Earnings Call
Woodward, Inc. (WWD)
Earnings Call Transcript - WWD Q4 2023
Dan Provaznik, Director of Investor Relations
Thank you, operator. We’d like to welcome all of you to Woodward’s fourth quarter fiscal year 2023 earnings call. In today’s call, Chip will comment on our strategies and related markets. Bill will then discuss our financial results as outlined in our earnings release. And at the end of the presentation, we will take questions. For those who have 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 30, 2023. The phone number for the audio replay is on the press release announcing this call as well as on our website and will be repeated by the operator at the end of the call. 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 current outlook and assumptions for the global economy and our businesses more specifically. Those elements can and do frequently change. Our forward-looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify in our filings. In addition, Woodward is providing certain non-US GAAP financial measures. We direct your attention to the reconciliations of non-US GAAP financial measures, which are included in today’s slide presentation and our earnings release and related schedules. We believe this additional financial information will help in understanding our results. Now I will turn the call over to Chip.
Chip Blankenship, Chairman and Chief Executive Officer
Thank you, Dan, and good afternoon, everyone. Improved execution coupled with robust demand and progress on our strategic priorities delivered strong top line growth in fiscal 2023. Our focus on improving operations resulted in increased output, which allowed us to serve customers better and deliver enhanced margins. I would like to thank our team members for their hard work in a challenging environment; their commitment to Woodward and our customers resulted in a strong finish to fiscal 2023 and frankly a strong start to our fiscal 2024. As anticipated, the strategic investments we've made to strengthen our supply chain resulted in significant improvements in the second half of the year. A robust supplier escalation process proactively identifies at-risk suppliers and creates mitigation plans to ensure continuity of supply. Our rapid response machining centers are working as designed, and we continue to leverage our machining capabilities to offload suppliers and our internal shops as they run into short-term capacity constraints. Woodward's full engagement in proactive problem solving with our suppliers has vastly improved the stability and performance of our supply base, which has become integral to our overall supply chain management process. We believe we are well-positioned to deliver on future demand. Earlier in the year, we streamlined the Aerospace and Industrial segments and added experienced leadership to the company to accelerate our lean transformation. We integrated the turbine and reciprocating engines business units into one Industrial business. We reduced structural costs and achieved pricing to offset significant inflation. We initiated a product portfolio rationalization effort, which focused on pruning lower performing products to both simplify operations and improve profitability overall. Through the fiscal year end, we eliminated approximately 18,000 SKUs. While these were relatively easy actions to take, the next wave will require more finesse and a customer-connected approach to product lifecycle management. This is a multiyear project, and we will provide updates along the way. We integrated the engine and airframe business units into one Aerospace business. We brought the hydraulic and fuel systems business units closer together with a combined engineering and program management structure. The electromechanical systems and electronics team is also part of the streamlined organization, which uniquely positions Woodward to be competitive across the entire spectrum of aircraft electrification scenarios. We simplified the way we interact with aerospace customers with one commercial team calling on and supporting customers. In its first year as an integrated organization, productivity improved as new members became proficient, and pricing actions were successful at offsetting the material and labor inflation that we faced in 2023. We doubled down on strategic investment in operational excellence and talent development to accelerate our lean transformation. We started with one value stream analysis in each of the segments, motors in aerospace and gas flow valves for land-based turbines in our Industrial segment. Each of these actions required application of significant resources, with more than 30 people organized to detail all the process steps, lead times, and inventory positions from customer order entry to shipping the product and collecting cash. The results of this type of analysis allow us to identify and eliminate waste and deliver more value to customers. The output from each week-long event is a 12-month transformation plan to cut lead time in half and double the inventory turns for the value stream under transformation. We have since placed two more value streams under transformation, SOGAV in Industrial and servo hydraulic valves in Aerospace. We are going narrow and deep as each