Woodward (NasdaqGS:WWD) Q1 2026 Earnings call February 02, 2026 05:00 PM ET Company ParticipantsAlexandra Mandery - Equity Research AssociateBill Lacey - CFOChip Blankenship - Chairman and CEODan Provaznik - Director of Investor RelationsGavin Parsons - Equity ResearchKyle Wenclawiak - Equity Research Senior AssociateLouis Raffetto - SVP of Equity ResearchNoah Poponak - Managing DirectorPeter Skibitski - DirectorScott Deuschle - DirectorScott Mikus - Vice President of Equity ResearchConference Call Particip ...

Financial Data and Key Metrics Changes - In the first quarter of fiscal year 2026, the company reported net sales of $996 million, a 29% increase year-over-year, and earnings per share of $2.17, up from $1.42, reflecting a 54% increase [14][6] - Free cash flow for the first quarter was $70 million, significantly higher than the previous year's $1 million [21][20] Business Line Data and Key Metrics Changes - Aerospace segment sales increased to $635 million, a 29% rise, driven primarily by a 50% increase in commercial services sales [15][14] - Industrial segment sales reached $362 million, up 30%, with core industrial sales (excluding China On-Highway) increasing by 22% [17][14] Market Data and Key Metrics Changes - The aerospace market saw robust demand growth in both commercial and defense OEMs, with commercial services exceeding forecasts [8][5] - The industrial segment experienced broad-based growth across power generation, transportation, and oil and gas, with marine transportation sales increasing by 38% and oil and gas sales by 28% [17][8] Company Strategy and Development Direction - The company plans to wind down its China On-Highway product lines by the end of the fiscal year, aligning with its long-term growth strategy for the industrial segment [10][19] - Strategic priorities include meeting OEM demand growth, providing world-class service for repair and overhaul, and shifting R&D focus to customer value demonstration [11][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in raising full-year sales and earnings guidance due to strong first-quarter performance and market outlook [12][22] - The company anticipates challenges in supply chain alignment and inventory efficiency, with investments aimed at improving operational capabilities [7][8] Other Important Information - The company expects to incur $20 million to $25 million in costs related to the wind-down of the China On-Highway business, with no revenue spillover expected into FY27 [97][96] - Capital expenditures for fiscal 2026 are projected to increase significantly due to facility buildouts and automation projects [21][20] Q&A Session Summary Question: Will the $245 million of commercial aftermarket sales in the first quarter be the low point for the year? - Management indicated that it is hard to predict if this will be the low point, as they expect increasing repair and spare part sales driven by strong market demand [25] Question: What are the drivers behind the growth acceleration in oil and gas and marine transportation? - Growth in oil and gas is driven by both OEM and services, while marine transportation growth is attributed to increased shipyard output and high fleet utilization [35] Question: How does the company view the profitability of the commercial aerospace OE business? - Management noted that while the profitability is below the blended margin, there are opportunities for improvement through consistent production and supply chain alignment [91] Question: What is the expected impact of the $1.5 trillion 2027 NDAA package on Woodward? - Management stated that it is difficult to predict the impact without visibility into current inventory levels, but they are prepared to respond if demand increases [100]

Woodward (NasdaqGS:WWD) Q1 2026 Earnings call February 02, 2026 05:00 PM ET Speaker8Ladies and gentlemen, thank you for standing by. Welcome to the Woodward Incorporated first quarter fiscal year 2026 earnings call. At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. Following the presentation, you are invited to participate in a question-and-answer session. Joining us today from the company are Chip Blankenship, Chai ...

Core Viewpoint - RBC Capital raised the price target on RTX to $230 from $220, maintaining an Outperform rating following strong Q4 earnings performance [1] Group 1: Earnings Performance - Q4 earnings were driven by strong commercial sales, indicating robust demand in that segment [1] - The outlook for defense sales remains a critical focus for investors, suggesting potential volatility or opportunity in that area [1] Group 2: Future Guidance - The GTF fleet management plan aligns with company expectations, indicating operational stability [1] - Initial guidance for 2026 is viewed positively, supporting investor sentiment towards the company [1]

