Woodward Q2 2025 Earnings Report

Woodward EPS Results

• Actual EPS: $1.69
• Consensus EPS: $1.44
• Beat/Miss: Beat by +$0.25
• One Year Ago EPS: $1.62

Woodward Revenue Results

• Actual Revenue: $883.63 million
• Expected Revenue: $838.61 million
• Beat/Miss: Beat by +$45.02 million
• YoY Revenue Growth: +5.90%

Woodward Announcement Details

• Quarter: Q2 2025
• Date: 4/28/2025
• Time: After Market Closes
• Conference Call Date: Monday, April 28, 2025
• Conference Call Time: 5:00PM ET

Woodward (NASDAQ:WWD) designs, manufactures, and services control solutions for the aerospace and industrial markets worldwide. The company operates in two segments, Aerospace and Industrial. The Aerospace segment provides fuel pumps, metering units, actuators, air valves, specialty valves, fuel nozzles, and thrust reverser actuation systems for turbine engines and nacelles, and flight deck controls, actuators, servocontrols, motors, and sensors for aircraft. These products are used on commercial and private aircraft and rotorcraft, as well as on military fixed-wing aircraft and rotorcraft, guided weapons, and other defense systems. It also provides aftermarket maintenance, repair and overhaul, and other services to commercial airlines, repair facilities, military depots, third party repair shops, and other end users. This segment sells its products to original equipment manufacturers (OEMs), tier-one suppliers, and contractors, as well as through aftermarket sales of components, such as provisioning spares and replacements. The Industrial segment offers actuators, valves, pumps, fuel injection systems, solenoids, ignition systems, speed controls, electronics and software, and sensors. These products are used on industrial gas turbines, steam turbines, compressors, and reciprocating engines. This segment sells its aftermarket products, and other related services to OEMs through an independent network of distributors, as well as directly to end users. The company was founded in 1870 and is headquartered in Fort Collins, Colorado.

Woodward Q2 2025 Earnings Call Transcript

Key Takeaways

• Woodward delivered Q2 net sales of $884M (up 6% YoY) and adjusted EPS of $1.69 (up 4%), with 12% revenue growth and 22% operating earnings growth excluding China On Highway.
• The aerospace segment achieved record Q2 earnings of $125M on 13% sales growth, driven by a 52% increase in defense OEM, 23% commercial aftermarket growth, and a near-term commercial OEM dip from Boeing rate delays.
• Industrial sales fell 5% to $322M due to a $45M drop in China On Highway, but core industrial markets rose 11%, notably oil & gas (+21%), marine transportation (+13%), and power generation (+4%), with core margins at 14.8%.
• Management raised full-year guidance, now forecasting consolidated sales of $3.375–3.5B and adjusted EPS of $5.95–6.25, tightening the bottom end while reaffirming the top end amid potential tariff headwinds.
• A key innovation milestone was reached with the first Micronet XT advanced gas turbine control delivery for US Navy DDG 51 destroyers and selection as the preferred propulsion control supplier for Korea’s KDDX program.

Presentation

[Operator]

Thank you for standing by. Welcome to the Woodward, Inc. Second Quarter Fiscal Year twenty twenty five 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 listen only mode. Following the presentation, you are invited to participate in a question and answer session.

[Operator]

Joining us today from the company are Chip Blankenship, Chairman and Chief Executive Officer Bill Lacey, Chief Financial Officer and Dan Provesnik, Director of Investor Relations. I would now like to turn the call over to Dan Prevaznik.

[Daniel Provaznik, Director of Investor Relations at Woodward]

Thank you, operator. We'd like to welcome all of you to Woodward's second quarter fiscal year twenty twenty five earnings call. 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. At the end of our presentation, we will take questions.

[Daniel Provaznik, Director of Investor Relations at Woodward]

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 call 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. I would like to highlight our cautionary statement as shown on Slide two of 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.

[Daniel Provaznik, Director of Investor Relations at Woodward]

Those elements can and do frequently change. Our forward looking statements are subject to a number of risks and uncertainties surrounding those elements, including risks related to potential changes in the macroeconomic environment and risks related to tariffs, catalatory trade actions in addition to the risks we identified 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. In addition, we're providing certain non U. S.

