Woodward, Inc. Stock price
Compare with Peer Group
📊 Peer Group
📈 What is it?
The peer group consists of the companies with the most similar business model. They serve as a benchmark for putting a stock into context.
🧮 How is it selected?
Based on similarity of business model, meaning companies from the same industry with comparable products and a similar customer base. That's the only way to compare apples to apples.
🏛️ Why does it matter?
Whether a stock is cheap or expensive is best judged by comparison. A P/E of 18 or an EV/FCF of 20 can look cheap or expensive depending on the yardstick. The peer group gives you the most accurate one: companies with a similar business model that operate under the same conditions.
🎯 What does it mean for investors?
When a metric sits below the peer average, the stock is valued more cheaply relative to its competitors, and above the average more expensively. A discount to the peer group can be an opportunity, but it can also have a reason (for example lower growth). The comparison is a starting point, not a verdict.
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👉 More detailed insights
👉 Exclusive perspectives on opportunities & risks
👉 Clear answers to your questions
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👉 More detailed insights
👉 Exclusive perspectives on opportunities & risks
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Is Woodward, Inc. a Top Scorer Stock based on the Dividend, High-Growth-Investing or Leverman Strategy?
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Key metrics
📘 Market Capitalization
📈 What is it?
Market capitalization shows how much a company is currently worth on the stock market.
🧮 How is it calculated?
🏛️ Why is it important?
It helps classify companies by size (Large, Mid, Small Cap) and indicates their market presence and relative stability.
🧮 Calculation
🎯 What does this mean for investors?
- Large-cap companies tend to be more stable, often pay dividends, but may grow more slowly.
- Smaller firms may offer higher growth potential but come with more volatility.
- Market capitalization is a useful indicator of company size — but not a measure of whether a stock is undervalued or overvalued.
📘 Enterprise Value (EV)
📈 What is it?
Enterprise Value represents the total cost to acquire a company — including its debt and excluding its cash reserves.
🧮 How is it calculated?
(= Market Cap + Net Debt)
🏛️ Why is it important?
EV gives a more complete picture of a company's value than market cap alone and is used in key valuation ratios like EV/FCF or EV/Sales.
🧮 Calculation
🎯 What does this mean for investors?
- Enterprise Value shows the true cost of buying a company, including all financial obligations.
- It is more accurate than just looking at market cap, especially when comparing companies with different levels of debt or cash.
- Professional investors prefer EV-based multiples because they better reflect the company’s full financial footprint.
📘 Net Debt
📈 What is it?
Net Debt shows how much debt remains after subtracting a company’s available cash reserves.
🧮 How is it calculated?
🏛️ Why is it important?
It indicates how dependent a company is on borrowed money and how easily it can service its debt in the short term.
🧮 Calculation
🎯 What does this mean for investors?
- Low or negative net debt signals financial strength and flexibility.
- Companies with strong cash positions are better positioned in crises.
- High net debt increases financial risk — especially in environments with rising interest rates or economic downturns.
📘 Cash
📈 What is it?
Cash represents all liquid assets a company can access immediately — including cash, bank deposits, and short-term investments.
🧮 How is it calculated?
🏛️ Why is it important?
It reflects a company’s financial flexibility and resilience — enabling investments, buybacks, or buffer in downturns.
🧮 Calculation
🎯 What does this mean for investors?
- A strong cash position means greater room for maneuver and crisis resistance.
- Cash-rich companies can invest, pay down debt, or repurchase shares.
- But excess idle cash might indicate a lack of growth opportunities.
📘 Shares Outstanding
📈 What is it?
Shares outstanding represent the total number of a company’s shares currently held by investors — excluding treasury stock.
🧮 How is it calculated?
🏛️ Why is it important?
It’s the basis for key metrics like Earnings Per Share (EPS), Market Capitalization, or the Price/Earnings ratio (P/E).
🧮 Calculation
🎯 What does this mean for investors?
- Fewer shares in circulation typically increase earnings per share — making each share more valuable.
- Share buybacks reduce the number of shares and boost per-share metrics.
- Issuing new shares does the opposite — diluting shareholder value and lowering per-share figures.
📘 Price-to-Earnings Ratio (P/E)
📈 What is it?
The P/E ratio shows how many times a company's earnings per share are reflected in its current share price — in other words, how "expensive" the stock appears relative to its profits.
🧮 How is it calculated?
🏛️ Why is it important?
The P/E ratio is one of the most widely used valuation metrics. It helps investors assess whether a stock appears cheap or expensive compared to its earnings power.
🧮 Calculation
📊 P/E (TTM) = Based on earnings from the last 12 months (Trailing Twelve Months):🎯 What does this mean for investors?
- A low P/E may indicate undervaluation — or signal underlying issues.
- A high P/E may reflect strong growth expectations — or an overvalued stock.
📘 Price-to-Sales Ratio (P/S)
📈 What is it?
The P/S ratio shows how much investors are paying for $1 of the company’s revenue – regardless of profitability.
🧮 How is it calculated?
🏛️ Why is it important?
P/S is especially useful for evaluating growth companies or businesses not yet profitable. It reflects how the market values the company’s sales.
🧮 Calculation
Market Cap = $19.39b | Revenue (TTM) = $4.19b
Market Cap = $19.39b | Estimated Revenue = $4.37b
🎯 What does this mean for investors?
- A low P/S may indicate undervaluation — or low profitability.
- A high P/S can reflect strong growth expectations — or excessive optimism.
- Especially helpful when evaluating companies where profits are low, volatile, or negative.
📘 Enterprise Value to Sales (EV/Sales)
📈 What is it?
EV/Sales shows how much investors are paying for $1 of revenue — considering not just equity, but also debt and cash. It’s the capital structure–adjusted version of the P/S ratio.
🧮 How is it calculated?
🏛️ Why is it important?
It’s ideal for comparing companies with different levels of debt. It reflects a company's true cost relative to its revenue.
🧮 Calculation
Enterprise Value = $20.25b | Revenue (TTM) = $4.19b
Enterprise Value = $20.25b | Forward Revenue = $4.37b
🎯 What does this mean for investors?
- EV/Sales allows for capital structure–neutral company comparisons.
- A lower ratio may indicate undervaluation; a higher one may signal strong growth expectations or overvaluation.
- Especially helpful when evaluating high-growth companies with low or negative earnings.
📘 Enterprise Value to Free Cash Flow (EV/FCF)
📈 What is it?
EV/FCF shows how many years it would take for a company to "pay back" its enterprise value using its free cash flow.
🧮 How is it calculated?
🏛️ Why is it important?
It focuses on real cash generation, ignoring accounting noise — ideal for assessing profitability and value based on liquidity, not earnings.
🧮 Calculation
🎯 What does this mean for investors?
- A low EV/FCF may signal undervaluation and strong cash generation.
- A high EV/FCF might reflect weak recent cash flow or aggressive growth expectations.
- Best suited for stable, mature businesses with predictable free cash flows.
📘 Price-to-Book Ratio (P/B)
📈 What is it?
The P/B ratio compares a company’s market value to its book value — showing how much investors are paying for each dollar of net assets.
🧮 How is it calculated?
🏛️ Why is it important?
P/B is commonly used for asset-heavy industries like banks or industrials. It helps assess whether a stock is trading above or below its net asset value.
🧮 Calculation
🎯 What does this mean for investors?
- A P/B below 1 may signal undervaluation — or weak profitability.
- A P/B above 1 implies the market expects future value creation (e.g., brand, IP, growth).
- Best used for companies with tangible assets and strong balance sheets.
📘 Dividend per Share (DPS)
📈 What is it?
Dividend per Share shows how much cash a company pays out to shareholders for each share they own – usually on an annual or quarterly basis.
🧮 How is it calculated?
🏛️ Why is it important?
DPS is the absolute value of the payout per share – crucial for income-focused investors and dividend strategies.
🧮 Calculation
🎯 What does this mean for investors?
- A stable or growing DPS often signals a strong, shareholder-friendly business.
- DPS alone doesn’t tell you how attractive the payout is – the stock price also matters (→ see Dividend Yield).
- Long-term dividend growth is often a hallmark of high-quality companies – like the dividend aristocrats.
📘 Dividend Yield
📈 What is it?
Dividend yield shows how large a company’s dividend is in relation to its current share price.
🧮 How is it calculated?
🏛️ Why is it important?
It allows investors to compare dividend payouts across stocks, regardless of price or payout size.
🧮 Calculation
🎯 What does this mean for investors?
- A stable yield can reflect reliable distributions.
- Comparing 1Y and 5Y yield shows whether dividend growth keeps pace with stock price appreciation.
- A low yield isn’t always negative – it can signal strong past performance or growth focus.
📘 Dividend Growth
📈 What is it?
Dividend growth shows how much a company has increased its dividend per share over time.
🧮 How is it calculated?
5Y: Compound Annual Growth Rate (CAGR)
🏛️ Why is it important?
Consistently rising dividends are often a sign of financial strength and shareholder orientation – especially relevant for long-term investors.
🧮 Calculation
🎯 What does this mean for investors?
- Stable dividend growth is a sign of sustainable earning power.
- High dividend growth can significantly boost your total return:
- If a company pays $1 in dividends and increases it by 15% annually over 5 years, you’ll receive $2 per share in year 5 – twice as much as at the start!
📘 Payout Ratio
📈 What is it?
The payout ratio shows what percentage of a company’s earnings (per share) is distributed to shareholders as dividends.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess whether the dividend is sustainable – especially in relation to the company’s profitability.
🧮 Calculation
🎯 What does this mean for investors?
- A low payout ratio means the company retains more earnings for reinvestment – typical for growth companies.
- A moderate payout (e.g. 25–50%) indicates a healthy balance between returns and reinvestment.
- High payout ratios may seem attractive but can carry risk if earnings decline.
📘 Consecutive Dividend Increases
📈 What is it?
This metric shows how many consecutive years a company has raised its dividend per share – without any cuts or pauses.
🧮 How is it calculated?
(Special dividends are not considered.)
🏛️ Why is it important?
A long track record of increases reflects financial strength, consistency, and shareholder commitment.
🎯 What does this mean for investors?
- A long dividend increase streak builds confidence – especially in volatile markets.
- Such companies are seen as reliable and income-friendly investments.
- The longer the streak, the stronger the company’s dividend discipline.
📘 Revenue
📈 What is it?
Revenue shows how much a company earns in total from selling its products and services – the gross income before any costs are deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Revenue is one of the key figures to assess a company’s size, market position, and growth potential.
🧮 Calculation
🎯 What does this mean for investors?
- Growing revenue indicates rising demand and can be an early signal of future earnings growth.
- Comparing actual and expected revenue reveals trends in the market environment and analyst sentiment.
- Note: Strong revenue alone isn’t enough – margins and profitability matter just as much.
📘 EBITDA
📈 What is it?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It reflects a company’s operating profit before the effects of financing, taxes, and accounting depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
EBITDA is widely used to evaluate a company’s operating performance – especially across capital-intensive sectors or international comparisons.
🧮 Calculation
🎯 What does this mean for investors?
- A high or growing EBITDA indicates strong operational profitability – independent of taxes, interest, or accounting methods.
- It’s especially useful for comparing companies across sectors or geographies.
- Important: EBITDA is not a net income figure – it excludes key costs like depreciation and interest.
📘 EBIT
📈 What is it?
EBIT stands for “Earnings Before Interest and Taxes.” It reflects a company’s operating profit after depreciation, but before interest and tax expenses.
🧮 How is it calculated?
🏛️ Why is it important?
EBIT is a core profitability metric that shows how well the company performs in its main business operations – independent of capital structure and tax environment.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT indicates strong profitability from the company’s core business – before financial and tax effects.
- It allows better comparison between companies with different debt levels or tax structures.
- Compared to EBITDA, EBIT already accounts for depreciation and reflects capital intensity more clearly.
📘 Net Income
📈 What is it?
Net income is the company’s total profit – the amount left after all expenses, taxes, interest, and depreciation have been deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Net income is the most comprehensive measure of a company’s profitability – showing how much actual profit remains after all business and financing costs.
🧮 Calculation
🎯 What does this mean for investors?
- Growing net income indicates that the company is managing all of its costs efficiently.
- It directly influences valuation metrics like P/E ratio and the company’s dividend capacity.
- Over time, net income trends reveal how resilient and profitable the business model really is.
📘 Free Cash Flow (FCF)
📈 What is it?
Free Cash Flow shows how much actual cash remains after a company covers its operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
FCF reflects a company’s real financial strength – regardless of accounting profits. It shows how much flexibility a company has for dividends, share buybacks, or debt reduction.
🧮 Calculation
🎯 What does this mean for investors?
- High free cash flow means the company generates real, usable cash – independent of reported net income.
- It’s often the most reliable base for sustainable dividends and buybacks.
- Declining FCF can be an early warning sign – even when profits appear stable.
📘 Revenue Growth
📈 What is it?
Revenue growth shows how much a company’s sales have changed compared to the previous year – both on a trailing basis (TTM) and based on forward projections.
🧮 How is it calculated?
Forward = (Expected revenue ÷ Revenue in prior year − 1) × 100
Forward growth is based on analyst estimates for the current fiscal year.
🏛️ Why is it important?
Rising revenue signals growing demand, business expansion, and market share gains – especially important for growth-oriented companies.
🧮 Calculation
🎯 What does this mean for investors?
- Growth is the engine of long-term value creation – especially in tech and growth sectors.
- What matters is not just current growth, but its sustainability.
- Forward projections reflect whether analysts expect continued momentum – or a slowdown.
📘 EBITDA Growth
📈 What is it?
EBITDA growth shows how much a company’s operating profit (before interest, taxes, depreciation, and amortization) has increased or decreased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBITDA ÷ EBITDA from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
Growing EBITDA indicates improving operational profitability – regardless of financing or accounting effects.
🧮 Calculation
🎯 What does this mean for investors?
- Strong EBITDA growth signals operational efficiency and scalability – especially during growth phases.
- EBITDA growth can be an early indicator of margin and earnings expansion – but should be assessed alongside revenue and EBIT.
📘 EBIT Growth
📈 What is it?
EBIT growth shows how much a company’s operating profit (after depreciation, but before interest and taxes) has increased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBIT ÷ EBIT from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
EBIT growth is a direct indicator of a company’s business performance – taking into account capital intensity through depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- Rising EBIT signals improving operating profitability – even after accounting for depreciation.
- It’s especially important for evaluating companies with significant capital expenditures.
- Combined with revenue and EBITDA growth, EBIT growth provides a well-rounded view of operational progress.
📘 Net Income Growth
📈 What is it?
Net income growth shows how much a company’s bottom-line profit has increased or decreased compared to the previous year – both on a trailing basis (TTM) and based on analyst projections.
🧮 How is it calculated?
Forward = (Expected net income ÷ Net income from prior year − 1) × 100
The forward estimate reflects analysts’ expectations for the current fiscal year.
🏛️ Why is it important?
Net income is the ultimate measure of profitability. Growing net income signals stronger efficiency, cost control, and sustainable earnings power.
🧮 Calculation
🎯 What does this mean for investors?
- Stronger net income boosts valuation, dividend potential, and investor confidence.
- If profits stall while revenue grows, it may signal margin pressure.
📘 Free Cash Flow Growth
📈 What is it?
Free cash flow (FCF) growth shows how a company’s available cash – after covering operating expenses and capital expenditures – has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
Free cash flow reflects real financial strength. Growing FCF indicates more flexibility for dividends, share buybacks, and reinvestment.
🧮 Calculation
🎯 What does this mean for investors?
- Declining FCF may point to rising investments, increasing costs, or weaker operating performance.
- Especially for dividend investors, FCF growth is critical – since dividends are paid from actual available cash.
- A negative trend isn't always bad, but it deserves closer attention.
📘 Gross Margin
📈 What is it?
Gross margin shows how much of a company’s revenue remains after deducting the direct costs of goods sold (like materials and production). It represents the company’s “raw profit” before fixed costs, taxes, and interest.
🧮 How is it calculated?
Or simply: Gross Margin = Gross Profit ÷ Revenue × 100
🏛️ Why is it important?
Gross margin indicates how efficiently a company can produce or procure what it sells. It is a key measure of product-level profitability and pricing power.
🧮 Calculation
🎯 What does this mean for investors?
- A high gross margin suggests strong pricing power and efficient production.
- Falling margins may signal rising input costs or competitive pressure.
- Compared to peers, gross margin offers insights into the quality of a business model.
📘 EBITDA Margin
📈 What is it?
The EBITDA margin shows how much of a company’s revenue remains as operating profit before interest, taxes, depreciation, and amortization.It reflects operating efficiency without being distorted by financing or accounting factors.
🧮 How is it calculated?
🏛️ Why is it important?
The EBITDA margin reveals how much operating income a company generates per dollar of revenue – independent of capital structure and tax effects.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBITDA margin reflects strong core profitability – before accounting distortions.
- It allows for effective comparisons across companies and sectors.
- A stable or growing margin signals efficient cost control and business scalability.
📘 EBIT Margin
📈 What is it?
The EBIT margin shows what percentage of revenue remains as operating profit after depreciation but before interest and taxes.
🧮 How is it calculated?
🏛️ Why is it important?
The EBIT margin reflects a company’s core profitability while accounting for capital intensity (e.g. machinery, infrastructure). It’s especially useful for comparing businesses with different levels of depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT margin shows that the company remains efficient even after factoring in depreciation.
- It’s especially relevant for capital-intensive industries.
- Stable or rising EBIT margins over time are a strong indicator of pricing power and business quality.
📘 Net margin
📈 What is it?
Net margin shows how much of a company’s revenue remains as bottom-line profit after deducting all costs, interest, taxes, and depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
Net margin reflects a company’s overall efficiency – across operations, financing, and taxation. It shows how much actual profit is generated from each dollar of revenue.
🧮 Calculation
🎯 What does this mean for investors?
- A high net margin means the company is not only strong operationally but also manages financing and taxes efficiently.
- Peer comparisons reveal business quality and competitiveness.
- Declining margins despite revenue growth can be a red flag for rising costs or inefficiencies.
📘 Free cash flow margin
📈 What is it?
The free cash flow (FCF) margin shows how much of a company’s revenue remains as actual free cash after covering all operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
This margin reflects the true liquidity generated by the business – independent of accounting rules or depreciation. It’s especially relevant for dividends, buybacks, and reinvestment decisions.
🧮 Calculation
🎯 What does this mean for investors?
- A high FCF margin means a company consistently generates strong cash flow.
- It’s a positive signal for financial stability and shareholder returns.
- The long-term trend is key – a declining margin may indicate rising investments or weakening operating efficiency.
📘 Equity Ratio
📈 What is it?
The equity ratio indicates what portion of a company’s total assets is financed by shareholders’ equity – in other words, how much it relies on its own capital.
🧮 How is it calculated?
🏛️ Why is it important?
A high equity ratio reflects financial strength and stability, especially during downturns. It’s a key indicator of a company’s solvency and long-term risk profile.
🧮 Calculation
🎯 What does this mean for investors?
- Companies with high equity ratios are generally more resilient and less dependent on external debt.
- Low equity ratios can signal higher risk or aggressive financial strategies.
- Important: Always assess the equity ratio in combination with the return on equity (ROE). This shows not just how stable the company is – but also how efficiently it uses shareholder capital.
📘 Return on Equity (ROE)
📈 What is it?
Return on equity (ROE) shows how efficiently a company uses its shareholders’ equity to generate profit. In other words: how much net income is earned per dollar of equity.
🧮 How is it calculated?
🏛️ Why is it important?
ROE is a core profitability metric. It helps investors understand whether a company delivers attractive returns on the capital provided by its shareholders.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROE indicates that the company is using its capital efficiently and profitably.
- It’s especially meaningful for capital-intensive businesses or firms with high equity bases.
- Important: A very high ROE can also result from high debt levels – always interpret it alongside the equity ratio to assess financial health.
📘 Return on Capital Employed (ROCE)
📈 What is it?
ROCE measures how efficiently a company generates profits from its total capital – including both equity and interest-bearing debt.
🧮 How is it calculated?
It evaluates the return on all capital employed, regardless of how it’s financed.
🏛️ Why is it important?
ROCE is ideal for comparing companies with different financing structures. It shows how well management uses capital to create value for both shareholders and creditors.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROCE means the company uses its capital efficiently – regardless of whether it's funded by debt or equity.
