Woodward's (WWD) Tom Gendron on Q1 2016 Results - Earnings Call Transcript

| About: Woodward, Inc. (WWD)

Woodward Incorporated (NASDAQ:WWD)

Q1 2016 Earnings Conference Call

January 19, 2016 04:30 PM ET

Executives

Don Guzzardo - Director, IR and Treasury

Tom Gendron - Chairman, President and CEO

Bob Weber - Vice Chairman, CFO and Treasurer

Analysts

Sheila Kahyaoglu - Jefferies

Gautam Khanna - Cowen and Company

Pete Skibitski - Drexel Hamilton

Michael Ciarmoli - KeyBanc Capital Markets

Robert Spingarn - Credit Suisse

Steve Levenson - Stifel, Nicolaus

William Bremer - Maxim Group

Operator

Thank you for standing-by and welcome to the Woodward, Inc. First Quarter Fiscal Year 2016 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.

Don Guzzardo

Thank you, operator. We would like to welcome all of you to Woodward’s first quarter fiscal year 2016 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 of who’ve not seen today’s earnings release, you can find it on our Web site at woodward.com.

We have again included some presentation materials to go along with today’s call that are also accessible on our Web site. An audio replay of this call will be available by phone or on our Web site through February 02, 2016. 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 in each business segment.

I would like to remind everyone as announced during our Analyst Day in December, that we changed our Energy segment name to Industrial, which more accurately reflects the market serve by the segment.

Turning to our results. Net sales for the first quarter of fiscal year 2016 were $445 million, a decrease of 9% compared to $488 million in the first quarter of 2015. Earnings per share were $0.40 for the first quarter of 2016, compared to $0.66 in the first quarter of 2015. Excluding special charges of $16 million related to our efforts to consolidate facilities, reduced cost and address the current market conditions, earnings per share would have been $0.56 per share this year.

EBIT for the first quarter of 2016 was $34 million. Excluding the special charges of $16 million, EBIT would have been $51 million, compared to $63 million in the prior year first quarter. Free cash flow for the first quarter of 2016 was $4 million, compared to an outflow of $9 million in the prior year period. Capital expenditures in the first quarter of 2016 were $33 million, compared to $47 million in the first quarter of 2015.

Now I will turn the call over to Tom to comment further on our results, strategies and markets.

Tom Gendron

Thank you, Don, and welcome to those joining us today. Our first quarter of fiscal 2016 started off in line with our expectations of a challenging market environment. We delivered solid operational performance in both segments. However, we expect headwinds to continue in our Industrial segment and our taken appropriate strategic actions to address these issues. We continue to balance our operations to rationalize our global footprint, produce cost and address global economic conditions, while preparing for our new program launches. As a result of recent actions, we recorded special charges of $16 million this quarter, which will enhance profitability both in the near-term and future years.

Within Aerospace, commercial sales were solid and order backlogs remain at very healthy levels. We are looking forward to the much anticipated launch of the next-generation aircraft later this year when our many years of development and investment will begin to pay dividends. Additionally, Defense sales have stabilized at a stronger level than we have seen in the recent past. Our Industrial markets are being adversely impacted by the same lingering issues namely a powerful Chinese market, including the natural gas trucks, unfavorable global currency swings, a general tightening in demand as a result of global macroeconomic uncertainty and depressed oil and gas prices.

Moving to our segments in more detail, starting with Aerospace. Commercial transport backlogs remain strong, with solid passenger mile growth and record high load factors. Major new programs such as the Airbus A320neo and the Boeing 737 MAX will be entering service soon. The regional business jet markets are showing some weakness. The commercial rotorcraft market continuous to be soft, stemming from prolonged pressure in the oil and gas industry. Defense sales both OEM and aftermarket were strong contributor this quarter. With the recent Defense budget increase and continuing global instability, we expect Defense to remain strong.

Lastly, we announced the formation -- the former creation of our joint venture with GE Aviation earlier this month. Joint venture will provide large engine fuel systems, including the new GE9X, which will power the Boeing 777X.