[Daniel Provaznik, Director of Investor Relations at Woodward]

GAAP financial measures. We direct your attention to 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, Director of Investor Relations at Woodward]

Now I'll turn the call over to Chip.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Thank you, Dan. Good evening, everyone, and thank you for joining us. We are pleased to report strong performance in the second quarter with results in line with our expectations. Woodward's net sales were up 6% year over year, and adjusted earnings per share were up 4%, reflecting steady growth despite headwinds from China On Highway volume and mix. Excluding China On Highway, our company posted revenue up 12% and operating earnings up 22%.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

These results are a testament to the outstanding efforts of our Woodward team members worldwide, even as we operate in a challenging and uncertain environment. As we enter the second half of the year, we remain on a steady growth trajectory with our lean transformation continuing to pay dividends. Our aerospace plants continue to gain ground. During the quarter, we achieved new highs with significant month over month sales growth at some of our facilities. For example, the combination of our two plants in Rockford, Loves Park and Rock Cut, achieved record sales to OE and services customers combined, facilitated by accelerated onboarding of new frontline members and model line transformations reaching new levels of performance.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Additionally, our Zealand plant also reached new levels of output in the quarter on total fuel nozzle shipments, thanks to continued growth in GTF OE and service volumes. The leap in GTF maintenance cycle continues to develop, and LRU inputs and return shipments to customers doubled again year over year in the second quarter. In smart defense, we've made significant progress on our challenges with supplier quality, which enabled us to align production rates to customer demand. Our lean transformation has created the capacity and the forward momentum to deliver on aerospace volume commitments in the second half of the year. Our outlook for aerospace market remains bullish even in the face of uncertainty.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Despite concerns around soft forward bookings in The U. S. And some international routes, passenger traffic continues to grow and OEM build rates continue to increase. We are keeping an eye on inputs to MRO shops and fleet capacity reductions. Like others, we see a slower commercial services growth rate in the second half.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

We expect to see substantial growth continue in defense OE, driven mainly by SmartDefense. In industrial, we also achieved operations improvements that translated into financial performance. We increased output by 20% to 50% in various gas turbine systems value streams to support our customers' power generation growth plans through lean transformation efforts on our model lines and with select equipment additions for capacity and efficiency improvements. Moving from operational excellence to innovation, we are proud to announce a key milestone reached in the quarter with our Micronet platform, an advanced turbine control system for critical industrial and marine applications. Woodward delivered the first production Micronet XT advanced gas turbine control system for US Navy DDG 51 class destroyer shipboard gas turbine generators.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

These warships provide a wide range of defense capabilities, and the Navy production contract covers 30 system deliveries through 2027, scaling to 135 systems over ten to fifteen years. This collaboration with the Naval Service Warfare Centre resulted in a significant upgrade in controller technology and capabilities. The next phase of the DEG51 gas turbine control upgrade consists of the same Micronet XT platform using additional features and capability, such as a fully redundant architecture to serve as the propulsion system control for GE LM2500 gas turbines. Low rate production is preliminarily scheduled for 2026 through 2029 with 70 systems planned. Woodward has also been selected as the preferred propulsion control system supplier on the Korean Navy KDDX program.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

While the industrial end market outlook is mixed, the woodward opportunity remains strong. Increasing demand for global power generation capacity continues, including data center power requirements, which represents opportunity for woodward content in both baseload and standby applications. The global marine market remains healthy with strong shipbuild rates creating OEM engine demand and laying the groundwork for future aftermarket activity. While the fleet utilization remains strong, there is risk that utilization could decrease if trade tensions persist. Demand for heavy duty trucks in China remains subdued.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

The recent government stimulus could have a positive impact on demand, although we have not received customer signals to support this connection yet. Looking ahead, a word about tariffs and how they may affect our second half operations and results. Woodward's production footprint is largely in region for region. Moreover, our supply base that serves each production site is largely in region as well. This production footprint and supply based strategy results in less exposure to tariffs for Woodward compared to some other aerospace and industrial companies.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

However, increased cost pressure on any portion of our operations is worthy of attention. We are proactively working to mitigate pressure on cost and any supply chain disruptions. Woodward is closely tracking early indicators from our end markets and customer forecasts. We are putting actions in place to mitigate tariff impacts as well as manage impacts from a slight economic downturn. We are also monitoring whether trade tensions could increase sales risks.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

We have already experienced sales order quantity reductions for spare parts from Chinese airlines this month, and we are watching China on highway, marine transportation and oil and gas market dynamics closely. Based on our strong first half performance and a better understanding of downside risk for the remainder of the year, we are reaffirming the top end of our guidance and pulling up the bottom end of the revenue and adjusted EPS ranges. The low end of the aerospace sales range assumes current level headwinds from supplier performance, Boeing rate break delays or moderate Woodward inventory destocking in the supply chain and slightly lower commercial aerospace services revenue, most likely from lower sales of spare end items. The low end of the Industrial segment sales ranges assumes a sequentially flat core Industrial performance. Our guidance ranges for segment margins remain unchanged due to conservative estimates of potential tariff impacts and potential lower commercial aerospace services mix.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Our outlook does not assume a further escalation of announced tariff levels or a global recession, both of which could significantly impact demand. If extreme scenarios like these develop, we will reexamine our guidance and communicate any revisions. We remain confident in our long term prospects as well as our ability to meet the medium term commitments we shared with you at Investor Day in December of twenty twenty three. And now I'll turn it over to Bill for more detail on our second quarter financial performance and the specifics of our refined guidance. Positive news cutting through the noise and uncertainty.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Over to you, Bill.

