales declined, fourth quarter Industrial segment earnings increased to 11.1% of sales compared to 8.5% in the prior-year period. Segment earnings benefited from the cost savings we have realized from strategic initiatives previously implemented, partially offset by the impacts of lower sales volume.

For the full year, we realized $17 million of savings from our previous cost reduction initiatives. At the Woodward level, gross margin for the fourth quarter of 2017 was 28.3% of sales compared to 27.7% in the prior-year period. Gross margin for fiscal 2017 was 27.3% of sales compared to 26.6% for the prior fiscal year.

Research and development costs were 5.8% of sales in the fourth quarter compared to 5.6% in the prior-year period. For fiscal 2017, research and development expenses were 6.0% of sales compared to 6.2% for fiscal 2016. The effective tax rate for the fourth quarter of 2017 was 28.3% compared to 21.8% for the fourth quarter of 2016.

For fiscal year 2017, the effective tax rate was 20.7% compared to 20.2% for fiscal 2016. Looking at cash flows, operating cash flow was $308 million for fiscal 2017 compared to $435 million in fiscal 2016. The prior year included $155 million in after-tax proceeds from the formation of the joint venture.

Capital expenditures were $92 million for 2017, down from $176 million for 2016. We expect capital expenditures for 2018 to be approximately $110 million. Free cash flow for fiscal 2017 was $215 million compared to $260 million in the prior year. Once again, the prior year included $155 million in after-tax proceeds related to the joint venture.

Excluding those proceeds, free cash flow was approximately double that of the prior year. For 2018, we expect free cash flow to be approximately $220 million.

In fiscal 2017, we returned $101 million to stockholders in the form of dividends and share repurchases, in line with our target to return approximately 50% of net earnings to our stockholders on an annual basis. With that, let's turn to our fiscal 2018 outlook. At the Woodward level, we have a couple of items significantly impacting earnings.

Most notably, our effective tax rate for 2018 is expected to be approximately 27%, which is significantly higher than the 21% for 2017. Additionally, we anticipate research and development costs to remain at approximately 6% of sales driven by recent program wins such as the Airbus TRAS award.

Turning to our segments overall, in our Aerospace segment, we anticipate momentum to continue with increasing production of both the Airbus A320neo and the Boeing 737 MAX coupled with solid aftermarket sales. We also expect smart weapons demand to accelerate and defense activity overall to remain solid.

As a result, we anticipate our Aerospace segment sales to be up between 8% and 10% and we expect to maintain or slightly improve our segment margins in 2018.

In our Industrial segment we expect sales to be flat or slightly up with continued strength in natural gas-fueled vehicle sales in Asia and ongoing momentum in large engine sales related to power generation and oil and gas. This will be largely offset by continuing softness in sales of industrial gas turbines and renewables.

We expect Industrial segment margins to be flat to slightly up compared to 2017. At the Woodward level, we anticipate 2018 sales to be between $2.2 billion and $2.3 billion. We expect diluted earnings per share to be in the range of $3.20 to $3.50 per share which takes into consideration the increase in the full year tax rate.

This assumes approximately 63 million fully diluted shares outstanding. This includes our comments on the business and the results for the fourth quarter and fiscal year 2017. Operator, we are now ready to open the call to questions..

Thank you. The question and answer session will begin at this time. Our first question comes from Drew Lipke from Stephens. Your line is open..

Yeah, good afternoon, guys..

Good afternoon, Drew..

Just looking at Aerospace, as we think about some of the mix benefits that you've had in 2016 and 2017 and then you just called out the higher R&D as a percent of sales and we're entering this production ramp on the OEM side, can you just kind of update us on, what you think is an appropriate range for incremental margins in Aerospace, as we kind of think out over the next several years?.

Well, what we see, and we're still on target to achieve is that we're going to get to 20% segment margin in Aerospace by 2019, and we're on track for that, and that's still what we anticipate, and what we're driving to..

Okay.

