Q1 2025 Howmet Aerospace Inc Earnings Call

Operator: Good morning and welcome to the Howmet Aerospace first quarter 2025 earnings conference call.

Good morning, and welcome to the Howmet Aerospace first quarter 2025 earnings conference call.

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Paul Luther: I would now like to turn the conference over to Paul Luther, Vice President, Investor Relations. Please go ahead. Thank you, Gary.

Speaker Change: I would now like to turn the conference over to Paul Luther Vice President Investor Relations. Please go ahead.

Paul Luther: Good morning and welcome to the Howmet Aerospace first quarter 2025 results conference call.

Speaker Change: Thank you Gary Good morning, and welcome to the Howmet Aerospace first quarter 2025 results Conference call I'm joined by John Plant Executive Chairman, and Chief Executive Officer, and Kenji Kobe Executive Vice President and Chief Financial Officer.

Paul Luther: I'm joined by John Plant, Executive Chairman and Chief Executive Officer, and Ken Giacobbe, Executive Vice President and Chief Financial Officer.

Paul Luther: After comments by John and Ken, we will have a question and answer session. I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation and earnings press release and in our most recent SEC filing.

Speaker Change: After comments by John and Ken We will have a question and answer session I.

Speaker Change: I would like to remind you that today's discussion will contain forward looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation and earnings press release and in our most recent SEC filings.

Paul Luther: In today's presentation, references to EBITDA, Operating Income, and EPS mean Adjusted EBITDA excluding special items, Adjusted Operating Income excluding special items, and Adjusted EPS excluding special items. These measures are among the non-GAAP financial measures that we've included in our discussion. Reconciliation to the most directly comparable gap financial measures can be found in today's press release and in the appendix in today's presentation.

Speaker Change: In today's presentation references to EBITDA operating income and EPS mean, adjusted EBITDA, excluding special items adjusted operating income excluding special items and adjusted EPS. Excluding special items. These measures. These measures are among the non-GAAP financial measures that we have included in our discussion.

Speaker Change: Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix in today's presentation and with that I'd like to turn the call over to John.

John Plant: And with that, I'd like to turn the call over to John. Thanks, BT. And good morning, everyone.

Speaker Change: Yeah.

John Plant: Thanks, Steve.

Speaker Change: Good morning, everyone.

John Plant: I'll make my remarks at the outset fairly brief, and then spend more time talking about the outlook after Ken's provided his commentary on market and BU commentary. So first of all, Q1 was a solid start to the year. Revenue was a record, an increase 6%, while EBITDA margin was 28.8%. operating margin was 25.3% and up 500 basis points year over year. Pre-cash flow was a positive $134 million. All segments grew revenue and EBITDA compared to Q4 of 2024. Of the segments, the most notable margin progression was within fastening systems and structures. Free cash flow was deployed with a 25% increase in dividends, plus $125 million of share buyback in the first quarter, which was continued in Q2 with a further $100 million in April.

Speaker Change: I'll make my remarks at the outset.

Speaker Change: Rafe.

Speaker Change: And spend more time talking about the outlook.

Speaker Change: You can find these common tradeoffs.

Speaker Change: Okay.

Speaker Change: The <unk> concentrate.

Speaker Change: So.

Speaker Change: First of all Q1 was a solid start to the year.

Speaker Change: Revenue was a record and increased 6%.

Speaker Change: EBITDA margin was 28, 8%.

Speaker Change: Operating margin was 25, 3% to 500 basis points year over year.

Speaker Change: Yeah.

Speaker Change: Free cash flow was positive 134.

Speaker Change: Full amount yet.

Speaker Change: All segments grew revenue and EBITDA.

Speaker Change: Two Q4.

Speaker Change: 2024.

Speaker Change: All of the segments.

Speaker Change: The most notable margin progression.

Speaker Change: And fastening systems and structures.

Speaker Change: Free cash flow was deployed to 25% increase in dividend.

Speaker Change: $125 million a share buyback in the first quarter.

Speaker Change: Which was continued in Q2 with a further $100 million in April.

John Plant: We had strong performance on all fronts.

Speaker Change: We had strong performance on all fronts.

Kenneth Giacobbe: My comment on the Outlook will be after Ken, so obliterate yourself, Ken. Okay, thank you, John.

Ken: And the outlook will be off to Ken So obit yourself Ken.

Ken: Okay. Thank you John Good morning, everybody, let's move to slide five.

Kenneth Giacobbe: Good morning, everybody.

Kenneth Giacobbe: Let's move to slide five. So end markets continue to be healthy in the first quarter with revenue up 6% year over year, a good start to the year, and we are well positioned for the future with continued investments for growth. Commercial aerospace was up 9% year over year, driven by accelerating demand for engine spare. Commercial aerospace growth is further supported by record backlog for new, more fuel-efficient aircraft with reduced carbon emissions. Defense aerospace growth continued to be robust in the first quarter and was up 19% year-over-year.

Ken: So end markets continued to be healthy in the first quarter with revenue up 6% year over year.

Ken: Good start to the year and we are well positioned for the future with continued investments for growth.

Ken: Commercial aerospace was up 9% year over year, driven by accelerating demand for engine spares.

Ken: Commercial aerospace growth is further supported by record backlog for new more fuel efficient aircraft with reduced carbon emissions.

Ken: Defense Aerospace growth continued to be robust in the first quarter. It went up was up 19% year over year.

Kenneth Giacobbe: with the global fleet of over 1,100 F-35 fighter jets in service. Defense aerospace growth was driven by engine spares demand in addition to new builds.

Ken: With a global fleet of over 1100 F 35 fighter Jets and service.

Ken: Aerospace growth was driven by engine spares demand in addition to new built.

Kenneth Giacobbe: As expected, commercial transportation was challenging with revenue down 14% in the first quarter. We continue to outperform the market with Howmet's premium wheels and coating. Although down year over year, commercial transportation was up 2% sequentially.

Ken: As expected commercial transportation was challenging with revenue down 14% in the first quarter.

Ken: We continue to outperform the market with how much premium wheels in coatings.

Ken: Although down year over year commercial transportation was up 2% sequentially.

Kenneth Giacobbe: Finally... The industrial and other markets were up 10% in the first quarter, driven by oil and gas up 21%, and IGT up 12% while general industrial was flat. Within our markets, the combination of spares for commercial aerospace, defense aerospace, IGT, and oil and gas continues to accelerate. was up approximately 33% in the first quarter and represented 20% of total revenue.

Ken: Finally.

Ken: The industrial and other markets were up 10% in the first quarter, driven by oil and gas up 21% in IGT up 12%, while general industrial was flat.

Ken: Within our markets the combination of spares for commercial aerospace defense Aerospace IGT and oil and gas continues to accelerate.

Ken: And was up approximately 33% in the first quarter and represented 20% of total revenue.

Kenneth Giacobbe: As a comparer, total SPARES revenue in 2019 was 11% of total revenue on a smaller base. In summary, continued strong performance in commercial aerospace, defense aerospace, and industrial partially offset by commercial transportation.

Ken: As a compare total spares revenue in 2019 was 11% of total revenue on a smaller base.

Ken: In summary continued strong performance in commercial aerospace defense aerospace and industrial partially offset by commercial transportation.

Kenneth Giacobbe: Now let's move to slide six, starting with the P&L. In the first quarter, EBITDA, EBITDA margin, and earnings per share were all records and exceeded the high end of guidance. Revenue was also a record, up 6% year over year. Iba to outpace revenue growth and was up 28%. EBITDA margin increased 480 basis points. 28.8%. Incremental flow-through of revenue to EBITDA was excellent at more than 100%. Earnings per share was 86 cents.

Ken: Now, let's move to slide six starting with the P&L.

Ken: In the first quarter EBITDA EBITDA margin and earnings per share were all records and exceeded the high end of guidance.

Ken: Revenue was also a record up 6% year over year.

Ken: EBITDA outpaced revenue growth and was up 28%.

Ken: EBIT margin increased 480 basis points.

Ken: 28, 8%.

Incremental flow through of revenue to EBITDA was excellent at more than 100%.

Ken: Earnings per share was <unk> 86 cents.

Kenneth Giacobbe: which was up a healthy 51% year-over-year.

Ken: Which was up a healthy 51% year over year.

Kenneth Giacobbe: Now let's cover the balance sheet and cash flow. The balance sheet continues to strengthen. Quarter-End Cash Balance with a Healthy $537 Million Free cash flow was $134 million, which was a record for the first quarter. Free cash flow included the acceleration of capital expenditures with approximately $120 million invested in the quarter, which was up 45% year over year. The majority of the CapEx investment was in our engines business as we continue to invest for growth, which is backed by customer contracts. Net debt to trailing EBITDA continues to improve and remains at a record low of $1.4 trillion.

Ken: Now, let's cover the balance sheet and cash flow.

Ken: The balance sheet continues to strengthen.

Ken: Quarter end cash balance was a healthy $537 million.

Ken: Free cash flow was 134 million, which was a record for the first quarter.

Ken: Free cash flow included the acceleration of capital expenditures with approximately $120 million invested in the quarter, which was up 45% year over year.

Ken: The majority of the Capex investment within our engine business as we continue to invest for growth, which is backed by customer contracts.

Ken: Net debt to trailing EBITDA continues to improve and remains at a record low of one four times.

Kenneth Giacobbe: All long-term debt is unsecured and at fixed rates. Howmet's improved financial leverage and strong cash generation were reflected in Fitch's Q1 ratings upgrade from BBB to BBB+. which is three notches into investment grade. liquidity remains strong with a healthy cash balance. and a $1 billion undrawn revolver. complemented by the flexibility of a $1 billion commercial paper program.

Ken: All long term debt is unsecured and at fixed rates.

Ken: That's improved financial leverage and strong cash generation or reflected in fish's Q1 ratings upgrade from triple B to trip.

Ken: Triple B plus.

Ken: Which is three notches into investment grade.

Ken: Liquidity remains strong with a healthy cash balance and a $1 billion undrawn revolver complemented by the flexibility of a $1 billion commercial paper program.

