Q3 2025 Woodward Inc Earnings Call

Unknown Attendee: Third Quarter Fiscal Year 2025 Earnings.

Operator: At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. Following the presentation, you're invited to participate in a question and answer session.

Thank you for standing by. Welcome to the Woodward Inc. third quarter fiscal year 2025 earnings call.

At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode.

Unknown Attendee: joining us today.

Following the presentation, you're invited to participate in a question-and-answer session.

Unknown Attendee: For the company, Chief Blankenship, Chairman and Chief Executive Officer, Bill Lacey, Chief Financial Officer, and Dan Provaznik, Director of Investor Relations.

Joining us today.

Daniel Provaznik: I would now like to turn the call over to Dan. Thank you, operator.

For the company, Chip Blankenship, Chairman and Chief Executive Officer, William Lacey, Chief Financial Officer, and Daniel Provaznik, Director of Investor Relations.

I would now like to turn the call over to Dan Provaznik.

Daniel Provaznik: We'd like to welcome all of you to Woodward's third quarter fiscal year 2025 earnings.

Thank you, operator.

Charles Blankenship: In today's call, Chip will comment on our strategies and related markets.

If you'd like to welcome all of you to Woodward's third quarter fiscal year, 2025 earnings call

William Lacey: Bill will then discuss our financial results as outlined in our earnings release. At the end of our presentation, we will take questions.

In today's call, Chip will comment on our strategies and related markets.

Bill will then discuss our financial results as outlined in our earnings release.

Daniel Provaznik: For those who have not seen today's earnings release, you can find it on our website at woodward.com. We've included some presentation materials to go along with today's calls that are also accessible on our website. and a webcast of this call will be available on our website for one year. All references to years in this call are references to the company's fiscal year unless otherwise stated.

At the end of our presentation, we will take questions.

We've included some presentation materials to go along with todays call that are also accessible on our website.

For those who have not seen today's earnings release, you can find it on our website at woodward.com.

And a webcast of this call will be available on our website for one year.

All references to years in this call are references to the company's fiscal year unless otherwise stated.

Daniel Provaznik: I would like to highlight our cautionary statement as shown on slide 2 in the presentation material. As always, elements of this presentation are forward-looking, including our guidance, and are based on our current outlook and assumptions for the global economy and our businesses more specific. These elements can and do frequently change.

I would like to highlight our cautionary statement as shown on slide two in the presentation materials.

As always elements of this presentation are forward looking including our guidance and are based on our current outlook and assumptions for the global economy, and our businesses more specifically.

These elements can and do frequently change.

Daniel Provaznik: Our forward-looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify in our filings with the SEC. These statements are made as of today and we do not intend to update them except as required by law.

Our forward looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify in our filings with the SEC.

These statements are made as of today, and we do not intend to update them, except as required by law.

Daniel Provaznik: In addition, we are providing certain non-U.S. GAAP financial measures. We direct your attention to the reconciliations of non-US GAAP financial measures, which are included in today's slide presentation and our earnings release. We believe this additional financial information will help in understanding our results.

In addition, we are providing certain non U S GAAP financial measures.

We direct your attention to the reconciliations of non U S. GAAP financial measures, which are included in today's slide presentation and our earnings release.

We believe this additional financial information will help in understanding our results.

Daniel Provaznik: Now I'll turn the call over to Chip.

Now I'll turn the call over to chip.

Charles Blankenship: Thank you, Dan. Good evening, everyone, and thank you for joining us. We're pleased to report strong third quarter results that exceeded our sales and earnings expectations. This strong performance was driven by ongoing robust demand across both our aerospace and industrial segments. along with disciplined execution by our global team. Our members remain focused on safety, quality, delivery, and cost improvements, with safety always coming first. Well, our traditional safety metrics are currently world class. We are focused on making Woodward the safest work environment through our Human and Organizational Performance Program, also known as HOP, which we rolled out to seven more sites this year.

Thank you Dan.

Good evening, everyone and thank you for joining us.

We're pleased to report strong third quarter results that exceeded our sales and earnings expectations.

This strong performance was driven by ongoing robust demand across both our aerospace and industrial segments.

Along with disciplined execution by our global teams.

Our members remained focused on safety quality delivery and cost improvements with safety always coming first.

While our traditional safety metrics are currently world class we.

We are focused on making Woodward the safest work environment through our human and organizational performance program also known as hub, which we rolled out to seven more sites this year.

Charles Blankenship: The new sites are embracing the program and growing their capability to identify risk. add layers of protection and use hop learning teams to solve more complex problems related to workplace safety. We also play a role in the safety of our customers products. And we are laser focused on ensuring that we meet the product safety and quality requirements our customers are counting on from Woodward. Looking at a few highlights from our third quarter financial results, Woodward posted record sales of 8% year over year, and earnings per share came in at $1.76, up 8% year over year.

The new sites are embracing the program and growing their capability to identify risks add layers of protection and use half learning teams to solve more complex problems related to workplace safety.

We also play a role in the safety of our customers products and we are laser focused on ensuring that we meet the product safety and quality requirements. Our customers are counting on from Woodward.

Looking at a few highlights from our third quarter financial results.

Woodward posted record sales up 8% year over year and earnings per share came in at $1 76 up 8% year over year.

Charles Blankenship: Aerospace also had record sales up 15% and aero margins expanded 140 basis points to 21.1%. In industrial, our reported sales declined 3%. When China OH and the divested combustion product lines are excluded, industrial delivered double digit growth. Our year-to-date performance reaffirms our midterm and long-term growth trajectory as we strengthen our capability to meet sustained demand across our market.

Aerospace also had record sales up 15% and Aero margins expanded 140 basis points to 21, 1%.

In industrial our reported sales declined 3%.

When China, OE itch, and the divested combustion product lines are excluded industrial delivered double digit growth.

Our year to date performance reaffirms, our mid term and long term growth trajectory as we strengthen our capability to meet sustained demand across our markets.

Charles Blankenship: Based on our strong year-to-date performance, increased macro environment clarity, and expected sustained growth, we are raising full-year sales and earnings guidance.

Based on our strong year to date performance increased macro environment clarity and.

And expected sustained growth.

We are raising full year sales and earnings guidance Bill.

William Lacey: Bill will take you through more details on that and other changes to our guide.

Bill will take you through more details on that and other changes to our guidance.

Charles Blankenship: I'm also excited to share with you updates on two important milestones for Woodward. At the Paris Air Show, we held an event with Airbus to announce that we've been selected to provide spoiler control actuators for the Airbus A350. This is a major achievement for Woodward and is our first actuation LRU win for a primary flight control surface on a commercial platform. The A350 Spoiler Award enables us to apply our deep expertise in military hydraulic flight controls to a very important and already successful key commercial aircraft program. In addition to OEM ship set delivery, the program includes a sizable installed base with long term service opportunities.

I'm also excited to share with you updates on two important milestones for Woodward.

At the Paris Air show, we held an event with Airbus to announce that we have been selected to provide spoiler control actuators for the Airbus <unk> hundred 50.

This is a major achievement for Woodward and is our first actuation LR you win for our primary flight control surface on a commercial platform.

The <unk> hundred 50 Spoiler award enables us to apply our deep expert expertise in military hydraulic flight controls to a very important an already successful key commercial aircraft program.

In addition to Oems chipset deliveries. The program includes a sizable installed base with long term service opportunities.

Charles Blankenship: including for our own hardware and strategic upgrades to legacy configurations.

<unk> for our own hardware and.

The strategic upgrades to legacy configurations.

Charles Blankenship: is also significant because successful execution on this opportunity will position us to be competitive on the next single-aisle aircraft. This wind with Airbus is a key component of our long term hydraulic flight control growth strategy. To support that growth, we're investing in a new manufacturing facility for the A350 spoiler actuation production in the U.S. We'll be able to share more details on the location because agreements are final.

There is also significant because successful execution on this opportunity we will position us to be competitive on our next single aisle aircraft.

This win with Airbus as a key component of our long term hydraulic flight control our growth strategy.

To support that growth, we're investing in a new manufacturing facility for the <unk> hundred 50 spoiler actuation production in the U S.

We'll be able to share more details on the location as agreements are finalized.

Charles Blankenship: What I can tell you is that we're designing a showcase facility, vertically integrated, highly automated, special processes included, and built on the lessons learned at our RockCut facility during the LEAP and GTF programs. It's a significant yet manageable investment that will be spread over multiple years and is fully aligned with our organic growth strategy. The 8350 Spoiler Facility is a perfect example of how we're investing in ourselves for the highest return.

What I can tell you is that we're designing a showcase facility vertically integrated.

Highly automated special processes included and built on the lessons learned at our rock cut facility during the leap and GTS programs.

It's a significant yet manageable investment that will be spread over multiple years and is fully aligned with our organic growth strategy.

The <unk> hundred 50 spoiler facility is a perfect example of how we're investing in ourselves for the highest return.

