Q3 2025 Howmet Aerospace Inc Earnings Call

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<unk> I would now like to turn the conference over to Paul Luther Vice President of Investor Relations. Please go ahead.

Thank you drew good morning, and welcome to the LMI Aerospace third quarter 2025 results Conference call I'm joined by John Plant Executive Chairman, and Chief Executive Officer, and Ken Jia, Kobe, Executive Vice President and Chief Financial Officer.

After comments by John and Ken We will have a question and answer session.

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

Operating income and EPS.

Adjusted EBITDA, excluding special items, adjusted operating income, excluding special items and adjusted EPS. Excluding special items. These measures are among the non-GAAP financial measures that we've included in our discussion.

Speaker #3: Good day and welcome to the Howmet Aerospace Inc. Third quarter 2020 Earnings Conference call . All participants will be in listen only mode .

Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix in today's presentation.

Speaker #3: Should you need assistance , please signal a conference specialist by pressing Star . Then zero on your telephone keypad . After today's presentation , there will be an opportunity to ask questions , to ask a question , you may press star , then one on your telephone keypad .

In addition, unless otherwise stated all comparisons are on a year over year basis with that I'd like to turn the call over to John.

Thank you Peter and welcome to the Q3 call.

Speaker #3: To withdraw your question , please press star . Then two . Please note this event is being recorded . I would now like to turn the conference over to Paul Luther , Vice President of Investor Relations .

Let's start with the company highlights on slide four.

Q3 was a very strong quarter behind that.

Speaker #3: Please go ahead .

Revenue growth continues to accelerate and was up 14%.

Speaker #4: Thank you . Drew . Good morning and welcome to the Howmet Aerospace Inc. third Quarter 2020 results conference call . I'm joined by John Plant Executive Chairman and Chief Executive Officer and Ken Jacoby , Executive Vice president and chief Financial officer .

Two 8% in the first half.

Within this revenue growth commercial aerospace increased 15%.

And within this number commercial area sales increased by 38% for.

Speaker #4: After comments by John and Ken , we will have a question and answer session . I would like to remind you that today's discussion will contain forward looking statements relating to future events and expectations .

Total sales increase of 31%.

EBITDA was up 26% and operating income up 29%.

Speaker #4: You can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation in earnings press release and in our most recent SEC filings .

Cash flow was also healthy at $423 million after capital expenditure of $108 million.

Year to date capital expenditure is approximately $330 million.

Speaker #4: In today's presentation , references to EBITDA operating income and EPs mean adjusted EBITDA excluding special items . Adjusted operating income , excluding special items and adjusted EPs excluding special items .

Regarding share buyback $200 million of cash was deployed to buybacks in Q3, and an additional 100 million buyback in October.

October year to date buyback is now $600 million, which is $100 million higher than the 2020 for full year.

We also paid off the bottoms up $63 million of the U S term loan early which was due in November 2026, and with the resulting.

Net leverage now stands at one one times net debt to EBITDA.

Dividend payments were also increased in August by 20% versus the prior quarter.

And earnings per share increased by just over 34%.

Other commentary, which may be helpful is that working capital days improved year over year, allowing for the increased capital expenditures.

Future growth.

Within the free cash flow number previously referenced.

Head count did increase by a further 265 people mainly within the engines business as we staff new manufacturing plants.

As planned the increase in head count has slowed as we go into the second half, although we envision a visit.

Hiring again as we pick up in early 2026 now.

Now, let me turn the call over to Ken to cover the markets and segment performance.

Okay. Thank you John let's move to slide five.

So end markets continued to be strong with total revenue up 14%.

Commercial aerospace was up 15% exceeding $1 $1 billion in the quarter.

Commercial aerospace growth is driven by accelerating demand for engine spares and a record backlog for new more fuel efficient aircraft with reduced carbon emissions.

Defense Aerospace growth continued to be robust at 24%.

Growth was driven by engine spares, which increased 33%.

And new F 35 aircraft builds.

As expected commercial transportation was challenging with revenue down 3% in the third quarter, including the pass through of higher aluminum cost and tariffs on a volume basis reels volume was down 16%.

Finally, the industrial and other markets were up a healthy 18% driven by oil and gas up 33% and IGT up 23%.

In the future, it's likely that we will combine oil and gas and IGT when reporting revenue by market.

The definition of oil and gas versus mid to small IGT has become somewhat blurred since many turbines now have increasing end use for data centers.

So in summary.

Continued strong performance in commercial aerospace defense aerospace and industrial partially offset by commercial transportation.

Within <unk> markets, the combination of spares for commercial Aero defense Aero, IGT and oil and gas was up 31% in the third quarter.

Now, let's move to slide six.

So starting with the P&L.

Q3 revenue EBITDA EBIT margin and earnings per share were all records and exceeded the high end of guidance.

Revenue was up 14% EBITDA exceeded $600 million as it outpaced revenue growth and was up 26%.

EBIT margin increased 290 basis points to 29, 4%.

Absorbing the cost of approximately 265 net head count additions.

Earnings per share was <unk> 95.

Which was up a solid 34%.

Moving to the balance sheet and free cash flow the balance sheet continues to strengthen.

Free cash flow was excellent at 423 million free.

Free cash flow included the acceleration of capital expenditures was $108 million invested in the quarter and approximately $330 million year to date, which is higher than the full year 2020 for capital expenditures.

70% of the capital expenditures year to date is for our engines business as we continue to invest for growth in commercial aerospace in IGT.

Continued strong performance in commercial Aerospace, defense Aerospace and Industrial partially offset by commercial transportation.

Within how much markets the combination of spares for commercial Arrow. Defense arrow, IGT and oil and gas.

Investments are backed by customer contracts.

Quarter end cash was a healthy $660 million.

Now, let's move to slide 6.

Year to date that has been reduced by $140 million as we paid off at par the U S term loan which was due in November of 2026.

so, starting with the p&l,

Q3 Revenue, ibida, IBA, margin, and earnings per share were all records and exceeded the high end of guidance.

The early prepayments will reduce annualized interest expense drag by approximately $8 million.

Net debt to trailing EBITDA continues to improve to a record low of one one time.

Revenue was up 14% IBA exceeded million dollars as it outpaced Revenue growth and was up 26%.

All long term debt is unsecured and fixed rates.

How much improved financial leverage and strong cash generation were reflected in S&P's Q3 rating upgrade from Triple B to Triple B, plus which is three notches into investment grade.

IBA margin increased 290 basis points to 29.4% will absorbing the cost of approximately 265. Net headcount additions.

Earnings per share was 95 cents.

Which was up a solid 34%.

Liquidity remained strong with a healthy cash balance.

Moving to the balance sheet and free cash flow. The balance sheet continues to strengthen.

$1 billion Undrawn revolver complemented by the flexibility of a $1 billion commercial paper program, both of which have not been utilized.

Free cash flow was excellent at 423 million.

Regarding capital deployment, we deployed approximately $770 million of cash common stock repurchases debt paydown and quarterly dividends year to date through September.

Free cash flow included, the acceleration of capital expenditures with 108 million invested in the quarter and approximately 330 million year to date, Which is higher than the full year. 2024 Capital expenditures,

In the quarter, we repurchased $200 million of common stock at an average price of approximately $182 per share.

About 70% of the capital expenditures. Year-to date is for our engines business, as we continue to invest for growth in commercial, Aerospace, and IGT.

Q3 was the 18th consecutive quarter of common stock repurchases.

Investments are backed by customer contracts.

Quarter end cache was a healthy 660 million.

The average diluted share count improved to a Q3 exit rate of 405 million shares.

Additionally, in October we repurchased $100 million of common stock at an average price of approximately $192 per share.

Year to date debt has been reduced by 140 million as we paid off at par the US Term Loan which was due in November of 2026.

October year to date common stock repurchases, our 600 million at an average price of approximately $156 per share.

The early prepayments will reduce annualized interest expense drag by approximately 8 million dollars.

Net debt to trailing ibida continues to improve to a record low of 1.1 time.

Remaining authorization from the board of directors for share repurchases is approximately $1 6 billion as of the end of October.

All long-term debt is unsecured and it fixed rates.

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

We increased the quarterly dividend by 20% in the third quarter to <unk> 12 per share, which is up 50% higher than Q3 of last year.

How much improved financial leverage and strong cash generation were reflected in s&p's? Q3 rating upgrade from Triple B to Triple B plus which is 3 notches into investment grade.