Kenneth Giacobbe: Regarding capital deployment, we deployed approximately $167 million of cash to common stock repurchases and quarterly dividends. In the quarter, we repurchased $125 million of common stock at an average price of approximately $124 per share. Q1 was the 16th consecutive quarter of common stock repurchase. The average diluted share count improved to a record low Q1 exit rate of 407 million shares.

Ken: Regarding capital deployment, we deployed approximately $167 million of cash common stock repurchases and quarterly dividends.

Ken: In the quarter, we repurchased $125 million of common stock at an average price of approximately $124 per share.

Ken: Q4, excuse me Q1 was the 16th consecutive quarter of common stock repurchases.

Ken: The average diluted share count improved to a record low Q1 exit rate of 407 million shares.

Kenneth Giacobbe: Additionally, in April of 2025, we repurchased $100 million of common stock at an average price of $126 per share. The remaining authorization from the Board of Directors for share repurchase is approximately $2 billion as of the end of April.

Ken: Additionally in April of 2025, we repurchased $100 million of common stock at an average price of $126 per share.

Ken: Remaining authorization from the board of directors for share repurchases.

Ken: Approximately $2 billion as of the end of April.

Kenneth Giacobbe: Finally, we continue to be confident in free cash. We increased the quarterly dividend 25% in the first quarter to $0.10 per share, which was double the Q1 2024 quarterly dividend.

Finally, we continue to be confident in free cash flow.

Ken: We increased the quarterly dividend, 25% in the first quarter to 10 per share, which was double the Q1 2024 quarterly dividend.

Kenneth Giacobbe: Now let's move to slide 7 to cover the segment results for the first quarter. The engines product team delivered a record quarter with revenue, EBITDA, and EBITDA margin. Revenue increased 13% year-over-year to $996 million. Commercial Aerospace is up 12% and Defense Aerospace is up 16%.

Ken: Now, let's move to slide seven to cover the segment results for the first quarter.

Ken: The engines product team delivered a record quarter with revenue EBITDA and EBITDA margin.

Revenue increased 13% year over year to $996 million.

Ken: Commercial aerospace was up 12% and defense Aerospace was up 16% driven by engine spares growth.

Kenneth Giacobbe: driven by engine spares growth. Oil and Gas was up 21% and IGT was up 12%. The demand continues to be strong across all engine markets. with Record Engine Spares Volume.

Ken: Oil and gas was up 21% and IGT was up 12%.

Ken: Demand continues to be strong across all engine markets with record engine spares volume.

Kenneth Giacobbe: The EBITDA outpaced revenue growth with an increase of 31% year-over-year to $325 million. EBITDA margin increased 450 basis. year over year to 32.6 while absorbing approximately 500 net new employees in the quarter.

Ken: EBITDA outpaced revenue growth with an increase of 31% year over year to $325 million.

Ken: EBIT margin increased 450 basis points year over year to 32, 6%, while absorbing approximately 500 net new employees in the quarter.

Kenneth Giacobbe: Now let's move to slide 8. The Fastening Systems Team also delivered a record quarter for Revenue, EBITDA, and EBITDA Margin. Revenue increased 6% year-over-year to $412 million. Commercial Aerospace was up 13%, Defense Aerospace was up 8%, General Industrial was up 5%, and Commercial Transportation, which represents approximately 13% of FASTER's revenue, was down 20%. Year over year, EBITDA outpaced revenue growth with an increase of 38% to $127 million. Despite the lower-than-expected recovery of the wide-body area. EBITDA margin increased an excellent 710 basis points year over year.

Ken: Now, let's move to slide eight.

Ken: Fastening systems team also delivered a record quarter for revenue EBITDA and EBITDA margin.

Ken: Revenue increased 6% year over year to $412 million.

Ken: Commercial aerospace was up 13% defense Aerospace was up 8% General industrial was up 5% and commercial transportation, which represents approximately 13% of faster revenue was down 20%.

Ken: Year over year, EBITDA outpaced revenue growth with an increase of 38% to $127 million disc.

Ken: Despite the lower than expected recovery of the wide body aircraft.

Ken: EBITDA margin increased an excellent 710 basis points year over year to 38%.

Kenneth Giacobbe: 30.8%. The team has continued to expand margins.

Ken: The team has continued to expand margins through commercial and operational performance.

Kenneth Giacobbe: Commercial and Operational Performance.

Kenneth Giacobbe: Now let's move to slide nine. Engineered structures, performance continues to improve. Revenue increased 8% year over year to $282 million. Commercial aerospace was flat, and defense aerospace was up 36%, primarily driven by the F-35 program. Year-over-year segment EBITDA outpaced revenue growth with an increase of 62% to $60 million.

Ken: Now, let's move to slide nine.

Ken: Engineered structures performance continues to improve revenue increased 8% year over year to 282 million.

Ken: Commercial aerospace was flat and defense Aerospace was up 36%, primarily driven by the F 35 program.

Ken: Year over year segment, EBITDA outpaced revenue growth with an increase of 62% to $60 million. Despite the delay in the widebody recovery.

Kenneth Giacobbe: despite the delay in the wide-body recovery. EBITDA margin increased an excellent 720 basis points. 21.3% as we continue to optimize the structure's manufacturing footprint. and rationalize the product mix to maximize profitability.

Ken: EBIT margin increased an excellent 720 basis points to 21, 3% as we continue to optimize the structures manufacturing footprint.

Ken: And rationalize the product mix to maximize profitability.

Kenneth Giacobbe: Finally, let's move to slide 10. Forged Wheels revenue was down 13% year over year.

Ken: Finally, let's move to slide 10.

Ken: <unk> revenue was down 13% year over year.

Kenneth Giacobbe: Although down year over year, the Forge Wheel's revenue was up approximately 4% sequentially.

Ken: Although down year over year to four porch wheels revenue and was up approximately 4% sequentially.

Kenneth Giacobbe: EBITDA decreased 17% year-over-year. Despite the challenging market, we were pleased with the 4-inch wheels team delivering a healthy 27% EBITDA margin as the team flexed costs and reduced headcount on a year-over-year basis.

Ken: EBITDA decreased 17% year over year.

Ken: Despite the challenging market, we were pleased with the forged wheels team delivering a healthy 27% EBIT margin as the team flexed cost and reduced head count on a year over year basis.

Kenneth Giacobbe: Lastly, before turning it back over to John, I wanted to highlight one additional item.

Speaker Change: Lastly, before turning back over to John I wanted to highlight one additional item.

Kenneth Giacobbe: Page 17 in the appendix highlights our ESG progress. We continue to leverage our differentiated technologies to help our customers manufacture lighter, more fuel-efficient aircraft and commercial trucks with lower carbon footprint. Howmet remains committed to managing our energy consumption and environmental impacts as we increase production. In 2024, we met our three-year target of reducing greenhouse gas emissions by achieving a 21.7% reduction versus our 2019 baseline.

Speaker Change: Page 17 in the appendix highlights our ESG progress, we continue to leverage our differentiated technologies to help our customers manufacture lighter more fuel efficient aircraft and commercial trucks with lower carbon footprints.

Speaker Change: <unk> remains committed to managing our energy consumption and environmental impacts as we increase production.

Speaker Change: In 2024, we met our three year target of reducing greenhouse gas emissions by achieving a 21, 7% reduction versus our 2019 baseline.

Kenneth Giacobbe: In April, we issued our annual ESG report highlighting the meaningful progress we made throughout 2020. The full report is available at Howmet.com in the investor section.

Speaker Change: In April we issued our annual ESG report highlighting the meaningful progress we made throughout 2020 for the full report is available at how net dot com in the investors section.

John Plant: Now let me turn it back over to John. Thanks Ken.

Speaker Change: Now, let me turn it back over to job.

Speaker Change: Yeah.

Speaker Change: Thanks, Ken.

John Plant: So turning to the Outlook, let me comment first on TARIF. Clearly they've increased uncertainty and reduced confidence in air travel. regarding commercial aerospace. The passenger traffic has continued to grow, albeit more slowly, but that's mainly due to Europe and Asia-Pacific, where growth has continued. There's been uncertainty in North America in particular, driven by a combination of political and economic statements. travel to the U.S. is also reduced. air cargo growth has moderated. Everything is a little less clear. And passenger and freight data, of course, is backwards looking. Nevertheless, our Howmet customers are showing resilience and growth, which is both due to the consistent underbuilding of aircraft in recent years, and hence having very large backlogs.

Speaker Change: So turning to the outlook.

Speaker Change: Let me comment first on tariffs.

Speaker Change: They do they have increased the uncertainty and reduced confidence in air travel.

Speaker Change: Regarding commercial aerospace.

Speaker Change: Passenger traffic has continued to grow, albeit more slowly.

Speaker Change: Mainly due to Europe, and Asia Pacific where growth has continued.

Speaker Change: There's been uncertainty in North America in particular driven by a.

Speaker Change: Combination of political and economic statements.

Speaker Change: Travel to the U S is also reduced.

Speaker Change: Cargo growth has moderated.

Speaker Change: Everything is a little less clear.

Speaker Change: Passenger and freight data of course is backwards looking.

Speaker Change: Nevertheless, our customers are showing resilience.

Speaker Change: Gross which is due to the consistent on the building of backdrops in recent years, and hence having very large backlogs.

John Plant: And the fact that airline fleets have become aged, and more fuel-efficient aircraft are needed with lower maintenance bills. Those combined with the requirement for lower carbon footprints in order to meet the emissions target. Of note is the more optimistic mood around Boeing and their 737 MAX bills. We'll provide improved bill rate assumptions later in my commentary. Spares demand has also continued to be strong, and while one quarter doesn't make a year, we did reach the 20% of total revenue milestone in 2025 in the first quarter, a year ahead of schedule. In the first quarter, spares increased by an average of 33% across our segments of commercial aero, defense aero, IGT, and oil and gas.

Speaker Change: Fact that airline fleets have become aged on more fuel efficient aircraft are needed with lower maintenance as well.

Speaker Change: Mills combined with the requirement for a lower carbon footprint in order to meet the emissions targets.