And what is that, maybe if you just kind of isolate it to the commercial large transport OEM and think about the ramp there? And I know your utilization rates are pretty low right now, I mean, is it the way we should think about the incremental margins on that one piece within Aerospace?.

I can – let me jump in, and so obviously, there's a quite healthy mix of things that are going on, as we pointed out the OEM mix, which are historically as everyone knows lower margin than aftermarket. So, the OEM as a percentage of the total has increased, but the aftermarket has remained strong.

And overall, our productivity and cost reduction measures have also contributed to maintaining.

So, it wasn't that long ago that when there was a lot of comments with respect to with all this OEM launch, we should see our margins coming down, and we said well we've anticipated that, and we've taken actions accordingly and we believe we will be able to maintain or improve our margins overall, and as Tom just pointed out, we believe we're still on track, A, to do that and to hit our 2019 target of 20%..

Okay.

And then just over on the Industrial side, as you look at heavy frame gas turbine in the aftermarket, and think about the visibility there, and you called out the inventory levels at some of your major OEM customers, I guess where are we in terms of working through that excess inventory and are there any kind of comps that we need to be aware of on a quarterly basis as we look at that piece of Industrial?.

Well, as you look forward, our large customers in that market have come out with their projections and have really brought down their outlook significantly, both on new-build as well as aftermarket.

We've been in close contact with our customers looking at their build rates, looking at their aftermarket projections and we are anticipating a pretty significant reduction in sales in that part of Industrial and we believe we put together our outlook conservatively with respect to that.

So, we think you're looking out probably another 18 months of softness in those markets..

All right. Well, congrats on the solid results. And I'll get back in queue..

Thank you..

Thank you. Our next question or comment comes from the line of Sheila Kahyaoglu from Jefferies. Your line is open..

Hi, good afternoon and thanks for taking my question, guys..

Hi, Sheila..

Hey. So, the first one I guess, I'm having trouble getting to the low end of guidance.

I'm just wondering what would be the factors driving you there?.

So, yeah, we do a, obviously, a pretty exhaustive analysis to try to give you guys some help on this. Clearly if you were to take the low end of all of the guidance we've given, and remember you would have to take the tax rate as well, there's always variability around that.

We try to give you as close to a number as we can, but it can be a little higher and it can be a little lower from time to time. You can get definitely to the bottom of that range. Now that's not to say that we believe that that's the most likely at all which is why we give you a range.

The other part is it's a fairly – well, it's a consistently wide range with the prior year and that reflects a lot of the comments we've made with respect to uncertainty in some of the areas, but if you take the low – just working the math, you take the low end of the sales growth and earnings growth, take the tax rate up a bit and you'll be able to get there..

Okay. I guess, I'm asking specifically on Industrial, Bob..

Oh. I'm sorry..

No. No. It's okay. And I was making an overall comment, but I just find it generally hard to get there. So I was wondering if you're leaving some leeway within the Industrial business in case there's a lack of visibility.

In terms of just Industrial, what do you think about the IGT business, you said significant reduction should we think about that as down 10% or is it a down 30% market for you guys in 2018?.

Yeah. We're cautious on certain comments there, as our customers are still refining the exact amount of decline that they're having, in particular in the aftermarket area. But it's definitely beyond 10% down, Sheila.

We're trying to be conservative with it and working with all our customers in the gas turbine field and making sure as everybody settles down a little bit that we have a good outlook, but we wanted to make sure we were on the slightly conservative side in our outlook..

And in terms of just what's offsetting that, the reciprocating engine business, and is that currently at peak levels, do you expect growth off of that and sort of what's driving it?.

Yeah. We're going to see continued growth in the recip side. And as we highlighted, it is our fast cycle business. I mean ordered lead times are shorter. The ability to ramp is faster.

We're seeing a lot of demand in China, not only in the natural gas, truck and bus market, but we're seeing in construction, oil and gas, power, so that is ramping up nicely and we're seeing really solid growth in that area. We're seeing some as well in steam turbine production, as well as some in power tied to power management products.