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

The engines products team delivered another record quarter for revenue EBITDA and EBITDA margin.

Liquidity remains strong for the healthy cash balance and a 1 billion dollar. Undrawn Revolver complemented by the flexibility of a 1 billion dollar commercial paper program, both of which have not been utilized

Regarding Capital deployment.

Quarterly revenue increased 17% to $1 1 billion.

<unk> Aerospace was up 13% defense aerospace was up 23%.

we deployed approximately 770 million of cash, common stock repurchases Debt, Pay down and quarterly dividends year to date through September

Oil and gas was up 33% and IGT was up 23%.

In the quarter, we repurchased 200 million of common stock at an average price of approximately 182 per share.

Demand continues to be strong across all of our engines markets with strong engine spares volume.

23 was the 18th consecutive quarter of common stock repurchases.

EBITDA outpaced revenue growth.

With an increase of 20% to $368 million.

The average diluted share count improved to accuse 3 exit rate of 405 million shares.

EBIT margin increased 80 basis points year over year to 33, 3%, while absorbing approximately 265 net new employees in the quarter.

Additionally in October, we repurchased 100 million of common stock in an average price of approximately 192 per share.

Year to date engines has invested in approximately 1125 incremental head count, which has a near term margin drag, but positions us well for future growth.

October year to date common stock. Repurchases are 600 million and an average price of approximately $156 per share.

Now, let's move to slide eight.

Remaining authorization from the board of directors for share repurchases is approximately 1.6 billion dollars as of the end of October.

The fastening systems team also delivered a record quarter for revenue EBITDA and EBITDA margin Rev.

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

Revenue increased 14% to $448 million.

Commercial aerospace was up 27% defense Aerospace was up 2% General industrial was up 3% and commercial transportation.

We increase the quarterly dividend by 20% in the third quarter to 12 cents per share, which is up 50% higher than Q3 of last year.

Now, let's move to slide 7 to cover the segment results for the third quarter.

Which represents approximately 12% our fastest revenue was down 17%.

The engines products team delivered, another record quarter for revenue ibida and ibida margin.

EBITDA continues to outpace revenue growth with an increase of 35% to $138 million. Despite the sluggish recovery of wide body aircraft builds along with weakness in commercial transportation.

Quarterly Revenue increase 17% to 1.1 billion.

Commercial aerospace was up 13%; defense aerospace was up 23%.

EBIT margin increased a robust 480 basis points year over year to 38%.

Oil and gas was up 33% in IGT was up 23%.

Team has continued to expand margins through commercial and operational performance.

Demand continues to be stronger across all of our engines markets with strong engine, spares volume.

Ibida, outpaced Revenue growth.

Now, let's move to slide nine.

With an increase of 20% to 368 million.

Engineered structures had a solid quarter Rev.

Revenue increased 14% to $289 million commercial Aero was up 7% and defense Aerospace was up 42% primarily driven by the end of the Destocking of the F 35 program.

Ava, margin increased 80 basis points year-over-year to 33.3% while absorbing a proximately 265. Net new employees in the quarter.

EBIT to outpaced revenue growth with an increase of 53% to $58 million EBIT.

Year to date engines has invested in approximately 1,125 incremental headcount, which has a near-term margin drag but positions us well for future growth.

EBIT margin increased 510 basis points to 21% as we continue to optimize the structure manufacturing footprint and rationalize the product mix to maximize profitability.

Let's move to slide 8.

The fastening systems team also delivered a record quarter for revenue, EBITDA, and even margin.

Revenue increased 14% to 448 million.

Finally, let's move to slide 10.

Forged wheels revenue was essentially flat as a 16% decrease in volume was largely offset by higher aluminum cost tariff pass through and favorable warranty current currency.

Commercial Aerospace was up. 27% defense Aerospace was up 2%. General industrial is up 3% and commercial transportation.

Which represents a proximately 12% of faster. Revenue was down 7%.

EBITDA was strong at $73 million, an increase of 14% despite a challenging market.

EBIT margin increased 350 basis points to 29, 6%.

Ibida continues to outpace revenue growth with an increase of 35% to 138 million despite the sluggish recovery of widebody. Aircraft bills along with weakness in commercial transportation.

The unfavorable margin impact of lower volumes and higher pass throughs were more than offset by flexing of cost.

Favorable product mix driven by our premium products.

And favorable foreign currency.

Ye margin increased, the robust 480, basis points year-over-year to 30.8% as the team has continued to expand margins through commercial and operational performance.

The wheels team has continued to expand margins despite market metal cost and tariff uncertainty.

Now, let's move to slide 9.

Now, let me turn it back over to John.

Thank you Ken.

Move to slide 11 to discuss the outlook.

Engineered structures had a solid quarter Revenue, increased 14% to 289 million commercial Arrow was up 7%. And defense Aerospace was up 42%, primarily driven by the end of the dto of the F-35 program.

In summary, before I go into details.

The outlook is solid.

Even the outpaced revenue growth with an increase of 53%.

Air travel continues to grow year over year after a solid summer period.

58 million.

The backlog of commercial aircraft extends for many years, even after assuming increases in build rates throughout the next five years.

The current aircraft fleet has aged.

Even a margin increased 510 basis points to 20.1% as we continue to optimize the structure's manufacturing footprint and rationalize the product mix to maximize profitability.

These factors combined to provide both healthy OE demand.

Finally uh, let's move to slide 10.

And the growing demand for aircraft aftermarket parts, especially in the engine for wearing thoughts, namely the turbine blades in the hot gas path section of the engine.

Forged wheels Revenue was essentially flat.

As a 16%, decrease in volume was largely offset by higher aluminum. Costs tariff passed through in favorable warranty current currency.

Defense sales continued to be strong with steady F 35 sales plus some increase in legacy funded yet.

Ibido was strong at 73 million. An increase of 14%,

Despite a challenging Market.

Amelia.

On the F 16.

Give it a margin increase 350 basis points to 29.6%.

He is also combined with growth in defense spare sales.

In oil and gas the demand is steady.

Growth in IGT is extremely strong gaming, both OE and aftermarket sectors.

The unfavorable margin impact of lower volumes and higher pass throughs for more than offset by flexing of costs.

Favorable product mix driven by our premium products.

The part of the market, which had not previously made much commentary on is the midsize to buying the 45 megawatts.

In favorable foreign currency.

So both Aero derivative engines and dedicated mid size turbines is expected to grow for many years.

The Wheels team has continued to expand margins, despite market metal cost and tariff uncertainty.

Now, let me turn it back over to John.

This is mainly the result of data center build outs and the need to supply. These data centers with the independent fundamental electricity supply with very fast acting to bind response to ensure uninterrupted supply from the from the grid and from utilities.

Thank you Ken. Uh, let's move to slide 11 to discuss the Outlook.

In summary before I go into details, the the Outlook is solid.

Air travel continues to grow year over year after a solid summer period.

It is increasingly difficult for us to separate the end market for these turbines between oil and gas.

The backlog of commercial aircraft extends for many years even after assuming increases in build rates throughout the next 5 years.

The IGT.

The current aircraft fleet has a aged.

Commercial truck volumes continued to struggle with smaller fleets in particular, not buying trucks due to the low freight rates.

And also combine this with a large price increases for class eight trucks, principally due to tariffs.

These factors combined to provide both healthy, OE demand and the growing demand for aircraft aftermarket parts, especially in the engine for wearing Parts, mainly the turbine blades in the hot gas path section of the engine.

The tariff changes continued to produce uncertainty for how much.

However, the net tariff Gregg continues to be small that's about $5 million plus or minus as discussed in our last earnings call.

Defense sales continue to be strong with steady F-35, OE Sales. Plus, some increase in Legacy fighter jets namely the F-15 and the F-16

The revenue outlook for the balance of 2025 has increased compared to the prior guide benefiting from stronger Boeing 737 builds and also engine spares.

this is also combined with growth in defense, spare sales.

In oil and gas that demand is steady while growth in IGT is extremely strong again in both OE and aftermarket sectors.

The build out of our footprint with the five new manufacturing plants or extensions continues.

The part of the market, which I have not previously made much commentary on is the midsize turbines of up to 45 megawatts.

The most vital immediate part of our expansion going into 2026 is the new Michigan Aero engine core on casting plant.