of these efforts requires dedicated resources. Turning to innovation, we continue to invest in and develop technologies that reduce fuel consumption and emissions in both aerospace and industrial applications. Our innovations enable multiple paths for a cleaner future, representing opportunities for Woodward in the years ahead. Together with our customers, we are developing solutions that utilize a wide variety of alternative fuels to power the engine of tomorrow. As we mentioned earlier this fiscal year, we were selected by Airbus to provide a Balance of Plant Control Solution for the fuel cell system in their ZEROe aircraft demonstrator. This project leverages our leading fuel control technologies to enable sustainable air travel using hydrogen fuel. The Airbus Demonstrator Program aims to introduce a zero-emission aircraft into service by 2035. On the Industrial side of the business, we have several projects underway with multiple alternative fuels across a diverse array of applications including power generation, marine, agriculture, and mining. These projects are targeting new engines as well as conversions and upgrade opportunities for engines and service. Moving to our markets. Commercial aircraft utilization rates continue to rise, with domestic passenger traffic exceeding 2019 levels, and international travel largely recovered. In defense, due to geopolitical developments and government spending proposals, we expect R&D and procurement to increase. We continue to see strength across our industrial markets. In power generation, demand remains strong, driven by growth in Asia, increases in global aftermarket activity, and continued demand for backup power. In transportation, the global marine market remains healthy, with shipyards at capacity and higher utilization driving current and future aftermarket activity. Increasing demand for alternative fuels across the marine industry should continue to drive expanded OEM and aftermarket opportunities, as multifuel engines contain greater Woodward content. In oil and gas, global investment in LNG infrastructure development continues. Demand for natural gas and heavy-duty trucks in China increased significantly over last year due to a number of factors including a wide LNG diesel price spread and a steady supply of natural gas. Woodward benefited from this resurgence in demand beginning in our second quarter, followed by a sharp uptick in the third and fourth quarters, with sales approximating the historical quarterly peak level of roughly $50 million. We converted these orders into sales, utilizing inventory on hand and existing production capacity. Our market analysis, including recent customer visits, indicates continued strong demand for LNG heavy-duty trucks in China. However, this is a volatile market, and as history has shown, the promise of these sales can evaporate quickly. We are evaluating the durability of the elevated market demand and are developing an operational plan that allows us to be flexible and resilient to significant swings in volume. In summary, our markets are strong, and demand for Woodward products and services remains robust. Our strategic investments to stabilize and strengthen our supply chain and improve operations are yielding sustainable results. The resulting output increases and productivity are reflected in our financial performance. We have taken a lot of ground in 2023, but we have more work to do. As we look ahead, Woodward remains committed to operational excellence, talent development, and innovation, which we believe will drive long-term growth and deliver value to our customers and shareholders. I will now turn the call over to Bill to review our quarterly and full year results as well as our fiscal year 2024 outlook.
Bill Lacey, Chief Financial Officer
Thank you, Chip, and good afternoon to everyone. Net sales for fiscal fourth quarter were $777 million, an increase of 21%. Net sales for fiscal year 2023 were $2.91 billion, an increase of 22%. The increases in the quarter and full year were driven by continued strong demand across most of our end markets, increased output resulting from the strategic investments we've made in the business and price realization. Aerospace segment sales for the fourth quarter of fiscal 2023 were $455 million, compared to $408 million, an increase of 11%. Commercial OEM and aftermarket sales were up 19% and 21%, respectively, driven by higher OEM production rates, continued growth in both domestic and international passenger traffic, increasing aircraft utilization, and price realization. Defense OEM sales were down 13% in the quarter, primarily due to lower sales of guided weapons. Defense aftermarket sales were up 18%. Aerospace segment earnings for the fourth quarter of 2023 were $78 million, or 17.2% of segment sales, compared to $63 million, or 15.5% of segment sales. The increase in segment earnings was primarily a result of price realization, higher commercial OEM and aftermarket volume, and productivity gains, partially offset by inflation and higher annual incentive compensation. For fiscal year 2023, Aerospace segment sales were $1.77 billion, compared to $1.52 billion for the prior year, an increase of 16%. Aerospace segment earnings for fiscal year 2023 were $290 