Summary of Key Points from the Conference Call Transcript Industry Overview - **Industry**: Aerospace & Defense Electronics, specifically focusing on the Commercial Aftermarket (AM) pricing dynamics [1][2] Core Insights 1. **Maintenance Cost Increases**: Maintenance costs have risen by 30-35% since 2021/2022, with expectations for continued momentum in the high single digits (MSD+) moving forward [1][4][21] 2. **Turnaround Times (TAT)**: TATs remain elevated at approximately 100-125 days, although some relief is being found through engine exchange programs [1][16][31] 3. **PMA and USM Advantages**: Parts Manufacturer Approval (PMA) and Used Serviceable Material (USM) are gaining traction due to their pricing advantages, with PMA parts sold at a 20-25% discount to Original Equipment (OE) list prices [3][5][10] 4. **Workscope Expansion**: Workscope expansions can lead to significant increases in service costs, with second shop visits (SVs) for GE90 engines being 60-70% heavier than first visits [4][22] 5. **Parts Inflation**: Parts inflation is shifting the market mix towards USM, with certain parts seeing price increases from ~$20K to ~$30-35K, representing a 63% rise [5][21] 6. **Contract Structures**: New contract structures are reallocating risk and unlocking savings, with OEMs absorbing non-maturity risks in early program Pay-By-Hour (PBH) contracts [6][21] 7. **Lease Rates and Scarcity**: Lease rates have increased by approximately 5-10% over the past year, driven by system-wide scarcity and elongating TATs [7][16][28] Additional Important Insights 1. **Market Growth**: The aftermarket is projected to grow by 8% in 2026, outpacing the International Air Transport Association (IATA) Revenue Passenger Kilometers (RPKs) growth of 6% [8] 2. **Expert Commentary**: PMA parts are noted to have gross margins of 50-70% for suppliers, indicating a lucrative market despite historical reluctance from lessors to adopt PMA due to lease return conditions [3][10][19] 3. **MRO Capacity Constraints**: The MRO (Maintenance, Repair, and Overhaul) capacity remains constrained, with shortages in USM and spare engines pushing costs higher and extending turnaround times [28][33] 4. **Platform-Specific Dynamics**: Different engine platforms such as CFM56, LEAP, and GTF are experiencing unique challenges, including durability issues and rising maintenance demands [41][42][43] 5. **Future Projections**: LEAP services revenues are expected to reach approximately $6.5 billion by 2028, up from around $3.2 billion in 2025, indicating strong growth potential in this segment [11][12] This summary encapsulates the key points discussed in the conference call, highlighting the current state and future outlook of the aerospace and defense aftermarket industry.

Financial Data and Key Metrics Changes - Woodward reported record net sales of $915 million, an increase of 8% year over year, with earnings per share at $1.76, also up 8% year over year [7][20][30] - The aerospace segment achieved record sales of $596 million, a 15% increase from $518 million, with margins expanding by 140 basis points to 21.1% [7][20][22] - Industrial segment sales decreased by 3% to $319 million, primarily due to a 69% decline in China On Highway sales, while core industrial sales grew by 9% [23][24] Business Line Data and Key Metrics Changes - Aerospace segment earnings were $126 million, with margins expanding due to price realization and higher volumes, despite inflationary pressures [22] - Defense OEM sales surged by 56%, driven by increased demand for smart defense programs, while commercial services sales rose by 30% [20][21] - Industrial segment earnings decreased to $48 million, with margins at 14.9%, impacted by lower China On Highway volumes [25][26] Market Data and Key Metrics Changes - Aerospace services showed sustained strong growth, with legacy engine LRU overhauls increasing compared to last year [13] - Marine demand remained strong, with over half of new ship orders including alternative fuel specifications [18] - The gas turbine portfolio performed well, particularly in LNG and broader oil and gas applications, driven by growing global electric power demand [15] Company Strategy and Development Direction - The company is investing in a new manufacturing facility for the Airbus A350 spoiler actuation production, aligning with its organic growth strategy [10][29] - The acquisition of Safran's North American electromechanical actuation business strengthens Woodward's position in the industry [11][29] - Increased capital allocation to CapEx is expected in 2026 and 2027 to support future growth and productivity [12][29] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about aerospace demand despite supply chain challenges impacting aircraft deliveries [12] - The company is focused on developing resilience against tariffs, geopolitical matters, and supply chain dynamics [19] - Future growth is anticipated in both aerospace and industrial segments, with expectations of continued strong performance through 2026 and beyond [18][19] Other Important Information - The company returned over $62 million to shareholders in the third quarter, with expectations to exceed $235 million in total returns for 2025 [28] - Free cash flow for the first nine months of 2025 was $159 million, down from $225 million, primarily due to increased working capital [27][31] Q&A Session Summary Question: Clarification on third quarter sales increase - The reported sales increase of 8% was clarified to ensure accurate understanding [33] Question: LEAP and GTF aftermarket volumes - LEAP and GTF aftermarket volumes are approaching legacy volumes, with a forecasted crossover around 2028 [35][36] Question: Sequential margin decline in Aerospace - The sequential margin decline was attributed to a mix shift towards lower-margin defense OEM products [38][39] Question: Details on aerospace investments impacting margins - Investments in manufacturing aimed at driving productivity were highlighted, impacting margin dollars rather than margin rate [42][44] Question: Pricing in the quarter - Total business pricing was approximately 7%, with aerospace contributing slightly more than industrial [53] Question: Marine demand and share gains - Marine demand is driven by customer share gains and increased shipyard orders [57] Question: Impact of Safran deal on results - The acquisition is seen as a strategic move to grow capabilities in the electromechanical actuation space [70] Question: China On Highway expectations - Expectations for China On Highway sales in Q4 are around $10 million, reflecting ongoing economic challenges [90][75] Question: Future growth outlook - The company anticipates continued demand in the defense sector through at least the first half of 2026 [86]