Where growth of both arridy derivative engines and dedicated midsize turbines, is expected to grow for many years.

Which is on track with the machines not building some parts.

There remains a lot more equipment to be installed during the next six months, but everything is currently as it should be.

The new plant.

Installed for tooling is now equipped and stuffing well underway.

This is mainly the result of data center buildout and the need to supply these data centers with either independent, fundamental electricity Supply, or with very fast, acting turbine response to ensure uninterrupted Supply from the uh, from the grid and from utilities

Being a little bit more specific regarding the 2026 outlook, we see revenues up $9 billion, plus or minus we use an increase of about 10% year on year.

It is increasingly difficult for us to separate the End Market for these turbines between oil and gas. Compared to IGT

This number will be further refined in our February 2026 earnings call.

We'll also provide more detailed guidance.

Commercial truck volumes continue to struggle with smaller fleets, in particular, not buying trucks due to the low freight rates. Additionally, this is combined with large price increases for Class A trucks, principally due to tariffs.

Moving to the fourth quarter of 2025.

We see revenue to be $2, 1 billion, plus or minus $10 million.

The Tariff changes continue to produce uncertainty for Hamlet.

EBITDA of $610 million, plus or minus $5 million, earning.

Earnings per share 95, plus or minus a penny.

Craig continues to be small as around 5 million dollars plus or minus as discussed in the last earnings call.

And for the year the numbers on that revenue $8, one 5 billion.

A N.

Plus or minus $10 million EBITDA rose to $3 75 billion, plus or minus five earnings per share of $3 67, plus or minus a penny.

The revenue outlook for the balance of 2025 has increased compared to the prior guide, benefiting from the stronger, Boeing 737 bills and also engine spares.

The build-out of our footprint with the five new manufacturing plants or extensions continues.

Free cash flow of $1 3 billion, plus or minus $25 million.

In summary.

25 is I know, there's a good year for how much with free cash flow guide, it's substantially higher than the last earnings call.

The most vital immediate part of our expansion going into 2026 is the new Michigan, Aero engine core, and casting plant, which is on track with the machines now building some parts.

Even after the higher capital expenditure, which is therefore future growth within the company.

There remains a lot more equipment to be installed during the next 6 months. But everything is currently as it should be.

Before moving to Q&A I did want to thank Ken Ken <unk> before his years of dedicated service.

The new plant we've uh, installed for tooling is now equipped and Staffing while underway.

It's been quite the journey for CAD.

He'd been my partner in all of this from his days at Alcoa to higher Mats, which interestingly is one of the three parts of former Alcoa.

Being a little bit more specific regarding the 2026 outlook, we see revenues of $9 billion plus or minus, which is an increase of about 10% year on year.

What was more than a single Alcoa company ever was.

All the very best to Ken and he is retiring.

Retirement.

This number will be further refined in our February 2026 earnings call. Where we will also provide more detailed guidance.

Thank you Jan.

The opportunity of adding any comments yet.

John I appreciate I appreciate the kind words and appreciate the partnership.

Moving to the fourth quarter of 2025, we see revenue to be $2.1 billion, plus or minus $10 million.

Been a privilege and a pleasure.

EPA $610 million plus or minus $5 million.

To work with you.

Board of directors and the helmet team.

Earnings per share 95 cents plus or minus a penny.

Our results have been remarkable.

I think a lot of that is driven by the positive culture that you had built over the years.

And for the year, the numbers are now revenue is 8.15 billion.

The cultures.

Is one that we talk about quite a bit of focus innovation in terms of everything we do empowerment accountability shared purpose and in winning which is quite refreshing.

Plus or minus 10 million ebara at 2.375% minus 5. Earnings per share at 3.67, plus or minus a penny and free cash flow at 1.3 billion plus or minus 25 million.

As I look forward I believe palmette is well positioned for the future.

With a clear clear path forward and an exceptional leadership team at the helm.

In summary 2025 is another good year for Hamlet with free cash flow, guided substantially higher than the last things go up even after the higher capital expenditure, which is there for future growth in the company.

So.

As I conclude my <unk>.

20 year 21 year tenure.

Before moving to Q&A, I did want to thank Ken Kenji Co before his years of dedicated service.

With immense gratitude.

Also confidence and how much future I wanted to thank you for the opportunity.

To be part of such a remarkable.

Organizationally.

Wishing you and the team continued success.

It's been quite the journey for Ken and him being my partner in all of this from his days at Alcoa to hermet, which interestingly, as 1 of the 3 parts of former Alcoa is now more worth more than the single Alcoa company ever was.

So I guess drew we could we could move to Q&A.

All the very best to can in his well-earned retirement.

Yes, Sir.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys. This at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Thank you, J off you the opportunity of any adding any comments. Yeah, John appreciate, appreciate the kind words and appreciate the partnership, you know, it's it's been a privilege and a pleasure.

Uh, to work with you. Uh, the board of directors and the helmet team.

Please keep yourself to one question only.

At this time, we will pause momentarily to assemble our roster.

Uh, results have been remarkable. Uh, I think a lot of that is driven by the positive culture that you have built over the years, um, that cultures

The first question comes from Christina Lee Wing with Morgan Stanley. Please go ahead.

Is 1 that we talked about quite a bit 1 of focus innovation in terms of everything we do, empowerment accountability.

Hey, good morning, everyone and Ken Congratulations on your retirement. Thank you for all the thoughtful insights over the years and hope you've got something very fund planned.

Shared purpose and, uh, and winning, which is quite refreshing.

So maybe John.

Um, as I look forward I believe how meaty is well positioned for the future.

The investments in technology have made in aerospace has yielded and how that being a clear leader in this area, especially for the hot section of the jet engine.

With a clear clear path. Forward and an exceptional uh leadership team at the helm.

Now pivoting to this data.

Data center build we're starting to see this industry really gain a lot of traction you've called out capex increases.

Last quarter and also this quarter.

So uh as I as I conclude my uh 20 year, 21 year tenure uh with immense gratitude. Uh and also confidence in how much future. I want to thank you for the opportunity.

Can you just take a step back and provide us more color on what the competitive landscape is like for turbines and IGT.

To be part of such a remarkable, uh, organization. So, uh,

wishing you and the, uh, the team continued success.

How differentiated is your technology, the pricing environment and whats your expected returns in this sector and how that compares with aerospace.

so uh, I guess Drew, uh, we could we could move to, uh, Q&A

Yes, sir.

Okay.

Very broad question gives me the opportunity to talk now for at least an hour.

Uh huh.

I'll keep it to that question John Yes.

Yes. Thanks. So this is only one question but.

So first of all.

Clearly this.

Buildout of data centers and the requirement for electricity.

We will now begin the question and answer session to ask a question. You may press star then 1 on your telephone keypad. If you're using a speaker-phone please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question please press star then 2 please keep yourself to 1 question only.

The only I'll say drive.

At this time, we will pause momentarily to assemble our roster.

The processing and the microchips.

What these bonds micro chips that are being installed.

The first question comes from, Christine, Lee Wong. With Morgan Stanley. Please go ahead.

Also the electricity required to call them is producing.

Extraordinary level of demand, which I think we know.

The.

The utility company and some struggles on the grid is struggling to cope with I don't know how to conduct beside aside.

It did change.

Again.

The new incoming administration.

Part of this year.

Then there's a greater emphasis on fossil fuels.

And really the natural gas being the technology of choice.

<unk> two renewables on flu.

Cause us to think again, because the investment profile for this business.

So the backcloth.

Fundamentals appears to be well set.

Over the years and hope you've got something very fun planned. Um, so maybe John, uh, the investments in technology have made an aerospace, has yielded and helmet being a clear leader, uh, in this area, especially for the hot section of the jet engine. Now pivoting to this, uh, data center build. You know, we're starting to see this industry really gain a lot of traction. You've called out capex increases uh, last quarter and also this quarter. Can you just take a step back and provide us more color on what the competitive landscape is like, for turbines and IGT. Um, how differentiated is your technology? The pricing environment. And what's your expected returns in this sector? And how that compares with Aerospace

Certainly look for that.

Okay, so that's, uh, that's a...

The next few years.

The build out requirements are extraordinary.

very, uh, broad question that gives me the opportunity to to talk now for at least an hour and, uh,

And the question that remains of course, what would it look like.

At the turn of the decade.

In terms of each future growth, but having said that I do.