Turning now to Industrial. The long-term trends driving our Industrial business remain strong. Globalization and expanded use of natural gas would drive long-term growth for our Company. However, near-term many of our markets will remain challenged.

Now I'd like to focus on our three main market segments of Power Generation, Transportation & Machinery and Oil & Gas. In Power Generation, existing equipment is being used and kept in-service longer and as a result we are seeing robust demand for aftermarket services, particularly related to industrial turbines. We expect this trend to continue as capital expenditure budgets remain tight.

In transportation, the Asian natural gas truck market remains weak. In China, the regulated price spread between diesel and natural gas has returned to a level that should create an incentive to purchase natural gas trucks versus diesel. Considering the overall Chinese economic situation, it is too early to estimate the impact on this market.

Oil & Gas remains challenging with the continued price declines and increasing supplies limiting capital investments. In addition, weak economies and foreign currency headwinds continue to negatively impact our overall markets in Europe, South America and Asia. As we look ahead to the balance of fiscal 2016, we expect the positive momentum in Aerospace to accelerate and the Industrial segment to perform in line with our outlook, the despite ongoing economic uncertainty, which we expect to persist. Strategic actions we have taken this quarter will enhance long-term profitability and out position us for continued operational performance.

Now let me turn it over to Bob to discuss our financials.

Bob Weber

Thank you, Tom. As previously mentioned our quarterly results were consistent with our expectations for the first quarter of the fiscal year, despite being a decrease from an unusually strong first quarter of last year. As Tom said, we recorded special charges of approximately $16 million in the quarter in our non-segment results, related largely to facility rationalizations and workforce management. We expect to generate savings during the remainder of this fiscal year to largely offset the special charges.

Excluding the impacts of the special charges, earnings per share would have been $0.56 per share this quarter, compared to $0.66 in the prior year quarter. In Aerospace, sales increased 5% this quarter against a strong comparison in the prior year quarter. The sales increase was driven by strong Defense sales and commercial aftermarket. Aerospace segment earnings for the quarter were 16.2% of sales, compared to 14% in the same period last year. The improvement was driven largely by the increased sales volume and strong aftermarket.

Turning to Industrial, while we did see pockets of strength within the Industrial segment, particularly in aftermarket sales, that strength was more than offset by well-known headwinds, including the Asian natural gas truck market, currency volatility and global economic weakness. As a result, first quarter Industrial segment sales were down $55 million or 24%, compared to an unusually strong first quarter of fiscal 2015. As a reminder, in the first quarter of last year, China CNG sales were at a very high level, before dropping significantly thereafter.

Industrial sales for the quarter were negatively impacted by a foreign currency exchange rate movement of approximately $13 million, compared to the first quarter of fiscal 2015. These two items alone accounted for approximately $45 million of the $55 million in sales decline for the segment. First quarter Industrial segment earnings were 12.2% of sales, compared to 16.9% in the prior year period. On a constant currency basis, Industrial segment earnings would have been 13.1% of sales for the current quarter. Segment earnings were unfavorably impacted by lower sales volume and the negative effects of foreign currency.

At the Woodward level, gross margin percentage for the first quarter of 2016 was 25% compared to 30% in the prior-year period, excluding the special charges, gross margin would have been 28% this quarter. Both research and development costs and selling and general administrative expenses were consistent with the prior year. The effective tax rate for the first quarter of 2016 was 8.4%, compared to 23.3% for the first quarter of 2015. The decrease in the income tax rate was primarily due to the retroactive impact of the permanently reinstated research and experimentation tax credit on lower earnings before income taxes, compared to the prior year quarter. Both the current and prior year quarters included a $5 million credit for the retroactive portion related to the R&E tax credit reinstatement. Our expected full year tax rate of 28% anticipated this reinstatement and is therefore unchanged.

