Howmet Aerospace Inc. Q3 FY2026 earnings call

• Financial Strength: Q3 revenues were $2.7 billion (+29% YoY) and EBITDA was $879 million (+43% YoY) with a 32.5% margin. Free cash flow was $562 million, supporting $500 million in share buybacks and debt reduction.
• Shareholder Returns: The company repurchased $1.1 billion of shares YTD, reducing the share count below 400 million. The quarterly dividend was increased by 17% to $0.14 per share.
• Gas Turbine Momentum: Industrial gas turbine (IGT) revenue grew 45%, outpacing industry averages. Management highlighted that capacity bookings extend through 2031/2032, with new product introductions planned for 2031.
• Aerospace Supply Chain: Spares demand remains robust due to time-on-wing issues and aircraft underbuilds. OE production for 737, A320, 787, and A350 is expected to increase healthily.
• Defense Dynamics: Defense sales are strong, particularly for F-35 spares. Missile parts production is increasing significantly, pending final contract agreements.
• Capital Allocation: Despite $2 billion in acquisitions and significant CapEx, leverage remains low at 1.3x net debt to EBITDA. Future IGT expansion will be funded via free cash flow without adding debt.

Commercial Aerospace: Revenue grew 32% year-over-year (27% organic), driven by strong spares demand for legacy and next-generation engines. Defense Aerospace: Revenue increased 10% (3% organic), supported by spares for legacy fighter platforms. Gas Turbines: Revenue surged 45%, reflecting robust end-market demand and increased market share. Commercial Transportation: Revenue rose 28%, aided by North American recovery and aluminum cost pass-through. Other Markets: Growth of 48%, primarily from the Brunner Fastener acquisition. Engine Products Segment: Revenue reached $1.45 billion (+33%), with EBITDA of $567 million (+57%) and margin expanding to 39.1%. Fastening Systems: Revenue was $630 million (+41%, including acquisitions); organic growth was 10%. EBITDA was $185 million (+34%), but margin declined due to CAM acquisition impacts. Engineered Structures: Revenue was $295 million (-4% due to Savannah divestiture; +8% excluding divestiture). EBITDA margin expanded to 23.7%. Forged Wheels: Revenue rose 32%; EBITDA was $86 million (+18%), though margins contracted due to aluminum cost dynamics.

• Q4 2026 Guidance Raised: Revenues projected at ~$2.75 billion (+/- $10M); EBITDA at ~$900 million (+/- $5M); EPS at ~$1.50 (+/- $0.01).
• Full Year 2026 Guidance Raised: Revenues increased to ~$10.3 billion (+/- $10M); EBITDA to ~$3.33 billion (+/- $5M); EPS to ~$5.50 (+/- $0.01); Free Cash Flow to ~$2 billion (+/- $50M).
• 2027 Outlook: Initial guidance indicates revenue growth of 12% (+/- 0.5%), resulting in approximately $11.5 billion in revenue.
• Share Buyback Authorization: Increased by an additional $5 billion.

• Geopolitical Impact: The Iran conflict has impacted Middle East travel schedules and depleted defense inventories, though direct operational impacts on spares deliveries are currently limited.
• Raw Material Costs: Sharp increases in aluminum costs have dilutive effects on margins, particularly in the Forged Wheels segment, despite cost pass-through mechanisms.
• Supply Chain Bottlenecks: Vertical integration by OEMs (e.g., Pratt & Whitney acquiring CPP) poses potential competitive risks to market share and pricing power in blades and vanes.
• Execution Risk: Managing simultaneous high growth across Aerospace, IGT, and Defense strains resources, requiring rapid hiring and construction of multiple new manufacturing plants.

Q: Morgan Stanley asked about the impact of OEM vertical integration (e.g., Pratt's CPP acquisition) on competitive dynamics and Hammett's market share. / A: CEO John Plant stated that Hammett's technology and scale take decades to replicate. He argued that any loss of First Blade business would be more than compensated by surging IGT spares demand in the 2030s. He viewed CPP’s structural casting capabilities as less critical than forgings, noting Hammett may still expand its own casting capacity despite competition.

Q: JPMorgan asked about SpaceX potentially insourcing gas turbines for data centers and the implications for the IGT market. / A: Plant explained that SpaceX requires massive power (~20GW) for AI data centers, utilizing mobile and fixed gas turbines. While SpaceX might attempt to accelerate supply by bypassing blade constraints using alternative casting, Hammett supplies key components to major turbine manufacturers. He emphasized that broad-based power demand ensures sustained IGT growth regardless of specific player strategies.

Q: Jefferies asked how much growth stems from technology edge/content increases versus volume/price, and the supply-demand outlook to 2040. / A: Plant highlighted that fuel efficiency upgrades (LEAP, GTF) drive higher thermal performance requirements, necessitating frequent part replacements and increased content. He noted that engine manufacturers are building MRO capacity, ensuring healthy spares demand. Hammett continues to invest heavily in engineering and capacity to maintain its technological lead over the next decade.

Q: Citi asked about the scale of the defense inventory replenishment opportunity and visibility into contracts. / A: Plant indicated that while demand signals are strong due to recent conflicts, exact numbers depend on the post-midterm defense budget and bipartisan agreements. Missile parts work is significant but awaiting final contract definitization. He expects defense sales to rise in 2027, potentially becoming more robust once multi-year contracts are secured.

Q: Bernstein asked about IGT margin trends given the supply-demand imbalance and when new capacity tranches would arrive. / A: Plant stated that IGT and aerospace margins remain similar, aiming for healthy profitability through long-term partnerships rather than exploiting short-term imbalances. He confirmed that CapEx will remain elevated through 2028 to meet demand extending into the 2030s, with new product introductions already scheduled for 2031.