I'll keep it to that question though. John. Yeah, thanks this is only 1 question but um so so first of all

Do think these data centers, which are there not just for the.

Shouldnt use of AI, but also just fundamental requirement for <unk>.

Storage means that the electricity demand will be there. So so it gives us a lot of confidence to invest.

Albeit we don't have the same clarity regarding backlog.

Look the numbers that we have in the commercial aerospace buckets. So you don't quite have the same.

Clearly this, uh, build out of data centers and the requirements for electricity to not only, I'll say Drive the, uh, the processing and the microchips that uh, what these Advanced microchips that are being installed, but also the electricity required to call them as, as producing uh an extraordinary level of demand, which I think.

I'll say clarity.

Visibility too.

We know that the utility companies themselves and the grid is struggling to cope with and how can that be satisfied?

The back orders.

Um, it it did change.

So it caused us to keep rethinking.

Investments on <unk>.

Keep it up again this year and you'll see.

With.

Capital expenditure increases in.

The investments that we're making.

We expect that Capex in 2026, and indeed going into 2027 will be also.

Again that the uh the new incoming Administration in uh, the early part of this year. When there's a greater emphasis on fossil fuels, uh and really the the natural gas being the technology of choice compared to to Renewables. And so that has caused us to think again because regarding the investment profile for this business.

Hi.

Level one.

While not disturbing what our fundamental <unk>.

We used to convert.

90% of our net income into free cash flow.

So.

It's a tool order at the same time you would expect we are excited to be part of this growth opportunity.

When I when I think about what's happening.

There is growth in both the large.

Industrial gas turbines that you see bought by utilities.

Which provide the electricity, which is transmitted over the grid.

Um, so the back class of the fundamentals, appears to be well Set. Uh, certainly, he, you look for the next few years, uh, the buildout and the requirements are are extraordinary. And the, the, the the, the question that remains, of course, what would it look like when we, when at the turn of the decade, um, in terms of its future growth, but having said that, I do think these data centers, which are there not just for the uh the introduction and use of AI. But also just fundamental requirement for uh from Storage means that that electricity demand will be there and so solid that gives us a lot of confidence to invest

Now given the large demand is still there.

Uh huh.

Gas turbines being installed with data center sites plus was a play to synthesize in a centralized facility.

To provide that.

The underlying electricity.

Albeit. We we don't have the same Clarity regarding backlog, numb backlog numbers that we have in the commercial Aerospace market. So you you don't quite have that same. Um I'll say Clarity and uh and visibility into uh into the back orders.

And then beyond that is that those backups to Elisa where in the case of where.

You just com guests, a large guys too but at the moment because the quite scarce.

It is now going out if you place a new award or you're not going to get big.

Big land based gas turbine to appropriate people with 20 <unk>.

Um so it's caused us to keep rethinking uh our investments and we've kicked it up again this year and you've seen uh with our guided capital expenditure increases in uh in Investments that we are making.

Is that was a case, where a lot of midsized turbines being installed not just for the fundamental production of electricity, but also because the very fast reacting is that ensures that the supply of electricity to the data center is uninterrupted and therefore, it is providing a lot.

Sort of a lot of stimulated demand.

Aero derivatives.

If you look at the results. This weekend caterpillar that you're seeing that and then one of our major customers employees midsize type items.

And we expect that capex in 2026 and indeed going into 2027 will be, uh, also at, uh, at high, uh, levels while not disturbing what our fundamental aim is, which is to convert 90% of our net income into free cash flow. And so you know it's it's it's a tall order at the same time, you know, we're expect we're excited to be part of this uh this growth opportunity.

So it's quite exciting.

When I think about what's happening, you know that there is growth in both the large.

And then in terms of technology, it's going very much along the same lines that we have it.

It has done in aerospace.

Industrial gas turbines that you see brought by utilities and which provide the uh, the electricity which is transmitted over the grid.

We have moved or are moving from.

Volume blades, which are solid.

Two turbine blades, which are increasingly caught me by quarters.

but now given the large demand is that there are uh, gas turbines being installed at the data center sites or clusters of data center sites in a, in a centralized facility

You have.

Through those turbine blades to provide them with.

Um, to provide that uh, that underlying electricity.

With cooling.

So those two items can be run pilot temperatures. So it's very much going along the evolution path that we've had in.

In the aerospace World.

So as we move forward over the next let's say 2345 years and it's happening right now.

And then beyond that is that as backups to all this or in the case of where uh you just can't get a large gas turbine at the moment because they're quite scarce and orders. Uh, are now going out if you place a new order, you're not going to get that big Land Based gas to buy until probably into the 2030 or Beyond.

We're installing additional capabilities.

Bill to produce the sophisticated finally tolerance pools enable.

Next level of technology to be achieved.

Was supposed to be mid size turbines and indeed for the very large.

Mines.

Utilities tend to buy.

If you look at the most recent development.

Without giving you specific Martin numbers of our customers.

As a case where a lot of midsize turbines are now being installed not just for the fundamental production of electricity but also because they're very fast reacting. Is that it ensures that the supply of electricity to the data entities are is uninterrupted and therefore, it's providing a lot of, a lot of stimulated demand for the error derivatives. And in fact, if you look at the results this week of caterpillar, they they you're seeing that and they're 1 of our major customers in those mid-size turbines.

Some of those no initial type.

So it's it's it's quite exciting.

So upon blades.

Our sophisticated.

The.

and in terms of Technology, it's going very much along the same lines that we have in uh, it had done in Aerospace where

Possibly most sophisticated commercial not necessarily military book commercial aerospace to use in terms of the numbers.

Serpentine pathways through those two those turbine blades.

And of course with those content and value.

Because it is gaming is producing a level of capability.

We have moved or are moving from turbine blades which are solid uh, to to vine blades, which are increasingly cord. And what I mean by chord is that you have are paths through those turbine blades, to provide them with, with cooling are such that those turbines can be run at higher temperatures.

Electricity generation.

What you could achieve the turbines at let's say five years ago 10 years ago.

It's a pretty exciting.

Exciting landscape in terms of playing to our strengths.

Most sophisticated technology.

It's causing us to.

And you've heard me talk about the new manufacturing plant that we have.

Or are you building in fact at the end of this year the.

The structure will be complete.

To enable us to.

Put new capabilities for example, new casting machines into that plant.

So it's it's very much going along the evolution path that we've had in uh, in in the Aerospace world. And so as we move forward over the next, let's say, 2 3, 4 5 years and it's happening right now is that we're installing additional capabilities to be able to produce the sophisticated. Uh finally tolerance Clause that enable that next level of technology to be achieved and that's both for the midsize turbines. And indeed for the very large uh turbines uh that utilities tend to buy

Early part of 2026 to bring capacity on not just with customers in Japan like Mitsubishi heavy but also other customers like Siemens and GE.

And that's all about et cetera.

So we.

We're doing that plus we're also expanding our plants in Europe significantly.

And also placing new capital in the existing footprint of our U S facility.

We're expanding in each of our three major sites.

um, if you look at the most recent developments the without giving you a specific model numbers or customers some of those now initial, uh, turbine blades are as sophisticated, uh, as the, uh, as the possibly most sophisticated commercial, not necessarily military, but commercial Aerospace use in terms of the, uh, the numbers of I'll say, uh,

Sites, where we produce gas turbine parts.

And really excited to be part of this journey, which really is evolving very much in the same way.

7 time are pathway through those, through those turbine blades. So and of course, with that goes content and value. Uh, because it is again, is producing a level of capability. Um,

The aerospace business not only for those mid size turbines, but also now for the very large gas turbines and so it's a pretty exciting time for us to be able to build up this business to be a very significant contributor for the company.

electricity Generation Well above what you've been achieved with turbines and let's say 5 years ago or 10 years ago,

So I'll stop there just in case I'm, not getting too carried away with it.

So, it's a pretty exciting Landscaping terms of playing to our spreads of the most sophisticated technology.

Um, it's it's causing us to

Uh huh.

I want to make sure it's easy to point to your question Christine.

Well, thank you very much John and I'll keep it to that one.

Okay. Thank you.

The next question comes from Myles Walton with Wolfe Research. Please go ahead.

Thanks, Good morning, John I'll try to ask a question that wont, let you go on too long, but the.

And plot implied growth in your 9 billion could you share that as well as perhaps you've been running obviously well ahead of long term incrementals.

The 30% to 40%, but you'd previously spoken of long run blown past dues.