Looking at cash flows, we generated $37 million of cash flow from operations for the first quarter of fiscal 2016, compared to $38 million of the prior year. Free cash flow for the first quarter of 2016 was $4 million, compared to an outflow of $9 million in the similar period in the prior year. The increase was driven by lower capital expenditures of $33 million for the first quarter of 2016 compared to $47 million for the same period of the prior year.

In the first quarter of fiscal 2016, we repurchased shares of our common stock for an aggregate purchase price of $31 million. In January, we received $250 million, as a result of the formal creation of the large engine fuel systems joint venture with GE Aviation. These funds will be used for debt reduction and to fund the remaining $94 million of share repurchases out of the $250 million plan, announced in May of 2015. This will complete our return to shareholders of the proceeds from the formation of the joint venture.

Lastly, turning to our fiscal 2016 outlook. For 2016 our guidance is unchanged and we expect net sales to increase 1% to 2% over 2015, earnings before interest and taxes to be up approximately 5% and earnings per share to be between $2.75 and $2.95 per share. The special charges are anticipated to be largely offset by the related savings and therefore there is no impact on our outlook.

In summary, we delivered a solid first quarter from an operational perspective in the face of very difficult microeconomic challenges. We're well-positioned to deliver strong long-term earnings growth and drive shareholder value, particularly as our end-markets improve. This concludes our comments on the business and results for the first quarter of fiscal 2016.

Operator we're now ready to open the call for questions.

Question-and-Answer Session

Operator

Thank you. The question-and-answer session will begin at this time. [Operator Instructions] And our first question or comment comes from the line of Sheila Kahyaoglu. Your line is now open.

Sheila Kahyaoglu

Bob just a follow-up on your outlook comments for fiscal '16. As we look at the quarter excluding the charge, earnings were down 15% but if you are also taking in earnings that is about 5. So can you talk about the moving pieces and what you expect to improve over the next three quarters?

Bob Weber

So probably the most significant when you take the special charges will be the cost savings associated with the special charges. So as we said, we anticipate the majority of those to be returned in cost savings as we go forward, so a mutual impact on our overall guidance. The other moving pieces are that the R&E credit which we did anticipate and is consistent with the prior year. Obviously will not occur in the reminder of the year and since we anticipated our tax rate, we’ll still be the 28% overall for the year, outside of that last year and we called out I think we called out the Fed but last year was extremely strong for CNG in the first quarter, beyond that we believe that this year so far we will probably be very consistent with the second, third and fourth quarter and so we don't see that as a differential as we go forward. I think those are kind of the major moving pieces.

Sheila Kahyaoglu

So do you think you could -- I mean, it seems like you will grow earnings within Aerospace but you still think you can grow earnings within that Industrial segment?

Bob Weber

We do it through the remainder of the year, yes.

Sheila Kahyaoglu

Okay. And then just in terms of the charge, do you mind breaking down may be what the facility consolidation is, what that includes and what sort of account?

Bob Weber

The facility consolidation is largely related -- we've described our Niles, our new facility in Niles and some of the actions we were taking there. We have very high cost or a result of the acquisition and we’ve now -- the last piece of that was to cancel at least with respect to one building we have remaining that was also anticipated at the time that we made all these strategic changes and does result in continuing net cost savings as we go forward. That was by far the largest piece and then beyond that was to have a combination of workforce management actions largely as Tom said related to strategic activity in our Industrial segment.

Operator

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

Gautam Khanna

Yes, thanks. I was wondering if you can elaborate on the strength in the commercial aftermarket. Was it lumpy by geography or product area, if you could just provide some color around that? Then I have a follow-up.

Tom Gendron

Sure. I think actually commercial aftermarket is our two main areas of initial provisioning sales and part sales, as well as repair and overhaul were both up. And as we move forward here we see strong initial provision in carrying forward as the new programs are launching. The hours and utilization on the aircraft are high and it is driving repair and overhaul demand. And so both of those key areas are strong and did well in the quarter and we anticipate we’ll do well for the fiscal year.

