Woodward Q3 2025 Earnings Report

Woodward EPS Results

• Actual EPS: $1.76
• Consensus EPS: $1.62
• Beat/Miss: Beat by +$0.14
• One Year Ago EPS: $1.63

Woodward Revenue Results

• Actual Revenue: $915.45 million
• Expected Revenue: $884.98 million
• Beat/Miss: Beat by +$30.46 million
• YoY Revenue Growth: +8.00%

Woodward Announcement Details

• Quarter: Q3 2025
• Date: 7/28/2025
• Time: After Market Closes
• Conference Call Date: Monday, July 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 Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Record Q3 results with sales up 8% to $915 million, EPS up 8% to $1.76, aerospace sales up 15% with margin expansion to 21.1%, while industrial organic sales grew double digits excluding China on-highway and divested lines.
• Positive Sentiment: Raised full-year guidance to $3.45–3.525 billion in sales and $6.50–6.75 EPS, lowered adjusted tax rate to ~17%, and set free cash flow at $315–350 million, reflecting higher working capital to support growth.
• Positive Sentiment: Won the Airbus A350 spoiler control actuator contract—Woodward’s first primary flight control LRU on a commercial platform—and plans a new U.S. automated facility to support production and future narrow-body wins.
• Positive Sentiment: Completed acquisition of Safran’s North American electromechanical actuation business, adding horizontal stabilizer trim systems for multiple business and commercial jets and strengthening its tier-one credentials.
• Neutral Sentiment: Industrial segment sales declined 3% year-over-year due to China on-highway headwinds, but core industrial revenue grew 9%, driven by gas turbine and marine demand, with ongoing capacity expansions and automation investments.

Presentation

[Operator]

Thank you for standing by. Welcome to the Woodward Inc. Third 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 Joining us today for the company, Chief Blankenship, Chairman and Chief Executive Officer Bill Lacey, Chief Financial Officer and Dan Prevaznik, 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 third 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]

These elements can and do frequently change. Our forward looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify in our filings with the SEC. These statements are made as of today, and we do not intend to update them except as required by law. In addition, we are providing certain non U. S.

[Daniel Provaznik, Director of Investor Relations at Woodward]

GAAP financial measures. We direct your attention to the reconciliations of non U. S. GAAP financial measures, which are included in today's slide presentation and our earnings release. We believe this additional financial information will help in understanding our results. Now I'll turn the call over to Chip.

[Charles Blankenship, CEO & Chairman at Woodward]

Thank you, Dan. Good evening, everyone, and thank you for joining us. We're pleased to report strong third quarter results that exceeded our sales and earnings expectations. This strong performance was driven by ongoing robust demand across both our aerospace and industrial segments, along with disciplined execution by our global teams. Our members remain focused on safety, quality, delivery and cost improvements, with safety always coming first.

[Charles Blankenship, CEO & Chairman at Woodward]

While our traditional safety metrics are currently world class, we are focused on making Woodward the safest work environment through our Human and Organizational Performance Program, also known as HOP, which we rolled out to seven more sites this year. The new sites are embracing the program and growing their capability to identify risks, add layers of protection, and use hop learning teams to solve more complex problems related to workplace safety. We also play a role in the safety of our customers' products, and we are laser focused on ensuring that we meet the product safety and quality requirements our customers are counting on from Woodward. Looking at a few highlights from our third quarter financial results, Woodward posted record sales, up 8% year over year, and earnings per share came in at $1.76 up 8% year over year. Aerospace also had record sales, up 15%, and aero margins expanded 140 basis points to 21.1%.

[Charles Blankenship, CEO & Chairman at Woodward]

In industrial, our reported sales declined 3%. When China Oh and the divested combustion product lines are excluded, industrial delivered double digit growth. Our year to date performance reaffirms our mid term and long term growth trajectory as we strengthen our capability to meet sustained demand across our markets. Based on our strong year to date performance, increased macro environment clarity and expected sustained growth, we are raising full year sales and earnings guidance. Bill will take you through more details on that and other changes to our guidance.

[Charles Blankenship, CEO & Chairman at Woodward]

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

[Charles Blankenship, CEO & Chairman at Woodward]

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

[Charles Blankenship, CEO & Chairman at Woodward]

What I can tell you is that we're designing a showcase facility, vertically integrated, highly automated, special processes included and built on the lessons learned at our ROCCUT facility during the LEAP and GTF programs. It's a significant yet manageable investment that will be spread over multiple years and is fully aligned with our organic growth strategy. The A350 spoiler facility is a perfect example of how we're investing in ourselves for the highest return. In addition, last week, we completed the acquisition of Safran's North American electromechanical actuation business. This is a key inorganic play that places us at the heart of industry leading horizontal stabilizer trim actuation technology, serving platforms including the Airbus A350, Embraer E175 and 190E2, Gulfstream six fifty, seven hundred and eight hundred and Dassault Falcon 7X and 8X.