million, or 16.4% of segment sales, compared to $231 million, or 15.2% of segment sales for the prior year. Turning to Industrial. Industrial segment sales for the fourth quarter of fiscal 2023 were $322 million, compared to $232 million, an increase of 39%. The increase was driven by higher volumes across all markets as well as price realization. In the fourth quarter, sales for on-highway natural gas truck production in China exceeded 10% of total Industrial segment sales. Industrial segment earnings for the fourth quarter of 2023 were $54 million, or 16.9% of segment sales, compared to $21 million or 9% of segment sales. Industrial segment earnings increased due to higher sales volume, productivity, efficiency gains, price realization, and favorable product mix, partially offset by inflation and higher annual incentive compensation. For fiscal year 2023, Industrial segment sales were $1.15 billion compared to $863 million for the prior year, an increase of 33%. This represents record sales for the Industrial segment. Industrial segment earnings for fiscal year 2023 were $162 million, or 14.1% of segment sales, compared to $83 million or 9.6% segment sales for the prior year. As Chip mentioned, we continued to make progress on strengthening our Industrial business, with the strategic investments we've made to improve operational performance, including increased output and excellent pricing driving approximately 200 basis points of improvement in Industrial segment earnings as a percent of segment sales in fiscal 2023. We are in the early innings of transforming the Industrial business. But once fully realized, we expect normalized Industrial margins as a percent of sales to be in the mid-teens depending on the sales mix. Nonsegment expenses were $24 million for the fourth quarter of 2023 compared to $17 million. Adjusted nonsegment expenses for the fourth quarter of 2022 were $21 million. Nonsegment expenses were $131 million for fiscal 2023 compared to $81 million for 2022. Adjusted nonsegment expenses were $96 million in fiscal 2023 compared to $78 million, primarily driven by higher annual incentive compensation. At the Woodward level, R&D for the fourth quarter of 2023 was $32 million, or 4.1% of sales compared to $30 million, or 4.7% of sales. For fiscal year 2023, R&D costs were $132 million or 4.5% of sales compared to $120 million or 5% of sales. SG&A for the fourth quarter of 2023 was $66 million compared to $50 million. For fiscal year 2023, SG&A was $270 million compared to $203 million. For both the quarter and the year, the increase was primarily due to higher annual incentive compensation. The effective tax rate was 15.7% for the fourth quarter of 2023 compared to 6.5%. The full-year effective tax rate was 15.7% for fiscal 2023 compared to 14.1%. For fiscal 2023, the adjusted effective tax rate was 16.8% compared to 14.3%. Looking at cash flows, net cash provided by operating activities for fiscal 2023 was $309 million, compared to $194 million. Capital expenditures were $77 million for fiscal 2023 compared to $53 million. Free cash flow was $232 million for fiscal 2023 compared to $141 million. Adjusted free cash flow was $238 million for fiscal 2023 compared to $144 million. The increase in free cash flow and adjusted free cash flow was primarily due to increased earnings, partially offset by higher capital expenditures. Leverage was 1.5x EBITDA at the end of the fourth quarter compared to 2.1x EBITDA. During fiscal 2023, $177 million was returned to stockholders in the form of $51 million of dividends and $126 million of repurchased shares under a Board-authorized share repurchase program. Lastly, turning to our fiscal 2024 outlook. Woodward's fiscal 2024 outlook includes a continued strong demand environment and improving operational performance throughout the year. Total net sales for fiscal 2024 are expected to be between $3.1 billion and $3.25 billion. Our Aerospace segment outlook includes increasing revenue and margin expansion driven by continued strength in commercial markets and increased defense activity. For fiscal 2024, Aerospace sales growth is expected to be between 10% and 14%, and Aero's earnings are expected to be 18% to 19% of Aerospace sales. Our Industrial segment outlook includes broad-based market strength in improving operational performance. Given the volatility and limited visibility into the China on-highway natural gas truck market, the outlook assumes peak sales levels for the first quarter with minimum activity through the remainder of 2024. For fiscal 2024, we expect Industrial sales growth between 4% to 6%. Industrial segment earnings are expected to be 13% to 14% of Industrial segment sales. At the Woodward level, the adjusted effective tax rate is expected to be approximately 21%. We expect free cash flow to be between $275 million and $325 million and capital expenditures to be approximately $100 million. Earnings per share is expected to be between $4.70 and $5.15, based on approximately 62 million fully diluted weighted average shares outstanding. This concludes our comments on the business and results for the fourth quarter and fiscal year 2023.
Operator, Operator
Our first question comes from Scott Mikus from Melius Research. Please state your question.