Gautam Khanna

Okay. [Multiple Speakers] And order trend since the quarter continued strong. Is that fair statement?

Tom Gendron

Could you repeat? I’m sorry.

Gautam Khanna

Have order trends in the aftermarket since the quarter remained pretty strong?

Tom Gendron

Yes. Right now we’re looking very good for the remainder of the year on commercial aftermarket, so it’s still strong.

Gautam Khanna

Okay. Also just on your CapEx, it seemed a little light in the quarter. I was wondering if you could update us on what your capital expenditure plans are and how their weighted first half versus second half?

Tom Gendron

Yes definitely to answer your second question, so definitely weighted in the first half vis-à-vis second half. I don’t know that there were late maybe compared to what we saw at the latter half of next year, we have a lot going on. As you know the Niles facility is now been complete, the Rock Cut facility is nearing completion. And so we are kind of cutting down to one of our three main projects as all that largely remains. We’ll still have some equipment for Rock Cut. And so I would envision maybe some slight decline this quarter versus next quarter, it’s hard to say. But definitely first half to second half you should see some further decline in CapEx.

Gautam Khanna

And could you quantify in all number for the year?

Tom Gendron

[Multiple Speakers] Yes. We called out 100 million.

Bob Weber

108.

Tom Gendron

108 million for the full year, but we said at the Analyst Day if you recall that we’re going to be dropping down more to a run rate approaching the 100 million in the second half.

Operator

Our next question or comment comes from the line of Pete Skibitski. Your line is now open.

Pete Skibitski

I just want to -- what market areas in Industrial were you guys most surprised by in the first quarter that led to the restructuring. Just if you could I’m guessing, I’m sure you have low expectations for China CNG in oil, gas. So is this power-gen kind of incrementally weaker maybe on the power-gen OE side?

Tom Gendron

What I’d say is none of it was unanticipated. As you go through look at both facilities and restructuring, it takes time to work your way through everything. So we anticipated doing this, we just had to finalize and get through all the analysis all our costs, all the activities associated with it. So we had anticipated the softness that we’re seeing as you recall we built that into our outlook which was approximate flat to 2% on the Industrial business. So that was in the plan and we knew we were going to come off last year’s first quarter in Industrial was high and particularly in the CNG market in China and as everybody knows that collapsed in the latter three quarters. So we would anticipate as we go through this year to be consistent with the last three quarters as a run rate. So all that was built into our plan, but just takes a little time to walk your way through everything and execute on your plans and that’s what occurred.

Peter Skibitski

Okay, okay. And if we could -- everyone is worried about the macro right now. Can we go maybe deeper on power-gen, was power-gen down in the first quarter such a big part of Industrial and if it was, is it across the globe, is it mostly China. Just wondering China, Europe, U.S. how things are going in power-gen since it is such a big part of your business?

Tom Gendron

Sure. If you look on the OEM side power-gen shipments they were flat to down across all our markets. China in some specific areas particularly around steam turbine controls were down, but what is worked favorable in power-gen as we had very strong aftermarket in that especially around the industrial turbine. So our aftermarket did offset some of the weakness in the OE sales.

Peter Skibitski

Okay, okay. And then your last question. Just in terms of off to a low start in Industrials and you are going to recover to be flat for the year. And is this a situation where the comps get a lot easier in the back half or are you anticipating certain markets to get better, could you just add some color there?

Tom Gendron

Sure. The well the comps will definitely be easier there is no doubt about that as we go forward. But we actually do anticipate and this is I think somebody else talked about it at the Investor Day. We do anticipate the launch of some of our new products that will add to revenue while we are still in a flat to down market. So that will help on the top-line, we are also seeing growth in our Wind business, so that will continue I think through the remaining part of the year, so those are the offsets to tough macro environment, so we do see sales improving in the next three quarters in particular relative to last year.