Charles Blankenship: In addition, last week we completed the acquisition of Saffron's North American electromechanical actuation business. This is a key inorganic play that places us at the heart of industry leading horizontal stabilizer trim actuation technology. Serving platforms including the Airbus A350, Embraer E175 and 190E2, Gulfstream 650, 700 and 800, and Dassault Falcon 7X and 8X.

In addition last week, we completed the acquisition of Safran is North American electromechanical actuation business.

This is a key inorganic play that places us at the heart of industry, leading horizontal stabilizer trim actuation technology.

<unk> platforms, including the Airbus <unk> hundred 50.

Embraer E 175, and $1 92.

Gulfstream $6 50, 708 hundred and so Falcon <unk> and <unk>.

Charles Blankenship: Together, these two strategic moves, one organic, one inorganic, strengthen our core capabilities and commercial aircraft pedigree ahead of the next single aisle competition. These developments, along with our automation acceleration, will require increased capital allocation to CapEx in 2026 and 2027, as we invest in future growth and productivity.

Together these two strategic moves one organic one inorganic.

Strengthen our core capabilities and commercial aircraft pedigree ahead of the next single aisle competition.

These developments along with our automation acceleration will require increased capital allocation to Capex in 2026, and 2027 as we invest in future growth and productivity.

Charles Blankenship: Turning to what's happening in our end markets, we remain extremely optimistic about developments that matter to Woodward. In aerospace, supply chain challenges across the industry continue to impact aircraft delivery. But air traffic is still growing globally. Airlines are optimizing load factors and fleet utilization to keep pace. Aero Services exhibited sustained strong growth in the third quarter. The softening in services we had anticipated in our plans and guidance hasn't materialized. As airline customers continue to invest in their legacy fleets to ensure they have enough capacity to meet travel demand in the face of slower deliveries of new aircraft.

Turning to what's happening in our end markets, we remain extremely optimistic about developments that matter to Woodward.

And aerospace supply chain challenges across the industry continued to impact aircraft deliveries.

But air traffic is still growing globally.

Airlines are optimizing load factors and fleet utilization to keep pace.

Aero services exhibited sustained strong growth in the third quarter.

The softening in services, we had anticipated in our plans and guidance hasn't materialized.

As airline customers continue to invest in their legacy fleets to ensure they have enough capacity to meet travel demand in the face of slower deliveries of new aircraft.

Charles Blankenship: In fact, legacy engine LRU overhauls for both narrowbody and regional aircraft grew compared to last year and show few signs of declining as yet. Widebody engine control system service demand remains steady.

In fact legacy engine overhauls for both narrow body and regional aircraft grew compared to last year and show a few signs of declining as yet.

Wide body engine control systems service demand remains steady.

Charles Blankenship: In addition. As I have mentioned in previous earnings reports, LEAP and GTF service activity continues to grow steeply, but it is no longer doubling in size year over year as the base numbers grow. The great news is that LEAP and GTF revenue is now approaching that of legacy products and is delivering a meaningful impact to our Aero services growth profile. We expect service volumes to continue increasing through 2026 and 2027 as LEAP and GTF hours and cycles continue to drive service input. Commercial OEM was softer this quarter as air framers managed supply chain disruptions, and all our customers managed elevated inventory buffers.

In addition.

As I have mentioned in previous earnings reports.

In GTS service activity continues to grow steeply, but it is no longer doubling in size year over year as the base numbers grow.

The great news is that leap in GTS revenue is now approaching that of legacy products and is delivering a meaningful impact to our aerospace growth profile.

We expect service volumes to continue increasing through 2026 2027 as leap in GTS hours and cycles continue to drive service inputs.

Commercial OEM was softer this quarter as air Framers managed supply chain disruptions and all of our customers managed elevated inventory buffers.

Charles Blankenship: Defense OEM was again a significant growth driver for Aero as expected, led by strong performance and smart defense. The defense services environment overall remains solid, though inputs to Woodward have varied quarter to quarter. In industrial, our gas turbine portfolio was a standout performer, particularly in LNG and broader oil and gas applications. Growing global electric power demand remains a key growth driver for our industrial segment. Based on conversations I've had with customers along with what we see directly in orders, we're getting confirmation that the growth predictions are real, and we're prepared to serve that growth. We're focusing our lean transformation on capacity and lead time improvements on our model gas turbine control valve production line to better serve customers.

Defense OEM was again, a significant growth driver for arrow as expected led by strong performance in Smart defense.

The defense services environment overall remained solid though inputs to woodward have varied quarter to quarter.

In industrial our gas turbine portfolio was a standout performer.

Particularly in LNG and broader oil and gas applications.

Growing global electric power demand remains a key growth driver for our industrial segment.

Based on conversations I've had with customers along with what we see directly in orders, we're getting confirmation that the growth predictions are real and we're prepared to serve that growth.

We're focusing our lean transformation on capacity and lead time improvements on our model gas turbine control valve production line to better serve customers.

Charles Blankenship: In fact, we've increased output more than 30% year-to-date. We're more than halfway through the Glatton expansion project to increase capacity to meet data center backup power demand. With construction tracking ahead of schedule, we've ordered all remaining machines in July, and we will be ready to begin moving into the new haul in November. This value stream has been completely redesigned with three key principles, that is, production, preparation, and process. We are using this expansion opportunity to create better flow, introduce higher levels of automation, and improve inventory turn.

In fact, we increased output more than 30% year to date.

We're more than halfway through the glut in expansion project to increase capacity to meet data center backup power demand.

With construction tracking ahead of schedule, we've ordered all remaining machines in July and we will be ready to begin moving into the new Hall in November.

This value stream has been completely redesigned with three P principles that is production preparation and process.

We're using this expansion opportunity to create better flow introduce higher levels of automation and improve inventory turns.

Charles Blankenship: In transportation, marine demand remains exceptionally strong. Shipyards are full and they continue to expand capacity. In the quarter, more than half of all new ship orders included alternative fuel specifications, which resulted in a strong pull for Woodward's solution. As expected, demand for China on highway heavy duty trucks declined primarily due to local economic headwinds.

In transportation Marine demand remains exceptionally strong.

<unk> are full and they continue to expand capacity.

In the quarter more than half of all new ship orders included alternative fuel specifications, which resulted in a strong pull for Woodward solutions.

As expected demand for China on highway heavy duty trucks declined primarily due to local economic headwinds.

Charles Blankenship: Overall, we see continued momentum in the macro growth drivers across both our aero and industrial segments into 2026 and beyond.

Overall, we see continued momentum in the macro growth drivers across both our aero and industrial segments into 2026 and beyond.

Charles Blankenship: A few comments on the macro environment. We remain vigilant and agile as we navigate tariffs, geopolitical matters, supply chain dynamics, and other expected and unexpected external factors. Our focus is on developing even more resilience and continuing to serve our customers, regardless of the external conditions we face. Based on our consistent performance, it's clear we're on the right path to deliver on the commitments we've made to you. We will continue to create shareholder value through our value drivers of profitable growth, operational excellence, and innovation.

A few comments on the macro environment, we remain vigilant and agile as we navigate tariffs geopolitical matters supply chain dynamics and other expected and unexpected external factors.

Our focus is on developing even more resilience and continuing to serve our customers regardless of the external conditions we face.

Based on our consistent performance is clear we're on the right path to deliver on the commitments we've made to you.

We will continue to create shareholder value through our value drivers of profitable growth operational excellence and innovation.

William Lacey: Now I'll hand it over to Bill for more detail on our third quarter financial performance and the specifics of our updated guidance. Bill? Thank you, Jeff, and good evening, everyone.

Now I'll hand, it over to bill for more detail on our third quarter financial performance and the specifics of our updated guidance Bill. Thank you, Jeff and good evening, everyone. As a reminder, all references to years are references to the company's fiscal year, unless otherwise stated and all comparisons are.

William Lacey: As a reminder, all references to years are references to the company's physical year unless otherwise stated, and all comparisons are year-over-year unless otherwise stated. We delivered record net sales in the third quarter of 2025 of $915 million, an increase of 18 percent, reflecting the strong demand across our end markets. Earnings per share for the third quarter of 2025 were $1.76 compared to $1.63.

Year over year, unless otherwise stated we delivered record net sales in the third quarter of 2025 of $915 million.

18%, reflecting the strong demand across our end markets.

Earnings per share for the third quarter of 2025 or $1 76.

Compared to $1 63.

William Lacey: at the Sidemen Club. Airspace segment sales for the third quarter of 2025 were a record $596 million compared to $518 million, an increase of 15%. Defense OEM sales were strong in the quarter of 56%, largely driven by increased demand for our smart defense program. Commercial services sales rose 30%, exceeding expectations, driven by both pricing and increased volume tied to continued high utilization of legacy aircraft, which is extending their current service cycles. As Shipp highlighted, LEAP and GPF service activity continues to increase. Commercial OEM sales were down 8% as airframers navigated supply chain disruptions in all our customers' managed inventory loads.

At the segment level.

Aerospace segment sales for the third quarter of 2020 filed were a record $596 million compared to $518 million an increase of 15%.

