Albany International Corp. Q2 FY2026 earnings call

Strategic Business Updates

• At the Farnborough International Airshow, management held productive engagements with leading aerospace and defense OEMs and U.S. Department of War officials, who expressed interest in Albany's out-of-autoclave composite processing technologies for critical defense applications including solid rocket motors and titanium component replacements
• Albany International's AEC was selected as a collaboration partner for the Aerospace Technology Institute's Advanced Wing Enabling Ultra-Efficient Propulsion II project, partnering with Airbus to develop next-generation single-aisle aircraft composite wing applications
• The company is rapidly advancing high temperature ceramic matrix composite capabilities using 3D woven and infusion technologies for solid rocket motor and hypersonic missile applications, with expansion plans and new partnership updates expected in the coming months
• The strategic review of the DLW Sikorsky facility is progressing on schedule, with multiple indications of interest received and the process narrowed to 8 final candidates; management will make a final decision that maximizes shareholder value

Quarterly Operational Highlights

• Consolidated Q2 2026 adjusted EPS exceeded management's forecast range, and adjusted EBITDA reached the highest level in the past two years, driven by improved profitability across both segments
• The refined operating model for engineered composites, focused on proprietary 3D woven components, has reduced program risk, improved execution, and delivered more reliable, higher-margin growth
• A machine replacement project for Machine Clothing is underway: a used machine from a closed European facility has been relocated to the U.S., with reassembly expected to complete by the end of 2025 to restore full capacity and recover lost volume
• Management is executing on a focused strategy centered on the company's core competitive advantages in industrial weaving and material science, targeting durable, higher-return growth

1. Machine Clothing: Q2 2026 revenue was $178.7 million, contributing 54.2% of total consolidated revenue. Adjusted EBITDA was $50 million, roughly flat year-over-year. Revenue was slightly below plan due to unplanned downtime from a machine replacement project, but margins remained strong supported by cost discipline, operational execution, and integration benefits. Demand is mixed across regions: Europe is strong, China has stabilized, and the Americas are softer due to customer consolidation, inventory reduction, and weak South American demand. Tissue and packaging demand is favorable in Asia, offset by long-term decline in publication paper and weak pulp demand in South America.

2. Engineered Composites: Q2 2026 revenue was $150.8 million (a new quarterly record), contributing 45.8% of total consolidated revenue, representing a 16% year-over-year increase. Adjusted EBITDA was $20 million, up from $11.1 million year-over-year, with margin expanding from 8.5% to 13.3% of sales. Revenue was slightly below forecast due to delayed tooling delivery for a strategic next-generation defense contract. The year-over-year growth was driven by higher production volumes across core programs including LEAP, Boeing 787, CH-53K, and missile programs, with improved operational execution driving margin expansion.

• Full-year 2026 Machine Clothing revenue is now expected to be slightly down year-over-year compared to 2025, reflecting the mixed demand environment and impact of customer consolidation and capacity rationalization in the paper industry
• Engineered Composites is expected to deliver continued year-over-year revenue growth in 2026, supported by ongoing production ramp-ups across commercial and defense platforms; the delayed Q2 2026 tooling delivery will shift related revenue to the second half of 2026, boosting H2 results
• Q3 2026 consolidated revenue guidance is set at $320 million to $330 million
• Q3 2026 adjusted EPS guidance is 60 cents to 70 cents, with an expected effective tax rate of approximately 31.5%
• Management remains confident in Machine Clothing's underlying margin profile and ability to manage costs while supporting customers amid the mixed demand environment

• Ongoing geopolitical uncertainty and elevated energy costs across the global paper manufacturing value chain could extend demand challenges, particularly in the Americas
• Demand in the Americas Machine Clothing segment remains soft due to customer facility closures, consolidation, and customer inventory reduction, creating a near-term lull in revenue
• Asia paper manufacturing markets have lingering overcapacity, with producers operating at lower speeds to balance supply, resulting in moderated demand compared to historical levels, with uncertain timing for a return to healthy demand
• If all projected high-demand opportunities for engineered composites are awarded to Albany, additional capacity investment will be required sooner than currently planned to meet customer requirements
• The delayed tooling delivery for a next-generation defense prime contract created a near-term revenue miss in Q2 2026

Q: Can you provide an update on LEAP program ramp, new defense programs, the Pratt & Whitney GTF contract, and the DLW sale process? / A: The LEAP program is ramping in line with Boeing and Airbus engine production rates. Albany is moving to 24/7 operations across three sites, with full ramp expected to complete by late 2027, and is preparing for potential Airbus output of 75 aircraft per month by 2028. Multiple new classified defense aircraft and missile programs are ramping, and the U.S. Department of War is working with Lockheed Martin to support increased capacity for missile programs. The Pratt & Whitney GTF contract is a significant portfolio addition, with production set to start in Mexico in early 2027. The DLW sale process is on schedule, with multiple indications of interest received and narrowed to 8 final candidates, and a final decision will be made to maximize shareholder value.

Q: How much growth can current engineered composites capacity support, and will new investment be needed if demand stays elevated? What was the financial impact of the Machine Clothing equipment failure? / A: Near-term projected demand can be met with existing facilities and equipment, but additional investment will be required in the short to medium term if current strong demand levels continue; the company has space to expand within existing sites for incremental growth. The equipment failure drove a modest revenue impact in Q2 2026, and the entire consolidated revenue miss for the quarter was attributable to the outage. Management expects to fully recover all lost volume by the end of 2026.

Q: What is driving the cyclical decline in Americas Machine Clothing demand, when will demand recover, and what is the update on Asian overcapacity? / A: The current decline stems from papermaker consolidation and capacity curtailments that began in late 2025, which created a near-term lull as papermakers remove older equipment. Papermakers have now raised prices after reducing supply, and management expects demand to pick up by late 2026/early 2027, supported by a healthy backlog for new high-speed machines where Albany holds a competitive advantage. In Asia, overcapacity persists with producers operating at lower speeds to balance supply, and demand remains moderated, with a return to healthy levels expected over the medium term amid ongoing geopolitical uncertainty.

Q: What is driving the Q2 2026 free cash outflow compared to historical seasonal inflows? / A: The outflow is entirely tied to working capital timing. Albany built additional inventory in Europe to support customer deliveries during planned seasonal factory shutdowns, and increased inventory to support the ongoing engineered composites production ramp. Free cash flow is expected to return to historical seasonal patterns in the second half of 2026.