Speaker Change: Of note.

Speaker Change: It's the more optimistic mood around Boeing seven.

Speaker Change: 737, Max bills.

Speaker Change: We will provide improved bill rates assumptions later in my commentary.

Speaker Change: Spanish demand has also continued to be strong and while one quarter doesn't make a year. We did reach the 20% of total revenue milestone in 2025 in the first quarter a year ahead of schedule.

Speaker Change: In the first quarter, but has increased by an average here.

Speaker Change: So it'd be 3% across all segments commercial Aero defense Aero, IGT and oil and gas.

John Plant: Within defence, demand is steady and increasing, particularly around needed spares. The F-35 spares growth is notable. Moving to industrial, demand continues to be solid. Addressing IGT turbine growth due to the electricity demand, which emanates from data center build out, we see the growth assumptions for the next few years remaining intact. with large expected growth for both spares and turbine mills. These turbines cover the full spectrum from aero-derivative turbines all the way through to the larger size of gas turbine mills. This demand is global. To this end, Howmet is building capacity in each of the major world's regions with additional building footprint investments in both Japan and Europe.

Speaker Change: Within defense demand is steady and increasing particularly around need each bass.

Speaker Change: <unk> is notable.

Speaker Change: Moving to industrial demand continues to be solid.

Speaker Change: Addressing IGT to buying growth due to the electricity demand, which emanates from data center build outs you see the growth assumptions for the next few years remaining intact.

Speaker Change: With large expected gross spend until it myself.

Speaker Change: These turbines cover the whole spectrum from Aero do you removed it.

Speaker Change: All the way through to the larger size gas turbine builds.

Speaker Change: This demand is global.

Speaker Change: And how much he is building capacity in each of the major world regions with additional building footprint investments in both Japan and Europe.

John Plant: These capacity expansions are backed by solid customer agreements for many years. IGT matches the aerospace margins. The expected second half increase in commercial truck bills is now less certain, given the North American economic uncertainties and some road freight concerns driven by tariffs. We're watching container shipment bookings very closely. Net tariff costs in total for Howmet are expected to be passed on to customers with up to a quarter or so of lag with the impact included in the updated increased guidance. We of course avail ourselves of all the trade programs to mitigate the gross tariff impact.

Speaker Change: These capacity expansions are backed by solid customer agreements for many years.

Speaker Change: IDT batches the aerospace market.

The expected second half increase in commercial truck builds is now less setup given.

Speaker Change: Given the North American economic uncertainties in some road freight concerns driven by tariffs.

Speaker Change: We are watching container shipments bookings very closely.

Net tariff costs total planned that I expect it to be passed onto customers with up to a quarter or so looks like the impact included in the updated increased guidance.

Speaker Change: We of course avail ourselves of all the trade programs to mitigate the gross tariff impact.

John Plant: Wider inflationary assumptions are unclear at this point. The footprint build-out of plants in the U.S. for aerospace, and now Japan and Europe for IGT, continues. We've been hiring to date for the U.S. footprint, with a net 500 people recruited in the first quarter, mainly for our engine segment. This will accelerate as we move through 2025 and into 2026. Overall, my summary is that this continues to be a good and exciting time for Howmet, when we look forward to the next few years, albeit the near term is rather more uncertain.

Speaker Change: Why the inflation assumptions are unclear at this point.

Footprint build out with plants in the U S for aerospace and now Japan and Europe for IGT continues we've been hiring to date for the U S footprint.

Speaker Change: 500 people recruited in the first quarter 94 engine segment.

Speaker Change: This will accelerate as we move through 2025 and into 2026.

Speaker Change: Overall my summary is that this continues to be a good and exciting time for how much when we look forward to the next few years, albeit the near term, it's rather more uncertain.

John Plant: The specific guidance for Q2 is as follows, a revenue of $1.99 billion plus or minus $10 million, EBITDA of $560 million plus or minus $5 million, and earnings per share of 86 cents plus or minus a penny. For the year, the midpoint of revenue guidance is similar to that provided last quarter. The strength in commercial aerospace is due to spares and the Boeing 737 build rate assumptions, which are being raised to an average of 25 per month compared to the prior assumption of 28 per month compared to the prior assumption of 25 per month. The offset is commercial truck build assumptions in the second half.

Speaker Change: The specific guidance for Q2 is as follows revenue of 1.99 billion plus or minus 10 million EBITDA.

Speaker Change: EBITDAR of $560 million, plus or minus 5 million and earnings per share of 86% plus or minus a penny.

Speaker Change: For the year.

Speaker Change: The midpoint of revenue guidance, you said most of that provided last quarter.

Speaker Change: The strength in commercial aerospace is due just says I'm, a Boeing 737 build rate assumptions, which are being raised to an average of 25 per month compared to the prior assumption of 2028, two months compared to the prior assumption of 25 come up.

Speaker Change: Upset is commercial truck build assumptions in the second half.

John Plant: We remain hopeful that the final builds achieved are better.

Speaker Change: We remain hopeful final bills achieved all of that at all.

John Plant: Having said that, given the uncertainty around markets, we are widening the range of outcomes for the year compared to that given in February. The year's guidance is revenue of $8.03 billion and also widen the range to plus or minus $150 million. The EBITDA baseline has been increased $120 million to $2.25 billion, plus or minus $25 million. Earnings per share, the baseline has been increased $0.23 to $3.40, plus or minus $0.04. Free cash flow baseline has been increased $75 million to $1.15 billion, plus or minus $50 million. The good news is that EBITDA margins and pre-cash flow are expected to be higher for the year.

Speaker Change: Having said that given the uncertainty around market, we are widening the range of outcomes for the year compared to like give it in February.

Speaker Change: The year's guidance is revenue of $8.3 billion.

Speaker Change: And also by widen the range to plus or minus 150 million.

Speaker Change: The EBITDA baseline has been increased 122 million to 2.25 billion plus or minus 25 million.

Speaker Change: Earnings per share baseline has been increased.

Speaker Change: 23 cents to $3.40.

Speaker Change: So minus full sense.

Speaker Change: Free cash flow baseline increased 75 million to 1.15 billion plus or minus 50 million.

Speaker Change: The good news is that EBITDA EBITDA margins and free cash flow are expected to be higher for the.

John Plant: The increased free cash flow guidance includes an increase in our capital expenditure guidance as well, as we continue to invest in future growth. This increase is approximately 15 million compared to prior guidance. Naturally, CAPA deployment continues to be on the same trajectory of uses as normal. At the same time, net leverage is going to further strengthen towards 1.1 times net debt to EBITDA by the end of the year, which is important given the current volatility and our desire for an even stronger balance sheet. This further supports the recent credit agency upgrades.

Speaker Change: The increased free cash flow guidance includes an increase in our capital expenditure guidance as well as we continue to invest in future growth. These.

Speaker Change: This increase is approximately 58 billion compared to prior guidance.

Speaker Change: Naturally capital deployment continues to be on the same trajectory abuses as normal.

Speaker Change: Same time net leverage is going to further strengthen towards one one times net debt to EBITDA by the end of the year, which is important given the current volatility and a desire for an even stronger balance sheet.

Speaker Change: This further supports the recent credit agency upgrades and now we'll move to the questions and answers.

Operator: And now we'll move to the questions and answers. We will now begin the question and answer session.

Speaker Change: We will now begin the question and answer session.

Operator: To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.

Speaker Change: To ask a question you May press Star then one on your telephone keypad.

Speaker Change: If you were using a speaker phone please pick up your handset before pressing the keys.

Operator: To withdraw your question, please press star then 2. Please limit yourselves to one question. If you have additional questions, you may rejoin the queue.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: Please limit yourselves to one question. If you have additional questions you may rejoin the queue.

Seth Seifman: Our first question today comes from Seth Seifman with J.P. Morgan. Please go ahead. Oh, thanks very much, and good morning and good results. I guess, John, one thing I wanted to touch on, you know, you mentioned in the release, you know, where air traffic growth is, and I think the IATA number for March came out today, and it was, you know, something like 3% globally. I guess the question I had is, you know, how much does it really matter, just in that the, you know, the structures and fasteners will probably be dictated by build rate, and engine, if it's not for aftermarket, it seems like there's plenty of demand on the OEM side and new content, and it would have to be a pretty significant decline in traffic to affect your outlook.

Speaker Change: Our first question today comes from Seth <unk> with J P. Morgan. Please go ahead.

Seth: Oh, thanks, very much and good morning.

Speaker Change: Good results.

Speaker Change: I guess, John one thing I wanted to touch on you know you mentioned in the release, you know where where air traffic growth is and.

Speaker Change: I think the IATA number for March came out today and it was something like 3% globally I.

Speaker Change: I guess the question I had is you know how how much does really matter just in that the <unk>.

Speaker Change: The structures and fasteners will probably be dictated by buy build rate.

Speaker Change: And engine, if it's not for aftermarket it seems like there's plenty of.

Speaker Change: Demand on the OEM side, and new content and you would have to beat.

Speaker Change: Pretty significant decline in traffic to affect your outlook.

John Plant: I think overall demand or end market demand for travel is important and it's important because it does affect in particular how we feel about 26 and 27. And therefore, for example, the rate at which we would invest and the volume underlying volume assumptions that are important to us. I think. that we've protected for a significant period of time, and maybe many years, it remains to be determined by the fact of the aircraft manufacturers in commercial aerospace have a very high backlog. And so even though with the current situation, for example, where China is no longer taking Boeing aircraft.

Speaker Change: I think overall demand end market demand for travel is important.

Speaker Change: And it's important because it does affect in particular, how we feel about.

Speaker Change: 'twenty six 'twenty seven.

Speaker Change: And and therefore for example, the rate at which we would invest in but what are your underlying volume assumptions that that are important to us.

Speaker Change: I think.

Speaker Change: But we.

Speaker Change: We've protected for.

Speaker Change: A significant period of time and maybe many years it remains to be determined by the effect of the aircraft manufactures and commercial aerospace had a very high backlog.