Defense OEM sales were strong in the quarter up 56% largely driven by increased demand for our smart defense programs.

Commercial services sales rose, 30% exceeding our expectations driven by both pricing and increased volume tied to continued high utilization of legacy aircraft, which is extending their current service cycles.

As chip highlighted leap and GTS service activity continues to increase.

Commercial OEM sales were down 8% as air Framers navigated supply chain disruptions in all of our customers manage inventory levels.

William Lacey: We expect these headwinds to moderate as airframers continue to increase production rates in the coming quarter. Sales for defense services were down 16%. While the market demand environment is solid, the timing and flow through of orders to Woodward can fluctuate considerably from quarter to quarter. Earnings in the third quarter for the aerospace segments were $126 million. margins expanded 140 basis points to 21.1% a segment sale. The increase in segment earnings was primarily driven by price realization and higher volume. supported by ongoing operational excellence and lean initiatives that enhance output and efficiency. These gains are partially offset by planned strategic investments in our aerospace manufacturing capabilities to meet our current and future growth.

We expect these headwinds to moderate as the airframe has continued to increase production rates in the coming quarters.

Sales for defense services were down 16%.

While the market demand environment is solid the timing and flow through orders to Woodward can fluctuate considerably considerably from quarter to quarter.

Earnings in the third quarter for the aerospace segments were $126 million.

Margins expanded 140 basis points to 21, 1% of segment sales.

The increase in segment earnings was primarily driven by price realization and higher volumes supported by our ongoing operational excellence and lean initiatives that enhanced output and efficiency.

These gains were partially offset by planned strategic investments in our aerospace manufacturing capabilities to meet our current and future growth.

William Lacey: Inflation also contributed to the cost pressure. The margin rate was tempered by unfavorable mix driven by growth in our defense OEM products, which carry lower margins relative to other parts of the portfolio.

Inflation also contributed to the cost pressure there.

Margin rate was tempered by unfavorable mix driven by growth in our defense OEM products, which carry lower margins relative to other parts of the portfolio.

William Lacey: Turning to industrials. Segment sales for the third quarter of 2025 were $319 million, compared to $330 million, a decrease of 3%. This was primarily due to the expected decline of China on-highway sales, which were down $36 million, or 69%. Our foreign industry sales, which exclude China on the highway, grew by 9% in the quarter. Oil and gas was up 16% driven by price, as well as volume related to increased activity in midstream and downstream gas investment. Marine transportation was up 16% driven by both price and volume. Power generation was flat due to the impact of the divestiture of our combustion business in the second quarter of this year.

Turning to industrial.

Segment sales for the third quarter of 2025 were $319 million compared to $330 million a decrease of 3%.

This was primarily due to the expected decline in China on highway sales, which were down $36 million or 69%.

For industrial sales, which exclude China on Homeaway grew by 9% in the quarter.

Oil and gas was up 16% driven by price as well as volume related to increased activity in midstream and downstream gas investments.

Marine transportation was up 16% driven by both price and volume.

Power generation was flat due to the impact of the divestiture of our combustion business in the second quarter of this year.

William Lacey: Excluding that impact, power generation sales grew double digit. For context, the combustion business averaged approximately $15 million of sales per quarter.

Excluding that impact power generation sales grew double digits.

For context, the combustion business averaged approximately $15 million of sales per quarter.

William Lacey: Going forward, the best way to think about our industrial products and services portfolio is excluding China on highway and combustion. As Chip highlighted earlier, using this view, industrial grew double digits in the third quarter. Industrial segment earnings for the third quarter of 2025 were $48 million or 14.9% of segment sales compared to $60 million or 18.1% of segment sales. The decrease was primarily due to lower China on highway volume. Looking at our core industrial business, we expanded margins to 15.6% of sales of approximately 90 basis. This expansion was driven by our progress in operational excellence, including price utilization across the portfolio and our ability to generate incremental margins from higher volume.

Going forward the best way to think about our industrial products and services portfolio is excluding China on highway and combustion.

As chip highlighted earlier using this bu industrial grew double digits in the third quarter.

Industrial segment earnings for the third quarter of 2025 were $48 million.

Or 14, 9% of segment sales compared to $60 million or 18, 1% of segment sales the.

The decrease was primarily due to lower China on highway volumes.

Looking at our core industrial business, we expanded margins to 15, 6% of sales up approximately 90 basis points.

This expansion was driven by our progress in operational excellence, including price realization across the portfolio.

And our ability to generate incremental margins from higher volumes.

William Lacey: Given these strong results, we now expect Woodward's core industrial margin for the year to be approximately 15% of sales. the high end of our previous range. None segment expenses were $36 million for the third quarter of 2025 compared to $30 million. We expect adjusted non-segment expenses to finish the year close to the same rate that we have been running here today.

Given the strong results, we now expect Woodward core industrial margin for the year to be approximately 15% of sales.

The high end of our previous range.

Non segment expenses were $36 million for the third quarter of 2025 compared to $30 million.

We expect adjusted non segment expenses to finish the year close to the same rate that we have been running year to date.

William Lacey: At the Consolidated Woodward level. Net cash provided by operating activities for the first nine months of 2025 was $238 million, compared to $297 million. Capital expenditures were $79 million for the first nine months compared to $72 million. Free cash flow was $159 for the first nine months of 2025 compared to $225 million. The decrease in free cash flow was primarily due to an increase in working capital. As of June 30, 2025, debt leverage was 1.5 times EBITDA. During the third quarter, we returned over $62 million to stockholders, including $45 million in share repurchases and $17 million in dividends.

At the consolidated Woodward level.

Net cash provided by operating activities for the first nine months of 2020 was $238 million compared to $297 million.

Capital expenditures were $79 million.

Nine months compared to $72 million.

Free cash flow was $169 for the first nine months of 2025.

Impaired to $225 million.

The decrease in free cash flow was primarily due to an increase in working capital.

As of June 32025 debt leverage was one five times EBITDA.

During the third quarter, we returned over $62 million to stockholders, including $45 million in share repurchases and $17 million in dividends.

William Lacey: Through the first nine months of 2025, we returned $172 million to stockholders, including $124 million in share repurchases and $48 million in dividends. We now expect to return approximately $235 million to stockholders in 2025, exceeding our initial goal of returning $250 million. This should consist of $170 million of shares purchases and $65 million in dividends. We will continue to manage this with flexibilities as conditions evolve.

Through the first nine months of 2025, we returned $172 million to stockholder, including $124 million in share repurchases and $48 million in dividends. We now expect to return approximately $235 million.

To stockholders in 2025.

Exceeding our initial goal of returning $250 million.

This should consist of $170 million of share repurchases and $65 million in dividends. We will continue to manage this with flexibilities as conditions evolve.

William Lacey: We remain disciplined in deploying capital across three priorities. Reinvesting for Growth, Returning Cash to Shareholders, and Selective Returns-Focused M&A. As Chip highlighted, we will be making a multi-year investment in a new state-of-the-art facility to support the Airbus A350 spoiler actuation wind and long-term organic growth. In addition, the recent acquisition strengthens our position in electromechanical actuation systems and meets our strategy-driven deal criteria. These growth investments, along with our accelerated automation initiatives, will increase capital spend over the next couple of years as we invest in growth and productivity. We will provide more details on these capital allocation plans during our fourth quarter earnings call.

We remain disciplined in deploying capital across three priorities.

Reinvesting for growth returning cash to shareholders.

Selective returns focused M&A.

As chip highlighted we will be making a multi year investment in a new state of the art facility to support the Airbus <unk> hundred 50, spoiler actuation women and long term organic growth.

In addition, the recent acquisition strengthens our position and electromechanical actuation systems and meet our strategy driven deal criteria.

These growth investments along with our accelerated automation initiatives, we would increase capital spend over the next couple of years as we invest in growth and productivity.

We will provide more details on these capital allocation plans during our fourth quarter earnings call.

William Lacey: Now turning to our 2025 guide. We are raising our sales and earnings guidance, revising our adjusted effective pathway down, and lowering our pre-cash flow range. We are reaffirming the other elements of our four-year guidance. This updated guidance reflects our year-to-day performance.

Now turning to our 2025 guidance.

We are raising our sales and earnings guidance revising our adjusted effective tax rate down and lowering our free cash flow range. We are reaffirming the other elements of our full year guidance.

This updated guidance reflects our year to date performance.

William Lacey: A More Stable Macro Environment. and strong fourth quarter out. For 2025, we now expect consolidated sales of $3.45 to $3.525 billion. which includes aerospace sales growth between 11 and 13% and a decrease in industrial sales between 5 and 7 percent. Now we expect adjusted EPS between $6.50. and $6.75. with aerospace margins to be between 21 and 21.5%. and industrial margins to be approximately 14.5 percent. We now expect The fiscal year 2025 adjusted effective tax rate to be approximately 17 percent. We now expect our 2025 free cash flow to be between $315 and $350 million. We are lowering the free cash flow range as a result of increased working capital to support higher sales during a dynamic supply chain and production environment.