Is 26, another year of very high Incrementals as we've seen in the last couple of years.

Let me Dewey lots of point.

First regarding our margins and Incrementals.

Expand. Um, and you've heard me talk about the new manufacturing plant that we have for our, our building in fact, at the end of this year, the uh, the structure will be complete, uh, to enable us to, uh, put new capabilities. And for example, new casting machines into that plant in the early part of 2026 to bring capacity on not just for our customers in Japan, like Mitsubishi heavy but also for other customers, uh like Zeman's and G and and anela Etc. So uh and we're doing that. Plus we're also expanding uh a plant in Europe significantly. Um, and also placing new capital in the existing footprint of our us facility. So, you know, we're expanding in each of our 3 major, uh, sites where we

I think as you know I don't really give.

Choose gaster. Mine parts.

Color on.

At this time, because thats more for the February call. So suddenly.

And any profit guidance for February.

Hi.

No.

In Q3, our Incrementals.

Again quite healthy at 50%.

And uh, and really excited to be part of this journey, which really is evolving very much in the same way as, uh, Aerospace business. Not only for those midsize turbines, but also now for the, uh, for the very large, gas turbines. And so it's a pretty exciting time for us to be able to build out this business to be a very significant contributor for the company.

Obviously, we gave you a guide already for Q4, so I think it's a similar number for Q4, but Ken could always correct me on that.

So I'll stop there just in case I'm now getting too carried away with it but uh I just want to make sure it's hit the points of your question. Christine

Well, thank you very much John and I'll keep it to that 1.

So it's pretty strong for this year.

Okay, thank you.

Next year.

I guess, when we come up with a number of I mean.

The next question comes from Mi, Walton with Wolf for Search. Please go ahead.

Yeah.

It'll probably underwhelmed you because it always does.

Seem to be able to.

Satisfy your expectations.

At the same time.

Think that whatever we come up with will be will be.

I just saw it very satisfactory in 2026, so it's it's a long way of talking about the subject for a minute or two without saying much at all.

Could you share that as well as perhaps you've been running obviously. Well, ahead of long-term incremental, um, the 30 40% that you had previously spoke of long been blown past,

Is 26 another year of very high incremental as we've seen in the last couple of years.

In terms of.

The first part of your question, which was would we see end market growth.

My sense is that getting too deep into the.

Guide at this point.

It's it's an approximation.

I think commercial aerospace will be stronger in.

2026.

So I think the.

Um, let let me do a lot of points. Uh, first regarding, uh, margins and incremental. Uh, I, I think you should know. I, I I don't really give, uh, color on that. Um, at this time of the year, that's more for the, the February call. So I'll certainly Reserve, uh, any profit guidance for February. Um,

Build out.

Zero bodies.

Cool cool.

For clothing will be stronger in.

2026 that it has been.

In 2025.

And also because.

Likely hood of the wide bodies, particularly the.

I i, i, i note that in Q3 our incremental were again quite healthy at 50%. Um, um, and, uh, you know, I, I obviously would give you a guide already for Q4. So, uh, I think it's a similar number for Q4 But Ken could always correct me on that.

<unk> hundred 50, and the Boeing 787.

I think both of those are going to be at the higher build rates.

This year, so im pretty optimistic about commercial aero, so I see that.

In a few percentage points as an absolute higher.

Um, so he's pretty strong for for this year. Um, next year. Um, I guess, when we come up with a number, I mean, uh, you know it it'll probably under well, you because it always does. You know, we we never seem to be able to uh, quite satisfy your expectations, um, at the same time, you know? I think

In 2025.

In defence coming off this year, which is pretty strong with plus 20, I can't see us having a mid single digits increase again.

Whatever we come up with uh will be uh will be measured very satisfactory in in 2026. So it's it's a long way of talking about the subject for a minute or 2 without actually saying much at all.

The other two.

2026.

Pretty confident about.

Our positioning on the defense side.

On the call it the industrial segment, which will wrap up three segments, which is the gas turbine one which I think consensus is going to be.

Um, in terms of the first part of your question, which was where do we see end market growth? So, um, my my sense is that getting too deep into the, uh, uh,

Guide at this point because it's, you know, it's it's it's a approximation.

And.

The oil and gas, which would be in the middle and then general industrial we should be at the lower end I'll combine all of that let's say basically about getting into double digits as an increase so that would be the sense a handful.

Um, I think commercial Aerospace will be stronger in uh, in in 2026.

so I I think the

Build out of narrow bodies.

Lying big segment commentary for next year.

But while I'm on a roll I'll just talk about.

Inside commercial Aero because I know you got a follow up question Mike.

Uh, both for Airbus and for Boeing will be stronger in uh in 2026. It has been in in 2025 um and also the likelihood of the wide bodies, particularly the

What's your underlying assumptions.

So.

I think Boeing 737 will be higher.

I use 40.

We're getting into that before this is an approximation.

The <unk> hundred 20 into the early sixties maybe.

Airbus a350 and the Boeing 787. I I think both of those are going to be at a higher build rate than than this year. So I'm pretty optimistic about commercial arrows. So I I I see that being a few percentage points as an absolute higher than

Uh, in 2025.

62.

Three 787, all of the seven and a half in the Ace III 50 may be six it could be seven so it's in those sort of areas. So it's skewed.

Giving you Directionally, what I think.

Well without getting too specific because again.

In defense, you know, coming off this issue which is pretty strong. We had plus 20, I can see us having a mid single digits increase, uh again uh on top of that into uh, into 2026 um, pretty confident about our uh, positioning on the defense side.

To see how people close to our customers close out this year.

Inventory is as you know certain no.

Customers have been taken inventory down and I have to think about that.

But most of that build.

And on the the ask going to call it the industrial segment which will wrap up 3 segments, which is the gas turbine 1, which I think you can sense is going to be at the high end.

Well be taking in but you're down in the consistency and hopefully we can see improve consistently into 2026 in the same way as we've seen in the last two or three quarters.

It's become somewhat a little bit more predictable.

That's great Thanks, and congrats again.

The uh, oil and gas which have been in the middle and then generally industrial. We should be at the lower end. I'll combine all of that and say, uh, basically about just getting into double digits as an increase. So that will be the sense I have for the underlying big segment or commentary for next year.

Thanks Ross.

The next question comes from Ronald Epstein with Bank of America. Please go ahead.

um and while I'm on a roll, um, I'll just talk about

Good morning, everyone. This is mariano based from our own front run today.

Inside commercial Arrow because I know you're going to follow up with the question. Like what's the what's the underlying assumptions?

First of all congratulations Ken on the retirement and congratulations on your contribution to the company on the industry in general.

Alright, thank you.

I'd like to follow up on I try to dig deeper as we think about next year into two things number one how we think about I'll say on the commercial Aero part destocking trends in aftermarket trends, our spare engine trends.

Um, so, you know, I think Boeing 737 will be higher, you know? So I'll say I'll use, uh, I use 40 or getting into the 40s as an approximation.

Uh, the A320 into the early 60s, and maybe, I don't know, 62.

I like these ramp that we are all expected on OE.

One is when you think about IGT.

How dependent the guidance is on the capacity that will be coming online end of this year and next year and how.

How sensitive is guidance to the timing of that incremental capacity.

Okay.

Let's deal with the IGT.

At first and then go back to commercial Aero.

This year, we've seen the benefits of those.

Small increases in.

But you know the roughness of their build uh while they've been taking in but you down and the the consistency and and hopefully we're going to see improved consistency into 2026 in the same way as we've seen it for the last 2 or 3 quarters where it's b b become somewhat you know a little bit more predictable.

Our gas turbine build.

Great, thanks. And congrats again.

The large non based turbines and probably a slightly higher.

So in terms of those midsized, but as a percentage of increase but this is also featured.

The next question comes from Ronald Epstein with Bank of America, please go ahead.

An increase in spend is the existing fleet.

Both types of turbines in maybe the mid size turbines.

Being very strong in terms of the Spanish requirements, because those fleets are working harder.

Good morning everyone. This is Mariana Perez Moran from Rome today. Uh, first of all, congratulations, Ken on the retirement and congratulations on your contribution, to the company and the industry in general. Okay? And thank you. I like to.

So that gives you a picture of the.

The issue when we move into 2026 26 and 27.

Again, we're going to be.

We're going to see fundamental demand.

Nandan turbine builds are expected to increase again into 27 26.