[Charles Blankenship, CEO & Chairman at Woodward]

Together, these two strategic moves, one organic, one inorganic, strengthen our core capabilities and commercial aircraft pedigree ahead of the next single aisle competition. These developments, along with our automation acceleration, will require increased capital allocation to CapEx in 2026 and 2027 as we invest in future growth and productivity. Turning to what's happening in our end markets, we remain extremely optimistic about developments that matter to Woodward. In aerospace, supply chain challenges across the industry continue to impact aircraft deliveries, but air traffic is still growing globally. Airlines are optimizing load factors and fleet utilization to keep pace.

[Charles Blankenship, CEO & Chairman at Woodward]

Aero services exhibited sustained strong growth in the third quarter. The softening in services we had anticipated in our plans and guidance hasn't materialized. As airline customers continue to invest in their legacy fleets to ensure they have enough capacity to meet travel demand in the face of slower deliveries of new aircraft. In fact, legacy engine LRU overhauls for both narrow body and regional aircraft grew compared to last year and show few signs of declining as yet. Wide body engine control system service demand remains steady.

[Charles Blankenship, CEO & Chairman at Woodward]

In addition, as I have mentioned in previous earnings reports, LEAP and GTF service activity continues to grow steeply, but it is no longer doubling in size year over year as the base numbers grow. The great news is that LEAP and GTF revenue is now approaching that of legacy products and is delivering a meaningful impact to our aero services growth profile. We expect service volumes to continue increasing through 2026 and 2027 as LEAP and GTF hours and cycles continue to drive service inputs. Commercial OEM was softer this quarter as airframers managed supply chain disruptions and all our customers managed elevated inventory buffers. Defense OEM was again a significant growth driver for Arrow as expected, led by strong performance in smart defense.

[Charles Blankenship, CEO & Chairman at Woodward]

The defense services environment overall remained solid, though inputs to Woodward have varied quarter to quarter. In industrial, our gas turbine portfolio was a standout performer, particularly in LNG and broader oil and gas applications. Growing global electric power demand remains a key growth driver for our industrial segment. Based on conversations I've had with customers along with what we see directly in orders, we're getting confirmation that the growth predictions are real, and we're prepared to serve that growth. We're focusing our capacity and lead type improvements on our model gas turbine control valve production line to better serve customers.

[Charles Blankenship, CEO & Chairman at Woodward]

In fact, we've increased output more than 30% year to date. We're more than halfway through the Glatten expansion project to increase capacity to meet data center backup power demand. With construction tracking ahead of schedule, we've ordered all remaining machines in July, and we will be ready to begin moving into the new hull in November. This value stream has been completely redesigned with 3P principles, that is production, preparation and process. We are using this expansion opportunity to create better flow, introduce higher levels of automation and improve inventory turns.

[Charles Blankenship, CEO & Chairman at Woodward]

In transportation, marine demand remains exceptionally strong. Shipyards are full, and they continue to expand capacity. In the quarter, more than half of all new ship orders included alternative fuel specifications, which resulted in a strong pull for Woodward Solutions. As expected, demand for China on highway heavy duty trucks declined primarily due to local economic headwinds. Overall, we see continued momentum in the macro growth drivers across both our aero and industrial segments into 2026 and beyond.

[Charles Blankenship, CEO & Chairman at Woodward]

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

[Charles Blankenship, CEO & Chairman at Woodward]

Now I'll hand it over to Bill for more details on our third quarter financial performance and the specifics of our updated guidance. Bill?

[William Lacey, EVP & CFO at Woodward]

Thank you, Chip, and good evening, everyone. As a reminder, all references to years are references to the company's fiscal year unless otherwise stated, and all comparisons are year over year unless otherwise stated. We delivered record net sales in the 2025 of $915,000,000 an increase of 18%, reflecting the strong demand across our end markets. Earnings per share for the 2025 were 1.76 compared to $1.63 At the segment level, aerospace segment sales for the 2025 were a record $596,000,000 compared to $518,000,000 an increase of 15%. Defense OEM sales were strong in the quarter, up 56%, largely driven by increased demand for our smart defense programs.

[William Lacey, EVP & CFO at Woodward]

Commercial services sales rose 30%, exceeding expectations, by both pricing and increased volume tied to continued high utilization of legacy aircraft, which is extending their current service cycles. As Chip highlighted, LEAP and GTF service activity continues to increase. Commercial OEM sales were down 8% as airframers navigated supply chain disruptions and all our customers managed inventory levels. We expect these headwinds to moderate as airframers continue to increase production rates in the coming quarters. Sales for defense services were down 16%.

[William Lacey, EVP & CFO at Woodward]

While the market demand environment is solid, the timing and flow through of orders to Woodward can fluctuate considerably from quarter to quarter. Earnings in the third quarter for the aerospace segments were $126,000,000 Margins expanded 140 basis points to 21.1% of segment sales. The increase in segment earnings was primarily driven by price realization and higher volumes, supported by ongoing operational excellence and lean initiatives that enhance output and efficiency. These gains are partially offset by planned strategic investments in our aerospace manufacturing capabilities to meet our current and future growth. Inflation also contributed to the cost pressure.

