Q2 2025 Howmet Aerospace Inc Earnings Call
Paul Luther: Good day and welcome to the second quarter 2025 Howmet Aerospace earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Paul Luther, Vice President, Investor Relations. Please go ahead.
good day and welcome to the second quarter 2025 helmet Aerospace earnings conference call
All participants will be in listen-only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask a question. You may press star then 1 on your telephone keypad to withdraw your question. Please press star then to please note this event is being recorded.
Pete: Thank you, Megan. Good morning and welcome to the Howmet Aerospace second quarter 2025 results conference call. I'm joined by John Plant, Executive Chairman and Chief Executive Officer, and Ken Giacobbe, Executive Vice President and Chief Financial Officer. 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 filings. 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.
I would now like to turn the conference over to Paul Luther vice president investor relations. Please go ahead.
Thank you, Megan. Good morning and welcome to the Hamad arrows. Day's second 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.
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 related to future events and expectations.
You can find factors that could cause the company's actual results to different to differ materially from these projections.
listed in today's presentation and earnings press release and in our most recent SEC filings.
Pete: 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. In addition, unless otherwise stated, all comparisons are on a year-over-year basis. With that, I'd like to turn the call over to John.
In today's presentation, references to Evita operating income and EPS mean, adjusted, Evita 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,
Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix of today's presentation.
In addition, unless otherwise stated, all comparisons are on a year-over-year basis. With that, I'd like to turn the call over to John.
John Plant: Thank you, Pete, and welcome, everyone. The results for the second quarter were strong. Revenue growth increased 9% year over year compared to 6% in the first quarter, and the revenue broke through 2 billion to 2.53 billion and exceeded the high end of guidance. The revenue growth enabled us to carry out the costs of the additional headcount as we prepare for the new capacity coming on at the end of 2025, notably for turbine airfoils and the IGT build-out during 2026 and 2027. EBITDA margins were healthy at 28.7%, up 300 basis points year over year, which was excellent given the significant sequential revenue and EBITDA growth. EBITDA was 589 million. Free cash flow was also healthy at 344 million.
Thank you, PT, and welcome, everyone.
Uh, the results for the second quarter were strong.
Revenue growth, increased 9% year-over-year compared to 6% in the first quarter and the revenue, uh,
Broke through 2 billion to 2.53 billion and exceeded the high end of guidance.
The revenue growth enabled us to carry out the costs of the additional head count. As we prepare for the new capacity coming on at the end of 2025, notably for Turbine air foils and the IGT build out during 2026 and 2027.
With our margins being healthy at 28.7%, up 300 basis points year-over-year, which was excellent given the significant sequential revenue and our need to be focused on growth.
Ebi was 589 million.
John Plant: This cash flow enabled share repurchases of 175 million in the quarter to total 300 million in the first half, with an additional 100 million already completed in July. Additionally, debt repayment was 76 million. We also announced an increase in the common stock dividend to 12 cents per quarter starting in August. This is a 20% increase quarter over quarter, which builds on the significant increases in 2023 and 2024. Lastly, earnings per share was 91 cents, an increase of 36% year over year. In terms of business segment commentary, Forged Wheels continues to do well with a 27.5% margin, a slight increase on the first quarter. Additionally, Structure printed another solid quarter with EBITDA margins above 20%, the exact number being 21.4%. Lastly, Howmet Incrementals were above 60% year over year.
Free cash flow was also healthy at 344 million.
This cash flow enables Sherry purchases of 175 million in the quarter for total of 300 million in the first half with an additional 100 million already completed in July.
Additionally, debt repayment was $76 million.
we also announced an increase in the common stock dividend to 12 cents per quarter starting in August, this is a 20% increase quarter over quarter, which Builds on the significant increases in 2023 and 2024
Lastly earnings per share was 91 cents. An increase of 36% year-over-year.
In terms of business segments commentary forged wheels continue to do well with a 27.5% margin a slight increase on the first quarter.
Additionally structured printed and other solid quarter with ebar margins above 20% the exact number being 21.4%.
John Plant: I'm now passed the call to Ken to comment specifically on market sector performance and provide business segment commentary.
Lastly, how many incremental were above 60% year-over-year?
Business segments, commentary.
Ken Giacobbe: Thank you, John. Good morning, everyone. In the deck, you'll notice that we've added slide five, which gives you a quick snapshot of the first half of performance. But we're going to move to slide six now to talk about the markets. So, end markets continue to be healthy, with total revenue up 9% year over year and 6% sequentially. Commercial aerospace was up 8%, driven by accelerating demand for engine spares. Commercial aerospace growth is further supported by the record backlog for new, more fuel-efficient aircraft with reduced carbon emissions. Defense aerospace growth continued to be robust, printing record quarterly revenue of 352 million, which was up 21%. Growth was driven by engine spares, new engine builds, and F-35 structures. As we expected, commercial transportation was challenging with revenue down 4% in the second quarter, including the pass-through of higher aluminum costs.
Thank you, John. Good morning everyone. I'm in the deck, you'll notice that we've added slide 5, which gives you a quick snapshot of the first half performance, but we're going to move to slide 6 now to talk about the markets. So end markets continue to be healthy with total revenue up 9% year-over-year and 6% sequentially.
Commercial Aerospace was up 8% driven by accelerating demand for engine spares.
Commercial Aerospace growth is further supported by the record backlog for new more fuel efficient aircraft with reduced carbon emissions.
Defense Aerospace growth continue to be robust.
We're doing record quarterly revenue of 352 million, which was up 21%.
Growth was driven by engine spares. New engine builds and F-35 structures.
Ken Giacobbe: On a volume basis, wheels volume was down 11%. Although down year over year, the wheels team did an excellent job to flex costs and deliver strong EBITDA margin of 27.5%. Finally, the industrial and other markets were up a healthy 17%, driven by oil and gas up 26% and IGT up 25%. Within Howmet's markets, the combinations of spares for commercial aerospace, defense aerospace, IGT, and oil and gas continues to accelerate and was up 40% in the second quarter and represented 20% of total revenue. As a compare, total spares in 2019 was 11% of total revenue on a smaller base. So, in summary, continued strong performance in commercial aerospace, defense aerospace, and industrial, partially offset by commercial transportation. Now let's move to slide seven. So, as usual, we'll start with the P&L.
As we expected commercial, transportation was challenging with Revenue, down 4% in the second quarter, including the past through of higher aluminum costs.
On a volume basis, Wheels volume was down 11%.
Although down year-over-year, the wheels team did an excellent job to flex costs and deliver strong ibida margin of 27.5%.
Finally, the industrial and other markets were up a healthy 17%.
Driven by oil and gas up. 26% in IGT up 25%.
Within how much markets.
The combination of spares for commercial Aerospace.
Defense Aerospace, IGT and oil and gas.
Continues to accelerate and was up 40% in the second quarter and represented 20% of total revenue.
As a compare total spares in 2019, was 11% of total revenue on a smaller base.
So in summary continued, strong performance in commercial Aerospace.
Defense Aerospace and Industrial partially offset by commercial transportation.
Now, let's move to slide 7.
Ken Giacobbe: Q2 revenue, EBITDA, and earnings per share were all records and exceeded the high end of guidance. Revenue was up 9% year over year, exceeding $2 billion. EBITDA outpaced revenue growth up 22%. EBITDA margin increased 300 basis points to 28.7% while absorbing the costs of approximately 400 net headcount additions. Earnings per share was 91 cents, which was up a healthy 36% year over year. Now let's cover the balance sheet and cash flow. The balance sheet continues to strengthen. Quarter-end cash balance was healthy at 546 million. Free cash flow was excellent at 344 million, which was a record for the second quarter. Free cash flow included the acceleration of capital expenditures, with approximately $100 million invested in the quarter and $220 million invested in the first half, which is up approximately 60% year over year.
So, as usual, we'll start with the p&l.
Q2, revenue, ibida, and earnings per share were all records and exceeded the high end of guidance.
Revenue was up 9% year-over-year. Exceeding, 2 billion dollars.
Ibida, outpaced Revenue growth of 22%.
Even a margin increased 300 basis points to 28.7% while absorbing the costs of approximately 400, net headcount additions.
Earnings per share was 91 cents which was up a healthy 36% year-over-year.
Now, let's cover the balance sheet and cash flow.
The balance sheet continues to strengthen.
Quarter and cash balance was healthy at 546 million.
Free cash flow was excellent at 344 million.
Which was a record for the second quarter.
Free cash flow included, the acceleration of capital expenditures with approximately 100 million dollars invested in the quarter and 220 million dollars invested in the first half.
Ken Giacobbe: About 70% of the first half CapEx investment was in our engines business, as we continue to invest for growth in commercial aerospace and IGT, which is backed by customer contracts. Debt continues to be reduced, and we paid down an additional $76 million of our US term loan, which is due in November of 2026. The paydown will reduce annualized interest expense drag by approximately $4 million. Net debt to trailing EBITDA continues to improve to a record low of 1.3 times. All long-term debt is unsecured and at fixed rates. Regarding liquidity, it remains strong with a healthy cash balance and a $1 billion undrawn revolver, complemented by the flexibility of a $1 billion commercial paper program, both of which have not been utilized. Regarding capital deployment, we deployed 292 million of cash to common stock repurchases, debt paydown, and quarterly dividends.
which is up approximately 60% year-over-year.