[William Lacey, Chief Financial Officer at Woodward]

Thank you, Chip, and good evening to everyone. As a reminder, all references to years are references to the company's fiscal year unless otherwise stated, and all comparisons are year over year unless otherwise stated. As Chip highlighted earlier, we had a strong second quarter in line with our expectations. Net sales for the second quarter of twenty twenty five were $884,000,000 an increase of 6%. Earnings per share for the second quarter of twenty twenty five were $1.78 compared to $1.56 Adjusted earnings per share were 1.69 compared to $1.62 Net cash provided by operating activities for the first half of twenty twenty five was $112,000,000 compared to $144,000,000 Capital expenditures were $52,000,000 for the first half compared to $56,000,000 Free cash flow was $60,000,000 for the first half of twenty twenty five, in line with our expectations compared to $88,000,000 The decrease in free cash flow was primarily due to an increase in working capital caused by a slow start to the quarter.

[William Lacey, Chief Financial Officer at Woodward]

As Chun mentioned, we exited the second quarter with strong sales, which will be collected in the third quarter. As of 03/31/2025, debt leverage was 1.5x EBITDA. Regarding capital allocation, our strategy is unchanged. We continue to prioritize investing in organic growth, returning cash to stockholders and pursuing strategic M and A. During the second quarter, we returned over $61,000,000 to stockholders, including $44,000,000 in share repurchases and $17,000,000 in dividends.

[William Lacey, Chief Financial Officer at Woodward]

Through the first half of twenty twenty five, we've returned $111,000,000 to stockholders, including $79,000,000 in share repurchases and $31,000,000 in dividends. We are on track to achieve our goal of returning approximately $215,000,000 to stockholders in 2025, a hundred $50,000,000 of share repurchases, and $65,000,000 in dividends. We will continue to manage this with flexibility as conditions evolve. We have 130,000,000 remaining on our $600,000,000 stock repurchase authorization. Returning capital to stockholders is a key component of our capital allocation strategy, reflecting our confidence in the business and our ability to generate strong cash flow.

[William Lacey, Chief Financial Officer at Woodward]

Turning to aerospace. Aerospace segment sales for the second quarter of twenty twenty five were $562,000,000 compared to $498,000,000 an increase of 13%. Defense OEM sales were strong in the quarter, up 52% primarily due to increased demand for our smart defense programs. Commercial aftermarket sales were up 23% in the quarter due to both price and higher volume. As Chip mentioned, we anticipate that commercial aftermarket sales growth will moderate in the second half of the year.

[William Lacey, Chief Financial Officer at Woodward]

Commercial OEM sales were down 9% primarily due to a measured production ramp to customers' demand following the Boeing work stoppage. We anticipate that commercial OEM sales will return to growth in the second half. Defense aftermarket sales were down 8%. Earnings in the second quarter for the aerospace segment were the highest on record at $125,000,000 Margins expanded two forty basis points over the previous year to 22.2% of segment sales. The increase in segment earnings was primarily a result of price realization and higher volume, partially offset by inflation and unfavorable mix.

[William Lacey, Chief Financial Officer at Woodward]

Turning to industrial. Industrial segment sales for the second quarter of twenty twenty five were $322,000,000 compared to $338,000,000 a decrease of 5%. Transportation was down 18% due to the expected decline of China on highway sales. China On Highway sales were $21,000,000 in the second quarter, a $45,000,000 decrease from the prior year. Our core industrial sales, which exclude China On Highway, were up a healthy 11% with oil and gas up 21%, marine transportation up 13%, and power gen up 4%.

[William Lacey, Chief Financial Officer at Woodward]

Industrial segment earnings for the second quarter of twenty twenty five were $46,000,000 or 14.3% of segment sales compared to $65,000,000 or 19.3% of segment sales. Industrial segment earnings decreased primarily due to lower China on highway volume and unfavorable mix, partially offset by price realization. Margins for our core industrial business were 14.8% in the second quarter, in line with our expectations. We continue to expect core industrial margins of 14% to 15% of sales for the year. Nonsegment expenses were $27,000,000 for the second quarter of twenty twenty five compared to $33,000,000 Adjusted non segment expenses were $34,000,000 for the second quarter of twenty twenty five compared to $29,000,000 Turning to our 2025 guidance.