- The higher the ROCE compared to peers, the more value the company creates with its invested capital.
- Especially relevant for capital-intensive sectors like industrials, energy, or infrastructure.
📘 Return on Invested Capital (ROIC)
📈 What is it?
ROIC measures how efficiently a company generates returns from the capital invested in its core operations – regardless of whether the capital comes from equity or debt.
🧮 How is it calculated?
- NOPAT = Net Operating Profit After Taxes
- Invested Capital = Operating assets minus non-interest-bearing liabilities
🏛️ Why is it important?
ROIC is one of the most accurate indicators of capital efficiency. Unlike return on equity, it is not distorted by leverage and shows how much value is created for all capital providers.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROIC shows how effectively a company uses the capital that is truly invested in its core operations.
- Unlike ROCE, ROIC focuses only on the capital that is actively used to run the business – and that requires a return (i.e. interest-bearing).
- Especially useful when comparing companies with large amounts of excess cash or non-interest-bearing liabilities – giving a more realistic picture of capital efficiency.
📘 Leverage Ratio (Debt-to-Equity)
📈 What is it?
The leverage ratio indicates how much a company relies on interest-bearing debt (such as loans and bonds) relative to its shareholders’ equity.
🧮 How is it calculated?
🏛️ Why is it important?
This ratio helps assess a company’s financial structure and risk profile. High leverage can enhance returns – but also increases exposure to interest rate changes and financial stress.
🧮 Calculation
🎯 What does this mean for investors?
- A low leverage ratio signals financial strength and independence.
- A higher ratio can improve returns in good times but increases risk during downturns or rising interest rate periods.
- 👉 Always interpret in the context of industry, capital intensity, and interest rate environment.
📘 Earnings per share (EPS)
📈 What is it?
Earnings per Share (EPS) shows how much profit is attributable to a single share – and is one of the most important metrics for evaluating a company's performance.
🧮 How is it calculated?
The diluted share count reflects potential new shares that could be issued through options, convertible bonds, or other rights.
🏛️ Why is it important?
EPS is the basis for many key valuation metrics like P/E ratio, PEG ratio, or payout ratio. It enables comparisons of profitability across companies, regardless of their size.
🧮 Calculation
🎯 What does this mean for investors?
- EPS captures per-share profitability and is especially useful for comparisons over time or with analyst estimates.
- Rising EPS may signal consistent growth or share buybacks.
- Important: Always use diluted EPS for more realistic valuations – especially in companies with stock-based compensation.
📘 Free cash flow per share (FCF per share)
📈 What is it?
Free Cash Flow per Share shows how much free cash flow a company generates per outstanding share – after investments, but before dividends or debt repayments.
🧮 How is it calculated?
Free cash flow is calculated as operating cash flow minus capital expenditures (CapEx).
🏛️ Why is it important?
FCF per Share reveals how much real cash is available per share – useful for dividends, buybacks, or reducing debt. Unlike net income, free cash flow is harder to manipulate and often seen as a more reliable metric.
🧮 Calculation
🎯 What does this mean for investors?
- High FCF per share signals strong financial flexibility.
- It shows how much capital the company can effectively reinvest or return to shareholders.
- Particularly relevant for dividend payers and capital-efficient businesses.
📘 Short interest
📈 What is it?
Short interest indicates how many shares of a company are currently sold short – that is, borrowed and sold by investors who expect the price to decline.
🧮 How is it calculated?
It reflects the percentage of a company’s shares that are being shorted relative to the total shares available.
🏛️ Why is it important?
Short interest serves as a sentiment indicator: A high value may signal skepticism or bearish expectations – but also increases the potential for a short squeeze if prices rise unexpectedly.
🧮 Calculation
🎯 What does this mean for investors?
- Low short interest usually indicates market confidence in the company.
- High short interest can be a warning sign – or an opportunity if sentiment shifts.
- Especially relevant in volatile markets or ahead of key earnings releases.
📘 Employees
📈 What is it?
The employee count shows how many people a company employs worldwide – offering insights into its size, structure, and business model.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess operational scale, labor intensity, and cost structure. Combined with revenue and profit, it enables key metrics like revenue per employee or productivity.
🧮 Calculation
🎯 What does this mean for investors?
- A high headcount can signal operational complexity – but also significant growth capacity.
- Revenue per employee is a key indicator of efficiency.
- Especially useful for comparing tech, industrial, or service-heavy companies.
📘 Turnover per employee
📈 What is it?
Revenue per employee indicates how much revenue a company generates on average per employee – a key measure of efficiency and productivity.
🧮 How is it calculated?
The employee count is typically taken from the most recent annual report.
🏛️ Why is it important?
This metric helps compare business models – especially between labor-intensive and technology-driven companies. A high value suggests automation, operational efficiency, or strong value creation per head.
🧮 Calculation
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Q3 2026 Earnings Call
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Woodward, Inc. — Q3 2026 Earnings Call
1. Management Discussion
Thank you for standing by. Welcome to the Woodward, Inc. Third Quarter Fiscal Year 2026 Earnings Call. At this time, I would like to inform you that this call is being recorded for rebroadcast. [Operator Instructions]
Joining us today from the company are Chip Blankenship, Chairman and Chief Executive Officer; Bill Lacey, Chief Financial Officer; and Dan Provaznik, Director of Investor Relations. I would now like to turn the call over to Dan Provaznik.
Thank you, operator. We would like to welcome all of you to Woodward's Third Quarter Fiscal Year 2026 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. At the end of the presentation, we will take questions.
For those who have not seen today's earnings release and presentation materials, you can find them on our website at woodward.com. A webcast of this call will be available on our website for 1 year. All references to years in this call are references to the company's fiscal year unless otherwise stated, and all comparisons are to the prior year unless otherwise stated.
I would like to highlight our cautionary statement as shown on Slide 2 of the presentation materials. As always, elements of this presentation are forward looking, including our guidance and are 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 with the SEC. These statements are made as of today, and we do not intend to update them except as required by law.
In addition, we are providing certain non-U.S. GAAP financial measures. We direct your attention to the reconciliations of non-U.S. GAAP financial measures, which are included in today's slide presentation and our earnings release. We believe this additional financial information will help in understanding our results.
Now I'll turn the call over to Chip.
Thank you, Dan, and good evening to everyone joining us for our third quarter 2026 earnings Call. I'm pleased to report that Woodward delivered another outstanding quarter, marked by strong financial and operational performance. This continued momentum is the result of focused and disciplined execution by our global team as we deliver on strong customer demand for our products and services across our aerospace and industrial markets. .
In the quarter, Woodward sales grew 21% year-over-year, and adjusted EPS increased 43%. We delivered significant margin expansion primarily driven by pricing actions, we are also seeing productivity gains from our lean transformation start to flow through our factories and improve margins.
Industrial sales were up 26% in the quarter and the team did an excellent job leveraging fixed costs as volume increased across all primary markets. Aerospace sales were up 19%, with commercial OEM keeping pace with airframer build rates, sustained commercial services growth and strength in defense services. As we move through the final quarter of the year, we are well positioned to deliver on anticipated growth across our markets.
The growth trajectory in Aerospace was reinforced last week at the Farnborough Air Show. In the many years I've attended to show, I can't remember another time when the industry remains so common collected during a period of such significant growth for current generation products and services. Several big aircraft orders were announced at the show, commercial OEM and services outlooks are strong and there is a sense that defense demand could also accelerate. All of this was taken in stride as airframers and engine OEMs look to component and service providers like Woodward to maintain focus and deliver on the demand created by the growing backlog.
In this high-growth environment, it is helpful that supply chain visibility and predictability continue to improve. Disruptions haven't totally gone away, but we are working together with our suppliers and customers to manage through them.
During Air Show Week, we announced a partnership with HECO and establishing the third elite licensed service facility for Woodward LRUs on the CFM LEAP engine. This is an important step for our airline customers throughout Greater China and the Asia Pacific region. Our services capacity strategy is well defined for the next several years, and we're now focused on executing that strategy to stay ahead of growing customer demand.
On the topic of capacity, we celebrated the recent completion of the expansion of our Industrial segment high-speed fuel injection value stream in Glatten, Germany. The expanded production capacity is already supporting growing demand particularly from Rolls-Royce's MTU Solutions division serving power generation applications. I enjoyed being in Glatten with customers, community partners and our amazing team members who completed this complex project on schedule, on budget and without disrupting customer deliveries. It's a great example of how we're expanding capacity while maintaining the operational discipline our customers expect.
We've also announced additional footprint optimization decisions to support future growth and improve efficiency. This includes the decision to close our recently acquired electronic products facility in Canada and transfer production and engineering to existing Woodward facilities in Poland and Bulgaria. We're working through the transition and being thoughtful and respectful with our members. This move will generate meaningful cost synergies and while improving the returns on our THSA and related electromechanical product portfolio acquisition.
We also decided to move 1 of our Niles JDAM production lines to our new Spartanburg facility to strengthen supply continuity for customers, provide flexibility and support future growth. Earlier, I mentioned that we're starting to see productivity gains flow through our factories. One area of significant progress is our automation journey. Those of you who visited our Rock Cut facility saw the deburring cobots in action. This technology has become a platform for us and we are deploying it across Woodward plants.
In another automation success story, we are working with the supplier to integrate machining, inspection, loading and unloading into a lights-out cell for key fuel nozzle parts. This will deliver capacity for our GTF high-volume line as well as efficiency and risk reduction.
Our automation investment objectives are fourfold: expand capacity, increase productivity and enable growth as well as reduce our direct labor hiring demand. We are targeting a reduction of approximately 1,000 incremental hires by 2029. We in many cases, by automating repetitive less desirable work. This represents about 50% of our projected hiring needs in that time frame, equally weighted by attrition and growth.
As with our lean transformation, this is not about replacing people. We will continue hiring to support growth and manage attrition. We'll just need fewer new hires who will gain long-term workforce efficiencies.
Tying all this together from disciplined execution to investments in capacity and automated processes, we are on an exciting path for long-term growth and margin expansion. Based on a strong third quarter and confidence that we will continue to execute well in the fourth quarter, we are raising our earnings guidance for 2026. Now over to you, Bill.
Thank you, and good evening, everyone. As Chip mentioned, Q3 was an outstanding quarter. We achieved record performance in a number of areas. Net sales were $1.1 billion, an increase of 21%, reflecting strong demand and increased output in both Aerospace and Industrial. We achieved earnings per share of $2.40 compared to $1.76. Adjusted earnings per share were slightly better at $2.52 also compared to $1.76.
Free cash flow was $87 million bringing our year-to-date total to $196 million for an increase of 23%. At the segment level, Aerospace sales for the third quarter were $709 million, an increase of 19%. The strong growth was primarily driven by commercial aerospace.
Commercial OEM sales increased 34%, with our output generally aligned with steadily increasing airframer build rates. Commercial services increased 24%, reflecting continued strength across the business. This included high utilization of legacy aircraft, growing LEAP and GTF activity, and solid service demand across widebody and regional platform. Defense OEM sales declined 6% due to a onetime revenue recognition adjustment. Excluding the adjustment, defense OEM sales would have grown in the mid-single digits.
Defense services grew 20%, driven by a large delivery of T700 spares and general improvements in castings supply. Aerospace segment earnings were $170 million or 24% of segment sales compared to $126 million or 21.1% of segment sales. The meaningful margin expansion was driven by strong price realization and increased leverage from higher sales volume, partially offset by inflation and unfavorable mix. Price realization included a onetime retroactive pricing adjustment related to a contract that had been under negotiations for several quarters. This adjustment contributed approximately 100 basis points to Aerospace margins in the third quarter.
Turning to Industrial. Segment sales for the third quarter were $401 million, an increase of 26%. Core industrial sales, which exclude the impact of China On-Highway increased 19%, driven by higher volume in all primary markets as well as price realization. Marine Transportation sales were strong increasing approximately 24% with higher shipyard output, driving OEM demand. In addition, services also contributed to the growth.
Oil and gas sales grew 11%, driven primarily by higher LNG infrastructure related volume. In addition, upstream capital expenditures are showing signs of recovery, particularly in the Middle East. Power generation sales increased 19% driven by higher data center demand for both base and backup power.
Third quarter China On-Highway sales were better-than-expected at $40 million. We do not expect significant China On-Highway?sales in the fourth quarter as we complete the wind down of this business.
Industrial segment earnings were $88 million or 22.1% of segment sales compared to $48 million or 14.9% of segment sales. The strong margin expansion was driven by increased leverage from higher sales volume and price realization, partially offset by inflation. Core industrial margins were 21.2% compared to 15.6%. The China On-Highway business added approximately 90 basis points to segment margin in the quarter.
At the consolidated Woodward level, for the first 9 months of 2026, net cash provided by operating activities was $352 million compared to $238 million, largely driven by higher earnings. For the first 9 months, free cash flow was $196 million, an increase of 23% over the prior year while increasing capital expenditures. Our capital expenditures totaled $156 million, and we expect a meaningful increase in capital spending in the fourth quarter.
As we discussed last quarter, we are carrying higher inventory levels to support demand. In addition, our accounts receivable balance at the end of the third quarter was higher than expected due to collections timing.
As of June 30, 2026. Debt leverage was 1.6x EBITDA. Our strong balance sheet provides flexibility to act decisively as compelling opportunities emerge. Our capital allocation priorities remain unchanged. We continue to support organic growth, selectively pursue strategic M&A and return capital to shareholders.
In the first 9 months of 2026, we returned $608 million to shareholders, $553 million through share repurchases and $55 million in dividends. We now expect to return approximately $700 million to shareholders through dividends and share repurchases in the fiscal year.
Turning to our 2026 guidance. Based on our strong third quarter performance and confidence in the fourth quarter, we are raising our 2026 earnings guidance. For 2026, we now expect the following: Aerospace sales growth between 21% and 23% with margins of approximately 23.5%, the top end of our previous range.
Industrial sales growth increasing to between 19% and 21%, with margins increasing to approximately 19%, an adjusted effective tax rate of approximately 22.5%. Based on these updates, we are raising our adjusted EPS guidance to between $9.30 and $9.50. All other elements of our fiscal year 2026 guidance remains unchanged. This concludes our prepared remarks on the business and results for the third quarter of fiscal year 2026.
Operator, we are now ready to open the call to questions.
[Operator Instructions]Our first question comes from Gavin Parsons with UBS.
2. Question Answer
On the aftermarket growth rate, obviously, very difficult comps that slowed down a little bit. Anything to call out of in terms of customer behavior or identify it for the slowdown? And then if you could speak to how spare LRUs are trending relative to the elevated past few quarters, that would be great.
Sure. The inputs that we've received from airline customers and other MRO shops have been fairly steady to increasing, I'd say, across the LEAP GTF product portfolio and very -- and quite steady on the legacy and widebody and regional. So no real slowdown that we see on inputs, which is good based on the macro environment that we're involved in, inputs are strong. So we like that.
As far as spare LRUs go, from a macro standpoint, I'll say a few things, and I'll turn it over to Bill. From a macro standpoint, as part of our strategic planning, we were updating kind of how the entire fleet ratios are looking for the spare LRUs compared to a number of engines in the field and we're very satisfied that we're tracking well to the predictions and the model that we had at the start of the program. So we don't think there's an overdue backlog or pull forward or anything going on like that.
We feel like we're tracking to the model largely over an extended period of time. Now that can vary quarter-to-quarter based on when airlines place POs or when they decide to take action on crossing certain delivery concentration marks. I don't know, Bill, do you have anything else on that?
I'll just add, Chip, that in Q3, LRUs performed very well. They were strong. And I would expect that going into the fourth quarter that they'll remain level elevated but probably will come down slightly from what we experienced in Q3.
More like the first half.
More like the first half.
Your next question comes from Scott Mikus with Melius Research.
Sorry if I missed this. I'm juggling 4 earnings reports this evening. But we've seen the engine OEMs comment that commercial aftermarket sales and orders continue to be strong in the legacy engine programs like the CFM56 and V2500. It seems like you're seeing the same. But flight activity is essentially flat year-to-date, are you concerned that airlines or MRO shops are piling up excess inventory on the legacy platforms? And is there a risk that creates destocking maybe in '27?
So the way we look at this, and we measure it is really on just sort of monthly inputs to our shop that we receive on the LRUs. So V2500 fuel control, CFM-56 in [ HMU ] GENX, G90, all of these LRUs inputs as we measure them per month. We don't -- we see sort of a normal variation and noise, not anything that would say there's a trend. It is slightly up over time for the widebody. It's relatively stable for regional, and it's relatively stable for legacy narrowbody. Does that get your question?
Yes, that does. That helps. Another quick question now. Rolls-Royce actually put out a presentation for the Power Systems segment, where they're talking about roughly a mid-teens growth rate for the next several years. You acquired L'Orange from them back in 2018. You have other power gen customers that are seeing strong demand, is that mid-teens growth CAGR kind of the right way to think about your power gen and oil and gas revenues at the Industrial segment for the next few years?
Yes, I'm not really sure exactly what the content of that presentation was because people are now talking about sort of base grid power demand versus behind the meter demand and things associated with data centers, they're talking about them a little bit separately. And so for the data center demand, we do see that growing at quite a high rate whereas the demand for, I'd say, more generic grid-based power generation is a little bit less than that, but still reasonably strong.
We are working very closely with each of our power gen customers on how to handle this good challenge associated with this demand. Last earnings call, I pointed out that for a number of years, I've said we have the right amount of capacity to deal with the power gen demand but sequentially, numerous customers have come to us and continue to increase their forecast for 2027, '28 and beyond into the early 2030s. And in order to -- if all those cases are true, we'll have to expand capacity to be able to serve those levels of demand.
So right now, we're in the process of having very detailed discussions with our customers about how -- what the risk case is for all this demand and trying to make sure that we understand it and we'll make a prudent allocation of capital to capture this fairly unique opportunity that we find ourselves with the right products on our side, on the right customer products to capture this demand. It's 1 of those things that I think we'll be in a better position to talk about what that looks like at our Investor Day.
Your next question comes from David Straus with Wells Fargo.
You talked about -- it sounds like there was a rev rec issue on the defense side. There was a benefit on the aero margin side. What we're kind of the clean -- as you guys calculated, what were kind of the clean incremental aero margin? What was that this quarter?
Yes. The exact incrementals, I'll have to get that on Aero, backing out the pricing item, it would take their earnings rate from 24% down to 23%. So I would expect those increments would still be pretty good there. And then on the rev rec item for industrial, that did not have a margin impact. So the incrementals are as reported.
Okay. Sorry, I thought it was a rev rec in -- on the defense side. I might have I didn't hear that correctly. .
Yes, that is right.
That is right. And it is on the aero defense side.
Okay. All right. Yes. I mean it looks like you've used calculated in what you reported like 39% incrementals in aero. So I was just trying to get to kind of a clean number there. And then on free cash flow, Bill, you talked about the receivable balance. I guess you've raised -- as we've gone through the course of the year, you've raised your EPS guidance by a fair amount, the free cash flow guidance has kind of remained unchanged. I know there's a range there. But -- are you just seeing more of a working capital build in this year than you kind of would have anticipated? I mean I know there's some working capital build as you kind of outgrow your expectation, but I would have thought maybe the higher EPS as we've gone through the year that might lead to some sort of increase in the free cash flow guide.
Sure, David. First, let me -- the clean incremental is about 31%. So just to cover that off. And then going to your question, Yes. So in our original guide, we assume some -- getting some efficiencies in our terms. I know we gathered in this. I know we have the right initiatives lined up, and I know we're going to get there, but we also started seeing clearly that the airframers were going to deliver on the rate increases. And as we were sitting there and to get that turn improvement, it would cause us to have some changes in supply chain, in our commercial team and then introduce the level of risk that with the demand growth we were seeing, we just weren't willing to take.
So while we're not getting efficiencies, we're also not getting worse. So that added the investment inventory beyond what we had in our original investment -- in our original guidance. And so that's eaten up sort of the EPS growth in our -- in the guidance that you're seeing is being eaten up by that, if that makes sense.
Your next question comes from Louis Raffetto with Wolfe Research.
Bill, I know you talked about or Chip you even talked about the fixed cost absorption in Industrial, but obviously backing out the China On-Highway?that 21% margin industrial is impressive. So there's nothing onetime nature in there? Just trying to sort of balance that versus the sort of 14%, 15%, we saw last year, 17% in the first half of this year. Is there anything to note?