Speaker Change: So even though with the current situation for example, where.

Speaker Change: China is no longer taking Boeing aircraft there.

John Plant: then the question is, what does that mean? I mean, for the industry, it seems like Airbus probably can't produce many more, but it strengthens their underlying demand, whereas Boeing maybe not so. At the same time, their backlog is so enormous that their movement to rate 38 and beyond, I think, is still assured. At the same time, could I envisage that certain airlines might begin to cancel aircraft in the, let's say, coming year? Well, I think it's possible, but that very much depends upon really what the passenger traffic is. So at this point, I'd say it's okay, but I think all of us feel a little bit less certain than we did a few months ago, given the current, I'll say, economic policies being carried out in the US in particular.

Speaker Change: And the question is what does that mean.

Speaker Change: I mean for the industry it seems like Airbus probably call could use many more.

Speaker Change: But it strengthens their underlying demand was boeing might be not so at the same time that backlog is so enormous that that movement to right. So T H b.

Speaker Change: I think it's still a.

Speaker Change: Should.

Speaker Change: Same time, Nick could I envisage that some airlines might.

Speaker Change: Mike begin to counsel aircraft.

Speaker Change: In the coming year, but I think it's possible, but that very much depends on maybe what the the passenger traffic is so at this point I'd say each each okay.

Speaker Change: I think all of us feel a little bit less certain than we did a few months ago given the given the current economic policies.

Speaker Change: Carrier does.

Speaker Change: Are they in the U S in particular.

Speaker Change: So.

John Plant: It's a long way of saying, you know, I think it's important for when you look forward into the future of having strong underlying fundamentals for demand that start with confidence in the traveling public, the confidence in freight moving around the world. But at the same time, do we have other areas with strength? Yes, we have strength in defense. You know, we have strength coming from the continued build out of data centers, which is giving us quite an extraordinary opportunity of demand. And also, as noted in the first quarter, at the moment, the demand for spares continues to be very high and possibly will further increase.

Speaker Change: It's a long way of saying you know what I think it's important when you look forward into the future of having strong underlying fundamentals for demand.

Speaker Change: Start with confidence in the traveling public.

Speaker Change: Currency and freight moving around the world, but at the same time do we have other areas where strength. Yes. We have spent in defense. We have spend is coming from the continued build out of data centers, which is giving us a quite an extraordinary opportunity in Dubai.

Speaker Change: And also as was noted in the first quarter at the moment the demand for space continues to be very high and possibly will they increase.

John Plant: But the opposite side of that is, should original aircraft engine production slow or aircraft build slow, then it does affect SAF structures business, fastening business, and all of the other componentry beyond turbine airfoils, for example, structural castings, where there's limited aftermarket demand compared to the wearing part. So In the last call, I commented, for example, on the existing fleet, where I'd been saying for some time that probably the peak for the CFM56 was going to be 27, 28, or I think it's at least that, and current demand has actually been increasing substantially. And so all of that's playing well at the moment, and I think the future's fine.

Speaker Change: But they they often.

Speaker Change: Ultimate side about is should original.

Speaker Change: Regional aircraft engine production slow.

Aircraft they'll slow that he does affect a S S substructures basis, Boston business and all of the other component tree Oh.

Speaker Change: So by Nashville for example, structural castings.

Speaker Change: There are there's limited off the market demand compared to the way every path.

Speaker Change: So.

Speaker Change: It was the last call I called my tickets off on the existing fleet.

Speaker Change: You know I've been saying for some time, but probably the peak for.

Speaker Change: CFM 56 is going to be.

It's 27 28, I think you said at least at the current demand is actually been increasing substantially and so all of that's playing well at the moment.

Speaker Change: I think the future is fine but.

John Plant: Do we, should I get my worry beads out? You know, yes, I think it's appropriate.

Speaker Change: Do we like get my worry beads out, yes, I think it's appropriate and that's one of the reasons why I've.

John Plant: And that's one of the reasons why I've said we'll further strengthen the balance sheet as we go through this year and have a fortress balance sheet, totally fortress by the end of the year. Thanks very much.

Speaker Change: I've said, we will further strengthen the balance sheet as we go through this year and have a fortress balance sheet took the focus by the end of the year.

Speaker Change: Okay. Thanks very much.

Speaker Change: Okay. The next question is from David Strauss with Barclays. Please go ahead.

David Strauss: The next question is from David Strauss with Barclays, please go ahead. Mrs. Strauss, your line is open on our end. Great. Yep. Thanks. Thanks very much.

Speaker Change: Yes.

Speaker Change: Mr. Ross Your line is open on our end right yep. Thanks, Thanks very much.

John Plant: John, I wanted to ask you, progress on yield, on the upgraded 1A blades, and how things are going on GTFA, and when you expect timing of the 1 blade upgrade certification. Thanks. Okay, so we've been moving along our typical learner curves for new, I'll say turbine airfoil production. So everything is going to plan and we're in very good stead in terms of being ahead of, I'll say, the engine manufacture requirements. You may recall, I think it was in November of last year when I said we'd already put in 500 engine sets worth of turbine airfoils for the LEAP-1A.

John Plant: John wanted to ask you.

Speaker Change: Our progress on yields.

Speaker Change: On on the upgraded one eight blades and how things are going on GTS, a and when you expect the timing of the of the one blade upgrade certification. Thanks.

Speaker Change: Okay. So we've been moving along a typical lubbock hubs or for you.

Speaker Change: I'll say goodbye to ethanol production.

Speaker Change: So everything's going to plan and we are in very good stead.

Speaker Change: So a big ahead of the I'll say the engine manufacturer requirements you may recall I think.

Speaker Change: It was at.

Speaker Change: November of last year, when I said, we'd already put in 500 engines, that's worth it to buy that boils Towardly leap one I E.

John Plant: As we look at our production of raw castings, my assumption is that we're actually further ahead at this point, albeit we don't have perfect information of then what the subsequent processes are in terms of machining and hole drilling and etc. But at the moment our production is going well, but in line with where we expected it to be. So nothing extraordinary at this point.

Speaker Change: As we look at our production of rural castings. My assumption is that we are.

Speaker Change: Actually further ahead at this point Oh, Oh, no. We don't have perfect information of that and what's the subsequent processes all of it machining culturally et cetera, et cetera, but we eat.

Speaker Change: At the moment that production is going well, but in line with our with with where we expected it to be so nothing you know nothing.

Speaker Change: Extraordinary it so at this point.

John Plant: In terms of certification, it feels as though we now have, first of all, the 1A certified, the GTF Advantage certified, and the remaining one to, I'll say, fall into place is the LEAP 1B, which is still to be done, and my current thought is that it's probably heading towards certification by the end of the calendar year, and then with, I'll say, then the final cut-over date is yet to be determined as we move in from the end of this year into 2026. Thanks very much.

Speaker Change: In terms of certification.

Speaker Change: It feels as though.

Speaker Change: We now have first of all the the one I certify the G. T S advantage certified.

Speaker Change: And the remaining one two they'll say fall into place since the leap one fee would you still she used to be done.

Speaker Change:

And my my current thought is that it's probably heading towards certification by the end of the calendar year.

Speaker Change: And with the I'll say the final cutover date, yet to be determined as we move.

From the end of this year into 2026.

Speaker Change: Yeah.

Speaker Change: Thanks very much.

Doug Harned: The next question is from Doug Harned with Bernstein. Please go ahead. Good morning. Thank you. On Q4, you had good margins in fastening systems and engineered structures. This quarter, they're even much better. And you commented that for each of those businesses, it's been disappointing to see the ramp on wide-body demand. It's a little slower. Can you talk about... What drove the margins up? Are these sustainable? And what additions might you expect once that widebody ramp occurs?

Speaker Change: Thank you.

Speaker Change: Question is from Doug Harned with Bernstein. Please go ahead.

Doug Harned: Good morning, Thank you.

Speaker Change: On the Q.

Speaker Change: Q4, you had good margins and fastening systems and engineered structures this quarter.

Speaker Change: Been much better.

Speaker Change: And you commented that for each of those businesses you haven't it's been disappointing to see the ramp on wide body demand its a little slower can you talk about.

Speaker Change: What drove the margins up or are these sustainable and what physicians might you expect once that wide body ramp occurs.

John Plant: Yeah, so maybe I'll use structures as a poster child for the conversation, Doug. And, you know, clearly, the year-on-year improvement is excellent. Obviously, the quarter-on-quarter increase is somewhat less, but nevertheless, I think still. I'm going to say, and it goes towards, I'm sure, the question on incremental margins, which is going to be, you know, what have we been able to achieve? So in structures, for example, I'd say we've had a large effort of improved process control. and I'll give you an example of that, as an example in our aircraft wheels business. For the last, now, I'm going to say, seven months, we've been having, I think, a regular Detailed Reviews, including myself with not only the business unit leadership but also the plant management and even the departmental head so that you can examine You know, the control of temperatures within our forging metals, the dyes, we've looked at, for example, the dispensation of oiling, and not just quantity, but in terms of coverage, then also the controls within our furnaces and chemical composition and temperature in our edge tanks.

Speaker Change: Yeah, So maybe I'll use that shows let's say a.

Speaker Change: Poster child for the government's Asia.

Speaker Change: Right.

Speaker Change:

Speaker Change: Really.

Speaker Change: The the.

Speaker Change: Year on year improvement is.

Speaker Change: He's like songs.

Speaker Change: Obviously the.

Speaker Change: Quarter on quarter increases are somewhat less but nevertheless, I think still.

Speaker Change: Notable.

Speaker Change: Am I going to say.

Speaker Change: And it goes to rule and so I'm sure. The question on incremental margins, which is going to be.

Speaker Change: What would have been able to change their instructions for example, I'd say.

Speaker Change: Had a large asset improved process control.

Speaker Change: And and I'll give you. An example of that so I think that's exactly know aircraft wheels business.

Speaker Change: I'm going to let us know.

Speaker Change: I didn't say seven months.

Speaker Change: We've been having.

Speaker Change: Regular.

Speaker Change: Detailed reviews, including myself with.

