Woodward, Inc. Q1 FY2026 earnings call

• Robust demand across aerospace and industrial segments drove first quarter outperformance. Aerospace saw growth in commercial and defense OEM, with commercial services exceeding forecast. Industrial had robust growth in power generation, transportation, and oil and gas.
• Plans to expand services capacity, including adding square footage at Prestwick, Scotland facility and commissioning test stands in Rockford. Decision to wind down China on-highway product line to align with long-term growth strategy.
• Focus on operational excellence to stabilize supply chain, improve on-time delivery, and increase inventory turns.

Aerospace Segment: Sales were $635 million in the first quarter, an increase of 29% year over year. Segment earnings were $148 million, which is 23.4% of segment sales, representing a 420 basis point margin increase. Industrial Segment: Sales were $362 million, up 30% from $279 million. Core industrial sales (excluding China on-highway) increased 22%. Segment earnings were $67 million, which is 18.5% of segment sales, with a 410 basis point margin expansion.

• Raised full-year sales and earnings guidance. Aerospace sales growth expected to be 15-20% with margins 22-23%. Industrial sales growth expected to be 11-14% with margins 16-17%.
• Consolidated sales growth expected to be 14-18%, EPS expected to be between $8.20 and $8.60. Free cash flow expected to be between $303 million and $150 billion.
• Capital allocation priorities: supporting organic growth, selective M&A, and returning capital to shareholders.

• Supply chain challenges and potential delays in meeting customer demand.
• Variability in customer demand, especially in certain product lines and regions.
• Impact of global economic conditions on business operations and market demand.

Q: Good evening, Chip and Bill. 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, for the $245 million of commercial aftermarket sales, in the first quarter be the low point for the year?

A: I don't think it's gonna 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'll knock the peak of that revenue off. But we do 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, provide even better customer service. So I think it's hard to say whether that's really gonna be the peak. There's plenty of opportunity to grow.

Q: Hey. Good evening. 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?

A: Yeah. It was the first quarter driven Scott. So given that that was big mainly driven by commercial services, that is a fair conclusion.

Q: Hey, guys. Congrats on the great quarter. This is Kyle on for Sheila. Thanks, Kyle. Hey, Kyle. On the LEAP GTF mix, I know you also said legacy 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 know, 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 quarter?

A: Yeah. I'll agree that it was, you know, counter-seasonal to the past, but I think, you know, what we've been working on, you know, 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, you know, down some, we've achieved that benefit. And so, you know, 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 when a customer sends us a unit for repair or overhaul. And, you know, all these operational factors helped us maintain a steady performance operationally. And that shows too in the financials.

Q: Hey. Thanks, guys. Good afternoon. Howdy. Hey, Kevin. You mind breaking down for us the growth rates by the aerospace subsegments? Assumed for the year?

A: Yeah. I think we talked about that last quarter that I didn't do a very good job at that the year before. My hypotheses did not come to fruition. So I retired that process with last year. Look. 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, you know, flattish. We're on the right programs in defense. It's just the MRO for us isn't growing very fast in defense. And well, that's as much color as I'd put on it at this time, if that's okay, Gavin.

Q: Hey. Good evening, guys. And I think you guys usually disclose this in the queue, but how is pricing this quarter in terms of relative to your 5% expectation for the full year? I imagine maybe with the LRUs, it was above the expectation.

A: Yeah, Pete. This quarter, we saw at the Woodward level. Price come in about 8%. So slightly higher than our 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 peak 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.

Q: Hey. Good evening, guys. I was curious just in terms of, you know, 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.

A: Yeah. The easiest way to characterize the Gautam in terms of orders is 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. You know, we maintain a forward deployment at a number of suppliers. We still have suppliers on risk watch and, you know, behind on deliveries and holding up That's another reason why we have, you know, 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 who are 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 you know, in terms of being conservative, 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.

Q: Hi. This is Alexandra Mandry on for Michael Ciarmoli with Truist Securities. Thanks for taking my question. I was wondering if you could size the China On Highway cost for the divestiture and will there be any revenue spillover into FY '27 our expectation is still around $60 million for FY '26, kind of similar to 2025 results?

A: Yeah. So as it relates to the wind-down cost, we're expecting somewhere between $20 and $25 million of costs related to the restructuring. A lot of that will be related to people cost. 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 what do I 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.

Q: Hey. Good evening, guys. I just had one last one. Recently, the commander of the air combat command commented that the hypothetical $150 billion 2027 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?

A: Well, it's hard to say how that would work for Woodward because we don't have 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 that could be an opportunity for Woodward.