Operator

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

Michael Ciarmoli

Maybe just to say on that Industrial theme, can you sort of characterize obviously it sounds like you guys are expecting some improvement there based on the product introductions in some of those end-markets, but maybe characterize what you are seeing from some of your big customers I mean anything, notable changes from caterpillar I mean it sounds like that the engines are a little bit weaker at Wichay, but anything sort of in real time since oils weakened or we've seen more global pressures that it's kind of changed your thinking at all?

Tom Gendron

In lot of ways it's related to some of our customers. We see their line rates holding or if you want to say firming up but not firming up that new levels they are firming up so we think when you go across the market since you well know there are a lot of markets that are depressed and so they kind of if you want to take firm stable at that depressed level and we do anticipate as time goes by that they will pickup. In the meantime, we do have even on this hitch pressed level, we have the new products coming on that allowed some sales growth and we put a strong emphasis on going aftermarket and working with our customers to capture and expand the aftermarket and that's working and so the aftermarket is helping to offset some of that weakness. So, we do see second if you say the next three quarters, improvements in sales for Industrial but a very tough market but we do see it improving for us.

Michael Ciarmoli

And then maybe just on Aerospace, you guys mentioned quickly that maybe some risk some weakening in bizjet market. Can you just elaborate there I mean obviously business jet has been dragging a lot and now we're seeing maybe some weakness in that high-ends. How are you guys thinking about the trajectory of bizjet revenues throughout the remainder of the year?

Tom Gendron

Yes, we see it just kind of balancing around at a lower level that it already has kind of gone down to, don’t see it really impacting us any further and so we’re not predicting a recovery in the jet deals this fiscal year, so it's kind of baked into our plan, it was really in our outlook that it's going to be tough a little bit weak based on some of the large business jets are tied in other countries and corporations that are tied to oil and gas so we saw that coming down, but it's definitely been offset by strength in Defense and commercial and in the overall aftermarket, so it is one segment that's not doing that great but it was in our plan at those levels.

Michael Ciarmoli

And then that's a good segway to the last one, any specific programs or platforms that you would point to as the areas of strength in the Defense?

Tom Gendron

Well just as a reminder to everybody we are run most on Defense platforms for the aircraft, helo’s and then in particular smart weapon, so I have to say one of the stronger areas is smart weapons but we are seeing pretty well across the board good numbers and anticipate that that will hold through the year.

Operator

Our next question or comment comes from the line of Robert Spingarn. Your line is now open.

Robert Spingarn

Could we clarify then given the way CapEx is trending what you expect for free cash flow for the year?

Tom Gendron

Yes. Free cash flow for the full year we expect to be around $100 million, largely driven by that second half as I mentioned.

Robert Spingarn

Okay, okay make sense. And not to go back to what everybody else is asking, but I think it is the focus point, have you -- you said Tom you opened by saying that so far what you are seeing in Industrials is according to a plan with fairly realistic cautious expectations, nothing that we've seen here in January changes that you haven’t seen a change in behavior relative to what you were expecting?

Tom Gendron

No, really we haven’t, we have put in a very -- we planned very conservatively this year, recognizing that a lot of our end-markets were depressed and we weren’t anticipating improvements in them and as such we planned for that if you get improvements that will be upside, but still today we're not planning on improving so that's where sort of focus is because the new products and that are highly focus on pulling in aftermarket which is working and so that will be the Industrial picture this year and when we put out the forecast that we weren't anticipating much different.

Robert Spingarn

And then you've emphasized in the past that the extraction side of your energy business is relatively I don't know if modest is the right word, but that you see upside on the distribution side, but on the extraction side how do we think about just the current environment?

Tom Gendron

That's fairly low.

Robert Spingarn

And are we so low that there is not much in the downside is that really where we are?

Tom Gendron

If we look across it, I'd say this, I mean you could always get worse but we've really do believe we're down at the bottom in mining and marine and extraction, that these markets are bottomed. I mean, it's hard to see them going any lower and our plan is at that bottom level, so now never say never of course but we don't see it going much lower. So we've quite a bit of substance way down. On the positive side though, the renewal business is improving on sales year-over-year, but most of the largest markets we are in are down and we think they are pretty much bottomed.