Speaker Change: No.

Speaker Change: The business unit leadership.

Speaker Change: So the plant management uneven departmental head.

Speaker Change: So that we can examine.

Speaker Change: You know the.

Speaker Change: Control of temperatures within our forging metals dies.

Speaker Change: So for example, the dispensation of oiling.

Speaker Change: And not just quantity but.

Speaker Change: Coverage then also.

Speaker Change: Trolls within our Assortments is on chemical composition temperature edge tanks.

John Plant: And it's not... for that just by itself, which has actually led to probably an increase in production of, I'll say, 10 to 15%. But the improvement in scrap has been extraordinary. The improvement in productivity has been really, really good. But it's meant to then obviously try to encourage increased process control across other areas. And you could point to, for example, titanium melt as well. So we've been, let's say, doing a lot, and I'm really pleased with the way the team has done all that. So when you are achieving those sort of yield improvements and scrap reduction with productivity, combine that, if you recall, where last year, I think recently, May timeframe, we told you that we had exited one business and sold one business in the structure segment.

Speaker Change: The it's not.

Speaker Change: Paul about just by itself.

Speaker Change: Which has actually led to probably an increase in production.

Speaker Change: I'll say, 10% to 15%, but the improvement in scrap.

Speaker Change: <unk> has been an extraordinary improvement in productivity has been really really good but it's meant to that all of them as they try to encourage increased process control across other areas you could point to for example, titanium mouse as well so we've been doing a lot and I'm really pleased with the way the team has done all of that so.

Speaker Change: When you are achieving those sort of yield improvements and scrap reduction with productivity.

Speaker Change: Combine that if you recall last year.

Speaker Change: Suddenly.

Speaker Change: May timeframe, we told you that we had exited.

Speaker Change: More business sole plumpish infrastructure segments, I've got rid of some I'll say fundamentally underperforming lower margin entities. So you get a positive mix effect and then you combine that with a surprise when you get some really good outcomes and so I would say it's.

John Plant: So we've got rid of some, I'll say, fundamentally underperforming lower margin entities. So you get a positive mix effect. And then you combine that with some price, then you get some really good outcomes. And so I would say it's been a really great story of, let's say, beginning to fire on all cylinders. So you may recall my statement when we'd held it for some years with all the downdraft in the inventory overhang on F35 and the widebody, let's say, lower build, including cessation of the 7-8 central period of time. Now, We see stronger demand in the defense statements, including F-35, we, I'll say, still look forward to increased wide body.

Speaker Change: It's been a really great story, Oh, let's say beginning to fire on all cylinders. So yeah.

Speaker Change: You May recall my statement when we held it for some years you build a downdraft in.

Speaker Change: They eat.

Speaker Change: Inventory overhang on F 35 on the wide body, you can say lower builds including cessation of seven.

Speaker Change: Some for a period of time now.

Speaker Change: We see a stronger demand in the different segments, including F 35.

Speaker Change: We are I'll say look still afford to increased wide body.

John Plant: And my statement was that we would probably get up to a high teams margin business, which we managed to exceed this quarter. So I'm convinced that the statement I've made in terms of high teams is absolutely solid now. And clearly, we aspire to try to where we are. And so that that gives you an example. And you could write ditto for aspects of our fasting system, indeed, for engines as well. So really good controls and improving productivity yields have been really outstanding.

Speaker Change: My statement was that we would hope to get up to a high teens margin business in which we.

Speaker Change: Managed to exceed this quarter some.

Speaker Change: So I'm convinced that the statement I made in terms of high change is absolutely solid now I have completely we aspire to try to hold where we are and so that's that gives you. An example, and you could write data for four aspects of our fasting system.

Speaker Change: Indeed for edge as well, so really good controls and improving productivity. He feels that they are really outstanding.

Speaker Change: Okay.

Robert Stallard: The next question is from Robert Stallard with Vertical Research, please go ahead. Thanks so much, good morning.

Robert Stallard: The next question is from Robert Stallard with vertical research. Please go ahead.

Robert Stallard: Thanks, so much good morning.

Speaker Change: Well.

John Plant: John, I was wondering if you could give us an update on where you currently are on the 737, obviously noting you've increased your full year production rate guide, and also where you are on the wide bodies, because obviously you did make those comments about the ramp there being a bit slower than expected. Maybe I'll start with the widebody first. As you know from public commentary, the 787 increase in ramp rate was delayed for three months. I think until the second half. And so, you know, while we think the demand for that aircraft is extraordinary, and the backlog is very high, so we have confidence that the full demand for that aircraft is there, it has caused a little bit of, I'll say, perturbation in the first half of this year.

Speaker Change: John I was wonder if you could give us an update on where you currently are on the 737, obviously no thing you've increased your full year.

Speaker Change: Production rates are a guide and also where you are on the wide bodies. So see you did make those comments about the ramp there may be a bit slower than expected. Thank you.

Speaker Change: Maybe I'll start with the wide body first.

Speaker Change: That's as you know from public commentary, the 787 increase in wrap rates, which delayed for three months.

Speaker Change: I think until the SEC.

Speaker Change: Paul.

Speaker Change: So.

Speaker Change: While we think the demand for that aircraft is extraordinary and the backlog is very high. So we have confidence that the full demand pull that that aircraft is a new high schools.

Speaker Change: A little bit of I'll say perturbation in late in the first half of this year.

John Plant: On the A350, again, probably a well-publicized commentary is that there's been difficulties in getting some of the fuselage componentry from Spirit Aerosystems. And so on that one, our rate assumption, which was six, is probably more like a five and a half now. And our rate assumption on the 787, which was going to seven earlier, is now pushed back a little bit. So that's the picture on wide body.

Speaker Change: On the eighth week, 50, I again, probably a well publicized.

Speaker Change: Call Me Crazy is that are those veins.

Speaker Change: Michael just getting some of the future loss componentry for them.

Speaker Change: Theres ever systems, and so on that one.

Speaker Change: Rate assumption.

Speaker Change: Which was six he's probably more like a five and a half now and.

Speaker Change: And our raised assumption on a.

Speaker Change: Seven eight.

Speaker Change: Seven which was going to seven <unk>.

Speaker Change: Now pushed back a little bit so that's really the picture on wide body, but having said that with absolute confidence that the demand is that which will carry us through <unk> to 2020 six in 2020 seven.

John Plant: But having said that, with absolute confidence that the demand is there, which will carry us through into 2026 and 2027.

John Plant: on Narrowbody. Well, we've noted and feel more confident in the pickup in bills that's been going on in Boeing. And so there we've moved from a 25 rate assumption to a 28 rate assumption as an average for the year. And so that implies that we will see a higher rate of production in the second half. What we've been experiencing in the course of, because if you look at commercial aerospace sequentially between Q4 and Q1, while the year-on-year plus 9% is really good, the sequential is a much more modest increase than that. And that's basically because of, I'll say, inventory takeout that Boeing has been doing.

Speaker Change: Hum on narrow body.

Speaker Change:

Speaker Change: Well, we noted out and feel more confident and they pick up a bill that's being going on and and Boeing So that we've moved from a 25 rate assumption to a 28 basis assumption.

Speaker Change: So there is an average for the year and so that implies that we will see a higher rate of production in the second half.

Speaker Change: What we've been experiencing in the quarter because if you look at commercial aerospace are sequentially between.

Speaker Change: <unk> Q4 and Q1.

Speaker Change: While the year on year, plus 9% is really good the sequential is much.

Speaker Change: A much more modest increase than not.

Speaker Change: And that's basically because of the I'll say inventory takeout that Boeing has they are doing so.

John Plant: So I think it's the increased rate of production. We haven't seen that come through in the first quarter, in fact, if anything, a little bit of reductions at Copernicus, particularly at the second tier level in terms of machining shops. We take our components and then go and machine them. So as that inventory through the chain has been, I will say, brought down, we have noted that reduction. Albeit, we feel as though we're going to see and are seeing already some pickup in that rate as we move forward, in the latter part of Q2 into Q3 as the rate of further improvements occurs in Boeing.

Speaker Change: I think it's the increased range of production that we have.

Speaker Change: Haven't seen that.

Speaker Change: It come through in the first quarter in fact, if anything a little bit of reduction component of crisp second tier level in terms of machining shops.

Speaker Change: We take out components and then go into a machine them. So it was that inventory through the chain has been Oh, let's say go down.

Speaker Change: Have noted that we do.

Speaker Change: That should all be it you know we all see we feel is are we going to see at all see already some pick up in that rate because we'd move forward at the in the latter part of Q2 into Q3.

Speaker Change: The spend rate improvement.

Speaker Change: Improvements because in Boeing.

John Plant: On Airbus A320, you know, same assumptions as before in the mid-50s, with hopefully improvements as we go through the year.

Speaker Change: On a bus say three 'twenty thing is that the same assumptions before the mid in the mid states. It is where it can get hopefully improvements as we go through the year.

John Plant: So I think that pretty much covers it. Thanks John.

Speaker Change: Pretty much covers it.

John: That's it thanks, John Thank you.

Speaker Change: Okay.

Myles Walton: The next question is from Myles Walton with Wolf Research. Please go ahead. Thanks. Good morning.

Speaker Change: The next question is from Myles Walton with Wolfe Research. Please go ahead.

Speaker Change: Thanks, Good morning, it's John the fastening margins, Doug started to ask on that but you are you sort of used so far.

John Plant: John, the fastening margins, Doug started to ask on that, but you sort of used the structures as a case study. We could focus on fasteners. Did you get much benefit in the quarter from the PCC fire tightness that's likely been created? And have you closed on any share gain contracts under LTA? General Improvement that you saw. In the quarter, there was nothing of any note, I mean, we did do a few parts where One of our customers had an absolute need to have something in the quarter, so we did that, but it's not measurable in terms of any meaningful revenue number.

Speaker Change: The structure of those case studies, we could focus on fasteners did you get much benefit in the quarter from the P. C fire a tightness that's likely been created and have you closed on any share gain contracts under LTA or just general improvement that you saw in that business. Thanks.