More stable macro environment macro environment.

And strong fourth quarter outlook.

440, 45, we now expect consolidated sales of 34523 $525 billion.

Which includes aerospace sales growth between 11 and 13%.

And a decrease in industrial sales between five and 7%.

Now, we expect adjusted EPS between $6 50.

And $6 75.

With aerospace margins to be between 'twenty and.

And 21, 5%.

Industrial margins to be approximately 14, 5%.

We now expect.

The fiscal year 'twenty, five adjusted effective tax rate to be approximately 17%.

We now expect our two five free cash flow to be between 315 and $350 million.

We are lowering the free cash flow range as a result of increased working capital to support higher sales during a dynamic supply chain and production environment.

William Lacey: All other aspects of the guidance remain unchanged.

All other aspects of our guidance remain unchanged.

Unknown Attendee: This concludes our comments on the business and results for the third quarter of 2025.

This concludes our comments on the business and results for the third quarter of 2025.

Operator: Operator, we are now ready to open the call for questions. Thank you.

Operator, we are now ready to open the call for questions.

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Thank you.

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Order.

Okay.

Please standby by your first question Sir.

David Strauss: Our first question comes from David Strauss with Barclays, please take your Yeah, hey, before you jump in, I just want to make sure I clarify something. When I noted our third quarter sales of $915 million, I may have said 18%. I just want to be clear that that is an 8% increase. Thank you. I'll turn it over to you, David. Great. Thanks. Thanks, Bill. Chip, I thought I heard you say that LEAP and GTF aftermarket volumes are now close to legacy volumes. Maybe I didn't hear that correctly, but I thought in the past you talked about getting to those kind of levels a couple years out.

Our first question comes from David <unk> with Barclays. Please state your question yes.

Before you jump in I, just wanted to make sure I clarify something when I noted, our third quarter sales of $915 million.

I may have said, 18% I just want to be clear that that is at 8%.

Bruce.

Thank you I'll turn it on.

Great. Thanks, Thanks Bill.

Kip I thought I heard you say that leap in GTS aftermarket volumes are now close to legacy volumes, maybe I didn't hear that correctly, but.

All right in the past you talked about getting to those kind of levels a couple of years out from now.

Charles Blankenship: Yeah, so hey, thanks for the question, David. In fact, you know, they were getting close last quarter. This quarter, they've just got into the same neighborhood, zip code range, still short of the legacy total volume. And we forecast a crossover, which is what we said before in sort of the 2028 time period. So we're still sticking with that as our outlook. The things that could make that happen faster is if the legacy fleet, you know, starts to see less hours and cycles and see less investment as Boeing and Airbus continue to pump out the NEOs and MAXs to take the places of those aircraft.

Yes, so hey, thanks for the question David.

In fact.

Theyre getting out there getting close last quarter.

This quarter, they've just got into the same neighborhood ZIP code range.

Still still short of the.

Legacy total volume.

And we forecast the crossover which is what we said before and sort of the 2028 time period. So we're still sticking with that is our outlook.

The things that could make that happen faster as if the legacy fleet.

It starts to see less hours and cycles, we'll see less investment.

As as Boeing and Airbus continue to pump out the neo and Max is to to take the places of those of those aircrafts. So right now we're still call in 2028, but I do want to.

Charles Blankenship: So right now, we're still calling 2028, but I do want the folks out there to know that we've been GTF, you know, volume is now having a meaningful impact on our commercial aero services, revenue and margin. And we're very excited about that.

The folks out there to know that we have been GTS.

Volume is now having a meaningful impact on our commercial Aero services revenue and margin and we're very excited about that.

Scott Deuschle: Our next question comes from Scott Deuschle with Deutsche Bank. Please state your question. Hi, good evening.

Our next question comes from Scott <unk> with Deutsche Bank. Please state your question.

Hi, good evening.

William Lacey: Hey, Scott. Bill, can you walk us through what drove the sequential margin decline in aerospace in the third quarter and then the drivers behind the implied aerospace margin improvement in the fourth quarter? Yeah, Scott, thanks. As you look at, I think the incrementals are around 30%. Again, we typically advise that we look for incrementals between 30 and 35. I do realize that the first half incrementals for AERO were in the 40s. What caused those incrementals to drop was the, while we did have strong growth in aftermarket, we had very strong growth in our defense OE.

Hey, Scott Thanks, Scott.

Bill can you walk us through what drove the sequential margin decline in aerospace in the third quarter within the drivers behind the implant aerospace margin improvement in the fourth quarter.

Yes, Scott Thanks.

As you look at I think the Incrementals are around 30%.

Again, we typically advise that we look for income incremental between 30 and 35 I do realize that the first half incrementals for Arrow. We're in we're in the forties.

What caused those incrementals to drop.

While we did have strong growth in aftermarket we had very strong growth in our defense OE that comes with a lower <unk>.

William Lacey: That comes with a lower profit margin, and therefore caused the unfavorable mix of that product line caused the decline in our incrementals. As you highlight it, as you look at our guidance and what that implies for 4Q, we do expect our incrementals to get back to the ranges that we saw in the first half of the year. We expect to see strong defense OE still, but that should come along with our smart defense program realizing the price increases as we have moved into the newer lines. So that's what will, the sustained growth in defense OE with the move in pricing, and also we expect to have another good quarter in our commercial aftermarket business.

<unk> margin and therefore it caused.

The unfavorable mix of that product line.

Cause.

The decline in our Incrementals as you.

As you highlighted are as you look at our guidance and what that implies for <unk>, We do expect our incrementals to get back to the ranges that we saw in the in the first half of the year.

We will still see we expect to see strong defense OE steel, but that should come along with our smart defense program. Realizing the price increases as we have moved into the newer lives. So that's what will the sustained growth in defense OE with the move in pricing.

And also we expect to have another good quarter in our commercial aftermarket business.

Noah Poponak: Our next question comes from Noah Poponak with Goldman Sachs.

Our next question comes from Noah <unk> with Goldman Sachs. Please state your question.

William Lacey: Please state your name. Hey, good afternoon, guys. A lot of discussion of some new investments, or maybe a few we hadn't fully calibrated here. So in the release, you also cite aerospace investments impacting the third quarter margin. Can you talk more about what that was and why it seems like only one quarter? And then What are you actually spending 35 to $50 million on in the free cash flow reduction? Can you can you be more specific there? And then, yeah, how much and for how long are we talking about higher capex beyond this year? And what's it for?

Hey, good afternoon guys.

Good afternoon.

A lot of discussion of some new.

<unk> investments or maybe a few we haven't fully calibrated here. So in the release you also site.

Aerospace investments impacting the third quarter margin can you talk more about.

What that was and why it seems like only one quarter and then.

<unk>.

What are you actually spending $35 to $50 million on.

And the free cash flow reduction can you can you be more specific there.

And then how.

How much and for how long are we talking about higher capex beyond this year and what's it for.

William Lacey: Yeah, thanks for those questions. First of all, on the investments that we highlighted in our manufacturing space, it was not necessarily a hit to margin rate, more of a hit to margin dollars. But what those investments are, are to drive productivity. We are investing in our team, our team leaders. We're investing in our operation supervisors, again, to work with our direct employees in order to help us to increase our productivity. We're also adding manufacturing engineers that will better allow us to implement our automation and allow us to get to the productivity benefits that we're looking for.

Yes, thanks for those questions first of all on.

The investments that we highlighted in our manufacturing space.

It was not necessarily a hit to margin rate more of a hit to margin dollars, but what those investments are are to drive productivity. We are investing in our team our team leaders, we're investing in our operation Supervisors again to work with our direct employees.

In order to help us to increase our productivity.

We are also adding.

Manufacturing engineers that will better allow us to implement our automation and allow us to get to the productivity benefits that we're looking for finally, we're adding in supplier engineers to continue to work with our supply base to make sure we can improve.

William Lacey: Finally, we're adding in supplier engineers to continue to work with our supply base to make sure we can improve on those areas.

<unk>.

Improve that improve on those areas.

William Lacey: The second part of your question is around free cash flow and us lowering our range there. And the simple answer is we are investing more in working capital, specifically inventory. As we look at the need to meet the demands of our customer in the mix that they're looking for and get it there on time, and understanding the capabilities of our process, we made the decision to invest a bit more in inventory to allow us to do that. We continue to work that area. We are investing in resources and in processes and in systems so that going forward, we don't need to invest into those levels and we expect that you will see that benefit as we get to 2026.

And the second part of your question is around free cash flow in us lowering our range there.

The simple answer is we are investing more in working capital specifically inventory as we look at the need to meet the demands of our customer.

In the mix that they're looking for and get it there on time and understanding the capabilities of our process. We made the decision to invest a bit more inventory to allow us to do that.

We continue to work that area, we are investing in resources and in processes and systems, so that going forward.

We don't need to invest in both levels and we expect that you will see that benefit as we get to 2026.