Scott Mikus, Analyst
Hi, Chip. I was wondering, the balance sheet is pretty solid. LEAP and GTF shop visits are going to be ramping up. So you should have a lot of cash flow growth over the next few years. So I'm just wondering what are your latest thoughts on capital deployment? And then if you're thinking about M&A, is there a preference for aerospace or general industrial?
Chip Blankenship, Chairman and Chief Executive Officer
Good afternoon, Scott. Good to hear from you. So we are looking at that cash generation opportunity. And like we shared before, we are taking a balanced view on capital allocation. You can see that we are inching up the capital expenditure planning to take advantage of things that we believe are high return opportunities in automation and other margin expansion opportunities inside our factories and supply chain. And we are looking at all the other levers in capital allocation in a balanced way. We are very active in terms of looking for really outstanding strategic fits of companies to consider for acquisition opportunities, but we don't have anything specific to discuss at this time. But we remain very active there to make sure that we can take advantage of high return opportunities that are great fits with the company.
Scott Mikus, Analyst
Okay. And then I have a question for Bill. It looks like the Aerospace segment missed the low end of the margin guide by about 20 bps for the full year. And I think if my math is correct, the commercial OE sales were down quarter-over-quarter. So I was just wondering if you could provide a little bit of color on that?
Bill Lacey, Chief Financial Officer
Sure. Thanks for the question. As you know, our Aero business had a strong quarter in Q4 with a 21% growth on the top line, while Q3 was even stronger at 30%. Specifically, some of the strong growth in Q3 can be attributed to a new component that achieved certification, and there was significant customer demand. We recognized a lot of the initial production at that time, and moving forward, we will reach a more stable production rate. Therefore, the strong performance in Q3 and a bit of timing contributed to not achieving the expected quarter-over-quarter sales. Overall, it was a very strong quarter for Aero.
Scott Mikus, Analyst
Okay. Got it. Thank you.
Operator, Operator
Your next question comes from the line of Scott Deuschle from Deutsche Bank. Please state your question.
Scott Deuschle, Analyst
Hey, good afternoon.
Chip Blankenship, Chairman and Chief Executive Officer
Good afternoon, Scott.
Scott Deuschle, Analyst
Bill, I think you're guiding to higher incremental margins at Aerospace in 2024 than what you did in 2023. So I was wondering if you can talk a bit about what enables that higher incremental margin rate? Thank you.
Bill Lacey, Chief Financial Officer
Sure. We'll discuss that in more detail during our Investor Day on December 7. However, as we assess the strong commercial markets and the volume there, it will certainly contribute positively to our guidance as we approach 2024.
Chip Blankenship, Chairman and Chief Executive Officer
And Scott, to add to that, we have put considerable effort into the lean transformation. We expect that, along with the learning curve of our newer team members, will allow us to continue reducing costs in our operations. However, we are facing some mixed challenges moving from 2023 to 2024 due to strong OE demand and the required build rates. Despite this, we remain optimistic that our effective lean transformation programs will enable us to improve productivity. Additionally, we are relying on some year-over-year pricing increases.
Scott Deuschle, Analyst
Okay. Yes. And just on that last point, I think last year, when we got the guide, you gave a sense for what those price realizations would be. And so I was wondering if you can say what you expect that price realization number to be this upcoming year in fiscal '24?
Chip Blankenship, Chairman and Chief Executive Officer
We are not ready to provide that information at this time, Scott. However, we expect to see improvements. We are also dealing with some inflation in the supply chain, so we cannot share more details right now.
Scott Deuschle, Analyst
Okay. And then last question, is the revenue from guided weapons at trough yet?
Bill Lacey, Chief Financial Officer
We continue to look at that. In Q4, we are expecting it to reach that point. And so we will continue to see how that all goes. But in 2024, yes, we expect it to hit its trough.
Scott Deuschle, Analyst
Thank you.
Operator, Operator
Your next question comes from the line of Sheila Kahyaoglu from Jefferies. Please state your question.
Sheila Kahyaoglu, Analyst
Thank you. Good afternoon, guys.
Chip Blankenship, Chairman and Chief Executive Officer
Hi, Sheila.