[William Lacey, Chief Financial Officer at Woodward]

We are raising the low end of our sales and adjusted EPS guidance while reaffirming the other elements of our full year outlook. This updated guidance reflects our strong year to date performance and the expected impact of announced tariffs. Our revised guidance does not incorporate potential effects from further escalation of announced tariff levels, significant changes in customer demand, or a recession in The U. S. Or globally.

[William Lacey, Chief Financial Officer at Woodward]

For fiscal year twenty twenty five, we now expect consolidated sales of $3.375 to $3,500,000,000 which includes aerospace sales growth between 813% and a decrease in industrial sales from 7% to 9%. We now expect adjusted EPS between $5.95 and $6.25 All other aspects of our guidance remain unchanged. This concludes our comments on the business and results for the second quarter of fiscal year twenty twenty five. Operator, we are now ready to open the call to questions.

[Operator]

Thank you. The question and answer session will begin at this time. If you're using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, Our first question comes from Scott Dorskla with Deutsche Bank. Please state your question.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Hey, good evening. Nice results.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Hey, Scott. Thanks.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Chip, can you further decompose the commercial aftermarket growth in the quarter a bit further in terms of the platforms or customer geographies that drove that strength?

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

It was a you know, Scott, really, it was across the board growth there. If if the the the jump that we that we saw late in the quarter were some drop in spare parts orders from MRO facilities. So we we had some quick ship opportunities for spare parts to serve, you know, our for the MRO network. The rest of the ways we serve customers, whether it's spare end items or our own repair and overhaul, was was fairly strong, but the I think the the something that contributed to that 23% was the was the spare end the spare parts at the end.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Okay. Was that mostly shipments to China?

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

No. In fact, China is looking a little bit slower. They're, I think, moderating what their the quantities that they're purchasing. At least that's what we see in their activity with us.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Okay.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

And then, Chip, how

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

far does the backlog run-in marine transportation at this point? Just trying to get a sense for what your visibility looks like in that market if we see a reduction in global shipping and trade activity.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

The OE is quite extended, as you might imagine. It's out into the 2029 type ship build slot from an order standpoint right now. But as far as utilization of the fleet, it still has looked strong up to this point. But I would I would point out that, you know, extended trade tensions between The US and China would see see some of that drop off, and that's probably the the biggest risk in marine aftermarket that that we face right now. There have been some calls, you know, that you see in the news about, you know, the West Coast port activity maybe getting to be softer.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

So these are the type of signal signals we're looking at.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Okay. Thank you.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

You bet.

[Operator]

Your next question comes from the line of Scott Mikus with Melius Research. Please state your question.

[Scott Mikus, Analyst at Melius Research LLC]

Good afternoon.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Afternoon.

[Scott Mikus, Analyst at Melius Research LLC]

Chip, Bill, the past couple of years, a larger portion of the earnings call and the Woodward story is kind of focused on the outlook for China on highway natural gas truck market. It's also created a lot of volatility in the financial results. Just given that Woodward is an aerospace company and the broader trade tensions between The US and China, does it make sense to maybe find a different owner for that product line?

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

We're always examining our portfolio, Scott, and trying to decide exactly what makes sense for us and our shareholders and our customers going forward. So I don't have any comments at this time about any actions that we might consider. It'll be I can assure you we continue to look at the portfolio as we go forward. Like I said in prior earnings calls, what we're focused on operationally is trying to make sure that we're in the best position to serve our customers there with the best technology. When that when that market is good, we generate a lot of cash and a lot of earnings, and we wanna be in a position to do that on an uptick.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

And right now, we're focused on managing through this downturn as efficiently as we can with them.

[Scott Mikus, Analyst at Melius Research LLC]

Okay. And then on the commercial OE side, when Hexcel reported, they noted some changes in planned shipset deliveries on the July. In contrast, RTX said heat exchangers on that program are now where they need to be. But can you just give us color on what rate you were shipping on the seven eighty seven in this most recent quarter? And are you receiving orders from Boeing to support the production rate hike to seven per month later this year?

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

So we're in, you know, close contact with with Boeing because we provide a number of chipset materials directly to them on certain programs. On the seven eighty seven, largely, we're supplying through through GE on the GE NX powered seven eighty seven. So we have a lot less direct visibility to how our order book correlates to their build rate. But I can tell you that we are satisfying the GE order rate on the GE and X, and it, you know, looks the outlook looks good. I'm I'm I'm bullish on that program, get into those kind of, you know, seven rates that you're talking about, where we have the capacity and the ability to deliver that.