William Lacey: Okay, and Bill You have a few years in a row now where the full year aerospace margin lands higher than the prior year's fourth quarter. So the fourth quarter proves to be an exit rate that you build off of. The guidance implies the last quarter of this year will be in the mid-22s. Do we use that as the jumping off point off which you expand next year? No, not necessarily. Again, I think we are expecting to have a very strong Q4 in Aero. There's a few reasons for that. And as we get into 26, we'll talk a little bit more about the rate that you can expect for Aero for the total year.

Okay and bill.

You have a few years in a row now where the full year aerospace margin land higher than the prior year's fourth quarter.

So the fourth quarter proves to be an exit rate that you build off of.

The guidance.

Implies the last quarter of this year will be in the mid 20 twos.

Do we use that as the jumping off point off which you expand next year.

No not necessarily.

Again, I think we we are expecting to have a very strong.

Q4 in Aero.

Arrow theirs.

A few reasons for that.

And as we get into 'twenty, six we'll talk a little bit more about the rates that you can expect for arrow for the total year, but we're very pleased with where we're.

William Lacey: But we're very pleased with where the implied 4Q exit of Aero.

The implied <unk> exited arrow.

Scott Mikus: Our next question comes from Scott Mikus with Milius Research.

Our next question comes from Scott Wilkinson Melius Research. Please state your question.

Scott Mikus: Please state your Morning, Chip, Bill. And you displaced an incumbent supplier on the Spoiler Actuation System. And that makes you a Tier 1 supplier to Airbus now.

Good morning Chip pill.

Sean there and you're displacing an incumbent supplier on the <unk> hundred 50 spoiler actuation system for.

And that makes you a tier one supplier to Airbus now so do you see other opportunities to displace incumbents on current platforms or is this more of a one off opportunity and then for future aircraft engine plans or programs.

Charles Blankenship: So do you see other opportunities to displace incumbents on current platforms, or is this more of a one-off opportunity?

Charles Blankenship: And then for future aircraft engine plans, programs, do you plan to pursue more work packages as a Tier 1 supplier, or is the intention to primarily stay a Tier 2 supplier, except where you have a differentiated offer? Yes, Scott, thanks for the question. As you probably know, and most people in the industry know, displacements in the middle of really successful aircraft programs are somewhat rare, so we wouldn't view that as a wave of opportunities in front of us. But the combination of that opportunity and acquiring Saffron's North American electromechanical actuation business allows us to get into the Airbus Tier 1 supplier structure, which we think is a great place to be as we look toward the next single-aisle aircraft opportunity.

Plan to pursue more work packages as a tier one supplier or is the intention to primarily stay a tier two supplier et cetera, where you have a differentiated offering.

Yes, Scott Thanks for the question.

As you as you probably know and most people in the industry no displacements in the middle of really successful aircraft programs are somewhat rare. So we wouldn't view that as a.

A wave of opportunities in front of us.

But the combination of of that op.

Opportunity and acquiring Safran North American electromechanical actuation business allows us to get into the Airbus tier one suppliers structure, which we think is a great place to be as we look toward the next single aisle aircraft opportunity.

Charles Blankenship: As far as Tier 1 and Tier 2, for us, we're kind of a little bit of a humble company. I mean, we're willing to do work at Tier 1 levels. We're willing and able to do systems, subsystems, or components. And where we can add value to customers and to products, we're willing to serve if we can make it a profitable, high-return business for our shareholders.

As far as tier one and tier two for us.

We're kind of a little bit of a humble company I mean, we're willing to do work at tier one levels.

We are willing and able to do systems sub systems or components.

<unk>.

Where we can add value to customers and to sell products, where we're willing to serve if we can make it a profitable high return business for our shareholders.

William Lacey: Okay, and then one quick one for Bill, do you happen to have the pricing in the quarter? And can you perhaps parse that out by aero and industrial? Yeah, so Yeah, so as a total, as a total business, we saw about 7% price. And I would say that Arrow contributed a little more than Industrial, but both did a great job. We have said in the past that price for the year be close to 5%. Based on where we are, it will be closer to delivering 7% at the Woodward level for price for 25%.

Okay, and then one quick one for Bill do you happen to have the pricing in the quarter and can you, perhaps parse that out by Aero and industrial so.

Yes, so at the total.

As a total business, we saw about 7% price.

And I would say that.

<unk> contributed a little more than industrial but both.

Did a great job.

We have said in the past that price for the year would be close to 5%.

Just on where we are it will be closer to delivering 7% at the Woodward level for price for 25.

Christopher Glynn: For more information visit www.FEMA.gov Our next question comes from Christopher Glynn with Oppenheimer, please state your Thanks.

Our next question comes from Christopher Glynn with Oppenheimer. Please state your question.

Christopher Glynn: Good afternoon. I want to ask about the Marines. Hey, so the Marines doing better than you've talked about the long term profile given industry capacity, you know, kind of kind of at that level. So just curious, you know, what's driving the upside this year, maybe it's simply price, but also curious if you're taking Sharon or some respect or building out the, the naval profile alongside, you know, commercial and merchant. Chris, I think the easiest way to think about how Marine is going for Woodward is that our customers are taking share as well as the capacity increases and orders from the shipyards and the services business.

Thanks, Good afternoon.

Good afternoon, everyone asks about the merger.

So the marine is doing better than you've talked about the long term profile given industry capacity.

Kind of kind of at that level. So just curious.

What's driving the upside this year, maybe it's simply priced but also curious if you're taking share in some respect or building out the.

Naval profile alongside.

Commercial and merchant.

Chris I think the easiest way to think about how marine is going for Woodward is that our customers are taking share as well as the.

The capacity increases in orders from the shipyards and the services business. So it's like it's those three things it's price. It's the platforms that we're on there are winning positions on the ships.

Charles Blankenship: So it's like, it's those three things. It's price, it's the platforms that we're on, they're winning positions on the ships, and then the service opportunity from the utilization is quite strong.

Then the service opportunity.

From the utilization is quite strong.

Unknown Attendee: Okay, great. And then the third quarter, did that see any of the new lots pricing in the smart weapons?

Okay, Great and then.

The third quarter did not see any of the new new lots of pricing in the smart weapons smart weapons.

William Lacey: First, it will start in the fourth quarter. tax rates come down a good bit a couple separate times during the year just wondering what's driving that and if we should be thinking of a new baseline beyond the current year other than the kind of 20% Yeah. With the level of stock options we have to support our members, historically, with the record stock prices that we've had, we've seen a lot of those stock options that came in, which provides us with the tax benefit. And that's what really drove that rate down. As we continue to increase our net earnings, that's going to put pressure on our tax rate.

Firstly.

It will start in the fourth quarter.

Tax rates come down a good bad a couple.

At times during the year, just wondering what's driving that and if we should be thinking of a new baseline beyond the current year other than the kind of 20% anchor.

Yes.

Okay.

The level of stock options, we have to support our members.

Historically with the record stock prices that we've had we've seen.

A lot of those stock.

<unk>.

Came in which provides us with the tax benefit and that's what really drove that rate down.

As we as we continue to increase our net earnings that's going to put pressure on our on our tax rate.

William Lacey: And so I would expect a bit more pressure. But right now, with the stock price at the levels they've been at, that's causing us to get this benefit, which results in these lower tax rates.

And so I would expect a bit more pressure, but right now with the stock price at the levels. They are they have been.

That's causing us to get this benefit which results in these lower tax rates.

William Lacey: and hence are upgrading, are adjusting the guidance on that effective tax rate for 25.

And hence our upgrading our.

Adjusting the guidance on that effective tax rate for 25.

Gavin Parsons: Our next question comes from Gavin Parsons with UBS, please state your question. Hello, Gavin. How's it going?

Our next question comes from Gavin Parsons with UBS. Please state your question.

Hi, Thanks, good afternoon.

Hello, Kevin.

Unknown Attendee: Unknown Attendee, Scott Deuschle, Noah Poponak, William Lacey, Woodward Inc. Unknown Attendee, Scott Deuschle, Noah Poponak, William Lacey, Woodward Inc and the growth. Yeah, yeah, but it's safe to say that all the inventory increase is with current programs. And it's really a lot of people talk about it in the industry. It's a factor of fluctuation in our own production system, fluctuation in demand from customers that have supply chain issues that maybe aren't ours. And they're holding a number of our parts in inventory, and then how our suppliers perform, and our desire not to make sudden movements with suppliers and lose that capacity that we've worked so hard to gain since COVID.

I wanted to just parse out the working cap investment this year and the Capex investment next two years, how much of that is for existing programs versus new wins like the $80 50 year may be investing in the growth rate of the safran business.

Yes, yes.

Kevin it's safe to say that all of the inventory increase.

As with current programs and it's really a.

A lot of people talk about it in the industry as a factor of fluctuation in our own production system fluctuation in demand from customers that have supply chain issues that maybe arent hours and they're holding a number of our parts and inventory and then how our suppliers perform and our desire not.

To make sudden movements with suppliers and lose that capacity that we've worked so hard to gain since COVID-19. So.