Sheila Kahyaoglu, Analyst
I wanted to ask about the Industrial segment. You provided great detail in your prepared remarks. You also indicated $50 million in sales from China natural gas and normalized margins in the mid-teens. My first question is regarding the Industrial margin. If we exclude that, it suggests around a 50% drop-through for the China business. Would you say that's accurate? What are your expectations for China natural gas sales in 2024? And how do we anticipate the core business moving to mid-teens, considering you've averaged about 10% over the past decade?
Bill Lacey, Chief Financial Officer
Yes. Hey, Sheila, thanks for the question. Yes, into our prepared remarks, we did discuss that we did hit our historically quarterly peak of around $50 million. And so that's kind of where we are willing to discuss. We also, as it relates to OH, continue to feel that it's a very volatile business. And we discussed what we were willing to include in our 2024 guide. So we felt like we provided some, as you said, some increased detail on OH, and we are going to leave it at that for now.
Sheila Kahyaoglu, Analyst
So I guess …
Chip Blankenship, Chairman and Chief Executive Officer
Just to get to the rest of your question, Sheila, the underlying performance of the other product lines and components of the Industrial business, we are seeing good improvement on the operations. And we've had some strong pricing on long-term agreements come through over the past year that we believe will connect for us over the next term and provide that lift to margins in the Industrial business.
Sheila Kahyaoglu, Analyst
Okay. So, what do you think is causing the largest decline year-over-year in the top line for Industrial? Can you break down what you've incorporated into that assumption?
Bill Lacey, Chief Financial Officer
Yes. As we discussed, Sheila, we expect the on-highway business in China for 2024 to be close to historical sales in the first quarter, with a minimal amount for the rest of the year.
Sheila Kahyaoglu, Analyst
Okay. Thank you.
Operator, Operator
Your next question comes from the line of Pete Skibitski from Alembic Global Advisors. Please state your question.
Pete Skibitski, Analyst
Hey, good afternoon, guys. Nice quarter.
Chip Blankenship, Chairman and Chief Executive Officer
Thanks, Pete.
Pete Skibitski, Analyst
Just a follow-up on Sheila's question regarding China CNG. Should we expect that the first quarter, which will feature a peak level of China CNG, will also be the high revenue and margin quarter for the year in Industrial?
Chip Blankenship, Chairman and Chief Executive Officer
We don't know the answer to that, Pete. I mean that's just what we are honestly trying to say is that we have visibility to orders in the first quarter that we think we can count on shipping. Past that, it's upside opportunity for us. We are positioning our supply chain to try and be able to deliver that on a sustainable way if that demand continues. But what we are forecasting and kind of committing to guidance wise is just what we can see. Does that make sense?
Pete Skibitski, Analyst
Right. Yes. Yes, there's no downside risk from China CNG in your guidance; it's only kind of upside opportunity, I think is what you're saying.
Chip Blankenship, Chairman and Chief Executive Officer
That's what we are trying to say. And also, really all of our end markets that we are serving, we believe we'll have growth in sales. And so that's …
Pete Skibitski, Analyst
Okay.
Chip Blankenship, Chairman and Chief Executive Officer
It looks promising to us, but we want to be cautious based on our previous experiences in the China market.
Pete Skibitski, Analyst
Okay. And just one follow-up for me on the marine market. It seems like China exports are slowing and Europe, especially Germany seems pretty weak in terms of growth. So I'm trying to understand what's driving the strength in the marine market. Are we just sort of going through kind of a replacement cycle for aftermarket demand? Can you shed any color on that market and the visibility you have?
Chip Blankenship, Chairman and Chief Executive Officer
Yes. I mean there are a lot of subsegments to that market. There's cruise ships, there's ferries, and like you said, the container ships. And there's auxiliary engines and there's main engines. And so when you look at what Woodward's scope of supply is, we've got a lot of places that can still be growing even if China freight drops off or the pricing changes and makes people have a little less utilization on that specific submarket.
Pete Skibitski, Analyst
Okay. Okay, great. Thanks, guys.
Chip Blankenship, Chairman and Chief Executive Officer
Yes. Thank you.
Operator, Operator
Your next question comes from the line of Christopher Glynn from Oppenheimer. Please state your question.