[Scott Mikus, Analyst at Melius Research LLC]

Alright. Thanks for taking the questions.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

You bet. Thank you.

[Operator]

Your next question comes from the line of David Strauss with Barclays. Please state your question.

[David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays]

Thanks. Good afternoon.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Good afternoon, David.

[David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays]

Nice.

[David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays]

Chip, could you maybe touch on the aftermarket in terms of what's come through? I mean, I think going back to your initial guidance call for this year, you kind of downplayed the aftermarket growth you might see this year. And it's obviously come through really strongly, particularly in Q2 when you had a really tough comp. So can you maybe just talk at a high level what's come through better than what you were anticipating?

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Yeah. David, I think, you know, you're you're right in that our call was we thought it would get a little bit softer in February with that tough compare. What came through a little bit ahead of our you know, in addition to our forecast were these spare parts orders to satisfy MRO facilities that looks like potentially they're getting a better throughput and higher higher volume through their shops and thus had, you know, sort of a little bit of a short cycle demand on spare parts from us. And so that that helped us have quite a good second quarter. Those kind of things don't often repeat, so I think I'm gonna, like, just move one quarter to the right on on our prediction that it's gonna be a little bit softer going forward with tough compares as well as probably some spare end items softness as you look at two factors for that.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

One, the China part of the equation, we're now thinking that there's going to be less LRU orders to support provisioning of those fleets as well as we'll probably see The US customers pull back a little bit on their order of of the LRU spare end items. That's the easiest thing to defer and push to the right, really, when you think about it. If there's an engine in the shop and the LRUs are routed to repair, they're probably gonna finish that activity. So it's the spare end items and the the and the China piece that I think, you know, we could see some softness in the second half plus the tough compare.

[David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays]

Got it. Thanks. And, Bill, on on currency, you know, the the weakening in the dollar that we've seen here, how how could that impact you guys going forward given, you know, I think, a decent footprint in Europe?

[William Lacey, Chief Financial Officer at Woodward]

Yeah. We have seen slightly higher fluctuation. As we think about the translation piece, we obviously will get hit on the top line, but that gets offset down in the cost area. So we typically see that get balanced out and not hit us too much at the operating earnings level. And then there are some cash over in in non outside The US that we have to watch the translation sorry, the the transactional aspect of it.

[William Lacey, Chief Financial Officer at Woodward]

But, again, it it will not be a major factor on our results.

[David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays]

Alright. Thanks very much.

[William Lacey, Chief Financial Officer at Woodward]

You're welcome.

[Operator]

Our next question comes from Noah Poponak with Goldman Sachs. Please state your question.

[Noah Poponak, Analyst at Goldman Sachs]

Hey, everyone.

[William Lacey, Chief Financial Officer at Woodward]

Good evening, Noah.

[Noah Poponak, Analyst at Goldman Sachs]

Bill, I'm surprised you left the aerospace segment margin guidance unchanged. It looks like that would require closer to a 25% incremental in the back half versus the over 40% you did in each of the first and second quarter. Can you talk about what drives the Aerospace segment margin in the second half?

[William Lacey, Chief Financial Officer at Woodward]

Sure. Yeah. We're really great and happy that we got over 40% incremental in the in the second quarter, Noah. As we look to the to the to the back half, we we do expect defense OE to be a much greater share of the volume. So that will moderate the the incremental that we saw in the second quarter.

[William Lacey, Chief Financial Officer at Woodward]

We've always stated that we like to see our incrementals around 30% to 35%, and so we we would expect that to to moderate in the second half. Additionally, you know, we we talked about tariffs, and it's not a major issue, but but we are cautious in in that it may impact us some. So we felt it was prudent, Noah, to keep that margin guide, where it is currently.

[Noah Poponak, Analyst at Goldman Sachs]

Okay. What what have you seen for LEAP aftermarket through the first half, and what are you what are you expecting in the back half and into '26?

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

So as I as I

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

said in the remarks, you know, we've been a a few quarters in a row of seeing that volume double year over year. So, you know, as we look at what our model was for performance of the lead fleet, we're very pleased with the the progress on that. So news so far, and and we feel like that that trend will continue for a bit this year, the rest of this fiscal year for us. Of course, that that curve may turn over a little bit as as the compares get bigger because it's doubling off a fairly small base. But we feel like we're on track for the the the outlook that we gave at the Investor Day where, you know, in the twenty seven to twenty eight time frame, we've been seeing the similar volumes of aftermarket activity from the LEAP GCF compared to the legacy narrow body fleets.