Percent of the first half capex investment was in our engines business. As we continue to invest for growth in commercial Aerospace, and IGT, which is backed by customer contracts.
Debt continues to be reduced and we paid down an additional 76 million of our us Term Loan which is due in November of 2026.
The pay down will reduce annualized interest expense dragged by approximately $4 million.
Net debt to trailing ibida continues to improve to a record low of 1.3 times.
All long-term debt is unsecured and it fixed rates.
regarding liquidity, it remains strong with a healthy, cash balance and a 1 billion dollar, undrawn Revolver complemented by the flexibility of a 1 billion dollar commercial paper program, both of which have not been utilized
Ken Giacobbe: In the quarter, we repurchased $175 million of common stock at an average price of approximately $142 per share. Q2 was the 17th consecutive quarter of common stock repurchases. The average diluted share count improved to a record Q2 exit rate of 406 million shares. Additionally, in July, we repurchased $100 million of common stock at an average price of approximately $183 per share. July year-to-date common stock repurchases is 400 million at an average price of approximately $144 per share. Remaining authorization from the board of directors for share repurchases is approximately $1.8 billion as of the end of July. Finally, we continue to be confident in free cash flow. We've announced an increase in the Q3 quarterly stock dividend by 20%, from 10 cents per share to 12 cents per share payable this August.
regarding Capital deployment, we deployed 292 million of cash, common stock repurchases Debt, Pay down and quarterly dividends
in the quarter, we repurchased 175 million
Per share.
22 was the 17th consecutive quarter of common stock repurchases.
The average diluted share count improved to a record Q2 exit rate of 406 million shares.
Additionally in July, we repurchased 100 million of common stock at an average price for approximately 183 per share.
July year to date. Common stock, repurchases is 400 million and an average price of approximately 144 dollars per share.
Remaining authorization from the board of directors for share repurchases is approximately 1.8 billion dollars as of the end of July.
Finally.
We continue to be confident in free, cash flow.
Ken Giacobbe: Now let's move to slide eight to cover the segment results for the second quarter. The engine products team delivered another record quarter for revenue, EBITDA, and EBITDA margin. Quarterly revenue broke through the $1 billion mark with an increase of 13% to 1.056 billion. Commercial aerospace was up 9% and defense aerospace was up 13%, both driven by engine spares growth. Both oil and gas and IGT were up approximately 25%. Demand continues to be strong across all of our engines markets with record engine spares volume. EBITDA margin outpaced revenue growth with an increase of 20% to 349 million. EBITDA margin increased 170 basis points year over year to a record 33% while absorbing approximately 360 net new employees in the quarter. Year-to-date, engines has invested in approximately 860 incremental headcount, which has a near-term margin drag but positions us well for the future.
We have announced an increase in the Q3 quarterly stock dividend by 20% from 10 cents. Per share to 12 cents per share payable. This August
Now, let's move to slide 8 to cover the segment results for the second quarter.
The engine products team delivered. Another record quarter.
For revenue, ibida and ibida margin.
Quarterly Revenue broke through the 1 billion dollar Mark with an increase of 13% to 1.056 billion.
Commercial Aerospace was up 9% and defense Aerospace was up, 13%. Both driven by engine spares growth.
Both oil and gas and IGT or up approximately 25%.
Demand continues to be strong across all of our engines markets.
With record engine. Spares volume.
Ibida, margin outpaced Revenue growth with an increase of 20% to 349 million.
Even to margin increased 170 basis, points year-over-year.
To a record 33%.
While absorbing approximately 36060, net new employees in the quarter.
Year to date engines has invested in approximately 860 incremental headcount, which has a near-term margin drag.
Ken Giacobbe: Now let's move to slide nine. The fastening systems team also delivered a strong quarter. Revenue increased 9% to 431 million. Commercial aerospace was up 18%, defense aerospace was up 19%, general industrial was down 11%, and commercial transportation, which represents about 13% of Faster's revenue, was down 18%. Segment EBITDA continues to outpace revenue growth with an increase of 25% to 126 million, despite the sluggish recovery of wide-body aircraft builds, along with weakness in commercial transportation. EBITDA margin increased a healthy 360 basis points year over year to 29.2% after taking into account the impacts of delayed tariff recovery. The team has continued to expand margins through commercial and operational performance while flexing costs in the industrial and commercial transportation businesses. Now let's move to slide 10. Engineered structures performance continues to improve. Revenue increased 5% to 290 million.
But positions us, well for the future.
Now, let's move to slide 9.
The fastening systems teams also delivered, a strong quarter.
Revenue increased 9% to 431 million.
Commercial Aerospace was up 18%.
Defense aerospace was up 19%. General industrial is down 11%, and commercial transportation, which represents about 13% of faster, saw revenue down 18%.
Segment, ibida continues to outpace revenue growth with an increase of 25% to 126 million despite the sluggish recovery of widebody. Aircraft builds along with weakness in commercial transportation.
EBA margin increase the healthy 360 basis points year-over-year to 29.2% after taking into account, the impact of delayed tariff recovery.
The team has continued to expand margins through commercial and operational performance while flexing costs in the Industrial and Commercial Transportation businesses.
Now, let's move to slide 10.
Ken Giacobbe: Commercial aerospace was down 6% due to destocking and product rationalization and was essentially flat sequentially. Defense aerospace was up 49%, primarily driven by the end of the destocking of the F-35 program. Segment EBITDA outpaced revenue growth with an increase of 55% to 62 million, despite the modest recovery of wide-body aircraft. EBITDA margin increased 690 basis points to 21.4%, and as we continue to optimize the structure's manufacturing footprint and rationalize the product mix to maximize profitability. Finally, let's move to slide 11. Forged Wheels revenue was down slightly despite higher aluminum costs. Excluding metal impacts, volume was down 11%. The wheels team flexed costs to hold EBITDA to prior year levels and delivered strong EBITDA margin of 27.5%. Lastly, before turning it back to John, I wanted to highlight an additional item.
Engineered structures performance continues to improve re Revenue. Increased 5% to 290 million.
Commercial Aerospace was down 6% due to destocking and product, rationalization and was essentially flat sequentially.
Defense Aerospace was up 49% primarily driven by the end of the the stocking of the F-35 program.
Segment, EBA outpaced Revenue growth with an increase of 55% to 62 million despite the modest recovery of widebody. Aircraft
Ibida. Margin increased 690 basis points to 21.4%.
And as we continue to optimize the structures manufacturing footprint and rationalize the product mix to maximize profitability.
Finally, let's move to slide 11.
Forge, Wheels Revenue was down slightly despite higher aluminum costs.
Excluding metal impacts.
volume was down, 11%
%.
Ken Giacobbe: We're reviewing the new tax legislation from the US administration related to the timing of expensing of R&D and CapEx. We expect to have a modest free cash flow benefit in 2025, which will be used to fund additional CapEx investments. The modest benefit has been included in our increased free cash flow guide. With that, let me turn it back over to John.
Lastly, before turning it back to John, I wanted to highlight on an in an additional item.
We are reviewing the new tax legislation from the US Administration related to the timing of expensing of R&D and capex.
We expect to have a modest free cash flow benefit in 2025, which will be used to fund additional capex Investments.
The modest benefit has been included in our increase free cash flow guide.
With that, let me turn it back over to John.
John Plant: Thank you, Ken, and let's move to slide 12. Firstly, commercial aerospace is expected to continue to grow. Q2 growth was 8% after some further destocking in certain product areas. This growth starts with passenger miles flown, which has been solid in Europe, a relatively higher growth in Asia Pacific, while flat in North America. Aircraft backlogs are extraordinarily high due to prior period underbills and the need for modern fuel and emissions-efficient aircraft to replace the increasingly aged fleet. There have been positive signs for narrow-body builds, with Boeing achieving a recent 38 per month build rate for the 737 MAX. We also believe Airbus has achieved 60 builds per month for the A320/321, with some 60 A320s being gliders at this stage, awaiting engines.
Thank you Ken and let's move to slide 12.
Mostly commercial Aerospace is expected to continue to grow.
Q2 growth was 8% after some further destocking in certain product areas.
This growth starts with passenger miles flowing, which has been solid in Europe, a relatively higher growth in Asia Pacific while flat in North America.
Aircraft backlogs are extraordinarily high, due to Prior period, on the bills and the need for modern Fuel and Emissions efficient, aircraft to replace the increasingly aided Fleet.
There have been positive signs for narrow body bills with Boeing achieving a recent 38 per month. Billed rate for 737 Max.