Speaker Change: And in the quarter there was nothing of any note I mean, we did do a few parts were.

Speaker Change:

Speaker Change: One of our customers.

Speaker Change: The opposite need to have something in the quarter. So we did that but it's not measurable in terms of any meaningful revenue number.

John Plant: We have been booking orders, and I'll say at the moment we're probably in that, you know, between 20 to 30 million, probably I say mid-20s in terms of orders booked at the moment, but we're still hundreds of parts yet to quote, and so we're hoping that number moves up as we go through the year, and then again hopeful that by the time we get into mid-year and beyond is that we'll start to produce a meaningful quantity to cover some of those SPS related issues. Would that target potentially be over $100 million by the end of the year, if those quotes...

Speaker Change: We have been.

Speaker Change: Booking orders.

Speaker Change: Oh.

Speaker Change: Say at the moment, we are probably in that yeah.

Speaker Change: 20 to 30 million could be lets say mid twenty's in terms of all of us at the moment.

Speaker Change: Hundreds of parts yet to quote.

Speaker Change: So we are hoping that number moves up as we go through the year.

Speaker Change: And then again hopeful that by the time, we get into the into mid year and beyond just that will start to produce meaningful quantities to cover.

Speaker Change: Let's say some of those S.

Speaker Change: S P S related issues.

Speaker Change: Yeah.

Speaker Change: Would that target potentially be over $100 million by the end of the year. If those quotes no I don't think so I think that's that's too much.

John Plant: No, I don't think so. I think that's too much. I think the whole of their output was somewhere between $150 and $200 million of revenue. I'm just sure PCC are going to reallocate some of that production to their other sites. And then obviously we'll get hopefully a slice of what remains, which can't be done. It's pretty difficult to take all of that production and move it in-house because nobody sits there with that capacity. But how it all falls out, I think, will be well short of the $100 million. Total guesses would be half of that, but I don't really know.

Speaker Change: Yes.

Speaker Change: Well I think the whole of that.

Speaker Change: But with somewhere between 50 and $200 million of revenue.

Speaker Change: I'm not sure P. C C are going to reallocate some of that production to.

Speaker Change: To the other sites.

Speaker Change: And then obviously, you'll get a hopefully a slice of what remains which can't be done I'm, just pretty difficult to take all of that production in.

Speaker Change: The house, because nobody sits there with that capacity.

Speaker Change: But how it all falls out, let's say, new I think you know it will.

Speaker Change: It will be well short of the 100 billion dollar number maybe I'd just.

Speaker Change: Total gasoline would be half of that but I don't really know.

John Plant: Very good. Thanks, John.

Sean: Okay very good thanks, Sean.

Kristine Liwag: The next question is from Kristine Liwag with Morgan Stanley. Please go ahead. Hey, good morning, everyone. Thank you. Bye.

Speaker Change: Yeah.

Speaker Change: The next question is from Christina Lee Wag with Morgan Stanley. Please go ahead.

Speaker Change: Hey, good morning, everyone.

Kristine Liwag: Hey, so John, maybe taking a hindsight view, I mean, the earnings power of Howmet today is just so much stronger in the previous forms of this company with Arconic, Alcoa Aerospace over the years. Your market share wins and the engine upgrades focus on the higher value tech items and operating efficiencies are clearly paying off. And look, I know you don't give a long term outlook, but to the extent that you could, how should we think about incremental margins for the company once we do get to the 50 plus per rate per month for the 737 max and 10 plus per month for the 787?

Speaker Change: Hey, so Jon maybe taking a hindsight view I mean, the earnings power of harm. It today is just so much stronger than the previous forms of this company with our Conagra I'll call aerospace over the years.

Speaker Change: Your market share wins, and the engine upgrades focused in the higher value.

Speaker Change: Hi Tech items and operating efficiencies are clearly paying off and look I know you don't give me a long term outlook, but to the extent that you could how should we think about incremental margins for the company. Once we do get to the 50 plus per rate per month for the 737, Max and 10 plus per month for the 77.

Kristine Liwag: I mean, how high can margins really go?

Speaker Change: I mean, how high can margins really call.

John Plant: I don't know that I can answer that question, given where we are, and it's Pete Mooney. I think the... The majority of the benefits. of having Howmet as a pure play company has been increasingly the luxury of some of the conversations that we're able to have because of that focus and time and knocking problems over one by one. And so the example I gave, which was just focused on Aircraft Wheels. You know, obviously, it's a segment of a single plan. And therefore, it's meant to convey what we're doing more generally. But having that those sort of conversations, and the luxury to have the time to have those sort of conversations is really good.

Speaker Change: So I I don't know.

Speaker Change: Well I can answer that question, given where we are and it's been moving.

Speaker Change: I think the.

Speaker Change: The majority of the benefits.

Speaker Change: Having had met as a pure play company has been increasingly the luxury of some of the conversations that we're able to to have.

Speaker Change: Because of the focus of the pie and then knocking problems over one by one.

Speaker Change: And so the example, I gave.

Speaker Change: Which was just focused on.

Speaker Change: Aircraft.

Speaker Change: Fields.

I.

Speaker Change: And obviously, it's a it's a it's a segment of a single plant.

Speaker Change: And therefore.

Speaker Change: It's meant to convey what we do even more generally.

Speaker Change: The latest sort of conversations and a luxury to have the time to have those sort of conversations is it is really good.

John Plant: But where you go in the future, you know, it's always a function of what's the angle of demand. Because margin rate assumptions are affected not only by the, I'll say, internal, let's say, efficiencies that you do. It also is fundamentally different when you're going at like a 2% versus a 12%. And so, you know, at the moment, it's really difficult to know how to answer that question. When we've seen such violent rate swing assumptions for both wide body and narrow body over the last few years. And here we are again, now, you know, grappling with, you know, a set of circumstances that we had not really envisaged in terms of how we manage through the current tariff situation.

Speaker Change:

Speaker Change: Where are you where you go in the future or you know, it's always a function of what's the what's the angle of demand.

Speaker Change: Cause margin rate assumptions are affected not only by the I'll say internal.

Speaker Change: Let's say efficiencies that you do it all so it's fundamentally different when you're growing at a like a 2% both of you say, 12% and so.

Speaker Change: At the moment.

Speaker Change: It'd be difficult to know how to answer that question.

Speaker Change: And we've seen such violent right, Sweden assumptions.

Speaker Change: For both wide body and narrow body.

Speaker Change: A few years.

Speaker Change: Hum.

Speaker Change: Here, we are again.

Speaker Change: Oh, you mean grappling with no set of circumstances that we had not really envisaged in terms of how we manage through the current tariff situation. So it is it's so difficult to do.

John Plant: So it's so difficult to... be able to respond and appear to be in any form of, let's say, clear thinking at this point in time. And as you know, when we went through inflation in the, let's say, 22 time frame as that picked up, when you're just getting a dollar for a dollar, that impacts and flattens your margin. And if we're successful, as I think we are, and it's been interesting, we haven't had a question on so far, but if we get a dollar for a dollar there, again, that's a dampened our margin. So I don't know how to answer the question that would be anything meaningful for you, Kristine.

Speaker Change: To be able to respond.

Speaker Change: And do you have any for it to be in any form of let's say.

Speaker Change: She is thinking at this point in time.

Speaker Change: No when we went through inflation in the.

Speaker Change: 'twenty two time frame was that picked up when you're just getting a dollar for a dollar of the inbox and Plopped your margin.

Speaker Change: If we are successful I think we are and it's been interesting. We havent had a question on time, so far but if we get a dollar for a dollar that they get and that's a that's adopted our margin. So I don't know how to answer the question that would be anything meaningful for you Christine.

Kristine Liwag: Thanks, John.

Operator: And maybe pivoting to cash.

Speaker Change: Thanks, John and maybe pivoting to cash despite this uncertain environment and yet you had COVID-19 yet inflation I have tariff risks.

John Plant: Despite this uncertain environment, and you had COVID, you had inflation, now you have tariff risks. But at the same time, you know, free cash flow is still positive for the enterprise. You're able to support your CapEx increase with cash generated, and you've got extra. And the balance sheet is under levered.

Speaker Change: But at the same time, you know free cash flow is still positive for the enterprise are you able to support your capex increase with cash generated and you've got extra and the balance sheet is under Levered Theres a point in time as the economic environment stabilizes for demand for aerospace could.

John Plant: There's a point in time as the economic environment stabilizes for demand for aerospace, could we see a period where you could return 100% of excess free cash flow to shareholders? And even if you should do that, the de-levering aspect is still pretty meaningful.

Speaker Change: Could we see a period, where you can return 100% of excess free cash flow to shareholders and even if you should do that that delevering aspect is still pretty meaningful. So how do we think about priorities of capital, especially as we emerge from this period of uncertainty.

John Plant: So how do we think about priorities of capital, especially as we emerge from this period of uncertainty? I think we've had a pretty good record in returning cash flow to our owners. And I may have the year wrong and I'll let Ken have a have a look. But I think, for example, in 2023, we actually returned more than 100% of the available free cash flows to shareholders. You could say, you know, I also treat repayment of debt as effectively returning money to shareholders. So our conversion, if you look at the five-year, I looked at this recently, if you look at the five-year average, we're exactly at 100% conversion of net income into free cash flow, albeit it's been, let's say, closer to 90% the last year, a couple of years, if we've kicked up the capex in particular.

Speaker Change: Okay.

Speaker Change: We've had a pretty good record in determining our cash.

Speaker Change: Cash flow too.

Speaker Change: Yes.

Speaker Change: And I may have the wrong and Oh, let can have a half a month, but I think he picks up in 2023.

Speaker Change: She was telling to more than 100% of the available free cash flows to shareholders.

Speaker Change: I would say you know what I also treat repayments of debt effectively returning money to shareholders.

Speaker Change: So our conversion if you look at those five if I looked at this recently looked at the five year average we're exactly at 100% conversion of net income into free cash flow, albeit it's been let's say closer to 90% the last couple of years.

Speaker Change: The capex in particular.