Robert Spingarn

Okay. And then just a final one on the Aerospace side on your newest platforms, the ones that are coming, that are pending. Any surprises there, everything going according to plan, any delays or issues with any of the new product?

Tom Gendron

No, we're not seeing anything from our customers and within Woodward we're on-track on all our programs and actually ahead on some. So, we feel very good about our preparation for the launch and it looks like the launches are going well so.

Robert Spingarn

And have you seen -- have you gotten any sense that there is any volatility in rates or are they sticking to their plans?

Tom Gendron

Right now, we see them sticking to their plans.

Operator

Our next question or comment comes from the line of Steve Levenson. Your line is now open.

Steve Levenson

Just checking on the new platforms a little bit, I know the first powered A320neo is a little bit delayed, but I take that that's not having any impact on your deliveries?

Tom Gendron

Not at the moment. We anticipate as it’s being publicized that they’d be back on-track and we expect that to go forward. So, we don't see any delay that would cost any impact on sales.

Steve Levenson

Okay, thanks. And in relation to both programs do you foresee any inventory issues, are you building things up, is there the typical rate readiness thing the manufacturers are asking you to get prepared for or do you have a pretty much set schedule?

Tom Gendron

Well no, you are definitely on that Steve as we go to ramp-up we will be ramping ahead of their schedule to make sure we have the inventory in place that we're working with our customers to have pull through from them so that they can pull from inventory. So all that's being created right now, we're on-track to do that. So, we do anticipate there will be for these new programs in the inventory buildup that is anticipated.

Bob Weber

I think the one good thing is I think we've talked with you guys a lot on the efficiencies of our new facilities and one piece, flow and rate and everything else, so while there will be a buildup it probably will not be similar to old program buildups.

Steve Levenson

So that's going to help cash flow a little bit I take on the working capital side?

Tom Gendron

We believe, so yes.

Operator

Our next question or comment is coming from the line of William Bremer. Your line is now open.

William Bremer

Are you seeing any deferrals on the Industrial side? I guess that's my first question in terms of I know, you guys supply the components but are things being held just say a little bit longer in this environment and you're ready to ship and I heard you mention extraction power-gen, could we go into a little bit on the processing side of the energy platform and give us an update there?

Tom Gendron

Sure. We really aren’t seeing anybody hold anything if I call it but I also have to tell you on the Industrial side, we definitely have again working lean manufacturing systems between Woodward and our customers a lot of things on pull systems. So, from that standpoint they don't hold just when they change and when they pull from that so, nothing is sitting on the docks or anything like that, so we're getting schedules, we know line rates, we're in sync with them and that's all built in the plan but that's not an issue. [Multiple Speakers] so the question on processing, it's still, it is okay. We're seeing -- that is an area where we're concentrating some of our aftermarket initiatives it is an upgrade improved efficiency, how, it’s the up time maintainability unlike. So that’s been a good area for aftermarket focus. So it’s the market is holding okay at once again a down level. But aftermarket side in that area has been doing well.

William Bremer

Okay. And Bob did I hear you correctly top-line for Industrials. We expect to have a year-over-year improvement throughout the rest of the year. And could you just touch base a little bit on the operating margins, will you be able to hold at least the 12% there?

Bob Weber

Yes, we would yes, you did hear it correctly. We originally called out 0% to 2% on the top-line obviously the zero is zero, but I think we do believe that through the course of the year, we will see increases. As Tom mentioned, a number of our different product lines and new product initiatives and things like that, wind is doing okay. So yes, we do see some increase as the year progresses and we do believe that as we get some of those increases we will be able to improve our earnings overall as well and we are just going to call that out early in the guidance and we don’t see any change in that at this point either.

Operator

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

Sheila Kahyaoglu

On the full year EPS of 2.75 to 2.95, I just wanted to make sure that includes the restructuring charge of 16 million. I guess does it always include it when you initiate a guidance in November and also does that incorporate 16 million to 20 million of cost savings all within fiscal ’16. Is that essentially is it a guide up on underlying earning?