John Plant: Wide-body builds have not increased substantially in the second quarter but are expected to go a little higher in the fourth quarter and going into 2026. The underlying 737 MAX assumption within our guidance today is raised from 28 per month average for the year to 33 per month average for the year and supports a higher expected revenue, which I'll comment on later. Spares for commercial aerospace, defense aerospace, and IGT/industrial have increased by some 40% year over year and were at 20% of total revenue. This result is positive with a continued first half rate of it being 27%, 20% of total revenue currently. Defense revenue was up 21% and is seen to continue to exhibit this strength during the balance of year. IGT, oil and gas, and industrial strength in the quarter was exceptional at 17%, with IGT up some 25%.
We also believe Airbus has achieved 60 bills per month for the A320 slash 321 with some 60 A3. 20 is being glided at this stage awaiting engines.
Widebody builds have not increased substantially in the second quarter, but our expected to go a little higher in the fourth quarter and going into 2026.
The underlying 737. Max assumption within our guidance today is raised from 28 per month, average for the year to 333 per month, average for the year and supports a higher expected Revenue which I'll comment on later.
Spares for commercial Aerospace, defense Aerospace and IGT / industrial have increased by some 40% year-over-year and we're at 20% of total revenue.
This result is positive for the continued. First half rate of it being 27%, 27, 20% of total revenue in the currently.
Defense Revenue was up 21% and it seemed to continue to exhibit this strength during the balance of year.
John Plant: Growth for the combined IGT, oil and gas, and industrial markets is expected to be high single digits for the year, and within the combined number, the IGT market is expected to be significantly higher. Moving to commercial transportation, within our wheel segment, revenue was below 2024 by only 1%. However, metals and tariff recovery are now included in that number. Volume was down 11% with continued softness expected in the second half. In terms of general outlook, we expect to see continued strength in commercial aerospace, defense aerospace, IGT, oil and gas, and with an offset only in the commercial truck segment, which continues throughout this year. In 2026, the commercial truck market should stabilize, and hence the overall picture for Howmet currently appears to be healthy.
IGT oil and gas and industrial strength in the quarter was exceptional at 17%, with IGT up some 25%.
Growth for the combined IGT oil and gas. And Industrial markets is expected to be high single digits for the year and within the combined. Number number, the IGT Market is expected to be significantly higher.
Moving to commercial transportation within our wheel. Segment Revenue was below 2024 by only 1%, however, metals and tire recovery are now included in that number volume was down. 11% with continued softness. Expected in the second half.
In terms of General Outlook, is that we expect to see continued strength in commercial Aerospace, defense Aerospace, IGT oil, and gas and with an offset only in the commercial truck segment, which is continues throughout these this year.
John Plant: In terms of specific guidance, we see the third quarter as follows: revenue 2.03 billion, plus or minus 10 million, EBITDA 580 million, plus or minus 5 million, EPS at 90 cents, plus or minus a cent. Q3 reflects the normal seasonality of lower European selling days due to annual vacations. The year's full guidance has been increased. Revenue has been increased by 100 million to 8.13 billion, plus or minus 50 million. EBITDA has been increased 70 million to 2.32 billion, plus or minus 20 million. Earnings per share has been increased by 20 cents to $3.60, plus or minus 4 cents. Free cash flow has been increased 75 million to 1.225 billion, plus or minus 50 million. Revenue, EBITDA, and EBITDA margin have been increased above the second quarter beat.
In 2026. The commercial truck Market should stabilize. And hence the overall picture for hermet currently appears to be healthy.
In terms of specific guidance, we see the third quarter as follows Revenue 2.03 billion plus or minus 10 million epda 580 million plus or minus 5 million.
EPS at 90 cents plus or minus a cent.
Q3 reflects the normal seasonality at lower European selling days due to annual vacations.
The is full guidance. Has been increased. Revenue has been increased by 100 million to 8.13 billion plus or minus 50 million.
Haida has been increased 70 million to 2.32 billion plus or minus 20 million
Earnings per share has been increased by 20 cents, to 3.60 cents plus or minus 4 cents.
Pre cash flow has been increased 75 million to 1.225 billion plus or minus 50 million.
John Plant: The higher revenue expectation is supported by both an increased spares expectation and the higher Boeing 737 MAX rate assumption. For the year, incrementals continue to be healthy at the mid-50%s and with the second half in the mid-40s. The increased cash flow guidance includes an increase in our capital expenditure guidance to invest in future revenue growth with modest expected benefits from the new tax legislation. It is encouraging to see our guide increase, especially the free cash flow guide, which provides even further optionality for capital deployment. And with that, we'll now move to your questions.
Revenue ebida and ebida margin have been increased above the second quarter beat.
And the higher Boeing 737 Max rate, assumption.
For the year incremental, continue to be healthy at the mid 50% within the. And with the second half in the mid-40s.
The increased crash flow. Guidance includes an increase in our capital expenditure guidance to invest in future Revenue growth.
With modest expected benefits from the new tax legislation.
It is encouraging to see our guide increased, the free cash flow guide, which provides even further optionality for capital deployment.
And with that, we'll now move to your questions.
Paul Luther: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. We ask that you please limit yourself to one question only. At this time, we will pause momentarily to assemble our roster. Our first question comes from Miles Walton with Wolf Research. Please go ahead.
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We ask that you please limit yourself to 1 question only. At this time, we will post momentarily to assemble our roster.
Myles Walton: Thanks. Good morning. I was wondering if, John, you can comment on the rationalization of products within structures. How meaningful is that? Is it going to be to the margins as well as maybe any headwind to departing from some lines of businesses or products?
Our first question comes from Mi Walton with wolf research, please go ahead.
Thanks, good morning.
I was wondering if
Sean, you can comment on the rationalization of products within structures. Um, how meaningful is that is, is it um, going to be to the margins as well as
Maybe any headwind uh to departing from from some lines of businesses or products?
John Plant: I think the majority of the rationalization has already occurred on this one, Miles. And so if you go back to commentary provided in the two prior earnings calls, I mentioned the sale of one business within structures and also the closure of another manufacturing plant, which was in Europe. And those two combined with us probably possibly being a little bit more discerning on order intake has enabled us to continue the momentum on improved margins. So the way I see it is that revenue has continued to be healthy and grow and margins have solidified. And I quite like, again, the state and conversation doing a revenue increase and margin enhancement, which has played well for the company.
Seeing the majority of the rationalization has already occurred.
On this on Miles. And so if you go back to
Uh, commentary provided in the 2 Pro running schools. I mentioned the sale of 1.
Business with the instructions and also the closure of another manufacturing plan. So which was in Europe?
And those 2 combined with this probably possibly being a little bit more discerning.
Um, on order intake has enabled us to uh continue the momentum on uh improved margins.
so, the way I see it is that Revenue has continued to
Uh, to be healthy and grow and margins are solidified and and I and I quite like again, it's the amp conversation, doing a revenue increase and uh, and margin enhancement. And we just played well for the for the company.
John Plant: The total revenue, which in our structures was certainly healthy from the defense side, less so from the commercial aerospace side, but that was essentially due to some destocking, particularly in the, I'll say, distribution market where some orders had been cut. I think Boeing in particular decided to do some destocking throughout their supply chain. So I'm not expecting significant further rationalizations, but we always remain alert for anything where if it doesn't really contribute in a significant way to improvement of business, then we'll always take a hard look at it.
Um, the total revenue which in our structures, this was, you know, certainly healthy from the defense side less. So from the commercial Aerospace side, but that was essentially due to some destocking particularly in the uh, I will say distribution Market where some orders had been cut. Uh, I think as uh, I think Boeing in particular decided to, uh, to do some decking throughout their their supply chain.
Myles Walton: So should we expect the margins seen year to date to persist for the second half within structures at these new levels?
Um, so I'm not expecting significant further rationalizations, but we always remain alert for anything where, uh, you know, if it doesn't really contribute in a significant way to improving the business, then we'll always take a hard look at it.
John Plant: Well, that was our goal for the second quarter. And I will say, yes, we did achieve it. And so my expectation is that we'll hopefully maintain where we are. So that would be a pretty significant increase year on year. And you'll see from the guide that we've maintained our margin outlook of EBITDA above 28%. So that assumes that we'll achieve that objective.
It should be expect the margins seeing year to date to persist for the second half within structures at these new levels.
Myles Walton: All right. Thanks.
Well, that was a goal for the, uh, for the second quarter. Um, and uh, and I, I will say, yes, we did achieve it. And so my expectation is that, uh, we'll hopefully maintain, uh, where we are. So that would be a, you know, pretty significant increase year on year. And you'll see from the guide that, uh, We've maintained our marginal Outlook of Libya, our, um, above 28%. So that assumes at the moment, we will will achieve that objective.
John Plant: Thank you.
All right, thanks.
Paul Luther: Our next question comes from Sheila Cayoglu with Jefferies. Please go ahead.
Thank you.
Sheila Kahyaoglu: Good morning, John and Ken. Crazy good results. So can you hear me, by the way? My voice is a little hoarse.
John Plant: Yeah, no, I can hear you well.
Sheila Kahyaoglu: Okay, thank you.