The offsets, as Bob highlighted, were gas turbine and renewables for Woodward on the renewables side..

Okay, got it. Thank you. I'll jump back in the queue..

Okay..

Thanks, Sheila..

Thank you. Our next question or comment comes from the line of Christopher Glynn from Oppenheimer. Your line is open..

Thanks. Good afternoon..

Hello..

Wondering if you could kind of directionally point us again as a reminder what percent of the Industrial segment do you call long cycle and then specifically on renewables, because I think the IGT markets are fairly well understood.

But in terms of renewables, what's your visibility to customer mix trends and program timing turning your way, so to speak?.

Sure. On the long cycle, it's not a very precise measure obviously, but we consider industrial gas turbines a much higher overall capital expenditure type of item and therefore a much longer cycle.

There are pockets within that category, and if you recall kind of the pie chart we show, it's about 40% of the total recips, so roughly 40% of the total, and renewables roughly the rest. As we've mentioned, this year we'll probably see the industrial gas turbines and the renewables come down a bit, so those percentages will shrink a bit.

Aero derivatives are shorter cycle, but then there are some very large recip engines that are also longer cycle. So, it's not very precise and I kind of hesitate to try to actually give you a number, but we believe renewables themselves are part of that long cycle.

To your second question on what we see on the wind side of the equation, we do see that there are regional differences and we've kind of called out that Europe has not been as strong as some other parts of the world and our customer base is predominantly Europe, although that is also changing.

And there are some program transitions going on that are also causing us some temporary down cycles with respect to wind that we do believe over the longer haul, we will get back on some of those newer programs as well. And we should see some increases overall in wind, but that will be over a longer period of time, not in the coming year..

Okay, great. That's helpful. Thank you. And just as we look at the range and maybe just not giving enough credit to rounding on the $2.2 billion to $2.3 billion, but if you are closer to the $2.3 billion, I think that stretches the ranges you gave for the segments a bit.

Can you just give me a little perspective with respect to those observations?.

Yeah. I would think – and again, I'd have to look at kind of my total, but I believe that at the upper end, that is right there near the top. So, the $2.3 billion should be if you take – and obviously we said slightly up, and it all depends probably on what definition you're using for slightly up.

We've kind of used anywhere from a low single digits to, on the earnings side sometimes it's a little bit less than that, but it would depend on what you're using for some of those definitions. Obviously, the 8% to 10% on the Aerospace is a little more precise, the Industrial is harder to call..

Okay, fair enough. Thanks..

Thank you. Our next question or comment comes from the line of Gautam Khanna from Cowen. Your line is open..

Yes, thanks. Good evening..

Good evening..

What commercial – how are you doing?.

Doing good..

In your guidance what are you assuming for commercial Aero aftermarket growth next year? And what are you assuming for initial provisioning on the new engines in terms of growth rate?.

Right. We don't break out initial provisioning by itself, but we see solid growth in initial provisioning and overall aftermarket, we're looking towards the high single digits..

What was the aftermarket in the quarter, commercial aftermarket?.

15% up in the quarter, 14% – but they were remarkably close for the quarter and the full year this time..

Okay..

Yeah, we've got....

Have you seen any – go ahead, sorry..

I was just going to say we've kind of commented that overall it's somewhere in the neighborhood of the traffic growth. And our fleet dynamics that put us a little bit above that overall, and then we've had very strong initial provisioning, but as we've also called out, that's fairly volatile..

Okay.

And as you guys now are generating pretty strong cash flow, what's your appetite for acquisitions and can you comment on your M&A pipeline, if there are opportunities you're looking at?.

Well, our approach to M&A is always to strengthen our strategic plan and the strategies of the business groups, and build on technology, and you know, where we can market access. We're not a pure – you know, we're not like some companies that have a high growth rate tied to M&A.

So, just kind of saying that we really do, we do a disciplined approach to it. We definitely are working on a pipeline, what we call the funnel, and we're working on filling the funnel. We definitely, as I think everybody on the call knows, we've got some pretty – well, we're delivering solid cash generation right now.