Financial Data and Key Metrics Changes - RTX Corporation reported approximately $80 billion in sales for 2024, with a backlog of about $217 billion, of which $125 billion is commercial and the remainder is defense [3][4] - The company anticipates breakeven to negative cash flow in the second quarter due to a four-week work stoppage at Pratt and Whitney, but expects to recover throughout the year [6][7] - The operational outlook for the year remains unchanged, excluding tariffs, with a focus on execution and innovation [10][11] Business Line Data and Key Metrics Changes - Pratt and Whitney's GTF MRO output increased by 35% year-over-year, indicating improvements in operational efficiency [53] - Collins Aerospace has a significant installed base worth approximately $170 billion, with over $100 billion generating aftermarket revenue [94] - Raytheon's international backlog increased to 46%, up two points sequentially and ten points from the end of 2023, indicating a shift towards higher-margin international contracts [48] Market Data and Key Metrics Changes - The defense spending in the MENA region is expected to grow, with countries like Israel, UAE, and Qatar spending over 4% of their GDP on defense [23][42] - European defense budgets are increasing, with countries like Poland approaching 5% of GDP in defense spending, creating opportunities for RTX [41][44] - The U.S. defense budget is projected to approach a trillion dollars when combining the skinny 2026 budget and the reconciliation bill [28] Company Strategy and Development Direction - RTX's strategy focuses on executing commitments to customers, innovating for future growth, and leveraging the breadth and scale of its business units [14][19] - The company plans to invest $7.5 billion in company and customer-funded R&D to drive innovation and product upgrades [12][15] - The management emphasizes the importance of productivity and cost competitiveness, targeting 11% organic sales growth for 2024 [20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the demand for RTX's products, citing a strong backlog and the successful resolution of the Pratt and Whitney work stoppage [5][6] - The geopolitical landscape is seen as dynamic, with management focusing on execution and innovation to navigate challenges [11][19] - The company is well-positioned to capitalize on defense opportunities in both the U.S. and international markets, particularly in missile defense and integrated air defense systems [30][42] Other Important Information - The GTF Advantage engine certification was achieved, which is expected to enhance performance and durability [15][66] - The company is actively working on improving its supply chain and MRO capabilities to reduce turnaround times and enhance service delivery [58][59] - RTX is committed to maintaining a strong free cash flow, targeting $7 billion to $7.5 billion for the year, which will support dividends and potential buybacks [103] Q&A Session Summary Question: What opportunities are there for Raytheon coming out of the Middle East trip? - Management noted a positive shift in the U.S. administration's posture towards defense contractors, leading to increased opportunities in the region, including a significant international order for the Coyote system in Qatar [22][24] Question: How should we see Raytheon's margin trajectory going forward? - Management indicated that Raytheon is on a path to achieve a 12% plus margin, driven by a healthier supply chain, an increasing share of international contracts, and a focus on core competencies [47][48] Question: Can you provide an update on the GTF engine and the powdered metal issue? - The technical and financial outlook for the GTF fleet management plan remains consistent, with improvements in MRO output and a focus on reducing AOGs [52][53]