John Plant: And by the way, thank you for the compliment. I like the word crazy good.
Sheila Kahyaoglu: Yes, very good. If you could update us on the timing of maybe the revenue contributions from the various engine expansions you've announced across Aero and IGT, as it seems like CapEx is increasing and pulling forward. Is it fair to think, unlike other companies, profitability on day one? Are those sites diluted to the segment? How do we think about pricing, expected volumes, and just what are the key pacing items for those coming online?
Our next question comes from Sheila Kyle glue with Jeffrey's, please go ahead. Um, good morning John and Ken um, crazy, good results. So um, Can You Hear Me? By the way, my voice is a little hoarse. Um, yeah, no, I can hear you well. Okay, thank you. Um, and by the way, thank you for the spirit. Thank you for the compliment. Heck, I I like to work. Crazy good. Yes. Very good. Um, if you could update us on the timing of maybe the revenue contributions from the various engine expansions you've announced um across arrow and IGT as it seems like capex is increasing and pulling forward. Is it fair to think unlike other companies profitability on day? 1 are those sites diluted to the segment? How do we think about pricing expected volumes? And just what are the key pacing items for those coming online.
John Plant: So we've got two complete new plants, which are being or have been built in the engine segments and two significant extensions. So that's a lot of square footage that we've been putting in place. The first plant that we have essentially completed now in terms of the construction and the equipment has been arriving is in our Michigan facilities. And you know I'm expecting some outputs from that, that's a saleable output in the fourth quarter of the year going into 2026. And I think that's going to be important for us, particularly in the turbine airfoils market. And that's supported by the extension that we have done in one of our Tennessee plants. So that covers that one. The other two are aimed at the industrial gas turbine market. Again, these are large for the large industrial gas turbines rather than the aero derivatives.
so, we've got, uh,
To complete new plants, uh, which are being or have been built, uh, in the engine segments and to, uh, significant extension. So that's, that's a lot of
square footage that we've been putting in place, um, the
uh, first plant that we have essentially completed. Now, in terms of the construction, um, equipment has been arriving is in Michigan facilities. And, you know, I'm expecting some outputs from that, that's available out, but in the uh, in the fourth quarter, that's the year going into 2026 and I think that's going to be important for us. Um, particularly in the, in the turbine turbine Air Force, um,
And that supported by uh the extension that we have done in in 1 of our Tennessee plants.
John Plant: And that is a brand new manufacturing plant in Japan for which that construction will not be completed until the end of this calendar year. And then facilitization in the first quarter, probably going into the second quarter of 2026, and therefore hopeful output in the second half of 2026. And then an extension of our plant in Europe, again with similar timeframes with the expansion and capitalization in terms of assets which can produce parts really into the second half of 2026. And then with them both coming on full bore for 2027. So that gives the picture across, say, the aerospace business and the gas turbine business. So quite a lot going on, Sheila.
So that covers that 1 the uh other 2 are aimed at the industrial gas turbine Market. Um again these are large the the large industrial gas turbines rather than the arridy derivatives
And that is a, a brand new manufacturing plant in in Japan. Um, for which that construction will not be completed until the end of this calendar year and then facilitation in the uh, in the first quarter in probably going into the second quarter of 2026 and therefore, hope hope for output in the second half of 2026.
And uh, and then an extension of our plan in in Europe. Um, again with similar time frames with, uh, so the expansion and capitalization in terms of assets, which can produce Parts really into the, in the second half of 2026, and then with them, both coming on full ball for 2027.
Sheila Kahyaoglu: And how do we think about the profitability profile of those coming online?
So that gives um, the the picture across say the Aerospace business, and the gas turbine business. So quite a lot, going on essay.
And how do we think about the the profitability profile of those coming online?
John Plant: I'm expecting that any cost that we incur and we've been incurring costs each quarter, as you've seen another headcount increase in the second quarter of just under 400 net new jobs into our engine business. Clearly, we're carrying those employees today and essentially, let's say, training and getting ready for production. And so the drag associated with that has really been offset by the leverage of the volume increased volumes. And so it's working out. And I'm hopeful that as those things in terms of launch costs smooth out as we go into the 2026, particularly in the second half and in 2027, that those can really get better and enable us to hopefully produce an improved outlook for the business, which is also, I'd say, pretty high today. So that's the expectation.
I'm expecting that uh any cost that we incur and we've been incurring costs each quarter and you've seen another headcount increase in the second quarter of just under 400 net new jobs into our engine business. Clearly we we're carrying those uh, those employees today and essentially as a training and
Getting ready for production.
And so, um, the the, the drag associated with that has really been offset by the The Leverage of, of the volume increased volumes, and so it's it's working out and I'm hopeful that, uh, as those things, um, in terms of launch costs, smooth out, as we go into the 2026, particularly in the second half. And in 2027 that those, uh, those really, you know, get better and enable us to uh, to to hopefully produce an improved Outlook, uh, for the business which is also take pretty high today.
John Plant: And it's a combination of we hopefully reduced labor cost drag and also less production of scrap because obviously people are still training and using materials which then don't get sold at this current stage.
Sheila Kahyaoglu: Got it. Thank you.
So that's that's the expectation and it's a combination of we. Hopefully reduce the labor costs drag and also uh less production of of scrap because obviously people are still training and using materials which um which are written and don't get sold at this current stage.
John Plant: Thank you.
Paul Luther: Our next question comes from Stephen with JP Morris. Please go ahead.
Myles Walton: Hey, thanks very much, and good morning, everyone.
JP, please go ahead.
John Plant: Good morning, sir.
Okay. Uh thanks very much and uh good morning everyone.
Myles Walton: I guess, morning. John, you talked about the strength in the defense and market this quarter and you know expect continued strength going forward. I guess if you could talk a little bit about the contribution of F-35 in defense overall this year and how you think about setting up for the future in F-35, given some concerns about future production rates.
John Plant: Yeah. So this year, I'd point to just on the F-35, I think generally the defense business has been strong with legacy programs as well. But specifically for the F-35, we've received, I think, two volume inputs, which have been quite welcome. One is that we appear to have arrived at a tipping point when our spares business for our engine products exceeds the OE production. And so that, which we've been talking about, would happen in 2025 for the last two or three years. It looks as though that moment has arrived. And with the increased build, let's assume 150 aircraft per month, sorry, per year for the next few years through the end of the decade, means that the fleet will continue to expand from its 1,000, 1,100 to maybe 2,000 aircraft. And therefore, again, you see increasing contributions coming for that spares business as we go forward.
Um, I guess morning, uh John you talked about the the strength and the defense and Market this quarter and, you know, expecting continued strength, going forward. I guess if you could talk a little bit about the contribution of F-35 in in defense or overall this year and and how you think about, um, setting up for the future in F-35, given some concerns about future production rates.
Yeah.
so, this year I'd point to
Just on the F-35. I think generally the uh defense business has been strong with the Legacy programs as well.
but specifically, for the F-35 we've received, I think uh,
John Plant: The second input to the F-35 volume has been that during 2023 and 2024, I noted that our bulkhead provision from our structures business, we were receiving input orders well below the locking production rate as inventory was burnt off from the, I'll say, excess supply relative to their COVID-impaired builds back in 2020 and 2021. And so as that inventory was depleted, we're now running at a one-to-one rate, we believe, relative to locking production. And we are also optimistic that with the large input of new orders that have been there to interlocate for the, I'll say, international programs for that fighter aircraft, that we'll see solid 150 per year rates through to the end of the decade and beyond.
Uh, exceeds the OE production. Uh, and so that, that which we've been talking about would happen in 2025, for the last 2 or 3 years. It looks, as though, uh, it it at that moment has arrived. And with the increased build, let's assume 150 aircraft per month. Sorry, per year for the next few years through the end of the decade means that the fleet will continue to expand from its thousand 1100 to maybe 2,000 aircraft and therefore again we see increasing contributions coming for those for that spares business as we go forward.
And the second uh input to the F-35 volume has been uh during 2023 and 2024 I noted that uh our bulkhead provision from our structures business. Uh we were receiving input orders at well below. The Lockheed production rate as inventory was burnt off from the I'll say excess Supply relative to their coid impaired. Builds back in 2020 and 2021
And so uh, where's that inventory was depleted. We're now running at a, a 1 to 1 rate, we believe uh, relative to relative to lockage production.
and, and we are also optimistic that with the large input of, uh, new orders that have been, uh, there to interlock you for the, uh, also International, uh, programs for that fighter aircraft, that will see solid 150 per year, rates through to the end of the decade and Beyond
Myles Walton: Excellent. Thank you very much.
John Plant: Thank you.
Thank you very much.
Paul Luther: Our next question comes from David Strouse with Barclays. Please go ahead.
Thank you. Our next question comes from David Strauss with Barclays. Please go ahead.
David Strauss: Thank you. Good morning.
John Plant: Hey, David.
Thank you. Good morning.