Christopher Glynn, Analyst
Hey. Good afternoon, Chip, Bill, Dan. I was curious if you could go a little bit deeper into what you're seeing in the defense markets. I know you expect procurement to increase; that's pretty straight. You also mentioned to expect R&D to increase. Does that refer to internal and external? And what are kind of the 2024 drivers and longer-term next couple of years that you're seeing as defense demand starts to take a little shape here?
Chip Blankenship, Chairman and Chief Executive Officer
We've observed an increase in requests for quotes from Woodward related to components, subsystems, and systems for various defense vehicles. The number of quotes we've received has risen, and the urgency to respond to those quotes has accelerated compared to previous periods. This is separate from our internal R&D, which remains stable in terms of platform development. However, specific customer requests have increased and are maintaining that higher level.
Christopher Glynn, Analyst
Okay, great. And just taking a look at big picture, you have a new management team working on lots of execution and portfolio streamlining. How is everything coming together? I mean, it looks great. But from a cultural perspective, middle-level managers, how is that translating down from the C-suite?
Chip Blankenship, Chairman and Chief Executive Officer
These things always take time, Chris. What I'm really pleased with is the lean transformation activities when we engage a full team of over 30 people in value stream analysis. This team includes frontline operators, first-level supervisors, supplier managers, customer service representatives, the entire VP of Operations, plant managers, and I even participated in one. We are fully engaging in efforts to reduce lead times, serve customers better, and eliminate waste. So far, so good on that front. However, these changes take time, and it will require a multiyear journey to reach our goals, to be candid.
Christopher Glynn, Analyst
Yes, it seems you have four effective processes with two in each segment currently in progress. Is this a way to cultivate leaders and establish consistent practices, aiming for 8 to 10 in 2024 and 15 to 20 in 2025? Would that be a reasonable perspective?
Chip Blankenship, Chairman and Chief Executive Officer
Yes, sir, you've seen this movie before. And each one of these activities before a value stream can qualify to be under transformation; they need to be able to identify 3% of dedicated resources that are going to be with that activity for a year. And so it takes a lot of pre-work. And like you said, we then generate leaders that have been through the process to take on the next one.
Christopher Glynn, Analyst
Great. Thanks for your explanations.
Chip Blankenship, Chairman and Chief Executive Officer
Thanks much.
Operator, Operator
Your next question comes from the line of David Strauss from Barclays. Please state your question.
David Strauss, Analyst
Thanks. Good afternoon, everyone.
Chip Blankenship, Chairman and Chief Executive Officer
Good afternoon, David.
Bill Lacey, Chief Financial Officer
Hey, David.
David Strauss, Analyst
Chip, you mentioned the headwind that you'll have on the Aero margin side from higher OE growth. Could you give a little bit more granularity in terms of what you're forecasting within that 10% to 14% for Aero between OE, aftermarket, and then maybe just defense bucketed altogether?
Chip Blankenship, Chairman and Chief Executive Officer
Yes. This is the kind of challenge we appreciate because, from a long-term view, we are building an installed base that will yield benefits over time. It's a challenge we are willing to accept every time. I am not ready to break down the specifics of how that will unfold. To some degree, it will develop over time, and we will be able to showcase our capability to achieve those rates throughout the entire supply chain. It would be premature for me to specify exactly what it is since I truly don't know how it will ultimately play out. However, I want everyone to understand that this is a beneficial challenge, and we plan to address it by improving margins on both the original equipment side through our productivity and investment in reducing costs, as well as enhancing our aftermarket efforts as effectively as possible.
David Strauss, Analyst
Okay. And then on guided weapons, it sounds like you're expecting the business at the bottom level, but should we expect that business to start growing again considering the developments with JDAM and small diameter bombs? Do you anticipate that business will begin to grow again?
Chip Blankenship, Chairman and Chief Executive Officer
We don't really have any expectations of that. And we have no firm information along those lines, but customers have called us and asked us about our capacity and ability to respond, and we've done our homework with our supply chain to make sure our suppliers can respond. And if it does crank up a higher order rate, then we'll be ready for that. But as of now, we have no orders to move in that direction.