I'd like to follow up on and try to dig deeper as we think about next year into 2 things. Number 1, how we think about I'll say on the commercial Arrow part. This talk in Trends and aftermarket Trends or spare engine Trends despite like this run that we are all expecting on OE. And the second 1 is when you think about IGT

Yes.

On the OE side.

B all play a factor.

All the turbines.

With al.

<unk> and.

We are able to step up to.

How dependent the guidance is on the capacity, that will be coming online end of this year and mid next year. Um, how, how sensitive is guidance to the timing of that, like, incremental capacity,

So I see that as a.

Whereas this year, I'd say being slightly stronger on the spares, but.

But still solid on the OE side next year, I think we're probably going to see a higher compared to this year.

Okay um let's deal with the IGT uh part first and then go back to commercial Arrow. Um, this year we've seen the benefits of both

Demand is still strong spares demand, so again I'm feeling pretty positive about this segment I think difficult to judge exactly yet, which one will win.

Uh, small increase in.

In terms of Easter wasn't rates between them.

Uh, gas turbine, build. Uh, at the large land-based turbines, and probably a slightly higher.

Moving.

Build, in terms of those midsize turbines and percentage increase.

Two the commercial Aero question.

Given your commentary regarding what I think build rates are.

I think the stocking essentially finished.

This quarter.

The issues also featured, uh, an increase in spares as the existing Fleet of, uh, both types of turbines. And maybe the mid-sized turbines uh being very strong in terms of their space requirements because those fleets are are working harder.

And don't really see much evidence of that remaining.

So that gives you a picture there.

If anything.

It could only be.

For the issue when we move into 2026 and into 26 and 27. Um,

A little bit left in the.

In the titanium area, where people build up stocks because of either lack of build or trying to provide security stocks in the case of what happened after that.

Again, we're going to be, you know, we're going to see fundamental demand and because demand and turbine bills are expected to increase again into 27 Beyond 26.

The Russian invasion of Ukraine.

Is that on the OE side? It's going to be obviously a factor.

On the supply.

Issues at <unk>.

Of are all the turbines going to be actually be built. That are

In terms of spares and engine spares.

planned.

I think the 2026 is going to be another very strong year for us.

If you do with CFM first.

Then I envisage the.

It's going to be strong on the CFM 56, because the existing fleets continue to work hard.

Yes.

There's still a backlog of parks.

And youre going to be put back on when you get into the air and similarly.

And how we are able to step up to uh, to those bills. And so I see that as uh, you know, whereas this year I'd say been slightly stronger on the spares and uh, but still solid on the, uh, the OE side. The next year. I think we're probably going to see a higher Vector compared to this year, on the OED demand are still strong, spares demand. So again, I'm feeling pretty positive about those segments. These difficult to judge exactly yet which 1 will win. Uh, in terms of those 2 if there was a race between them

Maybe even a higher area or even for those.

B 25 under the GTS engine.

Moving, uh, back to the commercial Arrow question.

Spares demand is going to be very strong.

And as the.

Um, I've already given you a commentary regarding what I think will rates are

And in this transition.

The new.

Let's say versions of them so the.

Newport's, which according to the leap <unk> and <unk>.

Ones, which should go into the 1 billion next year.

Going into the <unk>.

Then there'll be not only the demand, but also the retrofit requirements or improve the robustness of those engines and to get a lot of engines back back on wing.

Um, I think the stocking essentially is finished, uh, this quarter and I don't really see much evidence of of that remaining if, if anything, uh, It could only be, uh, a little bit left in the, uh, in the titanium.

So I hope that covers it.

Area where people build up stocks because of like a lack of build or trying to provide security stocks in the case of what happened after the uh the Russian invasion of Ukraine.

Yes. Thank you so much for the color and if I may squeeze another one at.

Supply issues out of bsmo.

It looks like ancient history now.

Uh, in terms of spares and engine spares.

Now because of how hectic day areas that it wasn't long ago that you guys have called for force majeure on on the tariffs and raw materials could you mind, giving us some color around like how it is that at today and how you think about risks on raw materials and pricing and pass throughs going into next year.

I I think the 2026 is going to be another very strong year for for that

Uh, if you do with CFM.

First.

Then I I visit the it's going to be strong on the cfm56 because the existing bleach can continue to work hard.

Yeah.

Well I think we're pretty solid in terms of pass through our capabilities.

On the existing contracts or with new agreements that we've made with our customers for each of our end markets.

And so.

What was the gross effect that we see I think originally it was up to $100 million.

The delay of implementation and certain exemptions that have been provided.

The gtf engine. So Spurs demand is going to be very strong and as these GT engines transition to the new

Maybe.

That number came down.

And then recently we've seen some of the some of the tariffs increase again.

Looking now on the classic.

Class eight area. So it's been moving around and still continues to move around even as recently as yesterday.

Uh, I'll say versions of them. So, the new parts, which you've got into the Leap 1A, and the ones that should go into the 1B next year. And then into the GTA, there will be not only the LED man, but also the retrofit requirements for improving the robustness of those engines and to get a lot of engines back on wing.

But the net effect is still sub $5 million for the.

So, I hope that covers it.

The year essentially is the drag so just.

Just in terms of timing of recovery so.

Yes, thank you so much for the color. And if I may squeeze another one in, it looks like...

That issue for how much it really is.

3.

Call it a non issue sub $5 million.

Therefore, hopefully disappears.

Into the woodwork in 'twenty.

26.

The next question comes from Sheila <unk> with Jefferies. Please go ahead.

Now because of how hectic the year is, but it wasn't long ago that you guys have to call for Force Major and on the tariffs and raw materials, could you mind like giving us some color around? Like how is that today? And how you think about risks on raw, materials and pricing and passwords going into next year?

Good morning, guys and congrats John and Great results and Ken on your retirement, although I'd argue with Christine that working with China has plenty of unfurl I don't know what I'm doing retirement that that's even better.

Well, I think we're pretty solid in terms of uh, our pass through capabilities.

Ken I'm going to say.

Under existing contracts or with new agreements that we've made with our customers. For each of our end markets

I can agree with I can agree with us.

uh, and so

Ken brother actually you're thinking [laughter].

Ken I'm going to actually put this one on Yale just Kevin I thought the comment on how that being more valuable.

And then the third piece that I was very interesting. So over the next 10 years, where do you see how maps and so just given where the balance sheet and leverages are at record lows margins within each segment, our tourette back so lots of areas of expansion. How do you think about how that over the accident years.

Yes, Sheila I think I'm going to have to let John answer that one I don't want to get fired this way right.

What was the growth effect that we could see? I think originally, it was up to 100% that have been provided and maybe that's that number came down. And then recently, we've seen some of the, uh, some of the tariffs increase again thinking, now on the, um, in the class A area. So it's been moving around and still continues to move around even as recently as yesterday.

[laughter] so.

I think the.

If you look at the journey.

But we've made of the.

The recent years.

From.

NSA.

Tried to instill.

And in our form.

Culture through.

But the net effect is still sub 5 million for the year. And that essentially is the drag that's just in terms of timing of recovery. So as a as a an issue for how magic really is uh I'm going to call it a non-issue you know, sub 5 million and and therefore you know hopefully it disappears in uh into the woodworking uh in 2026.

I'll say more.

Difficult times of Covid.

On us very quickly.

And then trying to really invest in our technology.

The next question comes from Sheila. Kalu with Jeffrey's. Please go ahead.

And.

Really address it.

Growing the company and I think the.

The growth trajectory is.

Very encouraging.

So.

While we've been muscle.

It's a walking and chewing gum or doing doing.

All in all we've been growing and improving our margin.

My thought is that we'll continue to do that.

The value equation than I think maybe the gross.

<unk>.

We will be a more significant factor over the next five years and then the margin fact enough not to say that the margin improve.

Um, can I'm gonna actually put this 1 on you? Uh, just given I thought the comments on how that being more valuable uh, than the 3 pieces. Uh, was very interesting. So over the next few years, where do you see how Mets and state just given where the balance sheet is leverages at record lows margins in each segment are terrific. So lots of areas of expansion, how do you think about how met over the next few years?

That's what we come to work for every day to try to achieve that.

I think there's lots of things.

Yeah, Sheila I I think I'm gonna have to let John answer that 1. I I don't want to get fired or dislike, right?

Things yet.