And it's going to increase over the next number of years. So, we will have resources that we can be in the M&A activity. The places we look is to strengthen each of the core product lines, try to add customer base, and try and grow, so we are working it.

And now, Gautam, I'm not sure there is whole lot more to say except that it's definitely part of our outlook. And we're seeing a lot of activity in the marketplace.

Some of that will be there's disruptions happening and from that there may be assets that free up, we'd be maybe interested in that, so we're watching what's going on with the OEMs, some of the mergers that are happening. And then what frees up from that. So we're staying on top of it and if the right asset comes, we'll be active..

And what is that – is there any buyback implied in the current guidance range? And if so, if you could quantify that for us?.

Yeah, you can almost work it out. We have this 50% so back to our – kind of our capital deployment strategy that we I think clarified a little bit in the last Analyst Day. We do look at approximately 50% of our net earnings, being returned to shareholders in the form of dividends.

And so, you can kind of take a look at the dividend total and share buybacks, and so that always does imply a share buyback element every year. And then on top of that or whatever would become depending upon where the stock price is, and cash positions and everything else anything we choose to do in addition to that..

All right. Thank you, guys..

Yeah..

Thank you. Our next question or comment comes from the line of Peter Skibitski from Drexel Hamilton. Your line is open..

Hi, guys. Nice quarter, nice year..

Thank you..

Thank you..

Hey, just to – just want to continue with Sheila's line of questioning on Industrial, just so I could get grounded in terms of the three buckets you guys talked about Industrial, with oil, gas, transportation and power gen.

Can you tell us how each of those three buckets sit in fiscal 2017 roughly?.

Well, yeah, we'll give you directionally. Power gen was negatively impacted, and primarily due to gas turbines, and then in renewables, now – in renewable, Bob was highlighting, we – there was a shift in models, if you want to call models from our customers, as well as their growth rate in certain regions of the world.

So we did decline not just with some lower sales, but the fact that we weren't on some of the models that were being sold. So wind went down, gas turbines went down. Now as we go into transportation, which pulls in marine, locomotive, we lump off-highway vehicles in there as well as natural gas trucks and buses.

That had a significant increase primarily out of China. And then the oil and gas we start to see a recovery some good activity in the aftermarket there which showed us that the rigs, other things were becoming more active and we started seeing new builds particularly around mid-size gas and diesel engines coming up.

So, the power was the real negative, the others were both growing coming back nicely. And as we look into 2018 that's kind of the same picture going into 2018, continued growth in the transportation oil and gas side, and ongoing decline in power..

Okay. Okay. It's very helpful. Thank you. And then Tom, I just want to ask, because obviously some of the GE result languages is some of the worst I have ever seen.

And so I just want to ask do you really feel like you're fully factoring in kind of the extreme weakness they're seeing there in power gen, I just don't remember seeing it that bad as they're going through right now?.

Yeah. As I speak, we also sell to more than GE, so we've to factor those other customers in as well, but as you pointed out, it's a severe reduction in outlook and we believe we've factored it all in and we're on top of that. So, it definitely is probably one of the poor outlooks that we've seen..

Got it. Okay. And then lastly just on the TRAS on Airbus, which I thought that was great. Can you give us a sense of and I know you touched on it in your remarks, but can you give a sense of how many other opportunities are out there beyond TRAS maybe or even with TRAS that could be....

Yeah..

...an upside to your outlook?.

Yes. It's an interesting time in the industry. And we are seeing activity in resourcing equipment on current, as well as in the development pipeline programs. We are today working on multiple bids tied to that. So, I think, we will be successful.

But just to caution everybody, there is a – still a fairly long development time tied to those, and it will be beyond fiscal year 2018 to see any revenue. But for the long-term strength of our Aerospace business, it will be quite good.

And we're using this change in pressure, if you want to call it, in the marketplace to try and strengthen our market share. And so far we're winning and we believe we'll have more new wins to announce through this year..