David Strauss, Analyst
Okay. And then I have one last question for Bill. It seems like your guidance for free cash flow and cash from operations for next year suggests there might be some challenges with working capital. Could you clarify what assumptions you have made regarding working capital? Thanks.
Bill Lacey, Chief Financial Officer
Yes. In our working capital, we are seeing our inventory situation improve, and overall working capital is expected to be in good shape. It won't have a significant negative impact, David. However, accounts receivable may present some challenges as sales increase, which could offset other areas and create a headwind for working capital.
David Strauss, Analyst
Okay. Thanks very much.
Bill Lacey, Chief Financial Officer
You're welcome.
Operator, Operator
Your next question comes from the line of Gavin Parsons from UBS. Please state your question.
Gavin Parsons, Analyst
Thanks. Good afternoon.
Chip Blankenship, Chairman and Chief Executive Officer
Good afternoon, Gavin.
Bill Lacey, Chief Financial Officer
Hey, Gavin.
Gavin Parsons, Analyst
Can you just talk a little bit about how you position the China truck business to reduce margin volatility if demand does fall off?
Chip Blankenship, Chairman and Chief Executive Officer
Well, there's really no way to position it to reduce volatility if demand falls off. We are just trying to say that when demand is strong, it's a profitable, good business. And when demand is not strong, we fall below a certain level. It's a bit of a drag on the overall Industrial segment. And so, we are trying to have enough levers in our planning process that we are able to deal with that as it comes through. And that's how we planned 2024 is delivering at that peak volume type of level in the first quarter. The other quarters we planned and are ready to deliver on all of our other product lines into all of our other end markets and make that plan.
Gavin Parsons, Analyst
Got it. Great. And then maybe just in terms of your price strategy, you've talked about kind of value pricing. Where are we today in terms of getting price just as inflation pass-through versus implementing your value pricing strategy?
Chip Blankenship, Chairman and Chief Executive Officer
We are still in the early stages of our value pricing strategy. This strategy is particularly relevant when we introduce new products that offer greater value than previous systems. That's when we can effectively leverage our capabilities and build confidence. In our current product lineup, there are opportunities in the aftermarket for value-based pricing, especially for our highly differentiated products that contain significant intellectual property, allowing us to deliver more value compared to standard, commoditized parts. However, we are not yet able to implement such value pricing in the aftermarket. Moving forward, the focus on developing this capability will primarily be directed toward new products.
Gavin Parsons, Analyst
Okay. Thank you.
Operator, Operator
Your next question comes from the line of Gautam Khanna from TD Cowen. Please state your question.
Gautam Khanna, Analyst
Thank you for taking my question. I was curious about what might be different in your presentation at Investor Day this year compared to previous years. Could you provide a brief preview of the topics you plan to discuss?
Chip Blankenship, Chairman and Chief Executive Officer
A sneak preview. Gautam, I love your questions. You've always got something for us. I guess the sneak preview is that you're going to see more players on the stage. And folks are going to talk about their businesses. Experts are going to talk a little bit about their products and what value they provide to customers. And I truly believe we'll tell a compelling story, just like we did last time about the exciting content that we have on, for example, narrow body aircraft that is going to pay dividends long into the future and that our Industrial alternate fuel solutions are going to be highly valuable no matter which way our customers and energy sources go in the future.
Gautam Khanna, Analyst
Thanks. I was wondering if you could discuss the visibility in the industrial market outside of CNG, where you've indicated Q2 will be significantly lower for that business. How do you feel about the other major product categories and end markets for reciprocating engines?
Chip Blankenship, Chairman and Chief Executive Officer
It still feels relatively strong, Gautam. It feels like from the demand for standby power remains strong. The equipment businesses in mining and agriculture remains strong. Marine remains mostly strong, per my earlier comments. We haven't received any market softening signals from our customers. We've received some signals to reduce or push out orders in marine. But we feel like that signal was largely due to some over-ordering. Now with relatively better confidence in the supply chain, it's normalizing as well as, we think, end of the calendar year inventory management. So we feel like every signal that we test in the marine, oil and gas, and power generation markets still feed back to us that they want us to deliver at the rates we are projecting. And we still have past due that we are trying vigorously to burn down.
Gautam Khanna, Analyst
Thank you.
Chip Blankenship, Chairman and Chief Executive Officer
Yes.