Yes. So it is operational, but it had to do with 1 of our growing product lines, business lines here not have as much growth this quarter and seeing some of the other business lines come through that had higher margin rates. And so the mix of sort of business unit, the mix of products play favorably for us this quarter. Now I expect that the business unit I spoke that has a little more negative mix will come back next quarter, and I would expect that we see the core industrial earnings back to what you saw in the first half.
Yes. So I'd just add that the industrial team has shown themselves to be very good at executing on volume leverage. And so as they continue to work Kaizens and respond to the customer demand, in the gas turbine side, in the reset engine side associated with power gen and the steady increase in marine and other applications that they're well positioned. But as Bill said, we had some mix tailwind this quarter, but I still like the direction that they're going and how they're performing.
18% is not [indiscernible].
Yes, it certainly shows the potential of at least a large portion of the business, which is good to see. And maybe, Bill, just 1 more. I know you mentioned you expect CapEx to step up a lot here in the fourth quarter. But I mean, are we really going to double CapEx again in the fourth quarter to hit the more than double to hit the guidance.
Yes. I've asked that question a few times myself, Lou. The team has come back they have the -- there are some big chunks, as you can imagine, that's associated with what we have to get done in Q4. It's primarily around finishing the Spartanburg facility, around purchasing production machinery for A350 spoiler. And again, those are pretty chunky. So we've got line of sight to it. 5 to 10 is in the mix there, but I think we will consume most of that and get to the $290 million that we guided towards on capital expenditures.
Your next question comes from Gautam Khanna with Cowen.
Just to follow up on that industrial question on profitability. So what is kind of possible over time in the industrial business. You guys have talked about 16% to 18% trending better than that. But I'm just curious, like with all the initiatives you guys have implemented on SKU rationalization and pricing actions and just efficiencies. Over a longer period of time, what do you think is actually a possible level for the Industrial segment to level out at?
Yes, Gautam, we'll describe that in more detail at our Investor Day. But I'll leave you with these thoughts, which is like as we stand today in a growing demand environment, where both we and our customers are able to get price, and we are able to accelerate our lean transformation on the floors of our factories and get efficient in our supply chain, we can improve further from this point.
We said mid-teens at the last Investor Day, and we've been demonstrating better than that fairly consistently. But as far as like getting better from where we are today, we're obviously investing and challenging our teams and driving to continuously improve. However, I don't know what the environment is going to be in the future, yet and there are other factors that come into play. But we like the investments we're making in automation. We like the investments we're making in our Lean transformation.
And like you referenced, the product portfolio, we've really made some efficiency moves there to optimize the portfolio and how we serve customers and are able to run our factories. So I believe we're on a continuous improvement journey. There's quite a bit more productivity in play, but there are other factors to deal with as well, and we'll be -- give you a fulsome explanation of what we see at our Investor Day.
Your next question comes from Sheila Kahyaoglu with Jefferies.
This is Kyle on for Sheila. I guess just to circle up on the Aerospace margins. I think you said 31% core incrementals, and that's despite the OE growth kind of leading the pack in commercial. So maybe if you can talk about the puts and takes there?
And then secondly, was that price already assumed in the full year guide? And if you're feeling generous, can you tell us what end market and maybe even what customer that's related to?
Okay. So I always feel generous, but I'm not that generous to give up the customer. But as it relates to the price overall were we're guiding for the full year for that to be close to 8% for the company. And in third quarter, our price was 10% and aero contributed more than 10% and then industrial less and brought it down to the 10%. So that's kind of where those items came from Kyle. And I can't remember the first part of your question.
I guess you referenced, Kyle, a core flow through, which I would encourage us not to use that number. Bill was just cleaning up the flow-through number for 1 of the earlier questions in terms of removing that onetime price reconciliation from the financials.
Yes, helpful and understood. I guess as you think about these kind of price negotiations that keep coming up better and better, it seems like quarter-after-quarter, whether there's still a sizable kind of opportunity that exists out there. I know you guys have talked in the past that you expect price to moderate towards more typical levels, but you guys keep surprising to the upside. So just curious.
Sure. I'll start and flip it to Bill real quick. But I'd say we've really made it through the -- all of our LTA agreements for the first round that we closed out sort of post 2022. So from now forward, it should moderate and I'll let Bill kind of fill in the blanks there.
Yes. Chip, I think you covered it. I think as we look at going forward that I would expect price between 3% and 5% would be a more normal rate. And it will -- price will still play a role in margin expansion, along with work in some of the other muscles as we talked about.
It's up to us to fill in the rest with productivity, which we're well deployed to achieve. .
Your next question comes from Kevin -- Ken Herbert with RBC Capital Markets.
I wanted to just -- if you could dig a little deeper on the defense OE side. Obviously, we can appreciate the onetime item in the quarter. But how do you expect that to step up sequentially into the fourth quarter as you think about the broader demand and where you're exposed on the munition side in particular.
I guess the way I described it is no real change from prior quarters in terms of defense OE. It's sort of we're seeing price roll through for some smart defense in 3Q, but I think in 4Q, that starts to moderate. So -- we're not holding out defense OE as a large growth lever in this environment right this minute. .
Again, the future, we see a lot of potential for it to -- for defense to have a longer run at these higher levels, especially in smart defense, but we don't have any indication that that's going to happen anytime soon. So I think sort of a moderate performance in OE and defense, OE is what we can expect.
Okay. And just to clarify, for the commercial aero OE growth in the quarter, [ 34 ]-- was there any -- do you get a sense of any sort of restocking or anything unusual beyond just the build rate cadence on that? And maybe what are you seeing with sort of inventory levels of your product at your customers?
It feels like that, that sort of stocking level at the customers has returned to normal to slightly below what their MRP systems would like. So we still feel a strong toll on delivery. A lot of this rating -- the growth is due to our ability to get more products through the factory. So the combination of working with our suppliers and inside our 4 walls, increasing that production is what led to that growth plus some price. So I don't see anything unusual. And we feel like we're pretty much following the airframer rates. In some cases, we're their demand for our increased rate is ahead of their rate break. So we do sometimes see an earlier break in the demand for us.
Your next question comes from Noah Poponak with Goldman Sachs.
How would you frame at this point, what's possible or likely or realistic in your aerospace aftermarket growth rate of the next 4 to 8 quarters compared to what you've been able to achieve in the last 4 to 8 quarters? .
Well, it sounds like a trick question. So we see -- we like the long-term story. And what we shared at Investor Day last time was kind of a cartoon of graphs that showed that we believe that the Woodward case could likely grow at twice the rate of the overall market based on our product positions in terms of what's the installed -- where the installed base is growing. So we still believe in that cartoon and those graphs.
We believe we see the proof points along the way with the input we're seeing from LEAP and GTF and how strong that the newer wide-body products are performing. So we believe that, that story is playing out in front of us. As far as exactly what happens in the next few quarters, we're not in a position to reveal that because -- it could be a little bit noisy up and down, but we believe we'll be in a position to update that chart for you at the Investor Day.
And just to add is obviously, again, the LRUs in those move can also make the quarters a bit lumpy.
I guess the other thing I'd add -- the other thing I'd add, Noah, is that we've embarked upon these elite licensee relationships with really top of the shelf MRO providers and we'll be working with them on provisioning in support of the agreements and things of that nature that will also provide some growth levers for the next year.
Okay. I appreciate that. Yes, it's -- I think the kind of medium to long-term algorithm is reasonably clear, but in the shorter term, just compares and there's a lot to triangulate. I wasn't trying to trick you, although I may end up tricking myself, I guess. You guys have spent a lot of time talking about narrow-body contribution to this equation, how does your wide-body exposure and its contribution to your medium- to long-term aftermarket growth compare to narrowbody in terms of the multiplier effect? .
So I think the I'm not sure look at the multiplier .
Yes, yes. The multiplier effect is the hard part to answer because the multiplier for something like the 787 is comparing to something so old. It's not really very much into our MRO system because the large amount of the 767s, let's say, are on here in the freighter class and not many shop visits. So I wouldn't get into the multiplier answer. But from a and GEnx, GE90 standpoint, and these are the major customer platforms that we're on with significant LRUs that require a good amount of service. And those are very good businesses for us, and we work very closely with GE through the [ Convergence ] joint venture to service those LRUs. And we really like that business. It's going very well and growing.
Okay. And just 1 last one, you guys have talked about 30% to 35% incrementals in both segments margin over time. Can we use that off of where you -- where you're now planning to end '26? Or maybe aero has moving pieces that wash out? And that yes, maybe industrial, that's too high given what you just did in 3Q, but -- how should I think about that.
That's a great question, Noah. And the 1 that we're we are working through right now as we develop our annual operating plan for our fiscal '27. So it's a little premature for us to guide that because that -- I mean, that is the guidance for next year really in terms of earnings growth. So -- we've been saying that for a while. Those are the incrementals we believe in long term. We've got to do the work to make sure that we're putting a robust plan out there for next year, and we'll guide accordingly.
Your next question comes from Alexandra Mandery with Truist.
Nice results. In terms of automation, is there a particular segment or end market you see benefiting the most from increasing [indiscernible].
So I think from our standpoint, automation is a pretty generic way of approaching machining, assembly, test, material flow, transport and logistics, and that really serves all end markets equally from a sort of an inside-out standpoint. It's not really market driven. It's more manufacturing-driven. So I feel like it's spread equally amongst the end market that we serve. .
For sure. And then earlier, you mentioned the supply chain. I guess what are the weak points you might be seeing? And what efforts, I guess, maybe more specifically, have you taken with customers to kind of circumvent any supply chain issues in the future.
So the ones that we're struggling with the most are the ones that like the entire industry has on the forefront of their work list. So castings and forgings as well as rare earth metals as we look forward, we haven't had a big problem yet with those, but that's 1 that we all forecast coming to be a big challenge within the next few quarters. So we and our customers and suppliers are all working together to try to allocate the right capacity to keep everybody building what they need to build a few quarters away from now on the rare earth, that's sort of an industry level of work.
As far as on the castings and forgings, we've been working very hard to transition from castings to and forgings to bill it that's hogged out on a CNC machine. It's not a very efficient use of material, but it sure is a better way to ensure continuity of the supply chain. So we've taken a lot of design for manufacturability approaches to control our own destiny on the supply chain.
That all being said, we're still carrying 5 to 10 problematic suppliers that sort of pop up as problems in either the Aero or Industrial segment. And so we just have to stay tuned to companies that run into trouble. We have for anything that has to do with machining, we have Rapid Response Center set up at 3 different sites. We've processed over 15,000 machine pieces through that network of ours in order to bail out suppliers.
So we're very active on that front. Hopefully, 1 day, it doesn't require quite as much effort. But for now, that's what we're doing.
Your next question comes from Scott Deuschle with Deutsche Bank.
Bill, why was commercial aftermarket revenue down sequentially?
Yes. So First of all, just the -- we feel good about that business and its continued strength. A part of what happened in Q3 was some good strength in Q2. We saw some shipments not getting out of Q1, and in Q2, we were able to get out when we need it for Q2 as well as clear out some of the shipments for several reasons that got hung up, and we were able to get all of those out. And so then that impacted Q3 from the sequential, but as you saw the year-over-year was pretty strong. So again, we feel good about it, and I wouldn't read too much into it.
And then just to make an attempt to follow up on Noah's question, do you think the aerospace business chip -- do you think it will be able to drive at least some level of margin expansion in 2027? Or is there a doubt as to whether it can expand margins at all in.
Our plans are to expand margins. We're measuring each of our product managers and each of our business unit VP GMs on a margin expansion target. We rolled all that up and wrestled around and played catch ball with it through our strategic planning process. Now we just got to get it orchestrated into annual operating plan that we all like. But really, the target is margin expansion. I believe we can do it. We've got it's not just like saying do better. We have investments in automation and lean transformation and productivity that need to bear fruit, and we're focused on doing that for FY '27 without giving you a number.
Okay. So even with all these potential headwinds, [ Spero ] normalization, Spartanburg hiring, ERP costs, OE mix all that you think the business operationally still has potential to expand margin.
Yes, all that plus the moves we're doing to improve the long-term performance of the business that require resource and investments to accomplish. We think even with all those things going on, we've got -- we have enough horsepower and capability to deliver margin expansion.
And Chip, can you update us on where the business is at in terms of the size of LEAP and GTF revenue base relative to CFM56 and V2500.
We're still marching towards that crossover from a repair standpoint. I think as I said last time, we've already crossed it if you include repair plus spare LRUs. So I think right on track. But the 1 thing we didn't model was the legacy business hanging on this well in terms of both price, work scope and volume. So we're excited about the rates that we're in.
Mr. Blankenship, there are no further questions at this time. I will now turn the conference back to you.
Thank you very much, operator. Before we end the call, I want to let everyone know that we finalized the date of our Investor Day. It will be held on Thursday, March 4, 2027 in New York City, and I look forward to seeing everyone there. Thanks, everyone, for joining today's call.
Ladies and gentlemen, that our conference call today. A rebroadcast will be available at the company's website, www.woodward.com for 1 year. We thank you for your participation in today's conference call.
Woodward, Inc. — Q3 2026 Earnings Call
Woodward, Inc. — Q3 2026 Earnings Call
Woodward delivered a strong Q3: 21% revenue growth, margin expansion and raised FY26 adjusted EPS guidance to $9.30–$9.50.
📊 Quarter at a Glance
- Revenue: $1.1B (+21% YoY)
- Adjusted EPS: $2.52 in Q3 (vs. $1.76 prior year; +43% YoY)
- Free Cash Flow: $87M in Q3; YTD $196M (+23% YoY)
- Aero margin: 24.0% of segment sales (vs. 21.1% prior year)
- Industrial margin: 22.1% of segment sales (vs. 14.9% prior year)
🎯 What Management Says
- Capacity: Expanded Industrial line in Glatten, Germany; moving select production to Spartanburg to strengthen supply continuity.
- Services footprint: Partnered with HECO to open a third licensed service facility for LEAP line-replaceable units in Greater China/Asia‑Pacific.
- Automation: Rollout of cobots and lights‑out machining to boost productivity and target ~1,000 fewer incremental hires by 2029 while increasing output.
🔭 Outlook & Guidance
- FY26 EPS: Raised to $9.30–$9.50 (adjusted)
- Segment targets: Aerospace sales +21–23% with ~23.5% margin; Industrial sales +19–21% with ~19% margin; adjusted tax ~22.5%
- Capital & returns: CapEx to step up toward ~$290M; expect ~ $700M returned to shareholders in FY26; net leverage ~1.6x EBITDA
- Risks: Elevated inventory and receivable balances, supply‑chain pinch points (castings/forgings, rare earths) could pressure FCF timing.
❓ Analyst Q&A
- Aftermarket/LRUs: Management sees spare LRU demand tracking their long‑term model; monthly inputs steady, no evidence of systemic destocking.
- Pricing & margins: Q3 price realization ~10% (company expects longer‑term normalization to ~3–5%); company expects continued margin expansion via productivity.
- Working capital & capex: Higher inventory and AR timing reduced near‑term FCF; Q4 CapEx and Spartanburg spend are expected to be chunky and material to execution.
⚡ Bottom Line
- Investment case: Execution is translating to robust top‑line growth, meaningful margin expansion and higher FY26 EPS guidance; investments in automation and targeted capacity should support sustainable improvement. Monitor free‑cash‑flow timing, elevated working capital and supply‑chain risks as potential near‑term constraints.
Woodward, Inc. — Q2 2026 Earnings Call
1. Management Discussion
Ladies and gentlemen, thank you for standing by. Welcome to the Woodward, Inc. Second Quarter Fiscal Year 2026 Earnings Call. At this time I would like to inform you that this call is being recorded for rebroadcast. [Operator Instructions]
Joining us today from the company are Chip Blankenship, Chairman and Chief Executive Officer; Bill Lacy, Chief Financial Officer; and Dan Provaznik, Director of Investor Relations.
I would now like to turn the call over to Daniel Provaznik.
Thank you, operator. We'd like to welcome all of you to Woodward's Second Quarter Fiscal Year 2026 Earnings Call. In today's call, Chip will ment on our strategies and related markets, Bill will then discuss our financial results as outlined in our earnings release. At the end of our 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 included some presentation materials to go along with today's call that are also accessible on our website, and a webcast of this call will be available on our website for 1 year. All references to years in this call are references to the company's fiscal year unless otherwise stated.
I would like to highlight our cautionary statement as shown on Slide 2 of the presentation materials.
As always, elements of this presentation are forward looking, including our guidance and are based on our current outlook and assumptions for the global economy and our businesses more specifically. These 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 with the SEC. These statements are made as of today, and we do not intend to update them except as required by law. In addition, we are providing certain non-U.S. GAAP financial measures. We direct your attention to the reconciliations of non-U.S. GAAP financial measures, which are included in today's slide presentation and our earnings release. We believe this additional financial information will help in understanding our results.
Now I'll turn the call over to Chip.
Thank you, Dan, and good afternoon to all who are joining our second quarter 2026 earnings call. I'm pleased to report that Woodward delivered an exceptionally strong second quarter. Our team continues to execute with focus and discipline to meet ongoing robust demand across both our Aerospace and Industrial segments. Before we get into the results, I want to take a moment to acknowledge the complex global environment we're operating in.
I'd like to thank our Woodward security professionals, our leaders and members in the region for their vigilance in keeping our team members operating in the Middle East safe.
I also greatly appreciate our customers in the region for their collaboration on safety and coordination as we adjust projects that are underway there.
While the safety of our team is our first priority, we're also closely monitoring broader geopolitical developments and how those might impact defense spending or airline traffic. If those impacts do occur, we expect them to be felt in fiscal 2027.
Let me turn to a few financial highlights for the quarter. The second quarter marked a significant milestone for Woodward as we surpassed $1 billion in quarterly sales for the first time in our history.
Sales increased 23% year-over-year reaching all-time highs in both aerospace and industrial. We also delivered margin expansion, including record quarterly adjusted earnings per share, up 34% from the prior year. These results reflect the strength of our end markets, the benefits of our strategic focus and the steady progress we're making in our operations.
Our members' tremendous efforts and dedication to continuous improvement not only enabled us to deliver another quarter of outperformance but also positioned us well for the second half of the year.
While we are monitoring uncertainties in the geopolitical environment, we're raising our full year sales and earnings guidance based on our second quarter results and confidence in the remainder of 2026.
Turning to our markets. Here's a breakdown of what's driving the robust demand in aerospace and industrial and what it means to Woodward. In Aerospace, commercial aircraft build rate increases are coupled with overlapping maintenance cycles of legacy and current generation fleets. In Industrial, we see power generation demand expressed in both power gen and oil and gas end markets. These market drivers create durable growth opportunities for Woodward.
Our challenge in this environment is to continue to expand our capacity and that of our supply chain in ways that are well managed and resilient. We are doing the right work to achieve these outcomes.
At times, however, we've seen demand outstrip our activities like dual sourcing projects or our additional test and procurement, installation and calibration, which are 2 real examples of what constrained output for us last quarter.
In Aerospace, we saw expected growth in both commercial and defense OEM along with continued strength in commercial services. Legacy services activity remains solid, and we're seeing steady increases in volume for our control systems on LEAP and GTF engines. Shop inputs remained steady and we haven't seen any decreases as a result of airlines recently announced capacity and utilization reductions.
In Industrial, Momentum continued across all our major markets, including oil and gas, transportation and power generation. Our ability to deliver on this robust demand reflects strong execution across the company. Moreover, our team is managing order growth while simultaneously undertaking numerous critical projects to optimize our portfolio, strengthen our competitiveness and position Woodward for long-term growth.
We remain focused on our value drivers: growth, operational excellence and innovation. Our profitable growth pillar contains both organic and inorganic lines of effort along with selective divestitures and investments in capability, efficiency and capacity. These projects are changing the game in how we operate. They're also allowing us to focus on areas with the greatest potential to strengthen value creation.
Our recent announcements reflect purposeful portfolio management decisions that our team has been working to activate over the last 1 to 2 years. In March, we closed the acquisition of Valve Research and Manufacturing, adding the premier designer and manufacturer of solenoids to the Woodward portfolio of control systems. These are critical enabling technologies for current and future aircraft with next-generation single-aisle platforms clearly in our sites.