Charles Blankenship: So, a lot of things going on, a lot of management decisions, a lot of strategic thinking around how do we make sure we can serve customers and meet this demand? But as we look into FY26, we feel like we do have expertise deployed to work that down and improve the overall process as things tend to stabilize a bit more in terms of what we see from our customers and what their desires are to have a more of a stable supply chain altogether. So, that's a work in process, but we're just seeing the effects of that in third and fourth quarter probably.

A lot of things going on a lot of management decisions a lot of strategic thinking around how do we make sure we can serve customers and meet this demand.

But as we look into FY 'twenty six we feel like we do have expertise deploy to work that down and improve the overall process is things tend to stabilize a bit more in terms of what we see from our customers and what their desires are to have a more of a stable supply chain altogether. So that's work in.

Assess but we're just seeing the.

The effects of that.

Third and fourth quarter probably.

Charles Blankenship: As far as the investments go, you know, we're looking at the facility for A350 spoiler production. These type of facilities tend to run a couple hundred million dollars that can be spread across a couple, three years, and that's what we're looking at. We've got a lot of experience with this from building rock cut for LEAP and GTF programs. You can build a building for a lot less than that, but to build the capacity and capability to have a highly automated, vertically integrated production system in a factory like that, that's kind of what the price tag looks like.

As far as the investments go.

We're looking at at the facility for <unk> hundred 50 spoiler production.

These type of facilities tend to run a couple of hundred million dollars that can be spread across a couple of three years and.

That's what we're looking at we've got a lot of experience with this from building rock cut for leap in GTS programs.

You can build a building for a lot less than that but to build the capacity and capability to have a highly automated vertically integrated.

Production system in a factory like that.

That's kind of what the price tag looks like.

Charles Blankenship: And then it's also with our acquisition of Saffron's electromechanical business, you know, we'll be moving product to existing facilities and really working through making that an optimum supply chain and production system to serve Airbus and the other airframe Great.

And then it's also with our acquisition of Safran electromechanical business will be will be.

Moving product to existing facilities, and really working through making that an optimum.

Supply chain and production system to serve Airbus and the other air framers.

Okay. That's great I mean, just to put a finer point on the working capital.

Charles Blankenship: I mean, just to put a finer point on the working capital. Is that more to enable an acceleration in your growth or de-risk your own supply chain? It really does both. So thanks for that.

Is that more to enable an acceleration in your growth or derisk your own supply chain visibility.

It really does both.

So thanks for that.

Louis Raffetto: Our next question comes from Louis Raffetto with Wolf Research.

Our next question comes from Louis Raffetto with Wolfe Research. Please state your question.

Louis Raffetto: Please state. Yeah, thank you. Bill, you ballparked the quarterly sales rate for the Greenville divestiture. Could you speak to the impact of the Saffron deal on results and then also what the cash usage was for this quarter? Yeah. For Saffron, I think when it got announced, they sized the business, and we're focused on taking it, growing it, and improving it. But again, the key matter about this acquisition was a strategic one to allow us to continue to grow our capability in this space, and that's what we're focused on.

Yes. Thank you bill you'd ballpark quarterly sales rate for the Greenville divestiture could you speak to the impact of the <unk> deal on results and then also what the cash usage was for this quarter.

Yes.

Sure.

Safran we.

I think we've got it now.

They size the business and we're focused on taking.

Taken at growing it and improving it but again the key matter about this acquisition was.

A strategic one.

To allow us to.

Continue to grow our capability in this space and.

And that's what we're focused on.

William Lacey: Louis, I didn't get the second part of your question. but just how much you spent on that deal. It'll be in the K, I guess. You can close it just after the break. Yeah. And again, it's a great deal for us, and we're happy that we have it, and it's not something that we're covering right now.

I think the second part of your question.

But just how much you spent on that deal.

It'll be in the K.

It just happens.

Yes.

Again, it's a great deal for us.

In.

We're happy with that we have it and it's not something that we're we're covering right now yes, I think the reason we size. The Greenville for you is to is to help you going forward on what the industrial and power. Gen compares look like Theres really no macro impact on Aero.

William Lacey: Yeah, I think the reason we sized the Greenville for you is to help you going forward on what the industrial and PowerGen compares look like. There's really no macro impact on Arrow for that deal, so we're really not going to disclose that level of information on that small of an impact.

For that deal. So we're really not going to disclose that level of information on that small of an impact.

William Lacey: Okay, and then maybe just latest on the China on highway expectations for the rest of the year. I think you'd gone from 40 million to 50 million. Are we at 70 million now, I guess? It's all right, and we're around 60, and in 4Q, it'll be somewhere around 10 million.

Okay, and then maybe just latest on the China on highway expectations for the rest of the year. I think you had gone from $40 million $50 million are we at $70 million now I guess.

Set top outright in it were not for four were around 16.

And in <unk>.

It'll be somewhere around 10 around $10 million.

Yeah.

Michael Ciarmoli: Our next question comes from Michael Ciarmoli with Sherwood Securities, please state your Hey, good evening, guys. Thanks for taking the question.

Our next question comes from Michael <unk> with <unk> Securities. Please state your question.

Hey, good evening guys. Thanks for taking my question.

Michael Ciarmoli: Um, maybe Chip, could you give a little bit more color on Spoiler alert, spoiler win. I mean, in terms of what the expected ship set content will be, I guess, you know, my understanding, you've got to develop your own IP when maybe those first sales are going to occur. And, you know, any kind of expected margin profile you could talk to, it sounded like maybe the existing incumbent on this walked away, you know, just given their return profile. And I guess a couple hundred million of investment sounds significant for just that one platform. Is this a broader play to position yourself or for future kind of actuation spoiler wins on that next gen aerobotic?

Kipp could give a little bit more color on this let's say $3 50 spoiler win.

In terms of what the expected ship set content will be I guess my understanding you've got to develop your own IP when when maybe those first sales are going to occur.

And any any kind of expected margin profile, you could talk to it sounded like maybe the existing incumbent on this walked away just given their return profile and I guess, a couple of hundred million dollars of investment sounds.

Significant purchased that one platform is this a broader play to position yourself for for future kind of actuation spoiler wins on that that next gen narrow body.

Charles Blankenship: Yeah, Mike, so thanks for the question. You know, the, the spoiler actuator business is quite substantial. The A350 program, if you, you know, look at Airbus's forecast for rate increases, and where, where that aircraft is going, what the demand is for that is a, it's a wonderful program to be a part of. When I look at the ship set content. So there are 14 actuators, you know, seven per wing, and we have 12 of those. So it's a lot of hardware per ship set. It's going to take a bit of factory space, because we're going to be vertically integrated.

Yes, Mike.

For the question.

The spoiler actuated business is quite substantial <unk> hundred 50 program. If you look at Airbus as forecast for rate increases and where where that aircraft is going and what the demand is for that.

A wonderful program to be a part of.

When I look at the.

Ship set content.

So there are there are 14 actuators seven per wing and we have 12 of those.

So we're where it's a lot of it's a lot of hardware per ship set.

It's going to take a bit of factory space, because we are going to be vertically integrated.

Charles Blankenship: It is a substantial investment, but it's a manageable one. And we have a number of things we're looking at to add into that facility as we go forward. But as of now, we like the investment and our forecasted return on that for the 8350 program. And we'll pile on that, and we'll add things as we can, and as we win them going forward. Will they will this be margin dilutive as it ramps up at You know, quite often on programs, they can be margin dilutive. And a lot of that sometimes has to do with fits and starts.

It is a substantial investment, but it's a manageable one.

We have a number of things we're looking at to add into that that.

That facility as we go forward, but as of now we like the we like the investment in our forecasted return on that for.

For the <unk> hundred 50 program and will will pile on that and we'll add things as we as we can and as we win them going forward.

Well, they will be margin dilutive as it ramps up out of the gate.

Quite often on programs they can be margin dilutive in a lot of that sometimes has to do with fits and starts and whereas the program, whereas the plane going to be when it enters enters.

Charles Blankenship: And where's the program and where's the plane going to be when it enters, enters, you know, production, we're not burdened with some of that, in this case, on a displacement, we know exactly what rate we have to catch when. And your question, your earlier question was about when we would see revenue.

Production, we're not burdened with some of that in this case on a displacement we know exactly what rate we have to catch win.

And your question. Your earlier question was about when we would see revenue.

Charles Blankenship: We're, we and Airbus are targeting 2028 entry into service for for our hardware.

We and Airbus are targeting 2028 entry into service for for our hardware.

Sheila Kahyaoglu: Our next question comes from Sheila Kahyaoglu with Jeffreys, please state your and a commercial artist. Yeah, so I'll, yes, we look at this to be about a couple of hundred million dollar investment, Sheila, and yes, it'll be spread out over 26, 27, some of it could leak into 28, but most of it will happen between those, those two years. Again, this will be, we love this program. We think it's, and it will have good returns for us, and it's a great portfolio of opportunity here with Airbus, and we think it's going to be a really good program.

Our next question comes from Sheila <unk> with Jefferies. Please state your question.

Thank you Ross, maybe just following up on the new facility.