Operator, Operator
Your next question comes from the line of Louis Raffetto from Wolfe Research. Please state your question.
Louis Raffetto, Analyst
Hey, good evening, guys. How are you?
Chip Blankenship, Chairman and Chief Executive Officer
The feedback we receive from our testing in the marine, oil and gas, and power generation markets indicates that our clients expect us to meet the projected delivery rates. Additionally, we are actively working to reduce our past due amounts.
Louis Raffetto, Analyst
Good. I apologize, I may have missed some of these, but did you tell us what the full pricing was? I know you had upped it from 5% to 7%. Did you actually say what it ended up being for the year?
Dan Provaznik, Director of Investor Relations
No. No, we did not, Louis, did not give that update.
Louis Raffetto, Analyst
Can you provide that information, or do we need to wait?
Bill Lacey, Chief Financial Officer
We'll say we met what we discussed and exceeded it.
Louis Raffetto, Analyst
Okay. And then I guess just for you, Bill, the tax step up, what's driving that step-up in '24?
Bill Lacey, Chief Financial Officer
As our earnings rise, our tax rate also increases, and that is the primary factor behind this change.
Louis Raffetto, Analyst
All right. And then one more, just I may have missed it, the step up in CapEx.
Bill Lacey, Chief Financial Officer
Yes. Yes. On the CapEx piece here, we continue, again, as we talk about our capital allocation and where we can get returns, we see that in an area where we have automation opportunities, we want to continue to invest in the maintenance of our machines to continue to drive productivity as well as safety. So that's really where we are looking at investing in our CapEx increase.
Louis Raffetto, Analyst
Okay. And then just last one. I know you gave the growth for the end markets in Industrial, but did you have the segment growth numbers for the year? For reciprocating engines in Industrial machinery?
Bill Lacey, Chief Financial Officer
No, no, don't have that. We did not give that.
Dan Provaznik, Director of Investor Relations
And Louis, just for the end of the year, this is Dan Provaznik. You'll see in our K tomorrow that we are going to be making a switch and showing that information in our K based on the three markets: transportation, oil and gas, and power generation.
Chip Blankenship, Chairman and Chief Executive Officer
It really reflects how we are running the business now.
Louis Raffetto, Analyst
Makes sense. Thank you very much.
Chip Blankenship, Chairman and Chief Executive Officer
Welcome. You're welcome.
Operator, Operator
Your next question comes from the line of Gavin Parsons from UBS. Please state your question.
Gavin Parsons, Analyst
Hey, guys. Thanks for the follow-up. Again, just one housekeeping. What is the Industrial book-to-bill for the year?
Chip Blankenship, Chairman and Chief Executive Officer
I don't think we have that in front of us, Gavin.
Gavin Parsons, Analyst
Okay. No worries. The K is coming out really great.
Chip Blankenship, Chairman and Chief Executive Officer
Yes, it's strong. We are receiving plenty of orders to cover our build rates, but I can't provide a specific number at the moment.
Gavin Parsons, Analyst
No worries. I'll wait. And then it looks like no buyback implied in the share count? I know we talked about capital deployment at the beginning of the call, but are you assuming you accumulate cash throughout the year?
Bill Lacey, Chief Financial Officer
Yes. Right. Gavin, we don't assume that through the year, and we'll just continue to monitor it and make decisions as we go as it relates to share buybacks.
Gavin Parsons, Analyst
Okay. Thanks again.
Chip Blankenship, Chairman and Chief Executive Officer
You're welcome.
Operator, Operator
Mr. Blankenship, there are no further questions at this time. I will now turn the conference back to you.
Chip Blankenship, Chairman and Chief Executive Officer
Thank you, and thanks to everyone for joining us today. As a reminder, our Investor Day is scheduled for December 7 in New York City, and I look forward to seeing you there and sharing more at that time. Have a good day.
Operator, Operator
Ladies and gentlemen, that concludes the conference call today. If you would like to listen to a rebroadcast of this conference call, it will be available today at 7:30 p.m. Eastern Time by dialing 1-800-770-2030 for a U.S. call or 1-647-362-9199 for a non-U.S. call and by entering the access code 4278216. A rebroadcast will 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.