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 ...

Financial Data and Key Metrics Changes - In Q4 2025, orders increased by 74%, revenue grew by 20%, and EPS rose by 19% to $1.57, with free cash flow up 15% [5][17] - For the full year, orders were up 32%, revenue increased by 21%, operating profit grew by $1.8 billion, and free cash flow rose by $1.5 billion [5][18] - Operating profit for the year was $9.1 billion, with margins expanding by 70 basis points to 21.4% [18] Business Line Data and Key Metrics Changes - In the Commercial Engine Services (CES) segment, orders were up 35% and revenue grew by 24%, with services orders up 27% and revenue up 26% [5][20] - In the Defense and Power Technologies (DPT) segment, orders increased by 19% and revenue was up 11%, with profit rising by 22% to $1.3 billion [5][21] Market Data and Key Metrics Changes - The company reported a backlog of approximately $190 billion, up nearly $20 billion from the previous year [7] - The installed base of engines is 80,000, with over 2.3 billion flight hours accumulated [27][28] Company Strategy and Development Direction - The company aims for substantial revenue, EPS, and cash growth in 2026, with expectations for revenue to increase in low double digits and operating profit to reach $9.85 billion to $10.25 billion [7][8] - Investments are being made in U.S. manufacturing to support both commercial and defense customers, with a focus on improving time on wing and reducing cost of ownership [7][8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment, citing robust orders and a strong backlog as indicators of future performance [32][33] - The company is focused on continuous improvement and leveraging technology to enhance customer value and operational efficiency [28][29] Other Important Information - The company is transitioning its segment reporting to reflect organizational changes, with aeroderivative engines moving from CES to DPT [22][23] - The company plans to invest approximately $500 million in MRO to support LEAP engine capacity expansion [11] Q&A Session Summary Question: Can you elaborate on the commercial aftermarket backdrop? - Management noted strong momentum in services growth and expressed confidence in achieving mid-teens growth in 2026, driven by increased work scopes and pricing [31][32] Question: What is the profitability outlook for LEAP engines? - Management confirmed that LEAP original equipment is expected to be profitable in 2026, with improvements in supply chain visibility and readiness [40][44] Question: How are turnaround times improving for mature engines? - Management indicated that improvements in turnaround times are driven by better material availability and efficient execution on the shop floor, which enhances productivity [48][50] Question: What are the implications of the agreement with FTAI? - The agreement is aimed at enhancing third-party aftermarket options, which supports asset values and lowers costs of ownership for customers [93] Question: What is the expected cash flow outlook for 2026? - Management indicated that there are no abnormal cash flow expectations for 2026, with a focus on managing inventory growth and contract assets [94][95]

Financial Data and Key Metrics Changes - In Q4 2025, orders increased by 74%, revenue grew by 20%, and EPS rose by 19% to $1.57, with free cash flow up 15% [5][17] - For the full year, orders were up 32%, revenue increased by 21%, operating profit grew by $1.8 billion, and free cash flow rose by $1.5 billion [5][18] - Operating profit for the year was $9.1 billion, with margins expanding by 70 basis points to 21.4% [18] Business Line Data and Key Metrics Changes - In the Commercial Engine Services (CES) segment, orders were up 35%, revenue grew by 24%, and profit increased by 26% to $8.9 billion [5][19] - In the Defense and Power Technologies (DPT) segment, orders increased by 19%, revenue grew by 11%, and profit rose by 22% to $1.3 billion [5][20] Market Data and Key Metrics Changes - The backlog reached approximately $190 billion, up nearly $20 billion from the previous year [6] - The installed base of LEAP engines is expected to triple between 2024 and 2030, with significant capacity expansions planned across the global MRO network [10][11] Company Strategy and Development Direction - The company aims for substantial revenue, EPS, and cash growth in 2026, with expectations for revenue to increase in the low double digits [6][24] - Investments are being made in U.S. manufacturing to support both commercial and defense customers, with a focus on improving time on wing and reducing cost of ownership [7][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment, citing robust orders and a strong backlog as indicators of future growth [30][31] - The company is focused on leveraging its extensive installed base and R&D investments to drive continuous improvement and customer value [26][72] Other Important Information - The company is transitioning its segment reporting to reflect organizational changes, with no impact on total company metrics [22] - A significant portion of R&D spending is directed towards improving customer experience and developing next-generation technologies [71] Q&A Session Summary Question: Can you elaborate on the commercial aftermarket backdrop? - Management noted that there are no concerns about demand momentum continuing into 2026, supported by a strong backlog and expected growth in shop visits and spare parts [30][31] Question: What is the status of LEAP profitability? - Management confirmed that LEAP original equipment is expected to be profitable in 2026, aligning with previous plans [41] Question: How are turnaround times improving for mature engines? - Improvements in turnaround times are driven by better material availability and efficient execution on the shop floor, leading to increased productivity [44] Question: What are the expected losses from the GE9X program? - Losses for the GE9X program were around a couple of hundred million in 2025, with expectations for these losses to double in 2026 [48] Question: How is R&D spending allocated? - R&D spending focuses on enhancing customer experience, developing new technologies, and supporting next-generation defense programs [71]