Bob Weber

No, not a guide up, we said that largely all of the 16 million would be recovered through cost savings. Obviously given the first quarter, you can kind of run rate these things, full year savings is probably closer to the number, the full ’16. So it is a slight downward extremely slight to the guidance, to the point where it isn’t having a significant impact. But it’s not, I would not characterize it as upside.

Sheila Kahyaoglu

Right.

Tom Gendron

And so I think, also just I think Sheila you are saying the question is, was it in our plan and would it have been incremental I think that is a little bit. And we were looking at that going in and so as Bob highlighted the guidance holds and we will recover as we go through the year so.

Bob Weber

It was anticipated along with the savings at the time, when we gave the original guidance.

Sheila Kahyaoglu

Okay. Thanks.

Operator

Our next question or comment comes from the line of Pete Skibitski. Your line is now open.

Peter Skibitski

Yes Tom on power-gen after, you talked about only the power-gen aftermarket, I know you guys have been real successful on the upgrades. Was that strong across all regions in the first quarter or are you starting to see some differentiation across regions on the aftermarket as well for power-gen?

Tom Gendron

I think for the most part it was across all regions. I’ve been going through on the aftermarket upgrades and services. And I look at it we were doing well in Asia and the Middle-East and North America. So it was pretty much, the upgrade market and service is doing well everywhere.

Peter Skibitski

Okay. And your power-gen OE customers, they just haven’t really given you any reason to kind of worry incrementally about Asia at this point. Is that a fair statement would you say or?

Tom Gendron

That’s a fair statement, we look at where we are and we're not seeing or anticipating any downward pressure from already any further I don’t think [Multiple Speakers] further downward pressure from where we are.

Peter Skibitski

Got it, got it, okay. And then Bob FX from here on out is it kind of [embedded as you are annualized] into the numbers at this point, present more headwind there?

Bob Weber

Well, depending upon what currency rates do, but we do not anticipate and the guidance doesn’t really anticipate any further heavy impacts of foreign exchange.

Operator

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

Gautam Khanna

Yes. So I was wondering if you could parse out for us the aftermarket growth you anticipate this year from provisioning versus kind of regular way aftermarket sales, and if you could also just comment again. Did you say the CapEx this year was 100 million all-in or did I miss hear that? Thanks.

Bob Weber

Let me answer the second one first. CapEx of approximately 180 for the full year and what I mentioned was that in the second half we anticipate that the run rate will begin approaching that 100 million level, is that…

Gautam Khanna

Okay.

Bob Weber

Okay. And now I will turn it back to Tom.

Tom Gendron

Yes, so on initial provisioning spares in the Aerospace market. We are seeing good provisioning coming from programs already launched, programs such as 787 and alike and we also are anticipating just the beginning of some of the new narrow-bodies as the fiscal year goes forward but more of that would be in 2017. But year-over-year we are going to be up on provisioning sales.

Gautam Khanna

Could you quantify how much you think all-in aftermarket will be up and how much of that growth relates to provisioning?

Tom Gendron

Yes. You see we don’t breakout all-in-all I think we are looking about I think it's about 5% overall aftermarket increase and that's broken up between provisioning, spare parts and repair and overhaul services each are up year-over-year.

Gautam Khanna

Okay, thank you.

Operator

[Operator Instructions] All right Mr. Gendron, I'm showing there are no further questions at this time. So I will now like to turn the conference back over to you.

Tom Gendron

Okay, well I’d like to thank all of you for joining us today and thank you for your questions and hopefully we were able to give you some clarity on our first quarter results and Bob and I will look forward to talking with all of you in the next quarter. Thank you.

Operator

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 1667357. A rebroadcast will also be available at the Company's Web site, www.woodward.com for 14 days. We thank you for your participation on today's conference call and ask that you please disconnect your lines. Thank you and have a wonderful day.

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