David Strauss: Hey, John. So I think you talked about your forecast for MAX through the year. If you wouldn't mind running through your assumptions on your other key programs, 87, 350, so on. And then a quick one for Ken, just if you could quantify, Ken, the amount of the tariff drag in Q2. Thanks.
Um, and David.
Hey John. So I think you you talked about your um,
Your forecast, for Max, through the year, if you want mine running through your your assumptions, uh, on the, on your other Key Programs 873350. So on,
And then a quick 1 for for Ken, just, uh, if you could quantify Ken, the, uh, the amount of the Tariff drag in Q2, thanks.
John Plant: Okay. So in terms of underlying assumptions, the major shift from previous commentary was that MAX shift from the average of 28 per month for the year to 33. And that basically assumes that Boeing will consistently maintain rate 38 for the balance of the year, you know, having come off a significantly lower rate in the early part of the year. 787 should be around six average for the year with us moving to a rate seven, I think, in the second half. So sometime, I'll say, during the third quarter or by end of third quarter, achieving a solid rate seven on a consistent basis. And I'll say 350, it's the same six till we understand more about some of the relief of the fuselage constraints there.
Okay. So, um, in terms of underlying assumptions, the major shift.
From previous commentary was that uh back shift from the average of 28 per month for the year to 33. Uh and that basically assumes that going, you know, will will consistently maintained rate 38 for the balance of the year and, you know, having to cut off, uh, significantly lower rate in the, in the early part of the year.
787, uh, should be around 6 average for the year with us. Moving to a rate 7. I think in the in the second half. Uh, so sometime I say during the third quarter of the end of third quarter achieving uh solid rate 7 on a consistent basis,
John Plant: And the other bright spot, which is not really confused at this stage, is while A320, the builds have been solid, we're still unclear about whether that build will be maintained. And that's also really subject to the supply of engines because of the state of aircraft, you know, the quantity of aircraft with no engines at this point in time. So that covers the major part of it. And I'll cover tariffs rather than break the call out, but we gave you some metrics around the growth and net effect of 80 and 50 on the last call. Since then, tariff drag, we think, has probably gotten better. So we asked to name it today, we'd be going a net effect below 15. But again, as I said, it wasn't going to be material for our year.
Um, by say 350, it's the same 6 until we understand more about some of the relief of the fuser. There are large constraints there.
And the, the other bright spots which, uh, is is not really computed at this stage is well, 8320 the builds in the have been solid. Um, you know, we we still unclear about whether that that build will be maintained. And that's also really subject to the supply of engines, uh, because of the state of aircraft, you know, the quantity of aircraft with, with no engines at this point in time.
so, that covers the, the major part of it, and
And I, I'll cut the tires, rather than break the call up. It's uh, you know, we gave you some metrics around uh, the gross and net effect of 80 and 15 uh, on the last call, um, since then. So it's great. We think it's probably got gotten better, uh, so we we are to name it today. We'd be going a net effect below 15.
John Plant: And so let's say if it was reduced, which it is, it is not significant. So that's been good. And tariff drag for the second quarter was, which is probably the biggest quarter of drag, but again, I'm sure that everything's sorted out, was below 5 million. Just significantly below 5 million in the quarter. And that's essentially was down to timing of us incurring the cost and us receiving compensation from our customers.
Um, but again, I said it wasn't going to be material for our year.
So you see if it was reduced, uh, which it is, it is not significant. So, uh, that's been good and terrorists. Drag for the second quarter was, uh, which is the probably the biggest quarter of drag but again, Clarks and everything's, you know, sorted out was uh, was below 5 million.
Your significant 5 million in the quarter. And that's you said she was down to timing of us in her in the cast and US receiving compensation, uh, from our customers.
Myles Walton: Great. Thanks, Sean.
John Plant: Thank you.
Great. Thanks. Sean.
Paul Luther: Our next question comes from Doug Harned with Bernstein. Please go ahead.
Thank you.
Doug Harned: Good morning. Thank you. In industrials, now the fastest growing part of engine products. And is the accelerated growth you're looking at, how does that depend on getting long-term agreements in place, such as with Mitsubishi? And basically, where do you stand on this process? And ultimately, how do you expect IGT margins to compare with those in commercial Aero?
Morning, thank you.
Um, Industrials. Now the fastest growing part of engine products and is the accelerated growth, you're looking at, how does that depend on getting long-term agreements in place? Such as with Mitsubishi? And basically, where do you, where do you stand on this process?
And ultimately, how do you expect IGT margins to compare with those in commercial Arrow?
John Plant: Okay. So let's do it with the margin one first, is that IGT and Aero are very comparable in terms of margins. So there's no dilution at all from that currently relatively higher growth rate that we see. So that's encouraging. And then in terms of agreements, we now have agreements with, I will say, three of the four majors and completing with the other one in terms of the gas turbine area, yes, the big gas turbines. And we've also just completed an agreement with, let's call it the not Aero derivatives, but something like that with gas turbines in the up to 35, 38 megawatt type of output. And so our business in Aero derivatives is also very strong. And it sometimes is a little bit hard for us to truly understand when we receive the orders, that which is designated for oil and gas or Aero derivatives.
Okay, so let's let's do it with a margin 1 first. Is that, uh, IGT and arrow are very comparable in terms of margins. So there's no dilution on it at all, from that, uh, currently relatively high growth rate that that we see
John Plant: And then those derivatives go into, whether it's the, I'll say, marine market or other military bases or oil and gas or indeed IGT. But the growth rate of Aero derivative type of size of turbines is certainly becoming very significant. And the way we see it is going to be a really important part of data center build-out of energy supply over the next few years.
So that's encouraging. And then, uh, in terms of agreements, we've uh, now have agreements with, I will say, 3 of the 4 Majors, um, completing with the, with the other 1, in terms of the gas turbine area, it has to be gas turbines. And we've also, uh, just uh, completed agreement with, uh, let's call it, the not error, derivatives, but something like that with, you know, gas turbines in the up to 35, 38 megawatt, uh, type of output. And so, uh, business in error, derivatives is also very strong. It's sometimes a little bit hard for us to truly understand when we received the orders that, which is designated for oil and gas or arridy derivative and then those derivatives going to whether it's the, uh, I'll say Marine Market or, um, other military bases or, uh, oil and gas or indeed,
IGT but the the growth rate of arridy derivative type of the size of a of um,
Doug Harned: Is there any way to say when you structure these agreements, how soon that that growth will come from an individual agreement?
Of turbines is is certainly becoming very significant. Um and uh the the way we see it is going to be a really important part of data center to build out of energy Supply over the next few years.
John Plant: Yeah. From an individual agreement, we know pretty well the growth that we'll see. Obviously, it's always dependent upon the complete supply chain. It's not just what Howmet does in terms of provision of the turbine airfoils. But assuming that everybody's on stream for those programming, those new project productions, then we have a pretty good idea of when the increased requirements are there. And it certainly lines up with my commentary that I provided earlier in the call, Doug, where we're putting capacity in and we're seeing increments of that capacity currently. But with the majority of it to come on stream really second half of 2026 and into 2027. There's no major step function this year for sure by capacity. Because when we stepped it up last year, again, it takes a full 12, 18 months for us to be gone.
Is there any way to, to say, when you structure these agreements? How soon that that growth will come from an individual agreement?
Yes, I'm an individual agreement. We we know
Pretty well. Um, the growth that we'll see obviously, it's always dependent upon the complete supply chain. It's not just what have it does um, in contribution of the, the turbine air foils, um,
John Plant: And we've been, as you can see from our CapEx numbers, been increasing that significantly as we've been moving through 2025. And that takes time to deploy. And we kicked it up again by some 40 million by way of expectation for this year. So it's a significant outlay that we believe will give us good results and good growth into the future.
But assuming that everybody's, you know, on stream for those programming, those new projecting Productions. Then we have a pretty good idea of when the increased uh, requirements are there and essentially lines up with my commentary there provided earlier in the call. Doug, where, you know, we've we've put in capacity in um, and we're seeing, you know, increments of that capacity, uh, currently. But with the majority of it to come on stream really second half of uh, 2026 and into 2027. Um, you know, there's no, there's no major step function this year for sure, uh, by capacity. Because when we stepped it up last year and again it takes uh, you know, a full 12, 18 months for us to be gone and we've been as you can see from our capex numbers, you know, been increasing that significantly, as we've been moving through 2025 and that takes time to deploy and we we kicked it.
Up again by some 40 million by way of expectation in the for the for this year. So it's um you know, significant outlay that you know, we believe will give us good results and good growth into the future.
Doug Harned: Very good. Thank you.
John Plant: Thank you.
Very good. Thank you.
Paul Luther: Our next question comes from Robert Stallard with Vertical Research. Please go ahead.
Thank you.
Our next question comes from Robert Stallard with vertical.
Robert Stallard: Thanks very much. Good morning.
John Plant: Good morning, Rob.
Thanks so much. Good morning.
Robert Stallard: John, last quarter you talked about your worry beads, and it does sound like you're a little bit more confident about some of the issues like tariffs or the Boeing build rates than you were three months ago. I just wonder if there's anything else on your worry radar that we should be worried about.