We also see opportunities related to industrial gas turbine control systems. Integration is progressing well as we welcome our new team members in Southeastern Florida.
We also announced the sale of our Niles-based pilot controls product line to Ontic, a mutually beneficial transaction that will enable us to refocus resources.
In addition, we communicated the relocation of servo valve production lines from our facility in Santa Clarita to Rockford. Rockford is our world-class servo technology design and manufacturing center where we intend to achieve the necessary quality and delivery improvements required for our customers and shareholders.
In Industrial, our actions to wind down the China On-Highway product line remain on track and last-time buy volumes are reflected in our second quarter results.
All of these actions streamline and strengthen our portfolio and sharpen our focus on our most attractive near- and long-term growth opportunities. These decisions allow us to serve customers better on our current book of business. And by trimming product lines that don't have a path for us to be best-in-class and by moving work to where we can be more effective and efficient, we can focus on partnering with our customers to tackle their biggest challenges with their next generation of products.
Our 2 biggest construction projects, Spartanburg and Glatten are both on track. Our new facility in Spartanburg, which will be the location for Airbus A350 spoiler actuation systems is on schedule. Walls are erected and floors are being poor as we speak. We are on target to be operational in 2027 and begin deliveries the following year.
Our Glatten expansion to deliver more diesel fuel injectors for data center backup power is almost complete. We have moved over 100 machines within the new hall and legacy areas to perfect flow. Our teams have demonstrated the major achievement of small batch flow and customers will see substantial capacity increases with reduced lead times. This will translate into cost productivity and better inventory turns.
While I've been vocal with many analysts and investors that Woodward has the facilities and capacity to support the ongoing power generation demand and data center accelerator to that demand growth, multiple customers have recently shared potential increases to their forecasts. We are working with our customers to evaluate the opportunities and capacity options.
Shifting to growth in ARO MRO, the volume on LEAP and GTF is growing quickly. We continue to increase capacity at our Rockford and Prestwick sites with Kaizen activities focused on flow and turn time. We have added test and capacity at Rockford, and we are progressing with the expansion plans for Prestwick.
As we've indicated in prior earnings calls, we have a strategy to perform repair and overhaul service in-house as well as through license providers that will deliver to OEM standards. This approach allows us to optimize our capital and internal resources and support our airline customers in the way they prefer to contract for maintenance and repair. It is a well-respected open maintenance model that we have refined to suit Woodward's strategy on LEAP controls components.
Last week, we announced new partnerships at MRO Americas, including new licensed repair service facility agreements with Lufthansa technique and Air France KLM as well as a new distribution agreement with AAR. We are thrilled to be partnering with industry leaders in MRO and material support. These partnerships expand our global service network, increase capacity and give airlines flexibility in how they contract for service.
Moving to our operational excellence pillar. Investments in automation continue as we execute projects as simple as increasing the closed door machining time as a total percent of the job and as complex as full assembly and test automation with vision systems and integrated inspection.
We're also introducing repeat automation projects to additional sites leveraging the automation lab in our Rock Cut facility. This lab was recently recognized by the Manufacturing Leadership Council as leading the way in manufacturing excellence.
I see firsthand the results of continuous improvement nearly every day. I was recently visiting the industrial SOGAV value stream in our Fort Collins site and was impressed with an automated cell that allows 1 operator to manage 3 machines and turn a production bottleneck and staffing challenge into a high-speed machining cell that can outrun our current demand forecast. We need both capacity and productivity to achieve our goals in the long term. To us, it's equally exciting to create value for customers and for shareholders.
As indicated by the list of projects I described above, our team is managing a high level of activity across the company, while at the same time, improving delivery to our customers and our financial results.
We continue to invest in our people and our talent pipeline to make sure we have the engineering, manufacturing, business support and leadership needed to enable our growth trajectory.
For example, we recently launched a rotational program to develop the next generation of Woodward leaders with the first cohort starting in June, yet another step to build a high-performing organization designed for the future.
Turning to innovation. Innovation has always been and will continue to be a major competitive differentiator for Woodward. As I said last quarter, we're turning from pure technology development to more technology demonstration activities with our aerospace customers. We have entered into collaborative agreements with many of our current customers to work together on trade studies and demonstration programs. This is an exciting time to be an innovator with a track record of industrialization. We will speak more about this trend at Investor Day late this calendar year, but you will see aerospace R&D expenses beginning to tick up this year and more so in the years that follow as future aircraft time lines firm up.
In Industrial, 1 focus is on a new actuation platform to provide precise fuel and error control on reciprocating engines that will deliver more customer value and is designed for a more efficient automated production system. It is more compact in size and produces a broader torque range than prior models, which allows us to simplify the product portfolio and use this platform in many applications. The product will enter service in 2027.
Our priorities remain clear as we head into the second half of the year, meet OEM demand growth deliver world-class service across our installed base, including legacy aerospace, LEAP GTF and industrial gas turbine systems and demonstrate customer value on key technologies to position Woodward for increased content on next-generation single-aisle aircraft. We are entering the second half of the year from a position of strength, and we'll continue to invest with discipline and focus to deliver long-term shareholder value.
With that, I'll turn it over to Bill to take you through the financials in more detail. Over to you, Bill.
Thank you, Chip, and good evening, everyone. As Chip mentioned, Q2 was a strong quarter. Quarterly net sales exceeded $1 billion for the first time in Woodward's history coming in at $1.1 billion in the second quarter of 2026, an increase of 23%. The significant growth reflects strong demand and increased output in both aerospace and industrial. We achieved earnings per share in the second quarter of 2026 of compared to $1.78. Adjusted earnings per share were $2.27 compared to $1.69. We generated $38 million of free cash flow in the second quarter.
At the segment level, Aerospace segment sales for the second quarter of 2026, were $703 million, an increase of 25%. The strong growth was primarily driven by commercial aerospace. Commercial Services increased 36% and reflecting higher repair volume to support the continued high utilization of legacy aircraft as well as increased LEAP and GTF activity.
In addition, spare LRU sales growth was strong in the quarter, with volume consistent with the previous 2 quarters.
Commercial OEM sales were up 30% and we believe destocking is largely behind us as their output is now more aligned with current airframers build rate.
Defense OEM sales grew 9% and primarily due to increased JDAM pricing that took effect in the fourth quarter of 2025, and defense services grew 8%.
Second quarter Aerospace segment earnings were $158 million or 22.5% of segment sales compared to $125 million or 22.2% of segment sales.
While the strength in commercial services, higher commercial OEM volumes and solid price realization drove meaningful margin expansion, this was largely offset by planned strategic investments to support future growth and inflationary pressures. This reduced the aerospace flow-through in the quarter resulting in a net margin increase of 30 basis points. These strategic investments include enhancements to our manufacturing capabilities to deliver the content on current platforms, incremental R&D tied to early-stage efforts to compete for the next single aisle aircraft platform and an enterprise-wide ERP upgrade.
While these initiatives are impacting margins, they are critical to positioning the company for sustained long-term growth, and we expect these investments to continue.
The flow-through in the full year 2026 Aerospace guide is expected to be at our targeted rate of approximately 30% to 35%.
Turning to Industrial. Industrial segment sales for the second quarter were $387 million, an increase of 20%. Core industrial sales, which exclude the impact of China on highway, increased 19% in the quarter, driven by higher volume, price and favorable foreign currency impacts.
Marine Transportation sales were strong, increasing 34% and reflecting higher shipyard output and services activity.
Oil and gas sales grew 18%, driven by higher volume, primarily related to greater midstream and downstream gas investment.
Power generation sales increased 7%. Excluding the impact of the prior year combustion business divestiture power generation sales grew in the high teens on a percentage basis. This was driven by increasing data center demand for both base and backup power generation.
Outside of our core industrial business, China on-highway sales were $29 million in the quarter. We expect approximately $30 million of sales in the third quarter and minimal sales in the fourth quarter.
Industrial segment earnings for the second quarter of 2026 were $66 million or 17% of segment sales compared to $46 million or 14.3% of segment sales.
Within our core industrial business, margins were approximately flat at 14.7% of core industrial sales, as strong price realization and higher sales volume were partially offset by inflation.
In addition, margins were negatively impacted in the quarter due to a reserve for a product performance claim.
Excluding the reserve, core industrial margins would have been in line with Q1. The China on-highway business added an additional 230 basis points of margin growth in the quarter.
Nonsegment expenses were $45 million for the second quarter of 2026 compared to $27 million.
Adjusted nonsegment expenses in the second quarter of 2026 were $38 million compared to $34 million.
At the consolidated Woodward level, net cash provided by operating activities for the first half of 2026 was $205 million compared to $112 million largely driven by higher earnings.
Capital expenditures totaled $97 million for the first half of 2026. We continue to expect a meaningful increase in capital expenditures over the next 2 quarters consistent with our guidance for the full year.
As Chip mentioned, construction of the Spartanburg facility to support future A350 production is progressing as planned. We remain on track to finish the building over the next few quarters and are beginning to purchase production equipment with the site expected to become operational in 2027.
In addition, we continue to make strategic investments to support growth related to current platforms, including automation, preparing for increased LEAP and GTF service activity our ERP upgrade and product line moves.
We generated $109 million of free cash flow in the first half of 2026 compared to $60 million, driven primarily by higher earnings, partially offset by higher capital expenditures.
As of March 31, 2026, debt leverage was 1.4x EBITDA. We continue to allocate capital according to our priorities, supporting organic growth, selectively pursuing strategic M&A opportunities and returning capital to shareholders through dividends and share repurchases.
Regarding strategic M&A, we recently completed the acquisition of Valve Research & Manufacturing. Consistent with our strategy of pursuing targeted, high return opportunities that enhance our capabilities and improve our position to compete for the next single aisle aircraft.
In addition, in line with our portfolio optimization efforts, we recently announced the divestiture of our pilot controls product line, which we expect to close by the end of the year. We are building a stronger, more focused Woodward as we invest in high-growth opportunities and expand in the right areas to position Woodward to create additional value for shareholders.
In the first half of 2026, we returned over $355 million to stockholders through share repurchases and $36 million in dividends. Our strong balance sheet provides flexibility to move decisively as compelling opportunities emerge.
Lastly, our fiscal 2026 guidance still assumes the return of between $650 million and $700 million through dividends and share repurchases.
Turning to our 2026 guidance. Based on our strong second quarter performance and confidence in the second half outlook, we are raising our 2026 sales and earnings guidance. For 2026, we now expect the following: Aerospace sales growth between 21% and 24% and with margins increasing to be between 23% and 23.5%. Industrial sales growth between 18% and 20%, and with margins increasing to be between 18% and 18.5%. We now expect total wider sales growth between 20% and 23%, and adjusted EPS between $9.15 and $9.45. Free cash flow is still expected to be between $300 million and $350 million, and capital expenditures are still expected to be approximately $290 million.
We expect to continue to maintain higher levels of inventory than previously anticipated as we prioritize mean customer demand while we strive for better alignment for the end-to-end supply chain. We have a number of inventory initiatives underway, which should drive improved free cash flow generation in 2027. We now expect our average diluted shares outstanding to be approximately $61.5 million. Adjusted effective tax rate guidance is unchanged.
This concludes our prepared remarks on the business and results for the second quarter of fiscal year 2026. Operator, we are now ready to open the call to questions.
[Operator Instructions] And our first question comes from the line of Scott Mikus with Melius Research.
2. Question Answer
On a sequential basis, your commercial aftermarket sales were up 12% in the opening remarks, I think it was mentioned that the LRU volumes were roughly consistent with the prior 2 quarters. Since the quarter has ended, have you seen a drop-off in orders for spare LRUs. And are you concerned that if there is a broader slowdown in the aftermarket the amount of LRUs in the field could result in destocking pressures in the back half of this year or early in '27?
Yes, Scott. Let me jump on the front part of that. And then Chip, maybe the second part. But as we head into third quarter, and as we've mentioned, the these orders for these spare LRUs are rather short cycle, so we don't have a ton of visibility. But we're comfortable that sequentially, Q3 spare are used are in line with what we've seen in the first 2 quarters. And again, from a financial forecasting standpoint, tough to say what Q4 looks like currently. But Chip, I don't know if you want to...
Yes, we've certainly seen some airline signaling that they're removing a little bit of capacity. They're parking some planes. But none of the parking activity exceeds any of the forecasts that were already in play. And we haven't seen any drop-off in inputs to our shop for -- from LRUs for repair. And we haven't seen any slowdown in the order rate for spare LRUs. And so there's always assumptions in the forecast, but we haven't seen any indications in our direct connections with customers to indicate that we're going to see a slowdown inside our fiscal year.
That being said though, we are obviously monitoring the situation at the higher level, geopolitical and macroeconomic. And as far as what that means for FY '27, we'll all have to ride a little further along to see where that goes.
Okay. And then a lot of energy infrastructure in the Middle East has been damaged in the ongoing conflict and it will need to be rebuilt. Just curious how you're thinking about that opportunity for your industrial business are you receiving RFPs from your customers to support that reconstruction, fully understanding that, that probably won't hit the P&L for next year, though?
I think we're a little bit further down in the supply chain to be seeing initial outreach on that for anything except service activity. So we have some ongoing projects, and a number of them are back up and running as far as service for our customers, be it on the valve type equipment or on the control -- electronic control systems for gas turbines and power plants. So that activity is ongoing. Some of the things that need to be rebuilt as the customers and operators reach out to EPC type companies that will flow down to us and we haven't seen anything along those lines yet. But there'll probably be some opportunity.
And our next question comes from the line of Sheila Kahyaoglu with Jefferies.
We could focus on margins for both Aerospace and Industrial. So first on Aerospace, just first half margins just under 23% with fiscal Q2 at 22.5%, yet you raised the full year to 23% at the high end. Can you just talk about what drives that second half margin expansion? What are the puts and takes?
Yes, I'll just let Bill start there, and I'll jump in at the end.
Yes. So Sheila, we do continue to see good growth in -- on the services side of the business. And obviously, that helps our margin rates while we continue to see the volume growth, which creates leverage. And then as we've been talking about Chile, we've been investing and working hard on our lean activity and that work is paying off as we see the shipments increase. So those are some of the key things we continue to have good pricing in aero and are managing our inflation well. So our -- so we're seeing that positive flow through to our bottom line as well.
Okay. And then maybe on Industrial core margins, they stepped down almost 300 bps.
Yes. Sorry, Sheila, you ask that. Sorry, in Q2, we did have a reserve that we put up and that impacted Q2 margins for core industrial. If you back that out, the margin rates are on the bottom line with what we saw in Q1, and we expect the second half to be more aligned to that -- what we saw in Q1. And operationally, what we saw in Q2, we expect that to continue in the second half.
Yes. Maybe just -- sorry, can you expand on what that product reserve was? What drove that? How big was it?
Yes. So it's simply a matter of a long-standing product development program with the results that we see a little bit differently than our customer sees it. And that's about all we'll able to share at this time, it's a matter that's being undertaken to the legal process. So we're not going to comment much more on it.
And our next question comes from the line of Noah Poponak with Goldman Sachs.
Chip, everyone is trying to figure out what's going to happen with aerospace aftermarket. I guess as you described not really seeing much yet. I'd be curious to just hear given your experience in the market over a long time, like why do you think you haven't seen anything yet? Why do you think the airlines are not responding that much yet? And when you talk about the possibility of there eventually being a response and seeing that in your fiscal '27? If it were to happen, what would make it happen? What's the threshold? Is it a higher fuel price the duration of fuel price, just what are your customers telling you? And then is there any way to frame or think about Woodward relative to the market because you have so much more content on newer products versus older product, if capacity is trimmed or things are retired out of the back end of the fleet, is it safe to assume you see much less of that than the average player in the space?
Okay. Noah, I may ask you for a repeat of the second half of the questioning, but I'll jump on the first half. I think you used the word duration, and I think that's the main question that is unanswered at this time in terms of what happens to fuel prices.
My experience in situations like this is the reason things haven't happened very quickly from a negative standpoint is that there's still a strong traffic demand out there. And then the airlines that have decided to try to pass along price to the airline customer that has not resulted in destruction of demand. And so I think everyone is kind of a little bit walking on egg shells, trying to see how much of this cost impact that airlines are seeing from oil prices can be passed on from passengers about reducing load factors on flights. They've taken some very smart decisions to take out some lower load factor mid-day, mid-week city payers, I think, and put some higher fuel-burning aircraft to the site. So all those are sort of prudent actions to take a look and see what's going to happen next from a traffic standpoint. Demand is still strong. So I think people are continuing as they were with their maintenance programs. And if the duration and the price of fuel continues to climb, then load factor breakeven points between city payers is going to cause more planes to be parked and maybe there'll be some destruction of demand if prices go up too much. So none of those if statements that I said have happened yet. So I think it's business as usual, a little bit on the maintenance side. Some of our peers are -- may seem like they're being a little more cautious with their quarterly results announcements. But if I remind everybody, we're halfway through our year. So we've got a little bit more in the rearview mirror already accomplished on the books. We've got a little less in front of us to ride on this duration question than our peers do. So hopefully, that sorts that out.
Second question, I think you asked was about what's specific for Woodward having higher content on the current generation of narrow-body, the higher technology fleet with better fuel consumption performance. I think from our standpoint, legacy narrowbody repair business continues to grow much to my -- a little bit of a surprise, and we didn't forecast it growing quite as much year-over-year or quarter-to-quarter as it did in Q2. So things are still looking good on legacy utilization front. But if we come to an oil shock that's even more and longer duration than we see right now. If the newer technology fleet gets utilized much more than the older technology fleet for Woodward, it happens to be good math. It's not good for the whole industry. We don't wish that on the industry. But if that does happen, we have a little bit of a hedge there because we have a faster growing, higher content position on that fleet.
Okay. That is super helpful. I appreciate all that. And then just a follow-up on the Aerospace margin. Would it be possible to quantify the incremental investments you made in the quarter, just so we can all sort of keep tracking the underlying trend you've been experiencing there? And then on the pricing front, you guys have been providing kind of total company and then directional within the aftermarket pricing any update you could provide on what happened there in the quarter?
On the first piece, Noah, I -- what I'll say is we're focused on making sure that we've got the systems, the processes, in place for us to continue to execute on our key imperatives. We are going to be diligent and thoughtful about how we increase that investment, not getting too ahead of the volume, 2 ahead of the volume growth, but not being so far back that we can't execute on it. And so as you can see, there's still margin expansion that we're looking for in the results based off of our guide. And so I think we're being responsible and reasonable but reasonable with how we are increasing the spend as it relates to those strategic projects.
Yes. And I'll just jump in and say that Bill had alluded to this in some of his remarks, but we have increased our R&D spend a little bit in aerospace. Much of that is aimed at the preparation, the technology demonstration projects. We're working with our customers. We've invested in manufacturing engineering to accelerate our automation journey, which also feeds how we will industrialize for the next single aisle aircraft components that we win. And as well, we've been building that plant in South Carolina and we are starting to staff up there some of our very key positions like plant leader and value stream leaders and some advanced manufacturing engineers. And so some of these our longer-term investments, some of the automation investments will provide returns sooner. But some of the staffing up that we're doing and the R&D expenses are really aimed towards the next generation.
And then Noah, I think you had a question on price, if that's right. And the price in the quarter was around 6.5%, 7% and that's roughly what we projected to be for the total year. Aero being a little bit stronger on the price side than industrial.
And our next question comes from the line of Gavin Parsons with UBS.
What drove the Aero revenue guidance raise kind of between the subsegments? And then within aftermarket, how much of that is kind of the spares provisioning drop in versus repair and overhaul work?
Without getting quantitative about it, I'd say that the commercial services is really the largest piece of the increased revenue gain. We had forecast the OEM to be growing substantially and maybe hedge it back a little bit in terms of how we were thinking about it based on what the aircraft and engine OEMs would actually come through with orders for and sort of meter us to. But it's been a little bit more on the demand side from the OEM. So it's driven a little bit of the gain and the forecast guide the commercial services kind of looking in the rearview mirror and thinking that, that will sustain at least through 3Q, as Bill said, with the higher LRU orders. But the repair is strong across the board in commercial services, wide-body, legacy narrow-body, regional and the LEAP GTF, all contributing to revenue and earnings growth.