How do we think about that the $100 million 26, and 27 300 million over 10 years.

I know I'm, making up numbers here, how do we think about the payback on that.

And so for commercial.

Yes.

Yes, we will look at it this would be about a couple of $100 million investment Sheila and yes, it will be spread out over 26 27, some of it could leak into 28, but most of them will happen between those closed two years.

Again this will be a.

We love this program.

We think it's.

And it will have good returns for us.

Great portfolio.

Of opportunity here with Airbus in.

And we think it's going to be a really good program.

Sheila Kahyaoglu: Okay, and then on the defense continued at performance there, any comments you can make on how long it lasts? How do we think about the JDAM contract in particular and its impact on profitability? Yeah, so first of all, smart defense. I want to make sure to say that all the products in our Smart Defense portfolio are performing well. Obviously, JDAM gets a lot of coverage, as it should, and these programs are tough, but we think through at least the first half of 26, we feel good about seeing the demand, and we like the demand. It gets a little dangerous to take that view too much further than that, Sheila, so I'll say we feel good about this demand through the first half of 26.

Okay, and then on the defense.

That performance there any comments you can make on how long it lasts how do we think about the Jay dam contract in particular and its impact on profitability.

Yes, so first of all.

Defense.

I want to make sure.

To say that.

All the products all the products in our smart defense portfolio are performing well honestly JDM gets a lot of coverage as it should.

And these programs are tough, but we think through at least the first half of two six.

Good about <unk>.

And the demand and we like we like the demand.

It gets a little.

Dangerous to take that view too much further than that Sheila So I'll say, we feel good about this demand through the first half of 'twenty six.

Gautam Khanna: Our next question comes from Gautam Khanna with TD Cowan. Please state your... Hey, good afternoon, guys. Afternoon, Gautam.

Our next question comes from Gautam Khanna with TD Cowen. Please state your question.

Hey, good afternoon guys.

Afternoon Gautam.

Gautam Khanna: had a couple questions and perhaps he I dropped. So I'm just curious, did you address China natural gas and what demand signal? You're seeing from those customers. Yeah, we we briefly said that Q4 will be around $10 million. The overall economy continues to dampen the demand and the order rate in that business.

I had a couple of questions and perhaps I dropped. So I'm just curious did you address China natural gas and what demand signals.

We're seeing from those customers.

Yes, we briefly say that Q4 will be around $10 million.

The overall economy continues to.

To dampen the demand and the order rate in that business.

Charles Blankenship: Okay, any preliminary view on 2026 given Fiscal 25 has been an unnaturally low year. Yeah, no, we're going to continue to focus on our core industrial business. And, and that'll be our focus. And, and as we said, it's a dynamic, volatile business. And, and we will highlight that what we argue when we get to the end of the fourth quarter.

Okay any preliminary view on 2026 given.

Fiscal 'twenty five it's been an unnaturally low year.

Yes, good morning norm.

No we're going to continue to focus on.

Our core industrial business.

And.

And that'll be our focus in and as we said, it's a dynamic volatile business in and we will highlight that what we our view when we get to the end of the fourth quarter.

Charles Blankenship: Okay, in big picture, have you seen any demand erosion from US trade policy and all the changes we've had with US trade policy since April? anywhere in the portfolio. I wouldn't say we've seen demand drop off. I think we've seen some maybe unnatural volatility and some delays and then spikes, you know, we we had some delayed China service orders earlier in the year. And then we've had some, you know, piling on of orders, maybe at at one and a half to 2x the normal amount in third quarter and fourth quarter. So I think we've seen some unnatural volatility, but maybe not, I wouldn't characterize it as a, like a drop off in a demand or a, or a long term demand increase either way.

Okay.

And Big picture have you seen any demand erosion.

From U S trade policy and all the changes we've had with the U S trade policy since April.

Anywhere in the portfolio.

I wouldn't say, we've seen demand drop off I think we've seen some maybe unnatural volatility and some delays and then spikes.

Had some delayed China.

Service.

Orders earlier in the year and then we've had some.

Piling on of orders, maybe at one five to two <unk> the normal amount in third quarter and fourth quarter.

So I think we've seen some unnatural volatility, but maybe not I wouldn't characterize it as.

Like a drop off in demand.

Long term demand increase either way.

David Strauss: Our next question comes from David Strauss at Barclays, please state your Thanks for taking the fall. So previously you had this free cash flow target out through 2026 of 1.2 billion cumulative is is that now is that now off the table given the You know, the reduction in the pre-cash flow forecast for this year and what you're talking about sounds like for CapEx next year. Yeah, David, I think the underlying business and our plan, we still are, we still seem being able to deliver the $1.2 billion. But you did highlight a point, and that is that we are still figuring out what exactly the CapEx spend will be in 26, and that may have an impact on it.

Our next question comes from David Ross with Barclays. Please state your question.

Thanks for taking the follow up.

So previously you had this free cash flow target out through 2026, a $1 2 billion in cumulative is down now is that now off the table given the.

The reduction in the free cash flow forecast for this year and what you are talking about it sounds like for Capex next year.

Yeah, David I think the.

Some of our underlying business and our plan we still are we.

We still see being able to deliver the $1 2 billion, but you did highlight a point and that is that we are still figuring out what exactly the capex spend will be in 2006 and that may have an impact on it.

William Lacey: And we'll just come back to you at the end of the year with more clarity on exactly how that's looking. Okay, and do you guys have any impact from or any benefit from section 174 amortization going away as part of the A big beautiful bill. Um, we, from the, from some of these elements, uh, on, on that bill around, um, around what we can do around some of the R&D expenses, around what we can do as we're building the facilities, and can accelerate that depreciation. A lot of those things will help. There's still a lot of, we got high-level views of what that is, but exactly how it rolls out, we're going to have to spend a little more time, and we can give you a better understanding of the impact as we get to giving 26 guys.

And we will just come back to you.

At the end of the year with more clarity on exactly how thats working.

Okay.

And do you guys have any impact from or any benefit from section 174 amortization going away as part of the.

Yeah.

Big Beautiful Bill.

The.

From the.

From some of these elements.

On that deal around.

Around what we can do around some of the R&D expenses around what we can do as we're building the facilities.

Can accelerate the depreciation along those things will help.

There's still a lot of.

High level views of what that is exactly how.

It rolls out we're going to have to spend a little more time, we can give you a better understanding of the impact as we get to given 26 guidance.

Scott Deuschle: Our next question comes from Scott Deuschle with Deutsche Bank. Please state your question.

Our next question comes from Scott <unk> with Deutsche Bank. Please state your question.

David Strauss: Chip, just to clarify an earlier comment you made, were you saying that LEAP and GTF aftermarket revenue is approaching legacy narrowbody aftermarket, or was the comment that total revenue from LEAP and GTF, including OE, is approaching legacy aftermarket? Just want to Well, good clarification question. The point I was making was that in the aftermarket, in the service business, which is comprised of spare end items, repair and overhaul, as well as spare parts, and those categories that LEAP and GTF are gaining and getting into the same zip code as the legacy, which is very exciting for us.

Jim just to clarify an earlier comment you made rethinking that leap in GTS aftermarket revenue is approaching legacy narrow body aftermarket what was the comment that total revenue from leap in GTS, including OE is approaching legacy aftermarket just wanted to clarify that.

Well good clarification question.

The point I was making was that in the aftermarket in the service business, which is comprised of spear and items.

Repair and overhaul as well as spare parts in those categories that leap in GTS are gaining in getting into the same ZIP code as the legacy which is very exciting for us.

Charles Blankenship: Okay, and then Chip, when we think about growth and power generation over the coming years, should we be looking at the growth at G.E. Vernova and Rolls-Royce? When we think about your growth, or are there any specific nuances with respect to Woodward's position that would drive a meaningful divergence between what those OEMs are looking at and then what you might look at? I think broadly speaking, we see the same kind of growth they do, but it can get a little bit nuanced in terms of which platform wins which application, because if a certain gas turbine wins, you know, it starts to win more, or a certain average the OEMs, I think you'd get something close to what we're seeing.

Okay, and then ship when we think about growth in power generation over the coming years should we be looking at to growth at G for Nova and Rolls Royce.

We think about your growth or are there any specific nuances with respect to woodward's position that would drive a meaningful divergence between with those Oems are looking at and then what you might look at thank you.

I think broadly speaking, we see the same kind of growth they do but it can get a little bit nuanced in terms of which platform wins, which application because if.

If a certain gas turbine wins.

Starts to win more.

Or a certain recip engine this liquid.

Wins than our hardware may or may not be on on those Oems so broadly speaking.

If you average the Oems I think you'd get something close to what we're seeing so.

Charles Blankenship: So, you know, our SOGAV product line is on gas engines. Our DFS business, WLO, in Germany is on MTUs, you know, reciprocating backup engine power. And we have, you know, a lot of control valves on GeoVernova, Baker Hughes, and Mitsubishi gas turbines. So when you look at those OEMs and how they're doing and how they're forecasting growth, you know, you can see how we can play in that market.