John Plant: So when I look at our cash flows at the moment, clearly we're able to afford to invest. And I think that takes away for our customers any uncertainty about, you know, the supply base and for us in particular, can we invest to meet the future demands.

Speaker Change: So when I look at.

Speaker Change: Cash flows above and clearly we're able to afford to invest.

Speaker Change: That takes away for our customers.

Speaker Change: Any.

Speaker Change: Any uncertainty about.

Speaker Change: The supply base.

Speaker Change: Troughs in particular company invest to meet the future demands and so when you look at.

John Plant: And so when you look at. the investment we made back in 2020, that was a quarter of a billion in our engine products. We're investing more than that currently in our, I'll say, aerospace turbine airfoil increase in production. And that, you know, ignores the IGT aspect. So we're able to fund that.

Speaker Change: The investment we made back in 2020 that was a quarter of a billion.

Speaker Change: A N G products.

Speaker Change: We are investing more than that currently.

Speaker Change: Our Oh.

Speaker Change: I'll say aerospace.

Speaker Change: Nashville increase production and that's really what he ignores.

Speaker Change: Yeah, Hi, G T aspect to able to fund that this year in terms of the contours of the same type of deployment.

John Plant: This year, in terms of the contours of, say, capital deployment, clearly we already mentioned that we've increased the dividend. I think the buyback of shares will actually be at a higher number than it was in 2024. and at the same time I expect that our balance sheet will be further strengthened by the end of the year because we've got I think you know improved EBITDA that you know is in the guide and we need to look at you know is there any further tranche of debt which we want to to pay down because what I when I recognize that at 1.1 times net debt to EBITDA we're a little bit under levered but at the same time I think given all of the uncertainties it's appropriate for us to have that as a year-end view currently and obviously if some of the immediate grey clouds you know pass over and then we're looking to further deploy but it's going to be a good return for shareholders this year with increased share buyback over last year increased dividend and so it's all it's all going to be good.

But what do you mentioned, we've increased the dividend.

Speaker Change: I think the.

Speaker Change: Buyback of shares will actually be at a higher number.

Speaker Change: Was 2024.

Speaker Change: And at the same time.

Speaker Change: Our balance sheet will be further strengthened by the end of the year.

Speaker Change: Because we've got I think improved our EBITDA.

Speaker Change: You didn't give the guide.

Speaker Change: We need to look at the yards in each one of those tranche that we should be once you pay down because what I when I recognize that a one one times net debt to delve in a little bit under Levered at the same time I think given all of the uncertainty is it's a it's appropriate for us to have that as a it's a.

Speaker Change: And you correctly.

Speaker Change: And obviously, if some of the immediate gray clouds passed over in the Delaware.

Speaker Change: Looking out to further deploy but he is going to be a good return for shareholders issue with increased share buyback over the last year, Greece David.

Speaker Change: And social its all going to be good.

John Plant: Great. Thanks, John.

Speaker Change: Great. Thanks, John.

Ronald Epstein: The next question is from Ron Epstein with Bank of America. Please go ahead. So, let me ask the tariff question that everybody asked. How are you thinking about that, John? And you guys were, I think, really the first to come out with the force majeure concept on tariffs.

Speaker Change: Yeah.

Speaker Change: The next question is from Ron Epstein with Bank of America. Please go ahead.

Ron Epstein: So let me ask the tariff question and nobody RF or how are you thinking about that John and then you guys were I think.

Speaker Change: Really the first to come out with the force for sure.

Ron Epstein: Concept on tariffs.

John Plant: And yeah, I mean, how pass-throughable is it and how are you broadly thinking about Yeah, I thought for a second even despite my prompting that no one would ask the question so I was going to have to find a way of talking to it so that it could be out there. I mean, first of all... The wider picture in tariffs has been very fast moving and changing both in terms of the percentages and also exemptions either by product or by country so it's been tough to keep up with all of the changes there but at the same time we do understand the thrust of the administration to, I'll say, try to reshore production where it's appropriate.

Yeah, I mean, how pass through but was it and how are you broadly thinking about it.

Ron Epstein: Yeah.

Ron Epstein: A second even just bought my prompting but no one month off.

Ron Epstein: The question. So I was gonna have to find a way of talking to it.

Ron Epstein:

Ron Epstein:

Ron Epstein: I mean festival.

Ron Epstein: On the let's say the wider picture types, it's been.

Ron Epstein: Very fast moving and changing.

Ron Epstein: In terms of the percentage is I'd also exemptions.

Ron Epstein: Goodbye.

Ron Epstein: By country, So we know.

Ron Epstein: It's been tough to keep up with all of the changes that let's say at the same time, we do understand the thrust of the administration.

Ron Epstein: To Oh, so I try to.

Ron Epstein: Sure.

Ron Epstein: We know where it's appropriate.

John Plant: Having said that, our duty is to, first of all, minimize the impact, and we do that with a series of trade programs, and I'm sure you're familiar with all of the names, let's say whether it is the U.S. MCA, whether it's duty drawback using a bonded warehouse, it's free I could quote like 9801, 2 and 3 exemptions, and inward processing relief, and so on. So there's a lot of programs that, you know, you look at and to see, first of all, can you minimize the impact for the company and also for our customers. The third point is clearly we want to protect Hamas and when we examined contracts, while we have very solid, for example, material escalators in place, in certain cases, tariff is not called out in the contract language and so we wanted to protect for that so there was no ambiguity and also then we, as you know, issued letters of force and which we had to issue to all of our customers so that we would have consistent messaging.

Ron Epstein: Having said that Oh do T H two festival minimize the impact.

And we do that with a serious.

Ron Epstein: Our trade programs and I'm sure you're familiar with all of the names, let's say whether it is the U S. M. C. A rich duty drawback, you shouldn't get bonded warehouses free trade zones.

Ron Epstein: And then you've got some of the exemptions, which you can talk to it I could quote like nine to a one two and three exceptions.

Ron Epstein: England processing relief until up there's a lot of programs that are.

Ron Epstein: You know you look at it.

Ron Epstein: To see just what can you minimize the impact for the company and also for our customers.

Ron Epstein: Third point is clearly we want to want to protect that.

Ron Epstein: When we examined our contracts well, we have a very solid.

Ron Epstein: Example material escalators.

Ron Epstein: In place.

Speaker Change: In certain cases, sorry, it's not called out in the contract language.

And so we wanted to protect for that so there is no ambiguity.

Speaker Change: And ER and also then.

Speaker Change: We as you know issued license of course, Michel which we had to issue to all of our customers. So that we would have consistent message I can call it say to one another.

John Plant: You can't say to one and not the other, etc. So it was a stance in the company.

Speaker Change: Et cetera, so he's a stance from the company.

John Plant: So today, let's now move to impact at the gross level. And assuming after all the mitigation actions that we've taken, and assuming that after the 90 day period, there is a bounce back to the previous levels, which hopefully won't be the case. But we envisage the gross impacts for the company, in a worst case position to be at about $80 million. And that's if the 90 day period goes and passes, comes and goes, and there's a bounce back there. The next point would be, so what is the net impact after all the mitigation and then pass through?

Speaker Change: So today, that's not moved to impact them at the at the gross level.

Speaker Change: I'm, assuming after all the mitigation actions that we've taken and assuming that after the 90 day period, there was a bounce back to previous levels, which hopefully well be the case, but we envisage the gross impact for the company.

Speaker Change: At worst case position to be at about $80 million.

Speaker Change: And that's if the if the 90 day period.

Some passes it comes and goes.

Speaker Change: Bounce back there.

Speaker Change:

Speaker Change: And then the next point would be so what is the net impact after all the mitigation that that pass through.

John Plant: We see that as less than $15 million in 2025, and the majority of that 15, not all of it, but the majority of it is what I call the drag impact. and that is when you incur costs, you know, we'll be having to fund certain importers because they haven't got the working capital to pay the duties. And so we have all of that and we see it as a drag in we'll be paying out but then invoicing either as supplements to existing invoices or surcharges and obviously that affects you in the quarter. That's why we see and you'll see in Q2 we assumed a lower margin rate than we had in Q1 essentially because of tariff drag and then you know it just goes on for a period of time but hopefully by we get into the second half of the year and into the fourth quarter then it'll be just normal course of business in terms of invoicing recovery but we'll still have had that drag in 2025.

Speaker Change: We see that as is less than $50 million in 2025.

Speaker Change:

Speaker Change: The majority of the 15, but not all of it but the majority of it is used to walk all the drag impact.

Speaker Change: That is when you incur costs, you know, we'll be having to fund certain input.

Speaker Change: Quarters, because they come about the working capital to a to pay they did you choose.

Speaker Change: Until we have all of that and we see each other drugs and we will be paying out but that invoicing either a supplement to our two existing invoices or or surcharges.

Speaker Change: <unk> assumed a lower margin rate than we had in Q1, essentially because the Tories Greg.

Speaker Change: Then you know it is.

Speaker Change: It just goes on for a period of time, but hopefully by we get into the second half of the year and into the fourth quarter that is.

Speaker Change: It'll be a just normal course of business in terms of invoicing recovery, but we'll still have had that drag in 2025. So that's how we see it today.

John Plant: So that's how we see it today but of course it could be, you know, still fast moving.

Speaker Change: Of course, it could be.

Speaker Change: You know its still moving.

John Plant: To give you a little bit more granularity, the majority, I'd say there's two real impacts for us. One is the imports from Europe, and the second one are the imports from China, not surprisingly given the percentage of tariffs for China at the moment. Two of our business units out of the four are primarily affected, and in one we've already secured individual customer agreements covering more than 90% of revenue to cover the tariffs, so that's cleared one, and of the second one, then about 50% is covered through distribution where it's contract to contract, and therefore there's a small net overhang which is yet to be locked down with, let's say, larger customers, so that's all within the net $15 million I told you about.

Speaker Change: To give you a little bit more granularity.

You know the majority I'd say, there's two just two real impact for US one is the imports from Europe.

Speaker Change: Second one on the imports from China, not surprisingly given the percentage of tariffs for China at the moment.

Speaker Change: Two of our business units out of the four primarily affected.