And Gavin, just to expand on that again. Obviously, the raise and guide was partly recognized a strong Q2 performance, but also second half performance. Commercial defense OEM on the industrial side, most of that OEM and we see, especially in the fourth quarter, OEM being -- growing nicely, and that's a big part of the rates for the second half. And obviously, that will that has a different kind of flow-through pattern than the services that we saw in the second quarter and in the first quarter.
Okay. That's very helpful. And then, Chip, you pointed out that airlines are maybe sidelining some of the least fuel-efficient aircraft. I think over the long run, you guys have talked about flight hours as being the key metric driving your aftermarket growth. But if it's those older, less fuel-efficient aircraft being sidelines, is the risk going forward more about accelerated permanent retirements, delayed shop visits or maybe cut shop visit scope?
Just to clarify, are you talking about for the legacy fleet or in general?
In general, is the risk more about shop visits or retirements and less about flight hours?
Yes. I think for the legacy retirement for the legacy fleet, certainly, the risk is about retirement and part out and not getting another shop visit on our LRU, whether it's a V2500 fuel control or CFM56-5 HMU. And so that risk though, is like the end-of-life risk for the oldest part of that fleet they still pick a number of 40% of airplanes with engines and LRUs that only seen 1 shop visit and are quite capable assets. The airlines are going to continue to fly. So flight hours is still going to correlate with how that equipment comes off and comes in for shop visits with us. And -- but the sort of end of life for the oldest A320 from our CEOs from our standpoint, that's going to happen based on a combination of traffic demand, price of fuel and OEM delivery rates, and we'll monitor that closely.
And our next question comes from the line of Pete Skibitski with Alembic Global.
Great quarter. Yes. I just want to circle back to Sheila's question on Industrial margin. I just want to think about the right way to think about it going forward. If we exclude the provision in the second quarter, it sounds like you're maybe a tad over 17% on core industrial margin in the first half. And with the new guide, you get a little bit of a boost in the third quarter from China on-highway, but then nothing in the fourth quarter, but it seems like you'd still be exiting around 18% or so in the fourth quarter. So it just seems like a lot of nice momentum in core industrial margin year-over-year. And so is the right way to think about it, the 18% to 18.5% is a reasonable range to think about for 2027 or maybe 17.5% in the low end? Or is there any logic wrong there?
Yes. We're -- just I'm real happy about 2026, Pete, and where that is. And I think how you laid it out is right. We continue to work hard on all our margin and productivity margin expansion and operational excellence initiatives. And we'll be talking to you real soon about how that all comes to play. But I think if Randy was here, he says he's not -- he would say he's not planning on giving up any ground, but we'll see how it all comes out in the mix. as we start talking about '27.
Okay. Fair enough. Just 1 follow-up. On the pilot controls product line sale, is it fair to conclude that this product line has less aftermarket than the engine portion of aerospace. And so I'm just wondering if the divestiture is sort of margin accretive for you in aerospace? And how much revenue is involved in that product line?
Well, I don't think we'll share the revenue specifics there, but it's not super significant. It is accretive to carve that out for us. That's 1 of the criteria we would use to examine a divestiture opportunity a while back in our strategic review process, we just identified this as an area where we would have to put a lot more resources into this to become a leader in the industry in this area. Where we are a leader is in some of the enabling technology components and subsystems that go into pilot controls like throttle quadrants. So some of the precise motor controls and motors themselves as well as sensors and the LVDTs and hall effect sensors and things like that, things that we can bring to the party, and we will remain a supplier of those components to the company that we sold the main business line too. So we'll retrench into the places where we're the most competitive and have the most value add for customers. and pass that along. Now it does have a good amount of service business to it, which made it kind of an attractive product line to sell for the buyer. So -- but still, from our standpoint, it was -- it's accretive to let it go.
Okay. So Niles will remain open. There are more production there than the pilot controls, that's right?
Yes. This was a relatively small value stream in the Niles facility.
And our next question comes from the line of David Strauss with Wells Fargo.
Chip, I think if I caught it correctly in your prepared remarks, you talked about additional step up in interest from your IT customers and the potential that you might be looking at some sort of capacity expansion to be able to handle that interest. Did I get that right? And maybe if you could expand on that?
Yes, not just our IGT customers. So gas turbine, reciprocating engines, diesel powered, natural gas-powered backup prime power applications. So it's like across the board, multiple OEMs in each of those categories over the last really a month or so have come to us and said, we want some capacity studies for these kinds of forecast between now and 2030 plus. And so we've been sort of digesting those requests. And it's not 1 customer. It's not 1 technology, but it's largely driven by data center caused power generation demand. And so we're looking to respond to these customers. But the reason I wanted to lay that out and what may seem like an early way in this earnings call is that as I've been meeting with investors and analysts, I've really kind of been firm that based on everything I see from our customers, we have the footprint, and we have the ability through Kaizen and other continuous improvement, elimination of waste, lead time reductions, things like that, we could make our way to sale for the capacity that's needed. But this new later breaking information says that maybe we need to consider capacity increases.
SP29154009 Okay. I guess we'll check back in on that later, where you come out. .
If I missed it, I apologize. Did you talk about where LEAP GTF aftermarket revenue volumes, however you quantify are relative to legacy at this point and where -- if the crossover point has changed?
Yes. So I didn't mention it in the prepared remarks, but thanks for the question because it's 1 that we talk about quite a bit. What's really interesting to me and our team is that as we grow LEAP in a substantial way, the legacy narrowbody fleet continues to provide inputs to our shop, and we're like, okay, it's kind of growing at a good clip still for the legacy fuel control units, especially I'm not changing the forecast right now. We said sort of end of '26, sometime in '27. We still think that's a reasonable assumption. The things that could pull that in, the fuel price shock that we talked about could reduce the rate of input for the legacy. And that would be like a not so interesting way to have the crossover be pulled in. we like it to go further to the right. The other thing I would say, just to give a little bit more color to what we're talking about is that right now, this quarter and even last quarter, the total amount of service revenue is about the same for LEAP GTF compared to the legacy narrow-body, if you include the spare LRU items. So from a repair standpoint is the crossover that we keep talking about looking for is a few quarters out in the future. But I just wanted to share that we're already kind of in the very similar numbers from LEAP GTF compared to V2500 and CFM-5, if you include all the different kinds of service products that we offer.
That's great. You predicted my next question or follow-up question.
And our next question comes from the line of Ken Herbert with RBC Capital Markets.
I just wanted to maybe follow up on the free cash flow guide. It didn't change with the sales and EBIT increases. Is that just reflecting as you continue to talk about higher working capital spend or working capital as a percent of sales? Is that the right way to think about it? Or is there anything else impacting on the free cash flow side?
No, Ken, I think that is the right way to think about it to simply stated.
Okay. Okay. That's helpful. And I wanted to follow up on the announcements with LHT and Air France KLM. How quickly will those scale as sort of third-party MRO providers? And should we expect maybe a movement of a block movement of spare parts or inventory at some point in the next few quarters as they ramp or maybe as part of these agreements?
Yes. So the rate-limiting step for any of our licensed service providers is going to be getting test stands in procured, installed and calibrated. So that's 9 to 12-plus months away depending on where each of the folks are in the procurement cycle of that. So it's definitely not a 2026 kind of thing, and we'll give some color to how we expect the standing up of these partner providers to affect our service business is along with our Investor Day information late in the calendar year.
And our next question comes from the line of Christopher Glynn with Oppenheimer.
So I was curious if you've -- curious, have you guys evolved any like different angles on visibility to the China LRU markets?
As far as new angles, I would just like the easy answer is no on that. But what I would say is that we're starting to see just like more across the board as expected, based on airplane deliveries, customers ordering spare LRUs to provision for their fleet uninterrupted operations and the maintenance cycles that are coming. So I think we can kind of take the China moniker off the table for now, and they're ordering kind of like you'd expect them to order based on how many planes they have.
Okay. So maybe a little bit of a tempest in the TPO discussion for the past couple of quarters, sounds like. And then curious on the L'Orange model, don't recall like really discussing if they have much military in there. I suspect they do. I don't think your guided missile destroyer program was L'Orange, but rather your power gen business. But I just wanted to check in on that the military business pipeline overall for industrial and as it resides or doesn't within L'Orange?
Yes. So I would consider L'Orange to be 99-point something commercial as far as I know, I don't want to say 100% here, but it's just -- it's not something we think about or consider for what our diesel fuel system business contributes to. As far as the destroyer DDG class that are powered by gas turbines, both for propulsion as well as for onboard power gen, that's really the business that we participate in. It's the electronic control systems for controlling the power from the gas turbine as well as controlling the propulsion systems.
And our next question comes from the line of Louis Raffetto with Wolfe Research.
Maybe, Bill, just on the China on-highway. I know you said $30 million of sales in 3Q. Should we expect to see similar levels of of profitability that we saw in the last 2 quarters?
For Q3, that's correct. Obviously, there is going to be a restructuring charge that flows through. So operationally, Louis, correct, but I do want to make sure I highlight that there is going to be a restructuring cost that comes off. That will be separate as we go through the quarter.
Okay. Great. And then, Chip, maybe just to come back to what you just mentioned about the LRUs. So obviously, as we get to your fiscal fourth quarter, you're going to be coming up on a tough comp. But what I'm trying to understand, based on what you just said is are the LRU sales that you saw this quarter? Are they not China? And it's -- you're kind of saying don't think of this as a separate bucket anymore and everything is kind of 1 big bucket nowadays? Or is there still sort of a China bucket out there that we need to be mindful of?
I'm seeing the former, which is there's really not a China bucket anymore. That was when we had our first step-up in LRU -- unforecasted LRU sales within a quarter, that was due to a little bit of a surprise order stream starting from China. That lasted a couple of quarters. And then as I kind of was alluding to, the rest of the orders inside the quarter are more spread out to European and U.S. and Latin America and in every other airline that's ordering aircraft and provisioning to support their fleet. So I would put the China bucket behind us for now. and kind of how we see the rest of the year shaping up. We -- as Bill said, we have -- we largely have the LRU orders in hand for 3Q. We have good visibility to 3Q, and it is a good mix of customers. So less risk of being a nonrepeat kind of thing. But our visibility into 4Q is what we would normally see at this point, not fully clear in terms of who's going to order and how much it's going to be. But we have enough confidence in all the different levers of our OE and service businesses in both segments to say we're confident in what we've put up for our guide.
And our final question comes from the line of Gautam Khanna with TD Cowen.
Thanks for getting to me guys. Yes. Good to talk to you guys. I was curious, just, could you quantify what the guidance revision was for just China OH relative to the prior outlook?
What the guidance revision was for...
You really [indiscernible] take that.
Yes. Yes, Gautam. Not much. I mean I think the guide, the upper end to the lower end considered what we're seeing in there for China OH. So I think at the beginning of the year, we said it was going to be around $60 million, and where we've ended up with what we've had and the last time buy, it will probably be somewhere around $90 million in total. So that was sort of within the range of our guide. And so we -- so anyway, that's how we handled it.
Okay. And in terms of profit variance, when you had the $60 million, what was the expected profit? And then if it's 90, what's the new expected profit?
Yes. So we talked a bit about at certain levels, it starts to go beyond breakeven and then it flows through quickly through that point. We are at that point, and so that's what sort of generated. I think in the comments, we said it was worth about 230 basis points this quarter to the overall industrial earnings increase.
Okay. I was just curious what the revision is related to that. We can take it off-line.
Yes, I would just emphasize, Gautam, that the China OH wasn't really driving the revision to guidance. It's more the success we've had in the first half with commercial Aero services and continued strong OE in both segments.
Yes. No, I got you. That's clear too. The -- to Pete's earlier question on industrial underlying margins kind of over time, how far along are you guys in that process of kind of looking at which SKUs to stock, which ones to retire kind of the operational turnaround within the Industrial business. How far along are you in that journey? And do you have any ballpark sense for where margins ultimately can get to in that segment?
Yes. So far, I've always answered that question saying we're in the early innings. But I feel, honestly, like we're in the middle innings in the industrial portfolio rationalization, turnaround, use the word turnaround. I've not really use that, but I think it's an apt description. That team is just really pulled together and made some difficult decisions. You see the China on-highway exit that we're doing, that was a difficult call. Some of the product lines we've exited were difficult calls around small engine and other things like that. But what we're doing now and what you can see now is that we are more introducing a more standard disciplined product management approach to the business. And so I talked about this actuator in my prepared remarks that is going to enter into service in 2027 that's now in the test phase, and we're industrializing that's going to replace a pretty complicated portfolio of actuation for reciprocating engines. So it's not like we looked at the portfolio and said, we don't want to be in that business anymore. We said there's a better way to serve customers here that's going to be more efficient in our factory. It's going to be more resilient in the supply chain and then we're going to -- and the customers are going to get more value from a broader torque range and lower form factor. And so that's the kind of work that's going on in industrial right now. So that's why I think it's the middle innings because we've kind of evolved from -- these are the things we want to stop and these are the things we want to keep doing. And now we're just refining the approach within the places we want to compete.
And if I can add to that, Gautam, as you're talking about where can it go? As Chip has spoken about previously is we're focused heavily on recouping our service franchise there. And we've got to see -- we have a plan. We got to see what the [indiscernible] possible is and how we can get there. But I think that will -- if we're in the middle innings, we've got half game coal on the productivity, the other piece of margin expansion will be how we can grow that service franchise. And I think we can talk more about that when we get to Investor Day and what's the art of the possible for industrial margin rates.
And Mr. Blankenship, there are no further questions at this time. I will now turn the conference back to you.
Thank you. I'd just like to thank everybody for joining our 2Q call and look forward to talking to you again soon.
And ladies and gentlemen, that concludes our conference call today. A rebroadcast will be available at the company's website, www.woodward.com for 1 year. We thank you for your participation in today's conference call. You may now disconnect.
Woodward, Inc. — Q2 2026 Earnings Call
Woodward, Inc. — Q2 2026 Earnings Call
Woodward delivers a record quarterly sales milestone and raises 2026 targets on broad Aerospace and Industrial strength.
📊 Quarter at a Glance
- Sales: Revenue of $1.10B in Q2 2026, up 23% year over year.
- Aerospace: $703M, +25% YoY; margin 22.5% of aerospace sales; commercial services +36%, commercial OEM +30%, defense OEM +9%, defense services +8%.
- Industrial: $387M, +20% YoY; segment earnings $66M (17% of sales); core industrial margin about 14.7% (ex- reserve); China On-Highway $29M in quarter.
- Margins & EPS: Adjusted EPS $2.27; GAAP EPS $1.78; Q2 free cash flow $38M; 1H FCF $109M; OCF $205M; capex $97M.
- Guidance: Raised 2026 targets: total sales up 20–23%; aerospace sales up 21–24% with 23–23.5% margins; industrial sales up 18–20% with 18–18.5% margins; adjusted EPS $9.15–$9.45; FCF $300–$350M; capex ~$290M; inventories higher to support demand.
🎯 What Management Says
- Portfolio & investments: Completed Valve Research & Manufacturing acquisition; divested the pilot controls line; moved servo valve production to Rockford; wind-down of China On-Highway; Spartanburg and Glatten expansions on track; ongoing automation and ERP upgrade.
- Growth & service: Expanding MRO through partnerships with Lufthansa Technik, Air France KLM and AAR; increasing LEAP/GTF service capacity; advancing in-house repair/overhaul model to meet OEM standards.
- Innovation & capacity: Shifting to technology demonstrations with customers; aerospace R&D spend rising; Kaizen and automation initiatives to support next-generation single-aisle content; staffing up key roles in new South Carolina site.
🔭 Outlook & Guidance
- Guidance: 2026 targets raised: Aerospace sales +21–24%, margins 23–23.5%; Industrial +18–20%, margins 18–18.5%; total sales +20–23%; adjusted EPS $9.15–$9.45; free cash flow $300–$350M; capex ~ $290M; average diluted shares ~61.5M; tax rate unchanged.
- Inventory & capital: Higher inventory levels to meet demand; continued investment in automation, ERP upgrade, and capacity expansion to support growth in LEAP/GTF service activity.
- Balance sheet: Debt leverage about 1.4x EBITDA; solid capital return plan remains in place; M&A and divestitures to sharpen focus.
❓ Analyst Q&A
- LRU aftermarket: Q3 outlook remains in line with first two quarters; visibility into Q4 is limited; no clear destocking signal yet.
- China On-Highway: Wind-down largely complete; China contributions modest in Q3 and driven by non-China mix moving forward; no separate China bucket in forecast.
- MRO ramp & partnerships: Stand-up of licensed repair facilities with Lufthansa Technik and Air France KLM takes 9–12 months; gradual service ramp into 2027; scale driven by test stands and procurement timelines.
⚡ Bottom Line
Woodward’s strong Q2 validates its diversified aerospace and industrial exposure and supports a higher 2026 outlook. The company’s portfolio actions, capacity investments, and expanded MRO network lay the groundwork for longer-term margin expansion and higher content on next-generation aircraft, though near-term earnings reflect deliberate investments and macro/geopolitical uncertainties.
Woodward, Inc. — Q1 2026 Earnings Call
1. Management Discussion
Ladies and gentlemen, thank you for standing by. Welcome to the Woodward, Inc. First Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] At this time, I would like to inform you that this call is being recorded for rebroadcast. [Operator Instructions]
Joining us today from the company are Chip Blankenship, Chairman and Chief Executive Officer; Bill Lacey, Chief Financial Officer; and Dan Provaznik, Director of Investor Relations.
I would now like to turn the call over to Dan Provaznik.
Thank you, operator. I'd like to welcome all of you to Woodward's First Quarter Fiscal Year 2026 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. At the end of our 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 included some presentation materials to go along with today's call that are also accessible on our website. A webcast of this call will be available on our website for one year. All references to years in this call are references to the company's fiscal year unless otherwise stated.
I would like to highlight our cautionary statement as shown on Slide 2 of the presentation materials. As always, elements of this presentation are forward-looking, including our guidance and are 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 with the SEC. These statements are made as of today, and we do not intend to update them, except as required by law. In addition, we are providing certain U.S. GAAP -- certain non-U.S. GAAP financial measures. We direct your attention to the reconciliations of non-U.S. GAAP financial measures, which are included in today's slide presentation and our earnings release. We believe this additional financial information will help in understanding our results.
Now I'll turn the call over to Chip.
Thank you, Dan, and good afternoon to all who are joining our first quarter 2026 earnings call. I'm pleased to report that 2026 is off to an exceptional start for Woodward. Robust demand across both our Aerospace and Industrial segments, combined with disciplined execution by our teams, drove outperformance in the first quarter.
I want to start by thanking Woodward members around the world for accepting the challenge of increasing output in response to rising demand across all our end markets and continuing to improve our operations. These collective efforts resulted in a standout first quarter for 2026.
In this first quarter, Woodward sales grew 29% year-over-year, and earnings per share increased 54%. We also achieved strong cash generation compared to historical first quarters. I'm also grateful for our customers' continued trust and collaboration to stabilize and optimize the demand signal, so we can take a disciplined approach to capacity increases in our factories and with our suppliers. This is an industry-wide opportunity to move from the supply chain crisis we've been embroiled in to precision alignment that results in stable inventory levels and predictable component availability. While we are not where we want to be on every product line, we have a good vision for the path forward. As we continue to work through the supply chain alignment with our customers and suppliers, we anticipate that inventory turns will not improve as much as we would like in 2026. Inventory efficiency is a priority, and we are investing substantial resources in process improvement and control, but the impact of these efforts are likely to be felt in late calendar 2026 or even early 2027.
In Aerospace, demand growth in commercial and defense OEM aligned to our expectations, while commercial services exceeded our forecast. Commercial services activity was robust across narrow-body, wide-body and regional platforms. LEAP, GTF and legacy narrow-body repair volume was up year-over-year and relatively flat compared to the fourth quarter of 2025. Also, like the previous quarter, we experienced elevated spare LRU provisioning orders, and we were able to execute and deliver these orders to customers. Very strong execution by our Aerospace team enabled us to capture growth profitably with 420 basis point segment margin increase. Industrial also continued on its positive trajectory with robust growth across power generation, transportation and oil and gas. Price as well as operational improvements and volume leverage translated into a 410 basis point margin expansion for Industrial. These combined results build on the momentum of a strong 2025 performance and reflect outstanding work across the company.