That's great. That's great. Thanks, guys..

Thanks..

Thank you..

Thank you. Our next question or comment comes from the line of Michael Ciarmoli from SunTrust. Your line is open..

Hey. Good evening, guys. Thanks for taking my questions. Nice quarter..

Sure. Thank you..

Just to go on the Industrial a little bit, I think you called out another 18 months of the Industrial softness, and I think you called for margins to be effectively flat.

I mean, should we think about just maybe strip out from our expectations any – or any margin expansion even as we go in? I'm just trying to calibrate into 2019 and looking at that 16% plus target you've got for Industrial margins, it seems like that's going to be sort of a moving target just given the slump in some of the high margin IGT sales..

Yeah, so first on clarity, the 18 months was around gas turbines..

Yes..

The other parts in Industrial are increasing, and some are increasing significantly. So it's a mixed picture. But to your latter point, gas turbines is a good market for us. We have been and have worked on our cost structure, we're continuing to do that.

We expect even with flat to slightly up sales to see margins hold or improve, that was the guidance, and we're driving hard to improve margins even in flat sales environment. I think we've highlighted a couple times that the 2019 goal of 16% for the Industrial is still our goal, but we needed some recovery in the industrial markets.

As this year goes, we think we're seeing recovery in parts of it. As we go into 2019, it will – to hit those numbers, we'll have to see how the rest of the markets come back and at what level. So, it could become a challenge if we don't see the sales increase..

And just given where the – kind of your best guess of the revenue contraction in that IGT, are you guys doing anything else in terms of right sizing or trying to take cost out or are you comfortable with the footprint and the general overhead you have now?.

Yeah, we're always looking at cost, but one of the benefits we have with our portfolio is as we've had some reduction there, we're absorbing a lot of the people onto the growth areas. And so that's allowing us not to add in like Aerospace.

So, we have – I'll use one example, we've got enormous capability in electronic controls in our Industrial business and a lot of talented people. We have a lot of new work on the Aerospace side in electronics and we've transferred a significant amount of those people over to work on those Aerospace programs.

So those are the type of things we do to manage costs, as well as continuing to look at our – we've looked at some of the facilities over the last couple years, those actions have taken hold and we'll continue to look at cost to line it up appropriately with the sales outlook based on each market segment..

Got it. Got it. That's helpful. And then just back on Aero, I mean, everything performing phenomenally well here.

Are there any real headwinds that you guys are thinking about in that business? I guess, specifically business jet, rotorcraft, or is sort of every market channel moving in the right direction for you guys?.

It's really an interesting one, and you almost hate to ever say that everything looks like it's progressing positively, which I almost have to say we're actually even seeing biz jets improving. Defense is looking very good. We highlighted smart weapons, but actually production as well as aftermarket support for defense is doing well.

Commercial is doing well. Helos is probably the still softest area we have. But outside of that, Aerospace, I'd say is firing on seven of eight cylinders..

Got it, perfect. And then just last housekeeping for Bob, what should we expect for the level of corporate expense? It's kind of popped up there in 2016, it's come down.

I mean, should we expect that to be flattish with 2017 or any direction you can give us there?.

Yeah. It should be very close to the 2017 level, it might be down a hair. We have another year of some costs that are going on with respect to the facilities that we discussed last time around, but it will be largely in line with this year maybe a little bit down..

Got it. Thanks a lot, guys. I'll jump back in..

Thank you..

Yeah..

Thank you. Mr. Gendron there are no further questions in the queue at this time. I will now like to turn the conference back over to you..

Okay. Well, we appreciate everybody joining us today. I appreciate your questions. One thing I'd like to remind everybody on the call that we are having our Investor Conference on December 8 in New York. I hope all of you can make it.

We'll do a comprehensive review of the company, our business segments, our strategies, and where we're going as a – overall as Woodward. We hope to see you there and thank you for joining us today..

Ladies and gentlemen, this concludes our conference call today. We thank you for your participation on today's conference call and ask that you please disconnect your line..