Group 1: Stock Performance - GE Aerospace shares increased by 3.9% to close at $299.81, following a period of 5.2% loss over the past four weeks, indicating notable trading volume [1] - The stock currently holds a Zacks Rank of 2 (Buy), suggesting positive market sentiment [4] Group 2: Business Performance - The rally in GE Aerospace is driven by strong momentum in the Commercial Engines & Services business, with solid demand for LEAP, GEnx, and GE9X engines supported by growth in air traffic and fleet renewal [2] - The company is expected to report quarterly earnings of $1.40 per share, reflecting a year-over-year increase of 6.1%, with revenues projected at $11.18 billion, up 13.1% from the previous year [3] - The consensus EPS estimate for GE has been revised marginally higher over the last 30 days, indicating a positive trend that typically correlates with stock price appreciation [4] Group 3: Industry Context - GE Aerospace is part of the Zacks Aerospace - Defense industry, which includes Boeing, another key player in the sector [4] - Boeing's consensus EPS estimate has changed by +1.7% to -$0.43, representing a significant year-over-year change of +92.7%, but it currently holds a Zacks Rank of 4 (Sell) [5]

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.

Company Overview - GE Aerospace, formerly General Electric Company, is a leading designer, developer, and producer of jet engines, components, and integrated systems for military, commercial, and business aircraft [11] - The company is recognized for its aero-derivative gas turbines for marine applications and has a strong focus on product upgrades and innovation [11] - GE Aerospace operates globally, with a presence in the United States, Europe, Asia, the Middle East, Africa, and the Americas, offering a wide range of products and services [11] Investment Ratings - GE is currently rated 3 (Hold) on the Zacks Rank, indicating a neutral outlook [12] - The company has a VGM Score of B, suggesting a balanced investment profile [12] Momentum and Earnings Estimates - GE has a Momentum Style Score of A, with shares increasing by 3% over the past four weeks, indicating positive price momentum [12] - For fiscal 2025, five analysts have revised their earnings estimates upwards in the last 60 days, with the Zacks Consensus Estimate rising by $0.30 to $6.17 per share [12] - GE has demonstrated an average earnings surprise of +19.1%, reflecting strong performance relative to expectations [12] Investment Consideration - With a solid Zacks Rank and top-tier Momentum and VGM Style Scores, GE Aerospace is recommended for investors' consideration [13]