Rob.
Um John last quarter, you talked about your worry beads, uh and it does sound like you're a little bit more uh confident about some of the issues like tariffs or the Boeing build rates, uh, than you were 3 months ago, but I just wonder if there's anything else on your worry radar. That we should be worried about.
John Plant: Well, not really. I mean, I can't call the commercial truck market precisely because we're not sure whether any, I'll say, volume points we may have seen from the additional emissions requirements for 27 would result in security of volumes in the next 12 months. We don't know whether those emissions regs will continue to apply. It depends on what the new administration automatically decides. Or basically, I think everybody's now prepared for those new emissions by way of equipment for the truck. So that's one where it's difficult to be absolutely certain. We've tried to be on the cautious side of those assumptions. And so you know thinking that 26 is similar to 25, but could be better. So that's, you know, the important thing there is that we don't think it's going to get worse. And so that's great.
Well, not really. Um, I mean I can't.
Commercial Club Market.
Precisely because, you know, we're not sure whether any, I’ll say, volume points we may have seen from the, um, additional emissions requirements for 27 Road would result in, you know, security volumes in the next 12 months.
Um we don't know whether those emissions rigs will continue to apply. It depends on what the the the new Administration do you know, ultimately decides uh all basically everybody's now prepared for those new emissions by way of equipment or the truck. So that that's that's 1 where it's, it's difficult to be absolutely certain. We've tried to be on the course of those assumptions and so, you know, thinking that
John Plant: Elsewhere, at the moment, things appear to be pretty solid in commercial Aero given the backlog. Defense Aero budgets, particularly for Europe, are going up. F-35 to us seems solid, and we know we've got enhancements coming from the block four coming in 2028. And that's delayed another year or so. So that is looking healthy. And then the IGT or Aero derivatives for the data center business is all solid. So I mean, I still have my, you know, I'm always, I think I'm worried, I'm paid to worry about things. And providing I do it, then you don't have to.
26, as soon as the 25, but could be better. So that's, you know, the important thing there is, you know, we don't think it's going to get worse, and so that's great.
Um, elsewhere at the moment, um, things that appear to be pretty solid in commercial error, given the backlog, the fence Arrow budgets that are for Europe are going up.
Uh, the F-35 is, to us, seems solid. And we know we've got enhancements coming from the Block 4, coming in 2028, unless that's delayed another year or so.
Um, so that that view is looking healthy and the the, you know, IGT or error derivatives for the uh, data center because it's all solid. So I mean, I still have my, you know, I've always I think I'm worried I'm paid to worry about things and uh, providing I do it then you don't have to
Robert Stallard: That's sensible. All right. Thanks so much, John.
John Plant: Thank you.
That's sensible. All right, thanks. First John. Thank you.
Paul Luther: Our next question comes from Peter Arment with Baird. Please go ahead.
Myles Walton: Yeah, good morning, John. Ken, Petey, nice results. Hey, John, you've talked a lot about in the past about, you know, headcount. And you know, basically, I think in some of your plans, you're producing more parts today than you were, say, in 2019, and you're doing it with a lot less people. And you know, fasteners this quarter, I had no people, and you had great growth. So maybe you could just talk a little bit about what you're seeing on the headcount and the productivity that you're actually seeing amongst your various plans. Thanks.
Our next question comes from Peter Armand, with Beard. Please go ahead.
John Plant: Okay. So I think our productivity numbers for three of our divisions have been really solid. That's clearly not the case in aggregate for our engine business just because of all the amount of people we've been recruiting in preparation for the, I'll say, future capacity. Yeah, there's underlying productivity to them, but adding in those gross numbers of maybe 1,500, 1,800 people over the last 12, 18 months is obviously, to some degree, weighing on us as we go through this. But productivity for the company has been solid. It has been helped by some of the automation that we had put in over the last, I'll say, two or three years. Well, albeit now we're slightly pausing on the automation given our thirst for capital, really for capacity. And so where we're putting new equipment in, we're trying to ensure that's at a highly automated level.
Yeah. Good morning, John Ken, PT and nice results. Um, hey John, you've talked a lot about in the past about, you know, um, headcount and you know, basically, I think in some of your plants, you're producing more parts today than you were saying in 2019, and you're doing it with a lot less people. And, you know, Fasteners this quarter. I didn't know people and you had great growth. So maybe just talk a little bit about what you're seeing on the headcount in the in the in the productivity that you're actually seeing uh amongst very various plants. Thanks.
Okay.
So I think our productivity numbers for 3 of our divisions has been really solid.
Um, that's clearly not the case in aggregate for our engine business. Just because of the all the amount of people we've been recruiting, uh, in preparation for the uh, for you know, I say future capacity. Um, you know, there's underlying, you know, productivity of people but adding in those gross numbers of maybe
1500 1800 people. Over the last 1282 months is obviously to some degree, you know, Weighing on us as we as we go through this. But productivity for the company has been solid. It has been helped by some of the automation that we had put in um, over the last I'll say, uh, 2 or 3 years
Or be it now with slightly?
John Plant: But we're not yet going back and still completing some of the products that we know we could do just so we can stay within our marks for capital and, I'll say, free cash flow yields, substantive net income where you know we aspire to get to that 90% on average over the period of time. But the important thing is for us to serve the markets, gain the market share, and then if we have the opportunity, let's say in '27 or '28, to go back and focus and refocus on some of the automation and further labor productivity opportunities that we have.
Pausing on the automation, uh, given our first of capital, really, for capacity. And so, where we're putting new equipment in, we're trying to ensure that at a highly, uh, automated level. But we're not yet, going back. And still completing some of the products that we know we, we could do just so we can stay within our, um, our marks for, uh, for Capital. And I'll say free cash flow yields. Substantive net income where, you know, we aspire to get to that 90% on average over the period of time.
John Plant: So our path through is currently, let's build a focus on the capacity and share, and then we'll go back and mop up in a couple of years' time any remaining productivity opportunity that we know we have, which we just can't currently focus on at the moment.
Um, and but the important thing is for us to serve the markets gain the market share. And then if we have the opportunity, let's say in 27 or 28, to go back and focus and refocus on some of the, uh, the Automation and further play productivity opportunities that we have. So, uh, pass through is currently. Let's build focus on the capacity and share and then we'll go back and mop.
Myles Walton: Appreciate the caller. Thanks, John.
Up in in a couple of years time. Any, any remaining productivity opportunities that we know we have, which we just, uh, can't currently focus on at the moment.
John Plant: Thank you.
Appreciate the caller. Thanks John.
Paul Luther: Our next question comes from Ken Herbert with RBC Capital Markets. Please go ahead.
Thank you.
Our next question comes from Ken Herbert. With RBC Capital markets, please go ahead.
Doug Harned: Yeah, hey, good morning, John. I just wanted to follow up on some of your comments on inventory levels and destocking. It seems like that narrative's gotten a little more robust here across the supply chain. And you talked about it a little bit in structures, but as you look across sort of your portfolio, are there any areas where you see incremental risk of this if we do see, you know, maybe any slower ramp at either Airbus or Boeing on some of their programs? And how would you characterize, for you, sort of the inventory or destocking risk over the next few quarters?
John Plant: So one of the things I noted from this quarter was in some of the other aerospace companies that reported that they had some, I'll say, it's high single-digit or maybe low double-digit reductions and drawdowns in their OE business for commercial aerospace. And one of the things I thought was particularly good for Howmet was that despite us facing the same customers and the same, I'll say, you know, inventory reductions, our underlying growth was sufficient that our commercial aerospace business was still in positive and growth territory despite that. And then when you layer in the addition business of spares, etc., then we produced what I think was pretty solid growth for the quarter, which was, you know, again, a higher growth rate than we had in the first quarter. So we've been, you know, powering through some of that aerospace destocking, which has been occurring.
A little bit in structures, but as you look across, uh, sort of your portfolio. Are there any areas where you see incremental risk of this? If we do see, you know, maybe any slower ramp at at either Airbus or Boeing on some of their programs, and how would you characterize for you sort of the inventory or destocking risk? Uh, over the next few quarters?
so 1 of the things I noted, from this quarter was
and,
some of the other aerospace companies that have reported that they had some, I'll say,
It's high single digits or maybe low double digits reductions, and draw Downs in their OE business for for commercial Aerospace. And 1 of the things, I thought was particularly good for hamat was that, uh, despite of spacing the same customers and the same, I'll say, you know, inventory reductions are underlying growth for sufficient that are are commercial Aerospace business. We're still in, you know, positive and growth territory despite that
And then when you layer in the, uh, the addition, uh, business of spares, etc., then we produce what I think was pretty solid growth for the quarter, which is, you know, again, a higher growth rate than we had in the first quarter. So we've been, you know, powering through.