So what's ahead for the rest of 2026? We continue to expand our services capacity to address increasing demand and improve turnaround times for our customers. This includes our Prestwick, Scotland facility, where we are in the planning phase to add square footage and optimize the layout to reduce turn times while supporting growth at this well-positioned Woodward MRO center. In Rockford, we are commissioning additional test stands and optimizing the layout for improved flow based on Kaizen events and benchmarking exercises our team conducted. We are working with industry-leading MRO providers to deliver Woodward license support offerings, which will give our customers more choice and additional capacity to address the growth.
In our Industrial segment, we recently announced an important strategic decision to wind down our China on-highway product lines. As we've discussed in the past, the China on-highway market has provided us limited order visibility and overall performance has been inconsistent from a revenue and profitability standpoint. We have been evaluating strategic options for this business for quite some time. The decision to wind down by the end of this fiscal year supports our long-term growth strategy for Woodward's Industrial segment. Throughout the year, we expect to see continued benefits from our focus on operational excellence. This includes further stabilizing our end-to-end supply chain to improve on-time delivery, increase inventory turns eventually and increase resilience to better serve our customers.
Our near-term strategic priorities are clear. First, we will meet OEM demand growth, whether that is rate breaks for airplane and engine OEMs in aerospace or data center-related power generation demand increases for industrial controls and components. Second, we will provide world-class service to deliver on the promise of repair and overhaul of our Woodward product installed base, whether that is aerospace legacy LEAP GTF or industrial gas turbine systems. Last but not least, we are shifting our R&D focus from baseline technology development to customer value demonstration on selected technologies to position Woodward for increased content on next single-aisle platforms.
From a capital allocation standpoint, our ongoing organic growth and strong balance sheet provide us with flexibility to evaluate potential inorganic opportunities that are a strategic fit with the right risk-adjusted returns while investing in ourselves and returning cash to shareholders. Given the strength of our first quarter performance and our outlook across our markets, we are confident in raising our full year sales and earnings guidance, which Bill will outline in his section after sharing more detailed financial information regarding our first quarter performance.
Over to you, Bill.
Thank you, Chip, and good evening, everyone. As a reminder, all references to years are references to the company's fiscal year unless otherwise stated, and all comparisons are year-over-year unless otherwise stated.
As Chip mentioned, we had a very strong start to 2026. Net sales in the first quarter of 2026 were $996 million, an increase of 29%, reflecting strong demand and consistent execution. We achieved earnings per share in the first quarter of 2026 of $2.17 compared to $1.42 and adjusted earnings per share of $1.35. There were no adjustments in the first quarter of 2026. We generated $70 million of free cash flow in the first quarter. First quarter performance exceeded our expectations, primarily driven by strong aerospace commercial services and higher China on-highway revenue in our Industrial segment. Importantly, we did not experience the typical seasonal drop-off in demand, and we maintained steady production levels despite fewer working days in the quarter.
At the segment level, Aerospace segment sales for the first quarter of 2026 were $635 million compared to $494 million, an increase of 29%. The substantial year-over-year growth was primarily driven by commercial services sales, which increased 50%. This reflects higher volumes to support sustained high utilization of legacy aircraft as well as increased LEAP and GTF activity. In addition, we experienced significantly higher spare LRU volume during the quarter, primarily for China. This appears to have been driven by customer underprovisioning rather than a pull forward of demand as these are short-cycle orders often placed and fulfilled within the same quarter. We don't expect the same level of commercial services growth going forward as comps get more difficult, and we are not forecasting spare LRU sales at the level that we experienced in the last couple of quarters.
In line with our expectations, airframe production rates increased and commercial OEM sales were up 22% as destocking began to taper off. Defense OEM sales increased 23%, primarily driven by new JDAM pricing, which took effect last quarter. Overall, we continue to see strong demand for our defense program. First quarter Aerospace segment earnings were $148 million or 23.4% of segment sales compared to $95 million or 19.2% of segment sales. The 420 basis point improvement reflects solid price realization, primarily driven by the new JDAM pricing, higher volumes and favorable mix, primarily due to strong commercial services growth in the quarter, partially offset by strategic investments in manufacturing capabilities and inflation.
Industrial segment sales for the first quarter were $362 million, up 30% from $279 million. Core industrial sales, which excluded the impact of China on-highway, increased 22% in the quarter with broad-based growth across our end markets, price and FX. Marine transportation sales increased 38%, driven primarily by increases in services and shipyard output. Oil and gas sales increased 28% as volume growth was driven by greater midstream gas investment. Power generation sales increased 7%, which included the impact of the combustion business divestiture in the prior year. Excluding the impact of the divestiture, which averaged approximately $15 million of quarterly sales, power generation sales grew in the mid-20s on a percentage basis, in line with the broader power generation market. China on-highway sales were $32 million in the quarter, higher than we planned, further demonstrating the visibility challenge and significant quarter-to-quarter volatility of this business. Industrial segment earnings for the first quarter of 2026 were $67 million or 18.5% of segment sales compared to $40 million or 14.4% of segment sales. Within our core industrial business, margins expanded 200 basis points to 17.3% of core industrial sales, driven by higher sales volume, strong price realization and favorable mix, partially offset by inflation. Significant progress on our operational excellence pillar enabled us to increase output to meet strong customer demand and achieve improved operating leverage. The China on-highway business added an additional 210 basis points of margin growth.
As Chip mentioned in his comments, we announced that after a multiyear evaluation of strategic alternatives, including potential divestiture, we made the decision to wind down the China on-highway business by the end of the fiscal year. This business often drove quarterly volatility within our Industrial segment. It has been an inconsistent contributor to our overall financial results and operates in a highly unpredictable environment. This decision further aligns the industrial portfolio with our long-term growth strategy and priority end markets, marine transportation, power generation and oil and gas. We do not expect a significant long-term impact on our financial performance. However, we will incur certain costs associated with the wind down, which will be adjusted out of our future results. The remaining operational activity for this business year will continue to be reported in our industrial results during the wind-down period.
Nonsegment expenses were $37 million for the first quarter of 2026 compared to $22 million. Adjusted nonsegment expenses in the first quarter of 2025 were $28 million. There were no adjustments to nonsegment expenses in the first quarter of 2026. At the consolidated Woodward level, net cash provided by operating activities for fiscal 2026 was $114 million compared to $35 million, largely driven by higher net earnings. Capital expenditures were $44 million for fiscal 2026. We expect capital spending to meaningfully increase over the remaining three quarters due primarily to the Spartanburg facility build-out as well as other ongoing automation projects.
We generated strong free cash flow of $70 million in the first quarter compared to $1 million, driven primarily by higher earnings related to the outperformance in the quarter. As of December 31, 2026 -- '25, debt leverage was 1.2x EBITDA. We are allocating capital according to our priorities, supporting organic growth, selectively pursuing strategic M&A opportunities and returning capital to shareholders through dividends and share repurchase. We continue to prioritize organic growth through ongoing automation investments and the construction of our new Spartanburg, South Carolina facility. We are always evaluating selective returns-driven M&A opportunities, and our strong balance sheet provides the flexibility to move decisively as compelling opportunities emerge. Our fiscal 2026 guidance still assumes returning between $650 million and $700 million through dividends and share repurchases.
Turning to our 2026 guidance. Based on our strong start to the year, we are raising our 2026 guidance for sales and earnings and reaffirming the other elements of our full year guidance. We are layering in the first quarter outperformance while keeping changes to the remaining quarters minor. For fiscal 2026, we now expect the following: Aerospace sales growth to be between 15% and 20%, with margins holding between 22% and 23%; Industrial sales growth to be between 11% and 14% with margins increasing to be between 16% and 17%. We are raising both Woodward level sales and EPS guidance. We now expect consolidated sales growth to be between 14% and 18% and EPS to be between $8.20 and $8.60. Free cash flow is still expected to be between $300 million and $350 million.
As Chip mentioned earlier, we expect to continue to maintain higher levels of inventory than we anticipated as we prioritize the customers' demand while we strive for better alignment for the end-to-end supply chain. All other aspects of our guidance remain unchanged. This concludes our comments on the business and results for the first quarter of 2026.
Operator, we are now ready to open the call to questions.
[Operator Instructions] And our first question comes from the line of Scott Mikus with Melius Research.
2. Question Answer
Very nice results. Quick question on the commercial aftermarket sales. Normally, we would see a sequential decline due to the fewer working days, another very strong quarter for LRU sales. But given that price increases are usually more pronounced in your second quarter, the $245 million of commercial aftermarket sales in the first quarter be the low point for the year?
I don't think it's going to be the low point, Scott. It's hard to see exact numbers from here. We don't anticipate the same amount of spare LRU shipping. So certainly, that will knock the peak of that revenue off. But we do -- we have modeled increasing repair and spare parts sales. We think that the market demand is strong. In some ways, our turn times may be somewhat limiting in our ability to fulfill all that demand. So we are investing in capacity to drive those turn times down and provide even better customer service. So I think it's hard to say whether that's really going to be the peak. There's plenty of opportunity to grow.
Okay. And then presumably in the Aero guide, there's some conservatism regarding Boeing and Airbus' production rates. If Boeing and Airbus do hit their production rates, could that drive more upside through higher initial provisioning sales for your aftermarket?
We -- that's one of the reasons why I hesitated a little bit on the answer on the revenue for the services side. We don't see new tail logos in the horizon, which can drive some of that increased provisioning volume. So we think that over the long period, hitting those higher output rates will drive more spare LRUs, but not necessarily in the near term. Over time, that does correlate pretty well. But as we don't see any new logos in the near future, we don't see that as a 2026 opportunity.
As far as the volume goes, I would say that the challenge to our volume on the low side would be softer demand from the OEMs not quite hitting the rates. And the opportunities on the earnings side is from having more spare LRUs that we have in the forecast or more repair volume than we have in the forecast. That's kind of how I'd characterize the arrow looking forward.
And our next question comes from the line of Scott Deuschle with Deutsche Bank.
Bill, just to be clear, was the 5% increase in the Aerospace sales outlook primarily an increase in the aftermarket? Or was it more broad?
Yes. It was the first quarter driven, Scott. So, given that, that was mainly driven by commercial services, that is a fair conclusion.
Okay. And then why does the margin guidance for Aerospace not benefit from the higher aftermarket mix and operating leverage that's implied in what you just said?
Yes. So, it does. As you see, it did flow through in Q1. In the remaining year, we are -- remaining portion of the year, we are seeing increased OEM sales. And with that increased OEM sales, that mix will temper the margin rate going forward.
Okay. That's clear. And then, Chip, can you walk through the drivers behind the growth acceleration in oil and gas and marine transportation this quarter? It looks like around 30% growth in both of them. So, curious if you can unpack that and talk to the outlook from here.
On the oil and gas, I think we've said a few times, it can be a little bit lumpy in terms of the order profile for that end market. It's both OEM and services driven. Quite a bit of the oil and gas midstream end application for us is gas turbine related. Sometimes it's the overhaul of the valves and components that we supply. And other times, we can participate with an OEM partner or independently for a control systems upgrade for a unit or a series of units at an end customer. And it's that activity that drove most of the growth this quarter.
As far as marine transportation is kind of the same thing where the shipyards are full and expanding and having year-over-year growth in their outputs. So there is some new unit impact to the growth, but as well the high utilization of the fleet that has Woodward fuel injection and control systems and pumps in it is seeing quite a bit of overhaul activity and service activity that uses our spare parts.
And our next question comes from the line of Noah Poponak with Goldman Sachs.
Should we interpret the total company full year guidance revision as you left the remaining 9 months of the year the same as the prior plan roughly and that the upside to the full year is basically the upside to just 1Q?
Noah, that is -- yes, that's correct.
Okay. And so I guess the follow-up to that is, does that make sense? Was all of the upside in 1Q things that you see as -- they were nice to see in the quarter, but they don't sustain as upside drivers to your prior plan?
Yes. Let me -- I'll take a shot at it. I do think it makes sense. In the rest of the year, we did put in the additional growth related to the build rates that we think are -- that are there, the services growth. And so that is all in the total year guide.
The part, which Chip mentioned is the spare LRUs potential upside there, which may or may not come, that is not something that we put in, and that's was one of the larger drivers of our Q1 outperformance, along with the China on-highway increase, we do not see that happening going forward. So, with that, Noah, we do think that the remaining of the year guidance makes sense.
Chip, I don't know if you have.
I guess I'd also characterize it in terms of risks and opportunities, maybe, Bill, that we recognized almost zero risks in the first quarter and all opportunities came through. And as we look at the rest of the year, we feel like we have a balanced view of things that could take us a little bit higher within the guide, which is the airframe and OEM demand remains strong. All the power gen demand comes through. The somewhat lumpy oil and gas maybe stays high. I mean these are things that would drive us to the top side of the guide. And then there's some things that could get in the way of that. We still have some supplier challenges in terms of meeting all of the demand. And some of our hard capacity constraints in our factories have been limiting our ability to respond to all this demand and the timing that it comes through.
So, I think, that a few suppliers could get in the way and knock down our ability to hit the very highest part of the guide. And then some of our customers could have problems with other suppliers and they could reduce their demand to us. So a lot of things can still happen in the nine months coming along. The supply chain is not as smooth as we'd like it to be at our customers or with our suppliers. So, I think, there's plenty of room in the guide to manage those risks and opportunities.
Okay. That makes sense. I appreciate that detail. And then could you quantify -- is it possible to quantify for us either in absolute dollars or points of growth or anyway, what the LEAP and GTF contribution to the aftermarket was and what the spare -- the initial spares LRU contribution to the aftermarket was?
I don't think we're going to be quantifying that for you. But just to -- I mean, when you think about a spare LRU, it's a high dollar revenue item and a good profitability item, whereas repairs are a good percentage profitability, but nowhere near the kind of top level dollar. So we like the repair business. It just doesn't have that -- doesn't have as much of a weight per unit turned or anywhere near as a spare LRU. So we like the year-over-year growth that we saw from LEAP GTF. It's still tracking to the plans that we forecast. The legacy narrow-body units are still coming in strong, stronger than we would have predicted a couple of years ago. I really like the growth that we saw year-over-year in both wide-body and regional, which says that our portfolio is really playing well across all of those different platforms in commercial aerospace.
So, Chip, it sounds like the LRUs can be chunky. 550 is a big number. We're not going to model 50 for the rest of the year. But it also sounds like it wasn't the case that all the upside in the quarter was the LRU. It sounds like you saw it in -- maybe in the LEAP GTF plan and also in the legacy aircraft and engine.
Yes. The wide-body and the regional was probably a little bit more than we would have forecast. So that was robust. The LEAP GTF and narrow-body, we're starting to get -- we have a pretty good beat on that, and that was kind of in line with what we expected from a growth standpoint.
And our next question comes from the line of Sheila Kahyaoglu with Jefferies.
Congrats on the great quarter. This is [ Kyle ] on for Sheila. On the LEAP GTF mix, I know you also said legacy narrow-body was up year-on-year and also flat relative to the fourth quarter, obviously, counter seasonal from what we would expect. Can you sort of just pick apart whether that was you catching up on past dues? Was it just really volume unlock of the factories? And ultimately, how we should think about that cadence as we go through the quarters?
Yes, I'll agree that it was counterseasonal to the past. But I think what we've been working on really hard over the past couple of years is consistent output. And as we've been getting consistent inputs to the system and bringing our turn times down some, we've achieved that benefit. And so we didn't have a big jump across the goal line at the end of Q4 to sort of make the year. We just had steady output the last week of the year. We had steady output the first week of the year. And we've been working really hard to streamline the input process, the induction process when a customer sends us a unit for repair or overhaul. And I think all these operational factors helped us maintain a steady performance operationally, and that shows through in the financials.
Okay. That's helpful. And then just one follow-on on the LRUs. And I think it was Bill's commentary, you mentioned you guys have more confidence that this was prior underprovisioning rather than pull forward related to tariffs, say, in the prior year. Can you just kind of give us an update on why the kind of shift in signaling there and what you're seeing out of that customer base?
Sure. And I think the way I characterize it as there was an open window for trade really with what I think -- and the concern that, that window might close is my hypothesis for why that activity was so strong in recent quarters. Our team took a look at calculating all the units in the field and doing the percentages and the statistical analysis for the recommendations we put out for the spares provisioning levels, and our team determined that those customers were a little bit behind the curve in provisioning. And so that's kind of how we come up with that conclusion.
And our next question comes from the line of Gavin Parsons with UBS Financial.
Do you mind breaking down for us the growth rates by the aerospace subsegments assumed for the year?
Yes. I think we talked about that last quarter that I didn't do a very good job at that the year before. My hypothesis did not come to fruition. So I retired that process with last year. Look, we see strong demand in OEM, both defense and commercial. We see reasonably good demand on top of very hard comps coming up on the commercial services. And then defense services is kind of flattish. We're on the right programs in defense. It's just the MRO for us isn't growing very fast in defense. And that's as much color as I'd put on it at this time, if that's okay, Gavin.
Understood. Appreciate that. And you mentioned, to some extent, turn times limiting growth, but you've been investing, hiring, working on productivity. At some point, are you capacity constrained here? Or are the productivity initiatives starting to show through?
So we're reaching our -- part of our capacity plan where we're adding on to our Prestwick facility in Scotland. I kind of characterize it as a well-positioned facility, not just from a technical standpoint, but it's in an aerospace park that has great workforce reputation and pipeline. It's right across the fence line from GE's Cal facility. So we're in a really good neighborhood there. We're going to be almost 50% to doubling that facility when we add on to it. We're still in the planning phase, but it's a pretty mature part of the planning phase. So we're pushing forward to do that. We've put a couple of test cells in there on LEAP so far, and we're putting more test cells into our Rockford facility. So we have enough space in Rockford, but we needed more space in Prestwick.
And as far as the Woodward facility build-out, that's what we have in our plans for our own in-house service footprint. And we're partnering with some external MRO providers to give some more choice and some more capacity to customers. So that's up and coming.
How does that agreement work in terms of revenue and margin contribution?
So it's just like you might imagine for an independent provider that is going -- that we're going to provide technical support and materials and repair support to that MRO provider. So they'll contract with a customer or they may have a fleet they're already managing. And then we'll provide them spare parts and kits and documentation and technical support.
And our next question comes from the line of Pete Skibitski with Alembic Global.
I think you guys usually disclose this in the Q, but how was pricing this quarter in terms of -- relative to your 5% expectation for the full year? I imagine maybe with LRUs, it was above the expectation.
Yes, Pete. This quarter, we saw at the Woodward level, price come in at about 8%. So slightly higher than a 5%, which we would expect it to be slightly higher as the price compare gets harder as you go through the year. Having said that, it was still a little bit higher than we thought. So we're actually revising that 5% total year, Pete to be closer to 7% -- and we would expect aero will contribute a little bit more to that than industrial, but industrial is still contributing nicely.
Okay. I appreciate that. And then maybe one for Chip here. Chip, when you guys say you're investing in commercial aftermarket capacity, do you have a sense for how much of your installed base, maybe on a percentage basis, you're serving right now in the aftermarket?
And then if you have a goal on that front, because I don't know, it sounds like maybe you feel like you're missing out on some sales that you could get because of the quick turn nature of the aftermarket and maybe there's some, I don't know, PMA or somebody else is taking sales that you think are rightfully yours. So, I was just wondering if you can illuminate that.
Yes. So, on LEAP GTF, we don't feel like we're missing out. We're just -- we're delaying both our revenue recognition and our customers ready for install spare status. That's what's behind the turn time approach. We're not concerned about losing market share on that activity at the moment. We've been expanding the capacity with the intent to be right on line with what the demand is externally. So we understand where that demand is. We've got a pretty good prediction for removal rates, and we're trying to stay ahead of that.
We may have gotten a little bit behind on test stand capacity, which is one of our constraints. And so we're eager to have on or two of those commissioning here in the next couple of months in our Rockford facility, which should alleviate some of that work in process that we have and improve turn times. So it's not necessarily a market share-driven decision. We're just trying to stay ahead of the growth that we're predicting.
And our next question comes from the line of Louis Raffetto with Wolfe Research.
Maybe just talk to the free cash flow. So obviously, you didn't raise it. I think you were kind of implying that a few things were maybe a little bit worse than you expected. So just can you help me walk through that again?