Speaker Change: And in Guam, we've already secured.

Speaker Change: The visual custom agreements covering more than 90% of our revenue.

Speaker Change: To cover tariffs. So that's paid one and the second one then about 50% is covered through distribution, where it's at it's H contract to contract.

Speaker Change: Therefore, there's just so much overhang, which is yet to be locked up with with let's say.

Speaker Change: Our largest customer so.

That's all within the net $50 million I told you about so I hope that gives you a pretty comprehensive walk through from a you know what.

John Plant: So hopefully that gives you a pretty comprehensive walkthrough from how we see it, what the gross impact might be, what the net impact is, and what our assumptions are.

Speaker Change: You know, how we see it what the gross impact might be what the net impact is and what our assumptions are.

Speaker Change: Gotcha Gotcha, that's helpful and if I could just one quick follow on.

John Plant: How exposed are you to rare earths and rare minerals? Yeah, there's three that we are, I'll say, worried about. And if I pick the first one, which would be yttrium, then there's gandolinium, and there's another one, struggling to remember the name of it. But in the case of two, the supplier has approximately 10 years of inventory. So we feel pretty good on that. And the one, and I can't remember which of those names it was now, maybe it's the gandolinium then, that's a short, maybe less than a year. But, you know, there is a, you know, it's like everything, there is a possibility of, you know, say working around that.

Speaker Change: How we're exposed or two rare earth, maybe rare minerals in Minnesota.

Speaker Change: My question Mark for you guys or do you have that covered.

Speaker Change: Yeah. This is the three that we are I'll say worried about and so I think the the first one would you be atrium and those gander linear excuse me.

Speaker Change: The supplier has.

Speaker Change: Ultimately 10 years.

The inventory so we feel pretty good on that.

Speaker Change: And the one.

Speaker Change: And I've gotten which of those named it was now maybe its the kind of the linear Ben.

Speaker Change: That's a short maybe a little less than a year.

Speaker Change: But yeah there is.

Speaker Change: Like everything there is a possibility of you know.

Speaker Change: Yeah, I'll say working around that so I think you know Mike at least with these words, but I think that we're okay.

John Plant: So I think, you know, we might mis-tweak these words, but I think that we're okay. And certainly in the case, as they start with yttrium, like a very long decade of inventory. So that's held in Europe, actually. So we're in good shape there.

Speaker Change: And certainly the cases, they saw where they treat them like a bedroom law.

Speaker Change: Good.

Speaker Change: Decades of inventory, so that's and that's held and are held in Europe actually so weird.

Speaker Change: In good shape there.

Speaker Change: Gotcha alright, thank you very much thank.

Sheila Kahyaoglu: The next question is from Sheila Kahyaoglu with Jeffreys, please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question is from Sheila how you go out with Jefferies. Please go ahead.

Sheila Kahyaoglu: Good morning, John and Ken. John, I'm going to have you double down on tariffs since you asked. Oh, no. I know.

Speaker Change: Good morning, John and Ken.

Speaker Change: John I'm going to have to double down on tariffs.

Speaker Change: Oh I know.

John Plant: I want to go back. I thought of a third word, the third rare earth. I could tell you it's erbium, if that means anything to you. It reflects in a titanium shell. But anyway, sorry, carry on. It means absolutely nothing, but thank you.

Speaker Change: And I wanted to go back out to us.

Speaker Change: The third would the third rather if I could tell you that.

Speaker Change: If that means anything to you its effects it not a titanium shell, but anyway, sorry carry on.

Speaker Change: There's absolutely nothing but thank you so with that Q1 margins of 28 O really fun graphics across the segments, whether it was back when I was talking a poster child just care well, it's up to the full year guidance on when you think about first half top line growth of 6% second half pattern.

Sheila Kahyaoglu: So with the Q1 margins of 28.8, really strong leverage across the segments, whether it was fasteners or your poster child, just curious, relative to the full year guidance, when we think about first half top line growth of 6%, second half is up 10%, but the margins are implied to step down 100 bps. So from 28.5 to 27.5, but the net tariff impact is only about 15 bps of that. So how do you think about what else is built into the contingency and how sustainable are Q1 levels across segments? Yeah, so I think there's a few things going on, you know, there's the, I'll say dampening effect of typhoid.

Speaker Change: Margins are hyper stepped down 100, that's up from 25 to 27 five.

Speaker Change: And that tariff impact of only about that.

Speaker Change: So how do you think about what else is built into the contingency and how sustainable are Q1 level of the past back then.

Speaker Change: Yeah. So.

Speaker Change: I think it's a few things getting it wrong, yeah. That's the I'll say dampening effect, so it's a tariff and I.

John Plant: Don't have to hand the same bits, you've obviously calculated quicker than I did, but I look at the flattening effect of a dollar for a dollar, then I look at, the thing we haven't talked about is, our assumption is that there will be actually a step down of production in our commercial truck business, and while we've been holding on to March as much as we know we have so far, it's been good, you know, there are still you know, there are points you get to where it's increasingly painful. And so a little bit more caution because of that commercial drug business.

Speaker Change: Don't have to have the let's say bits, you've obviously calculation.

Speaker Change: Quicker than I do.

Speaker Change: Good.

Speaker Change: But I look at the NIM.

Speaker Change: The flattening effect of a dollar for dollar.

Speaker Change: When I look at the thing we haven't talked about is.

Speaker Change: Our assumption is that there will be actually a stepped out of production in our commercial truck business.

Speaker Change: So while we've been holding onto margins as much as we can we have some pretty good you know they're all still.

Speaker Change: I know there are points you get to where it is.

Speaker Change: Increasingly painful and so a little bit more caution because of that our commercial truck business and of course, you know who we.

John Plant: And of course, you know, we have yet to see. The Commercial Aircraft Production Step-Up. You see image effect all over. And so, you know, I point to several things that, you know, a little bit of concern. So, you know, I feel as though it's an appropriate guide. And we have more concern in the one segment, which is commercial truck and its volumes and what that could do to us. Meanwhile, of course, as you know, we're, you know, we're recruiting, you know, significantly for the new facilities and building those out. So, you know, we'll put in 500 people in the first quarter.

Speaker Change: We have yet to see.

Speaker Change: The commercial aircraft production step up.

Speaker Change: You said you'd been checked all over and and so.

Speaker Change: So I'd.

Speaker Change: I'd point to several.

Speaker Change: Things that are a little bit of concern so.

Speaker Change: I feel as though it's a it's an appropriate guide and you see it with more concern in the one segment.

Speaker Change: She's commercial truck and its volumes and what that could do to us. Meanwhile of course as you know we are recruiting and it significantly for the new facilities.

Speaker Change: And building those out so you know will it work.

Speaker Change: <unk> put in 500 people in the first quarter.

John Plant: If you ask me to call it again today, I'm thinking an additional thousand by the end of the year. And of course, those have to go through not just the recruitment, but the training process. So, there's a bit of that. So, I think it's where we think, you know, it's appropriate at this point in time, Sheila. You know, we try to do better, of course, you know. With all the uncertainty, all the things I mentioned, I think still staying north of that 28% is really good in the balance of the year with all the things that we're trying to do and the run rate that we're trying to achieve as we go into 2026.

Speaker Change: Hum.

Speaker Change: If you asked me to call. It again today, I'm thinking and additional thousands by the end of the year.

Speaker Change: Of course, I would have to go through not just a recruitment by the training process is a bit of that.

Speaker Change: So I think it's it's it's it's where are we thinking of the each age appropriate at this point in time.

Speaker Change: We try to do better of course.

Speaker Change: But.

Speaker Change: With all the uncertainty the old things I mentioned, it's a I.

Speaker Change: Think still staying north of the 28% is a is really good.

Speaker Change: So do you need with all the things that we're trying to do and that's not right.

Speaker Change: We're trying to achieve as you go into 2026.

Sure, thank you.

Speaker Change: Sure. Thank you.

Speaker Change: Thank you.

Speaker Change: The next question is from Scott Deuschle with Deutsche Bank. Please go ahead.

Scott Deuschle: Hey, good morning, Jonathan that 33, 33% spares growth figure can you segment that at all by end market, perhaps just to highlight what end markets were accretive to that 33% growth rate and which were dilutive and then secondly, I think engine products may have been experiencing some destocking headwinds.

Scott Deuschle: For Cold section engine parts on the leap engine is that correct and if so is that now behind you. Thank you.

Speaker Change: Yeah, so dealing with the the engine segment question first yes, we have a hot summer that destocking effects in particular for the L. P. T. A part of that production back.

Speaker Change: If anything that is L. P. G parts, which are produced in France, where I'll be a little bit.

Speaker Change: They produced last year.

Speaker Change: Given the outputs of leap in the first quarter, which was unexpected hundred 14, OE engines and that was probably less than we had originally thought.

Speaker Change: L. P T overhang still exists suddenly and go is doing with obviously these structural casting. So you know I don't think that's that will be yet, but it depends upon the rates are increasing production.

Speaker Change: And so if you reverse engineer the mouse, which was to get to a.

Speaker Change: The guidance on leap was roughly around 16 70 engines for the year than Sealy productions Gotta go well north of 400 engines. So it is it should that occur then I think as we get into Q3 and Q4, we should be beyond that destocking effect that so.

Speaker Change: We've seen a was just because of let's say less of production last year and a modest start up this year, but should we see for full 50 engines per quarter, then that would be that would be good for us.

Speaker Change: The first part of your question was should be calling spaz basically commercial Aero and defense.

Speaker Change: In the Oh, a 40% increase.

Speaker Change: While the IGT and oil and gas were more like a 15% increase.

Speaker Change: So a nice used to do with available capacity is at this point I'm trying to turn up.

Speaker Change: Because I mean, there is the madden for additional.

Speaker Change: Parts for the the IGT business in particular, so if you assume 40 per cent for commercial and defense made a mid teens for the IGT cum oil and gas that's about Spanish business.

John: Thank you John.

Speaker Change: Thank you.

Speaker Change: This concludes our question and answer session and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: Yeah.

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