John Plant: And you know, I can't be certain exactly where, I'll say, the likes of Boeing is on it. You know, I read that they're going to maintain a healthy level of inventory of parts to guarantee their build. And I'm sure that they will because they need to achieve that smoothness of build. But in the way we've guided forward, you know, we still layer in there the some destocking as we go into the third quarter while still producing positive growth in our commercial aerospace OE business, added with the spares and the defense and all that sort of thing. And in aggregate, we expect a higher growth. In fact, I think from our guide, you can see that we've ticked up the growth rate to maybe 10, 11 percent from what it was 9% in the second quarter. So that's, again, a signal of that.
Some of that Aerospace the stocking which has been occurring. And, you know, I can't be certain exactly where I'll say the likes of Boeing is on it. I you know, I I read it there going to maintain a healthy level of imagery of of parts to guarantee their build. Um, and I'm I'm sure that they will because they need to achieve that smoothness of build. Um, but in, in the way we've guided forward, you know, we still layer in there, the, uh, some the stockings. We go into the into the third quarter. While still producing positive growth in our commercial Aerospace, OE business added, you know, with the spares and the defense and all that sort of thing. And in in aggregate we expect, uh, you know, higher growth. In fact, I think from our guide, you can see that we've picked up the growth rate, uh, to maybe 10, 11% from what it was 9%, this in the
John Plant: But obviously, with the absolute numbers reflecting the, say, the European vacations that occur, so solid year-on-year growth. And if anything, it's a slight acceleration in the second half starting with the third quarter.
Second quarter, uh, so that's again signal of that. But obviously with the absolute numbers, you know, reflecting the let's say the European, you know, vacations that that occur. So solid year-on-year growth and if anything, it's like, a slight acceleration in the in the second half, starting with the third quarter.
Doug Harned: Great. Thanks, John.
Thanks John.
Paul Luther: Our next question comes from Scott Doschel with Deutsche Bank. Please go ahead.
Thank you.
Our next question comes from Scott dosel.
Myles Walton: Hey, good morning. John, you had some very strong sequential growth in aerospace fastener revenues this quarter, but it didn't really drop through to sequential EBITDA growth at Fastening Systems. So can you just walk us through why we didn't see much sequential profit drop through on those higher aerospace sales? And is that just tariff recovery lag, as you referenced earlier, or was that something else? Thank you.
John Plant: Yeah, no, the majority of any, first of all, I thought 29 point something percent was pretty good, actually, Scott. So it's not exactly a number that I'm, I'll say, crying about. Having said that, if you look at the tariff drag that we experienced for the company, then in fact, the highest area of tariff drag was in our fastener business. Again, we're expecting recovery as we go through the year. It's more of a timing issue. But if you adjust for tariff drag, then it's easy to get to a number starting with a three. And so I don't think that's anything to be concerned about at all. You know, I could go on and say, well, there's FX and this that and the other, but there's no point really.
Hey, good morning, John. You had some very strong sequential growth in Aerospace fastener revenues this quarter, but it didn't really drop through to sequential EBITDA growth at Fastening Systems. So, can you just walk us through why we didn't see much sequential profit drop-through on those higher Aerospace sales? Is that just, you know, tariff recovery lag, as you referenced earlier, or was that something else? Thank you.
And the majority of, uh, any. Um, first of all, I thought 29 point something cents is pretty good actually, Scott. So it's not exactly a number. Um, I'll say, uh, crying about.
Um, having said that the, you know, if you look at the tires drag that we experience from the company, then, in fact the the highest area of tires drag was in a faster business. Again, we're expecting recovery as we go through the years, more of a timing issue, but if you adjust for tires, drag then it's easy to get to a number started with a 3.
And so I don't think that's anything to be uh, concerned about at all.
John Plant: The answer is it was a pretty good margin step up year on year, very sensible in terms of a sequential movement given that tariff drag I mentioned to you.
Um you know I could go on and say well this FX and this that and the other but there's no point. Really the answer is he was a pretty good margin Step Up year and year
Myles Walton: Okay. Thank you.
Very sensible, in terms of a sequential movement given that, that tire track I mentioned to you.
John Plant: Thank you.
Paul Luther: Our next question comes from Noah Popenik with Goldman Sachs. Please go ahead.
Okay, thank you. Thank you.
Our next question comes from Noah pinick, with Goldman Sachs. Please go ahead.
Myles Walton: Hey, good morning, everyone. I wondered, is there any framework for, you know, when we're looking at the upward revision of CapEx to the last two years, how much you pick up from that in run rate revenue or the content gain on the engines and the IGTs where it's happening as a result?Anything
Hey, good morning, everyone.
Um, I wondered. Is there any framework for
Speaker 1: like that? And then how much of a tailwind and when does CapEx become to free cash as you get through that?
Content gain on the engines and the igt's where it's happening as a percentage, anything like that. And then how much of a tailwind and when does does capex become to free cache as you get through that.
Speaker 2: Yeah. So right now, clearly, we would not be investing and taking up the CapEx without that expectation of future growth. Some of it, I think, is going to come in 2026 and hopefully further in 2027 as we've obviously been actually further increased that number. And if we've increased the number, it's going to take a full year plus just for that capital to be deployed. And so that's more going to affect '27 than what the increases we just put through on this one, Noah. And then in terms of profile, I think we should be in that 4% zone. And I'm still thinking that we're going to have a pretty elevated number in 2026. So this number, which now is in the high 300s, I see that persisting through next year.
yeah, so right now, um,
Clearly, we would not be investing, um, taking up the CapEx with that, uh, that expectation of a future growth. Um, some of it I think is going to come in 2026.
um, and uh, hopefully
Uh, further in 2027, as we've obviously been actually further increased that number, and because we've increased the number, it's going to take a full year plus just for that capital to be deployed. And so that's more going to affect 2027. And what the increase is just put through on this one.
Though. And then, in terms of profile, um,
I I think we should be you know in that 4% Zone and I'm still thinking that we're going to have a pretty elevated number in 2026.
Speaker 2: And then with the, I'll say, volume aspect of that pressure coming off in '27 into '28, and then we'll have more, I say, optionality around investment for the automation and further productivity. So compared to where we'd been, which was underspending depreciation, we're now overspending depreciation, but we have a very keen eye on making sure that we achieve our conversion metrics. And so we're not trying to get get crazy about it. And again, being very discerning of where and how we deploy that capital. And just to reemphasize the point that in our view, organic growth is by far the best for us in terms of return on capital. You can see the equity returns of the company, and that's really an excellent return on organic growth and capital investment in the company.
Um, so this number, which is now in the high 300s, I see that persisting through next year. And then with the, I'll say, volume aspect of that pressure coming off in '27 into '28, and then we'll have more, let's say, optionality around investment for the automation and further productivity. So, um,
compared to where we've been, which was under spending depreciation. We now over spending depreciation but we have a very keen eye on making sure that we achieve our conversion metrics. And so we're not trying to get, um, get crazy about it. And again, being very Discerning where and how we deploy that, uh, here, that that capital
Um, and just to be emphasized.
Speaker 2: And you know, given the choice of buying back shares or acquisitive steps, then you know I'm positive that the organic growth and stepping up CapEx is really good for us and will be good for the future. And it's great if you think about it that we have those opportunities to deploy the capital. I'm not given revenue guidance from it yet. If we follow the plan, then I'm sure we'll be talking about the 2027 revenue picture in November when we talk about earnings then. So I'd prefer to defer on that just at the moment, Noah. But say that we do see positive revenue growth as we go into '26 and positive revenue growth into '27. And so we're actually really pleased to deploy the capital and have more opportunities than we're actually capitalizing for.
The point that in our view organic growth is by far, uh, the best for us. In terms of returning Capital you can see, uh, the echo return to the company and that's really an excellent return on organic growth and and capital investment in the company. And, you know, given the choice of buying back shares or acquisitive steps. Then uh, you know, I'm positive that the organic growth and stepping up capex is uh, is really good for us and you'll be good for the future and it's great. If you think about it, that we have those opportunities to to deploy the capital.
Speaker 1: Understood. Thank you.
Capital. I'm not giving revenue guidance from it yet. Um, if we followed a plan, then I'm sure we'll be talking about, uh, the 2027 revenue picture in November when we talk about earnings then. So I'd prefer to defer on that just at the moment, Noah. Um, but say we do see positive revenue growth as we go into 2026 and positive revenue goes into 2027. And so, uh, you know, we're actually really pleased to deploy the capital and have more opportunities than, uh, than we're actually capable for.
Speaker 2: Thank you.
Paul Luther: Our next question comes from Gautam Khanna with TD Cohen. Please go ahead.
Understood. Thank you. Thank you.
Pete: Yeah, John and Ken, great results. I was curious if you could opine on pricing expectations you know next year and perhaps thereafter if you expect any change to kind of the rate of net increases you've had.
Our next question comes from Adam Connor. With TD Cohen, please go ahead.
Yeah, John, uh, and can great results. I was curious. If you could help pine on pricing expectations, you know, next year and perhaps thereafter, if you expect any change.