Yes. So, Louis, that's right. You would imply that from the earnings gain that we had that we would have roughly maybe $40 million of free cash flow that would fall through as a result of that. As we've gotten into the year and looked at sort of the supply chain and meeting our customer demand, we felt that it was best to probably keep our working capital level a little higher, mainly through inventory. And as a result of that, where we are today, we thought it best to hold our free cash flow guide to where it is. I think we understand why we're doing it. We're working through things, but we want to make sure we see that efficiency before we pull the inventory down to make sure that we can meet that customer output.
Okay. Great. And then maybe just back to the question on the licensing. How are you thinking about balancing expanding your capacity with extending these licenses?
Yes. So when we even started the LEAP GTF program in our mind, we were looking at the size of the fleet that was going to be in service and say, does Woodward really want to invest in brick-and-mortar and all the equipment to service that entire fleet? Or do we want to do we want to let some others bear those investments? And then the other thing is in many -- in some cases, it's sort of a win-win because some of our customers would prefer to do that work on site to support either their array of customers or their own airline, let's say. And so for us, that's a win-win proposition where our materials, our work scopes and our technical approach gets utilized and somebody else does the wrench turning and the customer support. I think it's a pretty efficient way to think about it where we're angling to do a significant amount of the work ourselves, but yet share in a percentage of it.
And our next question comes from the line of Gautam Khanna with TD Cowen.
I was curious, just in terms of bookings, if you will, in the quarter and since the quarter's end, have you seen any -- I'm just -- we're trying to all assess whether the guidance is conservative for the next nine months. Is there anything that slows down in the March quarter? And maybe if you could just talk to broader visibility at both segments over the next six months, call it? Yes.
The easiest way to characterize it, Gautam, in terms of orders are that we have plenty of orders to achieve the high end of the guide. It's really a question of can we and our supply chain deliver that much output, continuing to work on our constraints and improve our efficiency and thereby gain some capacity, but also our suppliers delivering on time to support that. It's a delicate dance right now. We maintain a forward deployment at a number of suppliers. We still have 30-ish suppliers on risk watch and behind on deliveries and holding up -- that's another reason why we have more inventory than we want is because in some cases, we're missing one or two parts to accomplish some key deliveries to customers.
And so really, it's a question of our ability and our supply chain to deliver. And in some cases, we're actually counting -- we're actually at the mercy of other supply chains to our customers for a customer that we have a min-max kind of delivery arrangement with, they may hold us off for a while, while they let their supply chain catch up.
So, in terms of being conservative, I guess the way I would say is we're managing the risks and opportunities and calling it as well as we can see it from today. But the orders are strong and the orders support the high end of our guide.
Okay. That's very helpful. I'm also wondering if you could comment on how the profitability of the commercial aerospace OE business has trended over the last, call it, year or so now that you're getting efficiencies and ramping rates. How does that compare to the segment average margin at Aero?
Well, it's considerably below the blended margin, obviously. But the opportunity for us to improve there is really at least twofold. One is the -- if the -- if our customers can consistently remain at the higher rates and achieve the rate breaks that are in this year's plan, obviously, we'll get volume leverage, which is good. And then if we can get our supply chain aligned in such a way that we can build more efficiently, that we're clear to build for the entire week, all week, and we can run the schedule that we wanted to run at the start of the week, all of that will flow through in terms of waste reduction and impact our financials favorably. So it's really those two things that we need to come to fruition to keep improving our OE margins on the commercial side.
Is any way you can give us a dimension for how profitable it is? Is it a 10% business? Is it a 5% margin business today?
We have a variety of margins depending on which application it is and what type of product it is. And we like to think about overall business life cycle margin, and that's what it's about is getting this installed base out in the field so we can service it. That's probably all we'll say about that.
And our next question comes from the line of Alexandra Mandery with Truist Securities.
This is Alexandra Mandery on for Michael Ciarmoli with Truist Securities. I was wondering if you could size the China on-highway costs for the divestiture? And will there be any revenue spillover into FY '27? And our expectations still around $60 million for FY '26 kind of similar to the 2025 results?
Yes. So, as it relates to the wind down costs, we're expecting somewhere between $20 million and $25 million of costs related to the restructuring. A lot of that will be related to people costs, and that would be cash. There might be some expense related to dealing with some canceling contracts and some lingering inventory. So that's kind of on the cost side.
The sales for -- see the 2027. I do not believe that we will have revenue that leaks over into 2027. And we currently believe that our $60 million is still correct even with the wind down.
Okay. Great. And then you mentioned you're on the right defense programs. The defense aftermarket appears to be lagging behind defense OEM. Can you provide any additional color there? Or are there other opportunities on the horizon that you guys are looking at?
I guess the way I'd characterize our defense services is it's in some product lines, it's relatively steady. But in a number of product lines, we get a batch of work in from the customer repair depots, and we have batches of spare parts orders for the work that's being done in the repair depots. And so some product lines are steady and then some are kind of lumpy. So you can see some quarters we have single to double-digit growth and other quarters were flat to down. And it's hard to give you much more characterization than that because our visibility into that customer order pattern is somewhat limited.
We are working hard to try to get some more stable demand and some private public partnership kind of opportunities. So we're off working the pipeline, but it's a little early to say that we'll have a better handle on that order stream anytime soon.
Great. And I just had one last one. Recently, the Commander of the Air Combat Command commented that the hypothetical $1.5 trillion 2027 defense package would be spent on spare parts to give aircraft ability a boost. How would you see this playing out? And what impact could you see for Woodward?
It's hard to say how that would work for Woodward because we don't have a visibility into the current inventory that's already out there to know whether there would be a gap for our hardware or not that would need to be fulfilled. But that's something that if they're serious about that priority, I assume they'll start interrogating suppliers for capacity to deliver. And that might be our first indication that could be an opportunity for Woodward.
And Mr. Blankenship, there are no further questions at this time. I will now turn the conference back over to you.
All right. I'd just like to thank everyone for joining us on the first quarter call. Look forward to talking with you next time.
And ladies and gentlemen, that concludes our conference call today. A rebroadcast will be available on the company's website, www.woodward.com for one year. We thank you for your participation in today's conference call, and you may now disconnect.
Woodward, Inc. — Q1 2026 Earnings Call
Woodward, Inc. — Q4 2025 Earnings Call
1. Management Discussion
Ladies and gentlemen, thank you for standing by. Welcome to the Woodward, Inc. Fourth Quarter and Fiscal Year 2025 Earnings Call. At this time, I would like to inform you that this call is being recorded for rebroadcast [Operator Instructions].
Joining us today from the company are Chip Blankenship, Chairman and Chief Executive Officer; Bill Lacey, Chief Financial Officer; and Dan Provaznik, Director of Investor Relations.
I would now like to turn the call over to Dan Provaznik.
Thank you, operator. We would like to welcome all of you to Woodward's Fourth Quarter and Fiscal Year 2025 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. At the end of our 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 included some presentation materials to go along with today's call that are also accessible on the website.
Please note that based on changes in market dynamics, the company has refined its industrial end-to-market presentation to better align certain sales within power generation, transportation and oil and gas. Accordingly, sales for the quarters and years ended September 30, 2025 and 2024, have been reclassified for comparability. The reclassification had no impact on total industrial or the consolidated financial results.
A webcast of this call will be available on our website for 1 year. All references to years in this call are references to the company's fiscal year, unless otherwise stated. I would like to highlight our cautionary statement as shown on Slide 2 of the presentation materials. As always, elements of this presentation are forward looking, including our guidance and are 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 with the SEC. These statements are made as of today, and we do not intend to update them except as required by law.
In addition, we are providing certain non-U.S. GAAP financial measures. We direct your attention to the reconciliations of non-U.S. GAAP financial measures, which are included in today's slide presentation and our earnings release. We believe this additional financial information will help in understanding our results.
And now I'll turn the call over to Chip.
Thank you, Dan. 2025 was another remarkable year for Woodward. Our team continues to make significant progress, motivated by our purpose to design and deliver energy control systems that our partners count on to power a clean future. Our members' dedication to serving our customers and meeting our commitments to all stakeholders, drove record performance in a number of areas.
Our annual revenue exceeded $3.5 billion for the first time, which was the result of strong performance in both business segments. Aerospace sales increased 14% to record levels with margin expansion of 290 basis points. Industrial delivered healthy sales growth of approximately 10% and excluding China OH and core industrial margin expansion of 110 basis points.
As a result, we delivered all-time high adjusted earnings per share, up nearly 13% compared to the prior year. We achieved these results through a keen focus on our strategy, guided by our values, including integrity, respect and accountability and showing up as humble, yet driven industry leaders as we continue to improve how Woodward serves customers.
Next, I'd like to highlight some notable achievements that created value from last year driven by our pillars of growth, operational excellence and innovation. Starting with growth. Our aerospace team delivered strong growth in defense OEM as predicted and rose to the occasion to deliver on higher-than-expected commercial services demand.
Commercial aircraft delivery rates were lower than originally planned, including impacts of destocking of some Woodward components and systems. In commercial services, our team successfully captured volume growth and pricing opportunities. We experienced more legacy engine MRO volume than planned, coupled with the expected increase in LEAP and GTF demand, which is rising to levels of significant contribution to overall commercial services revenue and earnings. We expect LEAP and GTF repair revenue to surpass legacy repair revenue in late calendar 2026 or early 2027.
For this compare, I'm speaking specifically to the repair activity and excluding spare LRU sales associated with fleet spares provisioning as these sales can be lumpy over short periods of time, but generally correlate with total aircraft delivered over the long term. For example, this past quarter, we received more orders for spare end item than we anticipated with trade and tariff uncertainty contributing to the order surge.
Our Industrial segment delivered double-digit growth in oil and gas and power generation and high single-digit growth in marine transportation. Notably, our industrial services portfolio, ranging from component MRO to Powerplant controls upgrade projects, achieved substantial growth contributing to topline sales and improved mix.
Overall, our strong performance in the fourth quarter and full year 2025 reflects the strength of our strategy and our team's ability to execute. We have increased content on growing platforms in growing markets. We believe we are well positioned for future success. Over the past year, we achieved several key milestones supporting our long-term growth strategy. We completed a strategic transaction to add capability and pedigree to our electromechanical actuation business unit. The acquisition included state-of-the-art horizontal stabilizer trim actuator products on business jet, regional and wide-body commercial aircraft, including the Airbus A350.
This represents our first direct supply contract to Airbus. Integration of the acquired people and products is progressing on plan to capture the full value of the transaction. We won a competitive selection to design and deliver A350 wing spoiler actuators, further increasing our Airbus business portfolio and A350 shipset content. This organic growth project proves our position on a very successful wide-body program as well as prepares us for the next single aisle opportunity by demonstrating our technology, design and industrialization capability.
This win, coupled with our recent acquisition of electromechanical actuation capability, including the A350 HSTA, will raise our total A350 shipset value to approximately $550,000 once we start shipping the wings spoiler actuators, currently scheduled for late calendar 2028.
To that end, we broke ground on our Spartanburg, South Carolina facility construction project in November. This facility is intended to be another showcase advanced manufacturing site, building on our experience with our Rock Cut campus, highly automated and vertically integrated. We will produce the A350 spoiler plus additional aerospace products at this facility.
Within Industrial, our Glatten expansion is ahead of schedule and on track to become operational by mid-2026. This expansion will provide increased capacity to meet the growing demand for data center backup power with enhanced levels of automation, improved flow and higher inventory turns.
To support our growth, we're making increased strategic investments in our company with robust returns for projects that increase capacity and improve productivity with a specific focus on automation.
Turning to operational excellence. We continue to make steady progress. We are focused on improving the fundamentals, and I expect our teams to pick up the pace to improve flow and unlock more productivity in this coming year. Everything starts with safety at Woodward. We continue to roll out our human and organizational performance program to reduce injury risks and increased levels of protection, and we are on track to have HOP in place at all of our sites this calendar year. We're also investing in immersive training for our team leads and first-level supervisors. We are starting to see the benefits as they apply what they've learned, solving problems within cycle time, rebalancing work to optimize labor and create flow and coaching their teams more effectively. I'm excited by our progress so far.
We're also making strides in stabilizing our supply chain. Although we are still experiencing some supplier performance shortfalls, Woodward has made progress in optimizing our supplier network, while helping our strategic suppliers improve their own quality and delivery when required. Industry-wide efforts to stabilize demand signals are benefiting our planning and delivery performance. I'm pleased to see our investments in automation paying off by reducing our demand for labor. We're also realizing the expected benefits in safety, quality, delivery and cost as we refine our project execution and rebalance value streams.
Our automation focus is on jobs with high turnover repetitive or economically challenged tasks and high applied force requirements. Our workforce is embracing these projects and understands the benefit in their daily work. We will continue to invest in automation in 2026 and beyond.
Innovation is alive and well at Woodward, and we made prudent investments in technology development for new military programs, the next single aisle, alternative fuels, automation and services delivery. We continue partnering with our customers to shape how our technology solutions and elevate the value of their next-generation products.
As we look ahead, our priorities for 2026 are centered on strong execution, including capturing continued growth in our markets, driving operational excellence and meeting our customers' evolving expectations.
In Aerospace, we are prepared for increased OEM orders as the aircraft manufacturers stabilize and increase production rates and as defense customers continue to signal strong demand. In commercial services, we are prepared for MRO growth as legacy aircraft continue to fly longer and more LEAP and GTF engines enter their maintenance cycles. We do expect somewhat muted topline growth in commercial services compared to 2025, which benefited from outsized demand for spare end items and some advanced buying.
In Industrial, we are ready to meet sustained demand across our core markets of transportation, power generation and oil and gas and continue to expand our capabilities and global presence in industrial or regional repair, overhaul and upgrade offerings.
Our guidance for 2026 reflects our continued confidence in the growth trajectory across our segments and our continued operational discipline. We are on track to deliver the 3-year sales and earnings targets we set at December 2023 Investor Day. We do expect a modest adjustment to our cumulative free cash flow target as we make the strategic decision to allocate more capital toward organic, high-return growth investments, including automation at multiple sites and the Spartanburg facility.
2025 was a year of record performance and significant progress as we executed on our strategy and delivered on the commitments we've made to shareholders. We intend to build on the strong momentum in 2026 and beyond. And now I'll turn it over to Bill to share more detail around our financial performance in 2025 and our outlook for 2026. Ready Bill?
I'm ready. Thank you, Chip, and good evening, everyone. As a reminder, all references to years are references to the company's fiscal year unless otherwise stated. And all comparisons are year-over-year unless otherwise stated.
Net sales for the fourth quarter of 2025 totaled $995 million, an increase of 16%. Net sales for 2025 were $3.6 billion, an increase of 7% and the highest on record. Earnings per share for the fourth quarter of 2025 were $2.23 compared to $1.36.
Adjusted earnings per share for the fourth quarter of 2025 were $2.09 compared to $1.41. For 2025, earnings per share were $7.19 compared to $6.01, and adjusted earnings per share were $6.89 compared to $6.11.
At the segment level, our Aerospace segment delivered double-digit sales growth in substantial earnings expansion for both the fourth quarter and full year, driven by strong performance in commercial services and defense OEM. Fourth quarter Aerospace segment sales were $661 million, up 20%. Commercial Services sales increased 40%, while commercial OEM sales were essentially flat.
Defense OEM sales increased 27%, and defense services were up 80%. Aerospace segment earnings for the fourth quarter were $162 million, with margins expanding 520 basis points to 24.4% of segment sales. The improvement was driven by strong price realization and higher volume, partially offset by strategic investments in our Aerospace Manufacturing capabilities as well as inflation.
For the full year, the Aerospace segment delivered record annual sales and earnings. Segment sales were $2.3 billion, up 14%. Commercial Services sales increased 29% reflecting both favorable pricing and higher volumes, supported by sustained high utilization of legacy aircraft and improved throughput by the MRO shops. LEAP and GTF activity also continues to increase, further contributing to commercial services growth.
I do want to note that toward the end of the fiscal year, while underlying commercial services demand remained strong we believe a portion of the growth was influenced by certain customers making advanced purchases to take advantage of a window of trade stability.
Defense OEM sales increased 38%, primarily driven by strong demand for smart Defense. In addition, new JDAM pricing took effect during the fourth quarter, which contributed to the strong year-end performance. Aerospace segment sales growth was partially offset by a 6% decrease in commercial OEM sales. The decrease was largely due to the Boeing work stoppage earlier in the year and our disciplined and measured production ramp that followed along with inventory normalization by air framers that occurred in the second half of the year.
Moving into 2026, we expect these headwinds to ease as air framer production rates increase. Defense services sales were down 2%. As a reminder, while the timing of this business can be lumpy, demand signals remain healthy. Aerospace earnings for 2025 were $507 million or 21.9% of segment sales compared to $385 million or 19% of segment sales. The 290 basis point improvement reflects solid price realization and higher sales volumes, partially offset by strategic investments in manufacturing capabilities unfavorable mix and inflation.
We're making these strategic investments to enable future growth by expanding manufacturing engineers to support our ongoing efforts to increase automation. In addition, we have been increasing and developing our production frontline and team leaders to improve supervision, training and problem solving to drive productivity, improved cycle times and increase output.
Turning to Industrial. As a reminder, my comments reflect the reclassification of certain sales between the end markets that Dan mentioned earlier. Industrial segment sales for the fourth quarter were $334 million, up 11% from $302 million. Our core industrial sales, which excluded the impact of China on-highway, grew 15% in the quarter.
Transportation sales increased 15% and oil and gas sales grew 13%, while power generation grew only 6% due to the impact of the divestiture of our combustion business in the second quarter of this year which had averaged approximately $15 million of quarterly sales. Excluding the impact of the divestiture, power generation sales grew in the mid-teens on a percentage basis.
Industrial segment earnings for the fourth quarter were $49 million or 14.6% of segment sales compared to $38 million or 12.6% of segment sales. Within our core industrial business, margins expanded 330 basis points to 15.2% of core industrial sales, driven by price realization, partially offset by expected inflation and planned strategic investments in manufacturing capabilities.
For 2025, Industrial segment sales were $1.25 billion compared to $1.3 billion, a decrease of 3%. Excluding the impact of China on-highway sales, core industrial sales increased 10% to $1.2 billion compared to $1.1 billion for the prior year. Marine transportation grew 9% driven by both price and volume. As elevated ship build rate supports strong OEM engine demand and lay the groundwork for future services opportunities.
Oil and gas sales grew by 14% as volume growth was driven by greater midstream and downstream gas investment. Power generation, excluding the impact from the divestiture of our combustion business grew 22% driven by our operational improvements and increased output to meet growing demand in various gas turbine systems value stream.
Industrial segment earnings for 2025 and were $183 million or 14.6% of segment sales compared to $230 million or 17.7% of segment sales. This decrease was largely a result of lower sales volume and unfavorable mix, both related to reduced China on-highway demand, partially offset by price realization.
Core industrial margins for 2025 were 15.2% of segment sales, an increase of 110 basis points. This expansion reflects strong operational execution, price realization across the portfolio and our ability to drive incremental margins from higher volumes, partly offset by expected inflation in planned manufacturing investments to further improve productivity.
Nonsegment expenses were $41 million for the fourth quarter of 2025 compared to $31 million. Adjusted nonsegment expenses were $35 million in the fourth quarter compared to $27 million. Nonsegment expenses were $126 million in 2025 compared to $120 million. Adjusted nonsegment expenses were $133 million in 2025 compared to $112 million.
At the consolidated Woodward level, net cash provided by operating activities for fiscal 2025 was $471 million compared to $439 million. Capital expenditures were $131 million for fiscal 2025 compared to $96 million. The increase in capital expenditure was driven by ongoing investment in automation and production to improve operations and prepare for growth.
In addition, in 2025, we purchased the land for our new facility in Spartanburg, South Carolina and this project is rapidly moving forward. Free cash flow was $340 million for fiscal 2025 compared to $343 million. The decline in free cash flow was primarily due to higher capital expenditures, partially offset by higher earnings.
As of September 30, 2025, debt leverage was 1x EBITDA. During fiscal 2025, as anticipated, we returned over $238 million to stockholders, including $173 million of share repurchases and $65 million in dividends.
In November 2025, we successfully completed our previous 3-year $600 million share repurchase authorization more than 1 year ahead of schedule, reflecting our ongoing commitment to return cash to shareholders. We recently announced a new 3-year sheer repurchase program, authorizing the repurchase of up to $1.8 billion of common stock. This significant expansion reflects the Board's confidence in Woodward's strategy, long-term growth outlook and ability to consistently generate strong free cash flow.