To further expand in terms of whether it's the increased automation case capacities that we have okay.

so,

I think the

if, if you look at the journey, um,

Company does.

The thing, which would be talking a lot about recently about how we could use.

That we've made over the the recent years. Um, you know, from

You know.

Say, trying to install.

The.

Artificial intelligence.

And machine learning in our manufacturing plants.

a an performance culture through

uh, I'll say more.

It isn't just basic automation it is data.

Data collection.

At the extremes that we've never seen before.

When we have the opportunity.

Next March.

We're planning on.

Investor day, or Investor Technology day.

Pacing it.

While full plant again and will showcase the new manufacturing plants.

But we have that.

Beyond just the fundamental increase in robotics, which I think people have seen the stores at a high level, it's a double stage beyond that.

Probably even more important.

That is the.

What we.

The digital thread that we've been building throughout the manufacturing process from the chemical compounding right the way through co prep.

um, you know that I think there's lots of

All of that into the shell and casting.

And being able to provide data individual traceability right back to the fundamental elements for each of our parts that we're manufacturing and then with a huge amount of data that we are positioning ourselves to collect it.

Things yet to further expand in terms of, whether it's the increased automation capabilities that we have or capacities that we have in the company.

there's the thing, which we've been talking a lot about recently about how we can use, uh, the

Using various techniques.

To be able to use artificial intelligence because.

artificial intelligence, uh, and machine learning in our manufacturing plants.

The sheer scale of data we have we've got to have available to us takes us something beyond that any human being could possibly otherwise data crunch.

So this is just basic automation. It is uh, data collection, um, ethics streams that we've never seen before and when we have the opportunity,

So I think that's going to lend towards.

Further improvement in <unk>.

Next March, we're planning an Investor Day or Investor Come Technology Day.

Our ability to improve yields.

And an improved deals of course goes with economics, and then with the improvement in the yields we can take the design tolerances.

The level, which you will provide again for the next generation of content improve the fuel efficiency for both not only.

But basing it at a White Soul plant again, we’ll showcase the new manufacturing plants that we have there. Then, you know, beyond just the fundamental increase in robotics, which I think people have seen, this is also at a high level. It’s another stage beyond that.

But for me, probably even more important. Um,

Aerospace segment, but also the the.

Got it.

uh, the basis that the

So I think all of that coming together.

I'm using a combination of automation and AI and all the things we're trying to position for us is going to be good for Sheila.

Okay that sounds great. Thank you.

Thank you.

The next question comes from Noah <unk> with Goldman Sachs. Please go ahead.

Hey, good morning, everyone Congrats Ken on the retirement.

The evolution of this financial model.

Wanted to come back to incremental margins guys.

Do you have this historical framework, a few years ago of 30% to 35% on the incremental.

And you've now created this kind of wall of tough compares but.

You've now had two quarters in a row, where you've had a well above the 30% to 35% despite comparing to well above that and so.

So I was hoping to better understand is price or productivity the bigger driver at the moment.

Uh, what we've termed the digital thread that we've been building throughout the manufacturing process from the, the chemical compounding. Right. The way through Corps prep and uh, and then into the shell and casting and being able to provide data and individual traceability right back to which fundamental elements for each of our parts that we manufacturing. And then, with that huge amount of data that we've, you know, we are positioning ourselves to collect is that using various techniques, uh, to be able to use artificial intelligence because the, the, the sheer scale of data. We we have, or we got to have available to us, takes us something Beyond any human being could possibly analyze and data Crunch. And there is a I think that's going to lend towards a further improvement, in our ability to improve your

Then as you move into 2026 can you stay above that historical targeted range. Despite the tougher compares.

Yes.

Again, I'm going to try this way.

Away from two.

2026.

At this time.

And.

yields and and improved years, of course, goes with economics. And then with the Improvement in the yields, we can take the design tolerances to a yet a further level, which will provide again, for the next generation of content Improvement and fuel efficiency for both. Not only our Aerospace segment but also the uh the gaps to buy segment. So

Any numbers go was going to be a combination of things.

I I think all of that coming together,

In Incrementals.

Got obviously some <unk>.

Leverage from volume, we've got so the benefits of automation, we got the benefit should be able to get the benefits of content.

And using say a combination of Automation and Ai and all the things we're trying to position for is uh, is going to be good for a Sheila.

Great. That sounds great. Thank you.

Thank you.

And also we have the benefits of price as well.

The next question comes from Noah Ponek with Goldman Sachs. Please go ahead.

So we have many individual fred's going into that.

Only I'll say.

Hey, good morning everyone. Congrats Ken on the retirement and uh the evolution of this financial model

POS which are currently negative would be the.

um,

Fairly high in gestation of labor.

Which takes us I think as you know.

I wanted to come back to incremental margins, guys. You've, um, you have this historical framework a few years ago of...

A fairly significant trading time never mind, just the cost of recruitment.

30% to 35% on the incremental.

There's a there's a slight degradation initially from those employees in terms of yield.

And you've now created this kind of wall of of tough Compares. But you've now had 2 quarters in a row where you've had a, you know, well above the 30 to 35, despite comparing to well above that,

And so.

What do I expect going forward is that.

Free the drag.

Of late.

But it becomes a law.

It'll be less.

But just because the denominator gets higher.

And so I was hoping to better understand is price or productivity, the the bigger driver, at the moment. And then, as you move into 2026, can you stay above that historical, targeted range. Despite the tougher compares.

But in my guess is that.

We're probably going to them.

Have too higher.

A net higher number of people ultimately as.

Yeah, I mean again I'm gonna try to steer away from a 2026 know at this time. Um, and

As we move through two.

2026.

Both the priming the pump again started the year with some of the equipment I talked about and it comes and plus the fact.

Also revisit each having to step up again into 2027.

So if you had asked me to call. It today I'd say, we probably end up with a higher net number.

You know, any number is always going to be a a combination of things and you know in our incremental, you know, we've got obviously some leverage for volume. We've got the benefits of automation, we got the benefits of yield, we've got the benefits of content.

And uh, and also we have the benefits of price as well.

So you've got that which will weigh upon us.

Hopefully achieving all of the productivity improvements.

Threads of automation in the new equipment coming in.

With much much higher level of.

I'll say it.

Again automation that we hired in the past.

Such a lot of moving parts, it's difficult to to parcel that out.

And then the only thing I haven't mentioned is.

<unk> content.

On average will improve again as we move into next year, because we'll be moving from.

And this, yeah, there's a slight degradation initially from those employees in terms of yield.

um, and and so

One generation of technology.

To the new generation technology at some point during 2026 four.

You know what do I expect going forward? Is that hopefully the drag of that labor becomes a little bit less.

The leap won't be.

Um, because because the denominator gets higher.

Program as an example.

um, but my guess is that

And then of course, we have the GTS advantage, which is also being made today in fairly small lots.

We probably going to to have to hire.

But with that.

Significantly increasing as we go into into 2026 needed to get to a much fuller run rate in 2027, so with so much going on there.

a net higher number of people, ultimately, as we move through 2026,

um,

And it was.

The buildup of <unk> really difficult to give you I just feel at this point.

both for priming the pump again, start of the year, as some of the, you know, the equipment I talked about, you comes in, plus the fact that we also envisage having to step up again into 2027.

We've managed our way through fairly well with really healthy incrementals.

And I mean anything above.

EBITDA was up 29% anything above that is.

<unk> beneficial to the company.

I'm feeling as though we're going to be above that.

For next year, but without.

I'm not willing to comment yet about whether we're going to be.

On par with our Incrementals, this year or not or whether inevitably there has to be some flattening of that that's it just.

And so if you had asked me to call it today, I'd say we probably end up with a higher net number. And so you've got that which will weigh upon us while still hopefully achieving all of the productivity improvements, you know, through the threads of Automation. And the new equipment coming in, uh, with a much, a much higher level of, um, I'll say get automation that we had in the past. So there's such a lot of moving Parts. It's it's difficult to, to pass all of that out. Um, and then the only thing I haven't mentioned is, you know,

The content.

I wanted to wait till February to comment about that.

Okay I appreciate all the detail John Thanks, a lot.

On average will improve again as we move into next year because we'll be moving from.

Thank you.

The next question comes from Scott <unk> with Deutsche Bank. Please go ahead.

Hey, Good morning, John I think you said Capex will remain at high levels into 2026 as well as into 2027.