Speaker 2: Okay. I haven't really talked much on the pricing front except to say that we maintain the process that we've been going through, looking at wherever we renew our long-term agreements, what the movement in hosting by way of volume and variety and those parts which have gone from OE to supply or OE and service just to service supply. And so we're following that discipline as we've done now for the last six years. In terms of prior commentary, when I gave specific numbers, which I think the last one was in February of 2024, and I said that '25 would be similar, if not greater, was the last words that I used on it, than in 2025 than '24. And my expectation is we'll continue to our process and there could be a similar picture going forward into '26 and into '27.
Uh, to kind of the rate of net increases, you've had.
Okay, I uh, you know, haven't really talked much on the on the pricing front uh, except to say that, we maintain the process that we've been going through uh looking at wherever we renew our long-term agreements, what the movement in hospice to by way of volume and variety and those parts
Which you've gone from uh, 08 to supply, or oen service just to Service Supply.
And so we we we following that discipline as we've done now for the last 6 years.
Um, in terms of prior commentary, when I gave specific numbers, which I think the last one was in, uh, February of 2024.
Speaker 2: So just that consistent movement, Gautam, in terms of price, nothing's changed for us by way of process nor by way of annual expectation.
Pete: Thank you.
Movement gossam in terms of price. Uh, nothing's changed for us by way of process, nor by way of annual expectation.
Speaker 2: Thank you.
Thank you.
Paul Luther: Our next question comes from Scott Mikus with Melius Research. Please go ahead.
Thank you.
John Plant: Morning, John and Ken. Industrial policy is a big priority for this administration, and we're in a pretty big ramp on both the commercial aero and defense side. I mean, just when we look at the forging assets in the country, there's only four presses that are over 35,000 tons in the US. They date back to the '40s and '50s, and you happen to own two of them. So are there any conversations between you and either the DOD or the administration about construction or upgrades to new heavy forging presses?
Our next question comes from Scott, micas with Melius research, please go ahead.
Morning, John and Ken. Um industrial policy is a big priority for this Administration and we're in a pretty big ramp on both the commercial arrow and defense side. And just when we look at the forging Assets in the country, there's only 4 presses that are over 35,000 tons in the US, they get back to the 40s and 50s and you happen to own 2 of them. So are there any conversations between you and either the dod or the administration about construction or upgrades to new heavy forging presses?
Speaker 2: There have not been, Scott. I think we've missed something when you asked that question. And it's certainly interesting because that capacity and that scale is unique for us. And I think there's only one other maybe press in the world that can do that for, I think, in Russia. So yeah, those are pretty important assets and are certainly absolutely critical to supplying the componentry that will be required for, let's say, the new fighter jet, the F-47, and presumably for the F-55 as well as those examples, plus I'm sure some other aircraft parts. So those presses are, I'll say, vital to the defense industry. And so it's a conversation that maybe we should be having with the DOD Boeing Air Support. So I guess, thank you for asking the question.
The H has not been Sky. I think super soft, you know, have we missed something? When you asked that question, um, and it's certainly interesting because.
That capacity and that scale is unique for us. I think it's only one, or maybe two, pressing the world that can do that. So, I think in Russia,
Speaker 2: It's certainly I was thinking about that, and maybe it's going to stimulate us into having that conversation.
Pete: All right. Thank you.
So, um, yeah, those are pretty, uh, important assets and certainly absolutely critical to supplying the componentry that will be required for, let's say, the new, uh, fighter jet, the S 47 and, uh, and presumably for the f55 as well as if there's examples plus, I'm sure some other aircraft part. So, those those in those presses are I'll say vital to the uh, defense industry and uh, and and so it's a conversation that maybe we should be having with the, the dod B are support. So, I guess, thank you for asking the question. It's certainly I was thinking about uh, that and maybe it's going to stimulate us into having that conversation.
Speaker 2: Thank you.
All right. Thank you.
Paul Luther: Our next question comes from Kristiane LaWag with Morgan Stanley. Please go ahead.
Thank you.
Our next question comes from.
Christine in the wag with Morgan Stanley. Please go ahead.
Ken Giacobbe: Hey, good morning, everyone. John, you know it's great to finally see 737 MAX production rates continue to improve. And frankly, look, your execution has been stellar. But everyone in the supply chain needs to execute to be able to build a complete aircraft. So as you look around the industry to see where bottlenecks are for the Boeing and Airbus ramp-ups, what do you monitor as a potential canaries in the coal mine?
Hey, um, good morning, everyone. Um, John. You know, it's it's great to finally see 737 next production rates continue to improve and frankly, look, your execution has been Stellar, um, but everyone in the supply chain, uh, needs to execute to be able to build a complete aircraft. So, as you look around the industry to see where bottlenecks are for
The Boeing and Airbus uh ramp UPS. What do you monitor as a potential canaries in the coal? Mine.
Speaker 2: It's very difficult for us to see through the complete supply base of what might occur. I think there's probably other people better placed to do that, and maybe including yourselves. The one area which I think is going to be really important for the industry in the commercial area for the second half and going into 2026 is the build-out of narrow-body engines. I commented earlier that Airbus have reportedly got 60 aircraft awaiting engines now. And therefore, the production of both the LEAP range of engines by CFM and the GTF by Pratt & Whitney are going to be vital to being able to deliver those aircraft and also to build consistently in the second half. And so those production rates have to significantly increase.
It's very difficult for us to see through the complete supply base of what might occur. I think it's probably other people better placed to do that, and maybe including yourselves.
Um, the 1 area, which um, I think it's going to be really important for the industry for in the commercial area.
For the second half and going into 2026 is the uh the build out of uh narrow body engines.
Uh, I commented earlier that, uh, Airbus has reportedly got 60 aircraft awaiting, uh, engines now.
Speaker 2: And my assumption is that they will because at the moment, what we can see on the HPT side, you know where we're intimate, particularly in the first few blades of those turbines, there's a relatively good position by way of overall inventory to produce. The strike that would happen in the first quarter in Safran is now over. Therefore, that's helping them. And we're supplying now back into volume on the LPT side. So I'm thinking that volumes are going to go up. But the question is, with the volume wraps of everybody, then is that supply going to be sufficient for everybody, including spare engines, etc., etc.? So that's the one area which I'm sort of trying to look at more closely because it's closer to home. And elsewhere, it's difficult for me to really see.
And therefore, the production of both the, uh, the LEAP range of engines by CFM and the GTF by Pratt & Whitney is going to be vital to being able to deliver those aircraft and also to build consistently in the second half. So, those production rates have to significantly increase, and my assumption is that they will because, at the moment,
Speaker 2: I mean, I can't monitor laboratories or you know seats or A/B systems. It's just too difficult.
Too difficult.
Myles Walton: Thanks, John. And maybe if I could have a follow-up there on fasteners. You know, Precision Castparts had their facility accident in the first quarter. Are you seeing the orders materialized from customers to make sure that they can meet all of those products? I mean, it is the largest, or it was the largest fastener facility for aerospace in the world. And the gains that you're getting, how did that compare to what you initially thought?
Thanks John. And maybe if I could have a follow-up there on Fasteners, um, you know, Precision cast Parts have their facility accident in the first quarter. Are you seeing the orders materialized from customers to make sure that they can meet all of those, um, uh, products? I mean it it is the largest or it was the largest Fastener facility for Aerospace in the world and the gains that you're getting. Um, how does that compare to what you initially thought?
Speaker 2: So I think PCC is trying really hard to maintain as much production as possible with movements to their plants in California. They've also been moving a lot of equipment that was still functioning or able to be able to be functional from Jenkins down to a local facility. So I believe something in the range of several hundred pieces of equipment have been moved. But at the same time, you know the complete picture cannot be serviced by just them alone. In the last call, I commented that we moved to about $25 million of orders for that. And we're still bidding out several hungry part numbers. The picture today is that we've moved much closer to 40 million. And therefore, that's good. We are still bidding out a lot of part numbers.
Okay.
so I I I think PCC is are trying really hard to uh to maintain as much production as possible with movements to uh planting California
They've also been moving a lot of equipment that was still functioning or able to be functional from Jenkins down to a local facility. Or so, I...
I believe something in Marine of several hundred pieces of equipment have been moved.
But at the same time, you know, the complete picture cannot be serviced by just them alone.
In the last call, I commented that we moved to about $25 million of orders for that, and we're still bidding on several hundred part numbers.
The picture today is that, uh, we've moved much closer to, uh, to 40 million.
Speaker 2: So you know we're sort of gradually moving towards what we said is an internal target for us for that business and a healthy increase in revenue for the company as we begin to supply those, you know not massively today, but you know increasing over the next 12 months.
And therefore of good, we are still building out a lot of part numbers. So, you know, we sort of, you know, gradually moving towards what we said as an internal Target for us for that business. In a healthy increase, in revenue for the company, um, as we begin to supply those, you know, not massively today. But, you know, increasing over the next 12 months.
Myles Walton: Great. Thank you.
Thank you.
Speaker 2: Thank you.
Paul Luther: This concludes our question and answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
This concludes our question-and-answer session. The Congress is now completed. Thank you for attending today's presentation. You may now disconnect.