In fiscal year 2026, our guidance assumes returning between $650 million to $700 million to shareholders in the form of dividends and share repurchases. From a capital allocation perspective, we remain committed to a disciplined and balanced approach that fully leverages our strong balance sheet to drive growth. We are investing organically to advance automation and complete our new Spartanburg, South Carolina facility, while also actively evaluating selective returns-driven M&A opportunities. Our strong balance sheet positions us to act decisively when the right opportunities arise.
Now turning to our 2026 guidance. As we look ahead, we remain focused on our value drivers, growth, operational excellence and innovation. Our fiscal 2026 guidance assumes a sustained strong demand environment, supporting continued sales growth and further margin expansion. At the consolidated level, Woodward net sales growth is expected to be between 7% and 12%. Aerospace sales growth is expected to be between 9% and 15%. Industrial sales are expected to grow 5% to 9%. In Aerospace, we expect sales growth across the segment weighted towards OEM driven by a return to growth in commercial OEM and continued strength in defense OEM. Commercial Services growth is expected to moderate as 2025 include a high level of spare LRU purchases as well as the advanced purchases I mentioned earlier.
Defense Services are expected to show modest growth. Industrial sales are anticipated to grow across all of our primary markets. Note, we expect power generation growth to be muted in the first half due to the divestiture of our combustion product line. We anticipate China and highway sales in 2026 to be approximately $60 million, in line with 2025.
Woodward adjusted earnings per share are expected to be between $7.50 and $80 based on approximately 61 million fully diluted weighted average shares outstanding and an effective tax rate of approximately 22%.
Aerospace segment earnings are expected to be 22% to 23% in segment sales. Industrial segment earnings are expected to be 14.5% to 15.5% of segment sales. Adjusted free cash flow is expected to be between $300 million and $350 million. Capital expenditures are expected to be approximately $290 million, which includes continued investment in automation and approximately $130 million dedicated to the build-out of our new production facility in Spartanburg, South Carolina. The increased spend also includes investment in MRO readiness and the start of a multiyear ERP upgrade project.
Some additional items to help you with your modeling. We expect year-over-year price realization of approximately 5%. Nonsegment expenses should be approximately 3.5% of sales. Consistent with historical trends, we anticipate performance to strengthen across the quarters of fiscal year 2026. Our fiscal 2026 guidance positions us to meet or exceed the long-term sales and earnings commitments for 2024 through 2026 which were established at our last Investor Day.
Free cash flow is expected to be below our 3-year target, reflecting higher strategic investments to support sustained long-term growth. including our new Spartanburg facility. We plan to introduce our next 3-year outlook at our Investor Day in December of 2026.
This concludes our comments on the business and results for the fourth quarter and fiscal year 2025.
Operator, we are now ready to open the call to questions.
[Operator Instructions]
And our first question comes from the line of Scott Mikus with Melius Research.
2. Question Answer
Chip, I had a question kind of on the aftermarket dynamics, particularly in engines. So the LEAP MRO network is much more internal relative to the CFM56 network. So when you ship a fuel metering unit component on the LEAP engine. Just how are you sure whether it's going to the aftermarket or OE channel? Are you being paid at different price versus both? Just given that GE and CFM more broadly is trying to route as many component sales through the LEAP MRO premier network?
So we're -- thanks for the question, Scott. We're sure about the PO status that comes to us, whether it's an install or a spare end item in terms of what customer is ordering it. So we have clear line of sight to what type of unit that is.
Okay. And then given the investments that you're making in automation, when I was at the Rock Cut campus, it was very impressive there. Is there anything structurally that you see that would potentially prevent your LEAP or GTF aftermarket margins to where they couldn't potentially reach CFM56 or V2500 margin levels?
Well, Scott, there's nothing structurally in the way of that. It's kind of up to us to understand what the customers are seeing in the field with the units and developing the right repairs and overall procedures. And we're learning -- we've learned a lot with the first units that have come back, whether it be the pump or SCU or FMU on LEAP or it's the GTF fuel nozzles or actuation. So we're pretty confident that we have the right design for repairability and service solutions for our customers that we'll achieve the right profitability.
And our next question comes from the line of Scott Deuschle with Deutsche Bank.
Bill, what growth are you assuming for legacy narrow body engine aftermarket in 2026?
Scott, for you said legacy narrow body for...
For narrow-body engines, yes.
Yes. So we -- obviously, we saw a really good growth in '25. And based off of that, we would expect sort of single-digit growth rates coming through in 2026 on the legacy narrow-body. We expect to see some price obviously come through and volume at these levels will be tough. But the MRO shop surprised us last year, so we'll see if they get some more productivity. But I would say, single digit.
Okay. And then, Bill, does the EPS guide include any benefit of the recent share repurchase authorization increase? Or do you not really assume that authorization or repurchases -- excuse me, the guide?
Yes. We do expect and put that into the guide.
Okay. And then last question, Chip. Can you give us any sense as to how much your current power generation revenue is tied to Caterpillar? And I'd be curious if you could talk a little bit about the growth outlook you expect from that customer in the years ahead.
Well, we've been receiving pretty healthy growth from all of our power gen customers. And Bill and Dan talked about a little bit of reclass that went on. And it was really by examining where all of our customers and products were being used some traditional oil and gas customers have been involved in more power gen type applications, maybe not utility-grade but behind the meter type applications and folks like Caterpillar and NEO and Baker Hughes are all kind of playing in that segment of the market. So it's a very interesting aspect of the power gen growth opportunity that we're capitalizing on.
But as far as carving out just a single customer like Caterpillar, we don't do that. But I think you can be satisfied that as they grow, we grow, we're on some of their gas engines with SOGAV and valves and actuation and we're on some of their liquid fuel engines with actuation and governor products. So we've got a good staple of products distributed on their products, and it varies by application.
And our next question comes from the line of Sheila Kahyaoglu with Jefferies.
This is Kyle on for Sheila. I hope that -- can you kind of extend the question here on the commercial aftermarket because I think you said muted next year. So you gave -- the prepared remarks are pretty helpful. I think you said LEAP GTF by the end of calendar year '26, the same size or larger than legacy. So when I take that in connection with the single-digit comment you just gave to Scott, I mean, I guess it implies that maybe the pull forward that you saw in this quarter and prior quarters is significantly larger than maybe I expected.
So maybe if you can just kind of walk through those puts and takes to round out that comment. What are you thinking about LEAP GTF growth next year in light of what the OEMs are saying and the magnitude of the pull forward that you saw this year and whether you're sure that's not repeating or whether there's potential that was actually restocking?
Yes. Thanks for the question. We really do believe there will be strong repair growth for LEAP and GTF. We believe like Bill was saying there'll be either flat to a little bit of repair growth on V2500 and CFM-5, But the thing, the big variable is this lumpy order behavior that we saw last quarter on spare end items, but pretty substantial demand there. And those are quite high-priced individual items to be ordered compared to repair.
So when you think about the total top line, it has an outsized effect on that top line as well as the earnings. So we don't forecast that happening again. There could be additional activity. We don't rule that out, and we're prepared to capture that if it shows up. But we -- I don't think it's prudent to forecast that or put that in our plan because we don't have any line of sight to that at this time.
And if I could just follow up on the price comment, Bill, you said 5% next year. I assume that's more weighted to aerospace and increasingly weighted to aftermarket. So maybe any additional color by segment and by subsegment within that.
Yes. Correct. At the total Woodward level 5% in the comments we talked about, the JDAM price increase in the fourth quarter '25, we'll see that flow through the first 3 quarters of '26. And so with that and some catalog growth, we will -- aero will outpace industrial slightly, but we still also will see good price results from our industrial team as well.
And our next question comes from the line of Noah Poponak with Goldman Sachs.
Can you quantify in absolute dollars, whatever you're deeming to have been lumpy or pulled forward in the aerospace aftermarket in 2025 revenue?
Yes. Noah, it's -- as you can imagine, it's hard to quantify because the customer isn't telling us exactly kind of their thought. But here, I'll give you a few numbers that will be in the footnotes of the 10-K. Back where we lay out by segment sales by region. And you'll see that from 20 -- from '24 to '25, sales grew $50 million. So some part of that $50 million is normal growth. And then some part of that is a part of this advanced purchases. It's just hard to quantify exactly.
Okay. That's helpful. And can you quantify where LEAP and GTF aftermarket came in for the year 2025 versus 2024?
So the LEAP and GTF are gaining on the legacy, let's put it that way. And like I said before, they're kind of in the same ZIP code, but not equal. So -- and we're just talking repair activity, not including spare end items. So we really do think that that's going to cross over in the late '26, early '27 time period. And that may sound like an earlier crossover compared to what we said at Investor Day back in 2023. But that original graph in 2023, the legacy items that included some widebody and regional component repair and then it also in the new included GEnx.
So we're trying to strip out some of that other information and make it cleaner for you. Like last quarter, I committed that we would clarify that. And when we do run our model out and look at kind of how fourth quarter ended, how inputs are coming in for both the legacy as well as the LEAP GTF. That's how we come up with that sort of crossover period, which I hope clarifies things for you.
Okay. Great. That's super helpful. And then just on the Aerospace segment margin, the guidance requires a pretty significant slowdown in the incrementals. I guess in the fourth quarter, you're seeing incremental benefits from the items we just discussed and therefore, it's sort of a leveling out over the 2 years? Or is there more to it?
Yes. So the -- no, I think your question is about the incremental coming down from about 42.5 for aero and coming down in '26. And it's a few things. It's our OEM mix growing on the aero side, which is a mix down. And then, yes, the -- and so that's the main driver is just the amount of OEM that we expect to come through in '26.
And just a reminder about that is a good thing. So we're creating the installed base to get the services revenue and earnings on later.
And our next question comes from the line of Christopher Glynn with Oppenheimer.
Curious on the defense side, a specific and a general question. Where are you with guided weapons clarity longer term, how those programs and lot orders are flowing through? Should we anticipate that growth is kind of leveling off on a sequential basis? Or is the volume still ramping? I know you have a big price aspect to growth in that category?
So our guided weapons programs, Pearl, JDAM, small diameter bomb SDB and the team 9X are all kind of having a little different behavior. JDAM is up substantially, but we feel like that will remain level for a good while. And then we don't have any orders for the other 2, but we have indications that customers are asking us to do capacity studies and work with our supply chain and capacity studies. So some of these things are leading indicators that these other product lines might experience some growth opportunities. But we don't have anything specific, Chris, on that right now.
Okay. Great. And you mentioned global capacity investment for the industrial aftermarket. I'm guessing that's oriented towards the marine side, but just wondering if we could drilling to that investment element there.
Yes. So we've been doing a little bit of flag planting here and there on MRO shops. So when you think about a powerplant, and all of the scope of supply that we could provide to aeroderivative or heavy-duty frame power plant installations. Just like an aircraft engine, they undergo maintenance cycles, and we're finding that we have the ability to grow our service content with these customers when we're a little closer to that region.
So we've done some of that in the prior couple of years, and we anticipate doing a little bit more of it just to try and get closer to the customers. and grow the opportunity to service our fuel metering valves and other types of scope of supply like that, that are on our customers' gas turbines and as well, reaching out with the opportunity to do some repair and reciprocity engines.
And our next question comes from the line of Gavin Parsons with UBS.
Guys, what are you assuming for OE destocking? And it would be helpful if you could parse that out kind of by airframe and engine.
Thanks for the question, Gavin. It's a little difficult to parse that out for you that detail of a way from a customer standpoint. But we feel like, broadly speaking, somewhere in our second quarter sort of time period. If airframe customers and engine customers hit the rates and pull like they've forecast for us. We could be destocked by some time in that second quarter towards the end of our first half fiscal year.
Okay. That's helpful. And then on CapEx going forward, should we kind of assume that normalizes once you finish kind of the A350 buildout? Or by the end of the decade? Or are we starting to look at build out for maybe a new single aisle?
Yes. For right now, Gavin, we'll say that the Spartanburg is investment is causing that peak. We're going to continue to kind of look through '27, '28, '29, and we'll give you a clearer view in December of what's out there. We're looking -- understanding our next single aisle investments. But right now, the Spartanburg is sort of what we see there on the near horizon.
And our next question comes from the line of Michael Ciarmoli with Truist Securities.
Nice results. Just to stay on Gavin's question there. The CapEx for Spartanburg. Can you support or will that have enough capacity to support programs beyond the A350? I mean is there kind of does this build out contemplate next-gen single-aisle.
Thanks for the question. The investment in Spartanburg, that facility has additional capacity over and above the A350 for us to put select product lines in there that make sense and are synergistic. But we're betting on a successful campaign for next single aisle scope, so that facility would not by itself be able to support NSA volumes.
We have bought enough land there to build a sister facility for NSA support. So we are thinking ahead where it makes sense on small amounts of investment dollars, but we're not putting any big investment dollars on NSA capacity. We'll have to really take a look at what that horizon and life cycle looks like from the design phase through the build and flight test phase and lay that out in comparison to our facilities and what's going on with legacy programs before we decide kind of how much additional capacity we need.
So that's a thought exercise even like Bill was saying, we'll share more at Investor Day in December. But some of that NSA thought exercise will mature as we understand from the Airbuses and Boeings of this world about what that time frame looks like.
Okay. Fair. And then just back to Noah's question actually. You were talking about incrementals, but I guess just absolute margins looking at the low end of the range, really no margin expansion. You're obviously hitting and exceeding the targets, and you talked about the OEM mix, which makes sense. But as you're seeing this ramp on LEAP and GTF, is there margin dilution there on services? I mean do you have to get over some learning curves? I mean, I'm assuming scrape spare sales would be highly accretive on those platforms. But is there anything else dilutive with the LEAP and the GTF ramp up there?
Yes. I'll jump on that and Chip maybe cover me if I miss a part. But no, the LEAP GTF service margins are good. It really is the impact of the overall OE and how that impacts things. Obviously, on the low end of the range, it contemplates some other headwinds. But to the point about the LEAP GTF margins are good. Again, OE mix is a primary driver of our -- of the rate expansion that you're seeing in our guide.
Yes. I would just follow up and say that we intend to expand margins, and that's what you see a guide there that allows for some headwinds to get in the way of that intent. But we've got plans in place and programs and the automation benefit that we're planning some realization of for 2026. We intend to get productivity.
And our next question comes from the line of Gautam Khanna with TD Cowen.
Just to elaborate on the first question, which we've written about before, which is this LTSA versus spot aftermarket dynamic on LEAP versus CFM. Is it -- do you guys -- I'm just curious like on CFM56, when you sell into -- a spare part into the GE network, I presume that's a lower price than what you would sell into if it's an MRO or airline outside the network? And does that same logic apply for LEAP when you're selling a spare part to a direct user like an airline versus when you sell it through the GE internal MRO network? And if that's true, why wouldn't there be structural differences in profitability between those 2 platforms in the aftermarket over time?
Well, the reason why there's no structural difference is because there's really no structural difference to the contracting, Gautam. And when we sell spare end items, it can be to an airline, it can be to an MRO shop that has a variety of people under different agreements. We have some asset management contracts with some of the bigger MROs just like us CFM or GE or Safran network. So the whole landscape is similar between the previous generation and this generation.
So when you think about repair, it's also the same thing. So whether it's the spare end item, spare parts or a repair, we have fairly similar contracting principles in the LEAP ecosystem that we do to the CFM-5. And so I think there's nothing really there to explore further except that we have a lot more LRUs to take care of.
Got you. And then a follow-up on the mix dynamic within the aftermarket. I know you talked about repairs, and I think that's distinct from spares. So I just wanted to get a sense, is the overall aftermarket profitability next year a little bit softer than it was in '25, just based on kind of more repair, less spares? Or was there any nuance here that you were trying to convey?
Really no nuance to convey there. We have a good blended service earnings profile for 2026. We're pretty happy with that. We'll see if the spare end item, if more comes through than we forecast, like it did last year, I mean it's really hard to tell. We'll have some upside if that happens.
And our final question comes from the line of Louis Raffetto with Wolfe Research.
Bill, how should we think about the return of capital to shareholders is going to be balanced across the year? Or is there any reason to think it will be skewed one way or the other?
Yes. Louis, our point is to spread it out evenly through the year. We'll see how things go, but the plan is to stay in the market throughout the year.
All right. And then I guess on FSG margins, the last several years, the first quarter has been, I would say, substantially below the rest of the year. Is that something we should sort of expect again here in fiscal '26?
I'm sorry, Louis, the margins in Q1?
We missed your first words.
Sorry, FSG margins in Q1 have been below sort of the second quarter, third quarter? Should we...
I'm not quite sure we say FSU.
I'm sorry. I mean aerospace process.
Okay. Yes, correct. That is normal trend in Aerospace and in Industrial, that Q1 is usually our lowest margin quarter and it sort of grows sequentially throughout the rest of the year.
And then just last one on tax rate. You've had some benefit from option exercises in the last few years. I assume with the 22% rate, you're not expecting anything like that, but certainly could have that benefit depending on how that plays out?
That's exactly right, Louis. With the prices that we've seen over the last couple of years. And as we estimate out, we don't foresee that outsized tax benefit from option exercises. So that is what is behind that 22% effective tax rate.
That concludes our question-and-answer session. Mr. Blankenship, I will now turn the conference back to you.
Thanks, everyone, for joining today's call. We hope you all have a wonderful Thanksgiving holiday.
Ladies and gentlemen, that concludes our conference call today. A rebroadcast will be available at the company's website, www.woodward.com for 1 year. We thank you for your participation in today's conference call, and you may now disconnect.
Woodward, Inc. — Q4 2025 Earnings Call
Financial data from Woodward, Inc.
Revenue
Revenue is the sum of all sales generated by a company, e.g. for its products or services.
Revenue (TTM) metric explainedDirect Costs
Direct costs are the costs incurred directly in connection with the manufacture of the product or service.
Gross Profit
Gross Profit indicates how much of the revenue remains in the company after deducting direct production costs. If the percentage share of sales is calculated, this is referred to as the gross margin.
Gross Profit metric explainedSelling and Administrative Expenses
Selling, general and administrative expenses (SG&A) include all expenses for marketing and sales as well as the general administration of the company.
Research and Development Expense
Research and development costs (R&D) provide information on how much the company invests in the research and development of its products. The costs are particularly interesting as a percentage of revenue and in comparison to direct competitors.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the company's earnings before interest, taxes, depreciation and amortization. The EBITDA margin is calculated as a percentage of sales.
Depreciation and Amortization
Depreciation represents reductions in the value of the company's assets (e.g. due to wear and tear on machinery).
EBIT (Operating Income)
EBIT (Earnings Before Interest and Taxes) is the company's profit before interest and taxes, also known as the operating income. The EBIT Margin is calculated as a percentage of sales at
.
Net Profit
Net Profit represents the profit or loss after deduction of all costs.
Net Profit metric explainedStocksGuide Premium
| Jun '26 |
+/-
%
|
||
| Revenue | 4,192 4,192 |
22%
22%
100%
|
|
| - Direct Costs | 2,957 2,957 |
16%
16%
71%
|
|
| Gross Profit | 1,235 1,235 |
39%
39%
29%
|
|
| - Selling and Administrative Expenses | 391 391 |
25%
25%
9%
|
|
| - Research and Development Expense | 172 172 |
20%
20%
4%
|
|
| EBITDA | 807 807 |
50%
50%
19%
|
|
| - Depreciation and Amortization | 120 120 |
6%
6%
3%
|
|
| EBIT (Operating Income) EBIT | 687 687 |
61%
61%
16%
|
|
| Net Profit | 552 552 |
42%
42%
13%
|
|
In millions USD.
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Woodward, Inc. Stock News
Company Profile
Woodward, Inc. engages in the provision of control system solutions and components for the aerospace and industrial markets. It operates through the Aerospace and Industrial segment. The Aerospace segment designs, manufactures, and services systems and products for the management of fuel, air, combustion and motion control. The Industrial segment includes the design and services systems and products for the management of fuel, air, fluids, gases, electricity, motion, and combustion. The company was founded by Amos W. Woodward in 1870 and is headquartered in Fort Collins, CO.
StocksGuide Premium
| Head office | United States |
| CEO | Mr. Blankenship |
| Employees | 10,200 |
| Founded | 1870 |
| Website | www.woodward.com |