Uh, one generation of technology, uh, to the new generation technology at some point during, uh, 2026 for the, uh, the Leap 1B.

Program as an example.

So just to put a finer point on that should we be thinking about flattish capex in those years relative to 2025.

Or could that increase and then just the mix of that capex shift more toward IGT and mid size turbines.

and then, of course, we have the, uh, the gtf advantage, which is also being made today in fairly small Lots

The majority of it still focused on aerospace.

In terms of absolute numbers. The majority is absolute dollars will still be higher or aerospace.

Um but with that, you know, significantly increasing as we go into into 2026 we need to get to uh a much Fuller run rate in 2027. So there's so much going on.

But I think there'll be a percentage as the mix of the total.

I think that the investments, we're making in both the large and midsize turbines.

Possibly be a higher royalty percentage that it is this year.

Yeah. And you know, they build that Banks really difficult to give you. I just feel at this point, we've managed a, a way through fairly well with really healthy incremental, um, and I mean anything above, I mean, it's ibida at 29% and 80% above that is, you know, incremental beneficial to the company.

I think the one question.

Got to add so on the way through the Q&A session was what do the economics look like for the for these for these two months.

So I'm I'm feeling as though, we're going to, you know, be above that for next year. But without, you know, I'm not willing to comment yet about whether we're going to be, you know,

Essentially the same as for Aero. So if you were to pick up both our absolute on our incrementals for the.

The IGT brought about business.

A mid size or air.

On par with our incremental this year or or not, or whether you know, inevitably there has to be, uh, some flattening of that. That's it. Just, I don't I just wait till February to to comment about that.

And the pretty much the same.

Okay, I appreciate all the detail John. Thanks a lot.

Okay, thank you.

It doesn't really matter, what they say that color Capex, which you that which segment that goes into it because the boats very good.

The next question comes from Scott Doyle with Deutsche Bank. Please go ahead.

And for me, it's more effective.

Hey, good morning, John. I think you said Capex would remain at high levels into 2026 as well as into 2027.

We have the opportunity is.

Hum.

And it is just.

So I look forward to your week.

So, just to put a finer point on that, should we be thinking about flattish CapEx in those years relative to 2025, or could that increase?

I'll say more or less trained.

Well I think we ended the 2026, but every time, we sort of examine all have new conversations with customers.

And then does the mix of that capex shift more toward IGT and midsize turbines or were some majority of it still focused on Aerospace. Thank you.

Right.

In Europe the.

First part of this week.

Tell me is absolute numbers. The majority is absolute dollars will still be higher for Aerospace.

And then you probably got back last night, just fail to do so.

Our earnings call.

Is that again.

It is only a conversation about it.

Improvement in opportunities, which are there before us.

But I think there'll be a percentage as a mix of the total. Uh, I think that the Investments we're making in both the large and midsize turbines,

And so what causes us to believe that 2027 is also going to be.

possibly be a higher relative percentage that it is this year.

Significant number for Capex and so.

And as this year has moved up from what we thought was going to be.

350 to $3 70, or something like that maybe in a bit.

So we're not probably.

Kind of above 400.

But as you see in 400.

Actually improving cash flow.

Um, I think the 1 question, I forgot to answer on the way through the Q&A section was what did the economics look like for the uh, for these, uh, for these turbines and, and essentially it's the same as the arrows. So if you were to pick up both our absolute and our incremental for either the IGT part of our business, both large and midsize or Aero and the the the pretty much the same.

I think the greatest pleasure.

To have next year is being able to deploy that amount of capital or more.

So, it doesn't really matter what they say the color of CapEx is or which segment it goes into, because the most very good.

And we don't.

um, and for me, it's more the fact that

We don't deploy capital.

Just because it's fun to do because its hard work, but it's got to be backed by <unk>.

We have the opportunity is and, um,

and it's, it's just

Clear eyed thinking about customer utilization customer commitment.

Cannot make return.

And.

And I think even though we are bidding.

High hurdle rates for Florida to deploy that fresh capital. So my view is it's a good thing if we can spend.

Trained out. Well, I think we're going to do 2026 but every time we sort of examine or have new conversations with uh, with our customers. In fact, I was in Europe for the first part of this week and thank goodness. I got back last night to be able to do uh, to the arrow to call.

2025 level in 2026 and more in 2027 and more than that is gonna be a good thing.

A conversation about, you know, the improvement in opportunities that are before us.

We see increasing opportunities.

<unk>.

To build out the business.

I agree with its great thing Thank you John.

Thank you.

And so at what causing me to believe that 2027 is also going to be uh you know, a significant number for capex. And so, you know I you know this year is we've moved up from what we we thought was going to be, I don't know. 350 to 370 or something like that, maybe in a little bit lower than that. Side of the year. We we now probably going to burst 400

I'm not quite sure.

Great ones or drew uses.

Got it.

Jeremy on the line.

But as you see in Q3, with actually improving cash flow, I think the greatest pleasure that I'm going to have next year is being able to deploy that amount of capital or more.

But <unk> I think we should close given that less than a minute to get caught in ask a question yes.

Mike did you have a question Mr <unk>.

Yeah. Thanks. Please go ahead, if we have.

Um and you know, we don't we don't deploy Capital um just because it's it's fun to do because it's hard work but it's got to be backed by you know clear eyed thinking about custom utilization, customer commitment and economic return.

and um,

If we have time thanks guys.

John not to belabor, the point and I'll try and be quick here.

With the fall closing out but back to these incrementals I mean, you are clearly benefiting from spares demand combination of legacy utilization combination of durability issues. I mean are you over earning on the aerospace spares now and is that driving the strong incrementals.

And I think, you know, we have pretty uh, you know, High hurdle rates for uh for that to deploy that fresh Capital. So my view is, it's a good thing if we can spend at

<unk> does that normalize at some point.

As maybe some of these light work scopes or different kind of work scopes.

2025 level in 2026 and more or in 2027 and more than that's going to be, uh, a good thing. And, uh, you know, we just see increasing opportunities to, uh, to to, to build out the business.

Agreed. It's great thing. Thank you, John.

Kind of tying back to normal.

Thank you.

Well first of all win in the end.

The year in the short term pricing into the Spanish path or not our Pos are exactly the same.

Right over a long term basis, the differentiator, because let's say policy going to past model. So no. There is no case of the over earning in the BDC.

I'm not quite sure though. There is no question or Drew you in as well at the end so I know

If you go back the previous calls I have said, that's what we see is a spend.

You're already on the line.

<unk> business with total increasing every year for the next five years and we didn't want to go beyond five.

We may discuss whether it's a school is going to be at the same angle of increase but there was no cases of I can see spend increase every year.

Right. PT, I think we should close given the fact that a minute to get we can't even ask a question. Yeah.

Mike, did you have a question, Mr? Sir, moly.

End of the decade, so that's pretty close to there.

Oh, um yeah. Uh thanks, please go ahead. If we have

Okay perfect. Thanks, guys. Thanks, Mike.

<unk> grew close the call.

Yes, Sir this concludes our question and answer session and the Howmet Aerospace third quarter 2025 earnings Conference call. Thank you for attending today's presentation. You may now disconnect.

If we have time, thanks guys. Um, John not not to belabor the point and I'll try and be quick here, uh, with with the call closing out. But back to these incremental, I mean, you're you're clearly benefiting from spares demand, you know, combination of Legacy utilization combination of durability issues. I mean, are you over earning on the Aerospace spares now and is that driving the strong? Instrumentals? Does that normalize at some point? Um you know, as maybe some of these light work Scopes or different kind of work Scopes um you know kind of trend back to normal.

Well, well, first of all, when in the, in the year, in the short term pricing into a spare part and I know we partner exactly the same, uh, right over a long term basis, uh, differentiated because of let's say, part of going to path model. So, no, there's no case of that over earning in the, in the immediacy. If you go back to previous calls, I have said that, uh, what we see

These are spelled business in total increasing every year for the next 5 years didn't really want to go beyond 5. Uh, we may discuss whether it's, you know, school is going to be the same angle of increase, but there's no case that I can see where spares don't increase every year through the end of the decade. So that's pretty positive.

Okay, perfect. Thanks, guys. Thanks, Mike. And it's 11:01, so Drew closed the call.

Yes, sir. This concludes our question and answer session and the helmet Aerospace third quarter 2025 earnings conference call. Thank you for attending today's presentation. You may now disconnect