Financial Data and Key Metrics Changes - Revenue grew 26% to $11.3 billion, with operating profit also up 26% to $2.3 billion, driven by strong deliveries across aftermarket, original equipment (OE), and defense [6][19] - Earnings per share (EPS) increased 44% to $1.66, supported by higher operating profit, a lower tax rate, and a reduced share count [20][30] - Free cash flow reached $2.4 billion, up 30% with over 130% conversion [20][30] Business Line Data and Key Metrics Changes - In Commercial Engines and Services (CES), orders were up 5%, with services orders up 32% and equipment orders down 42% due to timing [22] - CES revenue grew 27%, with services revenue up 28% and internal shop visit revenue up 33% [22][24] - In Defense and Propulsion Technologies (DPT), revenue grew 26%, with engines volume up 83% year over year [25][26] Market Data and Key Metrics Changes - Total orders increased 2% in the third quarter, with year-to-date orders up 13% and services orders up 31% [5] - The total DPT backlog reached $19 billion, up $1.5 billion year over year [25] Company Strategy and Development Direction - The company is focused on enhancing its operational model, Flight Deck, to improve delivery and meet robust customer demand [4][7] - Investments in LEAP durability and next-generation technologies are prioritized to deliver value to customers [6][15] - The company is raising its full-year guidance across the board, expecting revenue growth in the high teens and CES growth in the low 20s [28][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for services and products, with a significant backlog of approximately $175 billion [7][8] - The company is optimistic about its trajectory entering 2026, with expectations for continued growth and improved operational performance [30][32] Other Important Information - The company is investing nearly $1 billion in its supply chain to expand capacity [12] - The LEAP third-party maintenance, repair, and overhaul (MRO) network is growing rapidly, with external shop visits up roughly twofold [12] Q&A Session Summary Question: Services outperformance and sequential step down in Q4 - Management noted strong services growth driven by improved material availability and increased work scopes, with expectations for a seasonal step down in Q4 due to typical demand patterns [37][41] Question: LEAP services margin outlook - Confidence in achieving LEAP services margin targets by 2028 is based on ongoing improvements in supply chain performance and operational efficiencies [46][50] Question: Capital deployment and M&A considerations - The company maintains a balanced capital allocation approach, prioritizing reinvestment in the business and returning capital to shareholders while remaining open to strategic M&A opportunities [53][57] Question: Spare parts performance and drivers - Spare parts growth is attributed to pent-up demand, increased work scopes, and improved material availability, with expectations for continued growth in 2026 [61][66] Question: 2026 revenue growth and margin expectations - The environment for 2026 appears better than previously expected, with projected revenue growth and profit growth, although not at the same levels as 2025 [69][72] Question: Defense business and R&D insights - The defense business is leveraging commercial experience to enhance development cycles and sustainment models, with significant investments in next-generation platforms [79][82] Question: Durability of LEAP-1A blade - Initial performance of the LEAP-1A durability kit is promising, with expectations for a multi-year rollout across the installed base [86][88] Question: Supply chain material availability improvements - Improvements in supply chain material availability are the result of cumulative efforts and collaboration with suppliers, focusing on problem-solving and operational efficiency [92][95]

Financial Data and Key Metrics Changes - Revenue for the third quarter was $11.3 billion, up 26% year-over-year, with operating profit also increasing by 26% to $2.3 billion [15][19] - Earnings per share (EPS) grew 44% to $1.66, driven by increased operating profit, a lower tax rate, and a reduced share count [15][19] - Free cash flow reached $2.4 billion, up 30%, with over 130% conversion from earnings [15][19] Business Line Data and Key Metrics Changes - In Commercial Engines and Services (CES), orders were up 5%, with services orders increasing by 32% and equipment orders down 42% due to timing [17][19] - CES revenue grew 27%, with services revenue up 28% and internal shop visit revenue up 33% [17][19] - In Defense and Propulsion Technologies (DPT), revenue grew 26%, with engine volume up 83% year-over-year [19][19] Market Data and Key Metrics Changes - Year-to-date, orders increased by 13%, with services orders up 31% [4] - The total DPT backlog is at $19 billion, up $1.5 billion year-over-year [19] - The company expects to grow LEAP deliveries more than 20% for the full year, up from a prior outlook of 15% to 20% [7][19] Company Strategy and Development Direction - The company is focused on enhancing its FlightDeck operating model to improve delivery and meet customer demand [3][5] - Investments in LEAP durability and next-generation technologies are prioritized to deliver value to customers [10][12] - The company is committed to expanding its supply chain capacity, investing nearly $1 billion to support growth [9][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for services and products, raising full-year guidance across the board [5][19] - The company anticipates continued growth in commercial services and engine deliveries, with a positive outlook for 2026 [20][56] - Management highlighted the importance of addressing supply chain challenges and improving material availability [78] Other Important Information - The company has secured significant commitments from major airlines, including Korean Air and Cathay Pacific, for its engines [12][13] - The company is actively working on next-generation engine technologies, including the GE9X and RISE program [11][12] Q&A Session Summary Question: Can you elaborate on the services performance and factors driving it? - Management noted that improved material availability and increased work scopes contributed to strong services growth, with expectations for continued demand [28][30] Question: What gives confidence in the LEAP services margin outlook? - Management highlighted ongoing improvements in supply chain performance and operational efficiencies as key factors supporting the margin outlook [34][36] Question: How does the company balance capital deployment and share repurchase? - Management stated that the capital allocation approach remains balanced, focusing on reinvestment in the business while returning capital to shareholders [41][42] Question: What is the outlook for 2026, particularly regarding CES revenue growth? - Management indicated a positive outlook for 2026, expecting solid revenue growth driven by an increasing installed base and higher shop visit demand [55][56]