Earnings call transcript: StandardAero Q4 2025 reports record revenue growth

StandardAero reported Q4 2025 revenue of $1.6B (+13.5% YoY) and EPS $0.24 with Q4 net income $79M (vs. a $14M loss prior year); full-year revenue was $6.044B (+15.8%) and net income $277M (+$266M). Q4 adjusted EBITDA was $210M (+12.7%), Q4 free cash flow improved to $308M (FY FCF $209M), and net leverage fell to 2.4x enabling a $450M share repurchase program. Management forecasts FY2026 revenue $6.275–$6.425B, adjusted EBITDA $870–$905M and adjusted EPS $1.35–$1.45, while flagging ongoing supply-chain constraints and prioritizing LEAP/CFM56 ramp and CRS insourcing to drive margin expansion.

Analysis

StandardAero’s actions materially change the signal the market should be pricing: the removal of low-margin pass-through revenue is a structural margin lever that also reduces working-capital volatility and makes reported growth more cash-accretive. That reclassification will force multiples to re-rate toward higher-quality industrial peers as markets shift from top-line growth to sustainable free-cash conversion; expect the market to start valuing the company more on normalized EBIT conversion than raw revenue growth within the next 2-4 quarters.

The LEAP/CFM ramp is a classic learning-curve trade: near-term margin dilution is the price of establishing durable repair IP and locked capacity that becomes high-margin annuity once throughput and repair breadth scale. Operationally, improvements in supplier on-time delivery and decreasing depth-of-delay are the leading indicators to watch — a sustained improvement there over months (not weeks) will materially accelerate conversion of backlog into cash and compress working capital seasonality.

Second-order competitive effects favor independent MROs with broad repair catalogs: incumbents that can insource component work will extract more margin share from OEM captive channels and smaller regional competitors. Key catalysts to monitor are cadence of share-repurchase execution, proof points of LEAP mid-term unit economics, and whether management moves from organic investment to bolt-on M&A; conversely, a multi-month setback in parts availability or an OEM aftermarket pricing concession would quickly unwind the re-rating thesis.

Key Decisions for Investors

• Long SARO equity (6–12 month horizon): accumulate on weakness or gradual buys up to a 3% position sizing. Rationale: margin re-read and buyback optionality create asymmetric upside; risk: LEAP execution or a supply-chain reversal could compress multiples — set a hard stop at a 20–25% drawdown and trim into strength (target +40% upside to a conservative re-rating).
• Directional options calendar (9–15 months): buy 12–18 month SARO calls (25–30 delta) and sell near-term (3–4 month) calls to fund cost. Rationale: captures convexity from LEAP profitability inflection while monetizing time decay; risk: short-term downside from an industry shock — size to a capped theta-funded premium and monitor liquidity before rolling.
• Relative-value pair (6–12 months): long SARO / short RYAAY in equal notional exposure. Rationale: SARO should win from LEAP MRO monetization while Ryanair remains sensitive to higher aftermarket pricing on LEAP-powered fleet, creating divergence if MRO pricing normalizes upward; risk: airline outperformance from fare or fuel tailwinds — cap exposure and use a 15% stop-loss on the short leg.
• Event-watch cash allocation (3–9 months): allocate a reserve to add to SARO on two triggers — (A) confirmed quarter-over-quarter improvement in supplier depth-of-delay, (B) announcement of accelerated buyback execution or an accretive tuck-in. Rationale: these binary events materially derisk the thesis; risk: false positives — limit each add to a pre-sized tranche to avoid overconcentration.