[Noah Poponak, Analyst at Goldman Sachs]

Okay. And what was the unit, just unit growth in the aerospace segment in the quarter?

[William Lacey, Chief Financial Officer at Woodward]

Yeah. No. We we saw good growth from both the price. Overall, price was about 7 percent at the sorry. Yeah.

[William Lacey, Chief Financial Officer at Woodward]

7% at the Woodward level. Aerial's price was a little bit stronger than industrial price, but both contributed. And and so we did see good volume as Arrow delivered at 13%.

[Noah Poponak, Analyst at Goldman Sachs]

Okay. Great. Thank you so much.

[Daniel Provaznik, Director of Investor Relations at Woodward]

You're welcome.

[Operator]

Our next question comes from Matthew Eckers with Wells Fargo. Please state your question.

[Matthew Akers, Analyst at Wells Fargo]

Good afternoon guys. Thanks for

[Matthew Akers, Analyst at Wells Fargo]

the question. I think you had talked last quarter within aerospace,

[Matthew Akers, Analyst at Wells Fargo]

I think commercial OE versus aftermarket kind of similar growth for the year. Can you kind of update on where those stack up? Or has one of those changed relative to the other for the year?

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Yes. Thanks for that question because second quarter was a little bit out of the ordinary in terms of us seeing higher commercial aftermarket growth than forecast and then OE being a bit down due to the way we responded to the Boeing return to work challenge. So those two those two things made the second quarter look a little bit unusual, but I think for the for the fiscal year twenty five, we're still gonna be in about the in about the the same zone for OE and and aftermarket

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

growth in the

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

commercial space. However, defense OE is is we we think that's gonna continue to be very strong growth for the second half.

[Matthew Akers, Analyst at Wells Fargo]

Yes. Okay. And I may have missed this, but what's the latest full year China on highway expectation? Has that changed at all?

[William Lacey, Chief Financial Officer at Woodward]

Yes. We came out with around 40,000,000 And with the Q2 performance being roughly $2,000,000 more than we expected, we're moving it up to around $50,000,000

[Matthew Akers, Analyst at Wells Fargo]

Okay. Great. Thank you.

[William Lacey, Chief Financial Officer at Woodward]

You're welcome.

[Operator]

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

[Christopher Glynn, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

Thank you. Good afternoon.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Good

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

afternoon.

[Christopher Glynn, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

I had a question on industrial. Oil and gas was very strong. Wondering if there are any onetime volume benefits or otherwise pull forward given across the Industrial segment, given even at the high end of the full year guide, you're running about 20,000,000 a quarter lower than the second quarter. I realize China is about a $10,000,000 diminution in the run rate.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

I'll kick it off and maybe hand it over to Bill on the last part of your question. But as far as oil and gas goes, I think we've said this before, it's a bit lumpy for us because quite a bit of what we do in oil and gas is project related. And so it was a strong quarter. A lot of the delivery material that we provide to oil and gas is also power gen related, whether it's, you know, powering pumping stations or it's part of power generation for a platform or for a LNG site. So the 21% is is a is a big increase, but I think it moderates through the year, and it in fact, is, like I said, quite lumpy.

[Christopher Glynn, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

Okay. That makes sense.

[William Lacey, Chief Financial Officer at Woodward]

And then question?

[Christopher Glynn, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

I I think that covers it, Bill. You know, I I think, you know, China would be the other piece for the industrial segment bridge in the second quarter absolute revenue versus the implied back half.

[Christopher Glynn, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

If I could switch to the commercial aftermarket, I think that was really a nice spike in the quarter. So think in the guidance, if I'm hearing everything correctly, you're probably looking at second half run rates a little lower sequentially for the commercial aftermarket, but still up moderately year over year. Do I have that correct?

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Yes, we still think it's Yes, that's correct. We still think it's going to grow, but it's in the single digit regime, high single digit regime versus the 20% that you saw in the second quarter.

[Christopher Glynn, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

Okay. And just a little bookkeeping, the corporate expense a little higher. We're still talking 3.3%, I think you cited last year last quarter for the full year?

[William Lacey, Chief Financial Officer at Woodward]

Yeah, Chris. We we are still calling calling that level. We'll have slightly higher sales in the half. And so we do expect for us to to hit that in the full year that we guided on earlier this earlier in the year.

[Christopher Glynn, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

Thanks. And if I could sneak one more in. I think pricing outperformed in the second quarter probably what you implied previously for the year. Is that just learning curve on value pricing toolkit across the organization?