There are so gas product line is on gas engines our.

DFS business double yellow and in Germany is an empty use.

Reciprocating backup engine power and we have.

A lot of control valves on GE of Renova Baker Hughes and.

Mitsubishi gas turbine. So when you look at those Oems and how theyre doing and how they're forecasting growth.

You can see how we can play in that market.

Noah Poponak: Our next question comes from Noah Poponak with Goldman Sachs, please state your. Chip, in the beginning of the year, in the initial guidance, if I recall, you Unknown Attendee. I had contemplated aerospace aftermarket revenue growing low to mid single digit and year to date it's now I have it up 24% I think that's right. The excess 20 points of growth.

Our next question comes from Noah <unk> with Goldman Sachs. Please state your question.

Chip.

In the beginning of the year and the initial guidance if I recall you.

Hi.

The contemplated aerospace aftermarket revenue growing low to mid single digits.

And year to date, it's now I have it up 24% I think that's right.

The excess 20 points of growth.

Charles Blankenship: How much of that is pent-up demand, extended duration of the legacy fleet versus how much of that is, sounds like maybe the LEAP and the GTF are coming along a bit faster than you planned at the beginning of the year. It is a combination of both of those, Noah, as well as Price. You know, I've just We see few signs of the legacy slowing down, and I think that's one of the bigger indications to us that we didn't see earlier in the year. I thought that would be flattish, except for price, and the shops and the airlines have found ways to send more units in for overhaul and repair and order more spare parts than we forecast or modeled.

How much of that is pent up demand extended duration of the legacy fleet versus how much of that is it sounds like maybe the leap and the GTR coming along a bit faster than you planned at the beginning of the year.

It is it is a combination of both of those notes as well as price.

Yes.

We see few signs of the legacy slowing down and I think thats one of the one of the bigger indications to us that.

We didn't see earlier in the year I thought that would be flattish except for price.

<unk>.

The shops and the airlines have found ways to send more units in for overhaul and repair and order more spare parts, then and we forecast that are modeled.

Charles Blankenship: But then again, LEAP and GTF, that steep curve has continued to deliver more units into overhaul for us. So, we like the results, and I think I said early in the year when I was questioned by a number of folks, You know, are you are you just You know, do you think that that's going to happen? And what if what if there's more demand? And I said, if there's more demand, we will be ready with the capacity to capitalize on that opportunity.

But then again leap in GTS has that that steep curve has continued to.

To deliver more units.

And overall for us so we like the results and I think I said early in the year. When I was question by a number of folks.

No.

Are you just.

Do you think that.

That's going to happen and what if what if there is more demand and I said, if there is more demand we will be ready with the capacity to capitalize on that opportunity and that's kind of how it turned out.

Charles Blankenship: And that's kind of how it turned out. Do you have a sense from those customers of how long that now goes into the forward? or is it just kind of hard to have that visibility in that? I think the challenge is it's all related to revenue passenger miles and how long airlines keep flying those legacy aircraft to make up for the delivery rates that are slower than they want them to be from the airframers. If you listen to Southwest and United and American and Delta talk about U.S. domestic travel, it's not such a rosy picture.

Do you have a sense from those customers of how long that now goes into the forward.

Or is it just kind of hard to have that visibility in that business.

So I think the challenge is it's it's all related to revenue passenger miles and how long airlines keep flying those legacy aircraft to make up for the delivery rates that are slower than they want them to be from.

The air Framers.

Yes.

If you listen to the southwest and United and American and Delta talk about U S domestic travel.

Charles Blankenship: If you listen to folks talk about, you know, what's going on in the rest of the world, there's some good demand in Europe and other places. So just keeping a close eye on that demand, I think, helps us understand how long the legacy fleet is going to... be robustly invested in, if you will. Because once airplanes will start to get parked from the legacy fleet, more used serviceable material will be available.

Travel is.

Not such a rosy picture.

You listen to folks talk about what's.

What's going on in the rest of the world.

Some good demand in Europe and other places.

So just keeping a close eye on that demand I think helps us understand how long the legacy fleet is going to.

Be robustly invested in if you will.

Once once airplanes started we'll start to get parked from the legacy fleet.

More used serviceable material will be available and while.

Charles Blankenship: And while it could really, I think, eat into that business pretty quickly, but for us on the Woodward side, the great news about that is that there's such a multiplier effect on LEAP and GTF in terms of how that fleet is accumulating hours and cycles that we feel like our growth profile is relatively secure. But I just, you know, maybe we're a few quarters ahead of that legacy fleet, you know, tailing off. The one reminder you'll hear from a lot of folks in the OEM business is that, you know, I don't know whether it's 40% or 50% of the CFM 56-5s and dash 7s haven't seen their first shop visit yet.

It could really.

Eat into the into that business pretty quickly, but for us on the Windward side. The great news about that is that there's such a multiplier effect on leap in gcs in terms of how that fleet is accumulating hours and cycles that we feel like our growth profile is relatively secure.

But I just.

Maybe we were a few quarters ahead of that.

Of that legacy fleet.

Tailing off.

The one reminder, youll hear from a lot of folks in the OEM business is that.

I don't know, whether its 40% or 50% of the.

The CFM 56 Dash five dash 700 haven't seen their first shop visit yet so.

Charles Blankenship: So those younger parts of the fleet still have a long way to go. The older parts of the fleet, you know, may get may get parked out when the demand curve turns a little bit, or when the OEMs start producing at the rates they want to produce.

As younger parts of the fleet is still have a long way to go the older parts of the fleet make it.

They get parked out when the when the demand curve turns a little bit or when the Oems start producing at the rates they want to produce.

Gavin Parsons: Our next question comes from the line of Gavin Parsons with UBS. Thanks for the follow up on on the leap. GE a week or two ago said they expected 25% shop visit CAGR through the end of the decade. Anything to keep in mind about your growth rate relative to that? Sure thing. You know, that's, that's an exciting growth rate. I think that hours and cycles and utilizations, you know, support that, obviously, for us. Some of our LRUs are not necessarily correlated with the shop visit in terms of when we see them. You know, we've been, even though those, our growth rates are substantial still, and we have a steep growth rate, We don't necessarily correlate one to one with the shop visits in terms of removals of our different LRUs.

Our next question comes from the line of Gavin Parsons with UBS. Please state your question.

Hey, Thanks for the follow up on on the leap GE, a week or two ago. So the expected 25% shop visit CAGR through the end of the decade anything to keep in mind about your growth rate relative to that thanks.

Sure thing.

That's an exciting growth rate.

I think the hours and cycles and utilization support that obviously.

For us.

Some of our LR use are not necessarily correlated with a shop visit in terms of when we see them.

We've been even though those those.

Our growth rates are substantial still and we have a steep.

Growth rates.

We don't necessarily correlate one to one with the shop visits in terms of removals of our different ellora use.

Charles Blankenship: And we've kind of averaged that to talk about, you know, the service content of the LEAP and GTF being 5x with the prior Legacy. engine configurations were. And that kind of averages out the difference in shop visit rate from a fuel pump and a BSV actuator and things and an air valve. So right now we're seeing pumps and fuel metering units and fuel nozzles come in. We haven't seen many of the other products yet, but over time we will. I just don't know if 25% is a good number for us because we're not all that correlated to shop visit.

And we've kind of average that to talk about.

The service content.

The leap in GTS being five X with the prior.

Legacy.

Engine configurations were.

And that kind of averages out the differences shop visit rates from a fuel pump.

BSB actuator and things and an air valve.

So right now, we're seeing pumps and fuel metering units and fuel nozzles come in.

Haven't seen many of the other products yet but over time, we will.

I just don't know if 25% is a good number.

For us because we're not all that correlated to shop visits.

Charles Blankenship: were more correlated directly to hours and cycles.

We're more correlated directly to hours and cycles.

William Lacey: And on JDAM, I didn't see the step up in the budget. Do you guys have that contract locked in? So we have POs from our customer. and and we're responding to those and and fulfilling we I don't know what the locked in you're referring to, but we have we have EOS from our customer.

That's helpful and on J D. I didn't see the step up in the budget do you guys have that contract locked in.

I'm just wondering your visibility on that going forward.

So we have from our customer.

And we're responding to those and fulfilling.

<unk>.

I don't know what the lock locked in you are referring to but we have we have from our customer.

Unknown Attendee: Mr. Blankenship, there are no further questions at this time.

Mr. <unk> there are no further questions at this time I will now turn the conference back to you.

Charles Blankenship: I will now turn the conference back. I would just like to thank everyone for joining us for today's call.

I would just like to thank everyone for joining us for today's call. We'll see you next time.

Unknown Attendee: We'll see you next time.

Operator: Ladies and gentlemen, that concludes our conference call today. A rebroadcast will be available at the company's website www.woodward.com for one year. We thank you for your participation in today's conference call.

Ladies and gentlemen that concludes our conference call today, a rebroadcast will be available at the Companys website Www Woodward Dot com for one year. We thank you for your participation in today's conference call.

Okay.

Okay.

Yes.