[William Lacey, Chief Financial Officer at Woodward]

Yeah. We've had two solid quarters of pricing this year, and I think

[William Lacey, Chief Financial Officer at Woodward]

it

[William Lacey, Chief Financial Officer at Woodward]

is us continuing to get a better understanding of our value pricing. And we had some volumes come through the right place that also helped to push up the price that we achieved.

[Christopher Glynn, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

Understood. Thanks, guys.

[William Lacey, Chief Financial Officer at Woodward]

You're welcome.

[Operator]

Our next question comes from Michael Ciarmoli with Credit Suisse. Please state your question.

[Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities]

Hey, good evening guys. Thanks for taking the questions. Chip, could we just dig into that? I just want make sure I understand the aero, the commercial OE and aftermarket. So aftermarket tracking to maybe high single digits for that second half, that implies something like 14% to 15% growth.

[Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities]

Did I hear you earlier say that OE and aftermarket should grow at the same rate? I mean those would be pretty heroic growth rates to get commercial OE up on par with the same growth as aftermarket.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

No. I don't think I don't think they'll what I meant was that they'll over the year, it'll come back to the what we said at the beginning of the year that we kinda we we kinda gave an order of battle, if you will, in terms of how things would stack up with defense OE being the biggest biggest growth Okay. Followed by comer followed by commercial aftermarket, followed by commercial OE. We don't we don't expect commercial OE to be down, which it was this quarter. So sorry about the confusion, but that's just sort of the work.

[Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities]

That's helpful. And then maybe just back to the incrementals. I mean, you did that 40% plus like Noah was talking about. I mean, you did that in the face of really strong OE. You're gonna get the the commercial OE ramping, which, you know, has never really been truly dilutive to your margins.

[Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities]

Is it really just a function of of aftermarket kinda normalizing in the second half that that's giving you some pause on on those high incrementals?

[William Lacey, Chief Financial Officer at Woodward]

You know, again, the commercial on our commercial OE, we we do make money. But to the 40% incremental, it is that to the 40%. As we talked about, we we we we look to have 30 to 35 in in ARR. And so what happens in the the second half is, again, in q two, we didn't have as much commercially commercial OE, which helped incrementals. We will have more commercial OE in the second half, and we'll have greater defense OE, and that will translate into still really good incrementals in our 30 to 35, but it will not sustain the at the 40% level.

[Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities]

Got it. That's fair. Perfect. Thanks, guys. I'll jump back in the queue.

[William Lacey, Chief Financial Officer at Woodward]

Yep. Thank you. Welcome.

[Operator]

Our next question comes from Shigida Kahyaoglu with Jefferies. Please state your question. Sheila, your line is open.

[Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group]

Oops. Sorry. Good afternoon, guys. How are you?

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Afternoon, Sheila.

[William Lacey, Chief Financial Officer at Woodward]

Good.

[William Lacey, Chief Financial Officer at Woodward]

Thank you.

[Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group]

Maybe just first half versus second half. $3 at essentially both midpoints when you look at the first half and the second half. How are you thinking about the tariff impact? I know you've mentioned in the prepared remarks localized production largely.

[Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group]

How is that embedded into your guidance?

[William Lacey, Chief Financial Officer at Woodward]

Yeah. I'll I'll I'll start it off, Sheila, and kick it over to to Chip. But as we look at our our our the tariff situation, as Chip mentioned, our manufacturing strategy really does help to mitigate the overall tariff impact on Woodward. Having said that, we have taken an extensive view of the business and have a good handle of the flows that will cause us some challenges. And as we we look at those flows for '25 fiscal year '25, we feel like we have ten to fifteen million of pressure.

[William Lacey, Chief Financial Officer at Woodward]

Now that's before we put into action our strategies to mitigate those items. So so so based on that, we we we have baked it into our our guidance that we updated here in fill as long as there's no escalation of those announced tariffs that we will deliver on the on the guide.

[Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group]

Got it. Okay.

[Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group]

And if I could ask one on aerospace specifically, outside of aftermarket, defense OE growth was pretty phenomenal. What drove that 52% increase, and why is aftermarket and defense down?

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

So the increase is largely smart defense, but also good good health and good growth in in the in the rest of the programs too. So not not taking anything away from them, but but the large number shows up really due to smart defense since across the entire smart defense portfolio as well. So that that's the defense OE story. On on defense aftermarket, you know, largely, it it can be a little bit lumpy in defense aftermarket. Working with our customers, they tend to batch some of their inputs for overall based on how they run the fleet.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

So we don't see any difference in op tempo or anything fundamental that would drive defense aftermarket down. This quarter, it just looks like we are we're experiencing some delayed inputs. We don't really think that it will be that different the rest of this year with some of the logistics and friction in the system, if you will. So we're thinking that defense aftermarket might stay in that type of volume region for the rest of fiscal 'twenty five.

[Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group]

Got it. Thank you.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Welcome.

[Operator]

Our next question comes from Spencer Britski with TD Cowen. Please state your question.

[Spencer Breitzke, Analyst at Cowen]

Hey, thank you. I was wondering if you could provide an update on JDAM and where we are with the higher pricing from the new contract rolling through as well as volumes? Thank you.

[William Lacey, Chief Financial Officer at Woodward]

Yeah. We we, As we've talked about, the JDAM demand has been strong. Secondly, the supply chain has been pretty healthy, so we've been shipping at a pretty good clip here. If those things continue, we would expect to get through the older lots of JDAM and get to the the higher price lots sometimes in q four.

[Operator]

Our next question comes from Luis Trofredo with Wolfe Research. Please state your question.

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

Hey, good evening, Chip, Phil.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

Hey, Luis.

[William Lacey, Chief Financial Officer at Woodward]

Hey, Luis.

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

Maybe just to go back to the corporate for a quick second. You know, it was high. Was there anything in there? I know we're we're adding back the I think what is, like, the

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

industrial benefits. And so I'm

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

just curious. Are the industrial is there a benefit running through the industrial segment and you're backing it out in corporate? And is there any sales impact from those sort of sales that you're doing?

[William Lacey, Chief Financial Officer at Woodward]

No. No, Louis. I we're not. It's a simple answer.

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

Okay. I know I think last quarter, you guys had last quarter, you said you were backing out the product line sales benefits in the and I I don't know if that's exactly what it was again this quarter.

[William Lacey, Chief Financial Officer at Woodward]

Yeah. We

[William Lacey, Chief Financial Officer at Woodward]

So we we do back out those benefits in adjustment out last quarter, and and that doesn't repeat.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

It's a onetime gain.

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

But is

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

there a sales benefit running through somewhere as well?

[William Lacey, Chief Financial Officer at Woodward]

No.

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

No. So okay. No sales benefit, and then you're just backing out the

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

the income.

[William Lacey, Chief Financial Officer at Woodward]

So Your question is

[William Lacey, Chief Financial Officer at Woodward]

just on the nonsegment?

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

Yes.

[William Lacey, Chief Financial Officer at Woodward]

Or is your yeah. So, again, on the Greenville, we adjusted that that gain out. Sorry.

[William Lacey, Chief Financial Officer at Woodward]

We we we adjusted to sell the Greenville out this quarter, out of nonsegment.

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

Okay. But is I guess, is the is there a benefit in industrial from the gain, and you're just adjusting it out and unallocated?

[William Lacey, Chief Financial Officer at Woodward]

No.

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

No.

[William Lacey, Chief Financial Officer at Woodward]

No.

[William Lacey, Chief Financial Officer at Woodward]

We we we moved it out to nonsegment, and then we adjusted it out of nonsegment. So aero is clean. Industrial is clean.

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

And so what caused the step up in nonsegment? It's just a

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

big number that we haven't really seen before.

[William Lacey, Chief Financial Officer at Woodward]

The the nonsegment, some of it is the the timing of of us doing with our equity, our long term incentive program. That gets done in the second quarter. Historically, it this this switch happened last year and from first quarter to second quarter. But other than that, it that's that's it.

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

Alright. No. That's helpful. Thank you, Bill. And then I guess one more.

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

I just wanna make sure

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

I heard you right. Was China Industrial twenty million dollars

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

in the second quarter or $29,000,000 in the second quarter?

[William Lacey, Chief Financial Officer at Woodward]

Yeah. $21,000,000 to be exactly to be exact, dollars 21.

[Louis Raffetto, Research Analyst at Wolfe Research LLC]

Mr.

[Operator]

Blankenship, there are no further questions at this time. I will turn the conference back to

[Chip Blankenship, Chairman & Chief Executive Officer at Woodward]

We'd like to thank everyone for joining today's call.

[Operator]

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

Participants

Executives

• Daniel Provaznik, Director of Investor Relations
• Chip Blankenship, Chairman & Chief Executive Officer
• William Lacey, Chief Financial Officer

Analysts

• Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank
• Scott Mikus, Analyst at Melius Research LLC
• David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays
• Noah Poponak, Analyst at Goldman Sachs
• Matthew Akers, Analyst at Wells Fargo
• Christopher Glynn, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.
• Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities
• Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group
• Spencer Breitzke, Analyst at Cowen
• Louis Raffetto, Research Analyst at Wolfe Research LLC