[William Lacey, EVP & CFO at Woodward]

The margin rate was tempered by unfavorable mix driven by growth in our defense OEM products, which carry lower margins relative to other parts of the portfolio. Turning to Industrial. Segment sales for the 2025 were $319,000,000 compared to $330,000,000 a decrease of 3%. This was primarily due to the expected decline of China On Highway sales, which were down $36,000,000 or 69%. Our core industrial sales, which exclude China on highway, grew by 9% in the quarter.

[William Lacey, EVP & CFO at Woodward]

Oil and gas was up 16% driven by price as well as volume related to increased activity in midstream and downstream gas investments. Marine transportation was up 16% driven by both price and volume. Power generation was flat due to the impact of the divestiture of our combustion business in the second quarter of this year. Excluding that impact, generation sales grew double digits. For context, the combustion business averaged approximately $15,000,000 of sales per quarter.

[William Lacey, EVP & CFO at Woodward]

Going forward, the best way to think about our industrial products and services portfolio is excluding China on highway and combustion. As Chip highlighted earlier, using this view, industrial grew double digits in the third quarter. Industrial segment earnings for the 2025 were $48,000,000 or 14.9% of segment sales compared to $60,000,000 or 18.1% of segment sales. The decrease was primarily due to lower China on highway volumes. Looking at our core industrial business, we expanded margins to 15.6% of sales, up approximately 90 basis points.

[William Lacey, EVP & CFO at Woodward]

This expansion was driven by our progress in operational excellence, including price realization across the portfolio and our ability to generate incremental margins from higher volumes. Given these strong results, we now expect Woodward's core industrial margin for the year to be approximately 15% of sales, the high end of our previous range. Non segment expenses were $36,000,000 for the 2025 compared to $30,000,000 We expect adjusted non segment expenses to finish the year close to the same rate that we have been running year to date. At the consolidated Woodward level, net cash provided by operating activities for the first nine months of twenty twenty five was $238,000,000 compared to $297,000,000 Capital expenditures were $79,000,000 for the first nine months compared to $72,000,000 Free cash flow was $159 for the first nine months of twenty twenty five compared to $225,000,000 The decrease in free cash flow was primarily due to an increase in working capital. As of 06/30/2025, debt leverage was 1.5 times EBITDA.

[William Lacey, EVP & CFO at Woodward]

During the third quarter, we returned over $62,000,000 to stockholders, including $45,000,000 in share repurchases and $17,000,000 in dividends. Through the first September of twenty twenty five, we returned $172,000,000 to stockholders, including $124,000,000 in share repurchases and $48,000,000 in dividends. We now expect to return approximately $235,000,000 to stockholders in 2025, exceeding our initial goal of returning $250,000,000 This should consist of $170,000,000 of share repurchases and $65,000,000 in dividends. We will continue to manage this with flexibilities as conditions evolve. We remain disciplined in deploying capital across three priorities, reinvesting for growth, returning cash to shareholders, and selective returns focused M and A.

[William Lacey, EVP & CFO at Woodward]

As Chip highlighted, we will be making a multiyear investment in a new state of the art facility to support the Airbus A350 spoiler actuation win and long term organic growth. In addition, the recent acquisition strengthens our position in electromechanical actuation systems and meets our strategy driven deal criteria. These growth investments, along with our accelerated automation initiatives, will increase capital spend over the next couple of years as we invest in growth and productivity. We will provide more details on these capital allocation plans during our fourth quarter earnings call. Now turning to our 2025 guidance.

[William Lacey, EVP & CFO at Woodward]

We are raising our sales and earnings guidance, revising our adjusted effective tax rate down and lowering our free cash flow range. We are reaffirming the other elements of our full year guidance. This updated guidance reflects our year to date performance, a more stable macro environment and strong fourth quarter outlook. For 2025, we now expect consolidated sales of $3,450,000,000 to $3,525,000,000 which includes aerospace sales growth between 1113% and a decrease in industrial sales between 57%. Now we expect adjusted EPS between $6.5 and $6.75 with aerospace margins to be between 2121.5% and industrial margins to be approximately 14.5%.

[William Lacey, EVP & CFO at Woodward]

We now expect the fiscal year twenty twenty five adjusted effective tax rate to be approximately 17%. We now expect our 2025 free cash flow to be between $315,000,000 and $350,000,000 We are lowering the free cash flow range as a result of increased working capital to support higher sales during a dynamic supply chain and production environment. All other aspects of our guidance remain unchanged. This concludes our comments on the business and results for the third quarter of twenty twenty five. Operator, we are now ready to open the call for questions.

[Operator]

Thank you. The question and answer session will begin at this time. Should you have a question, please press star one on your push button phone. Should you wish to withdraw your question, press the pound key. We request that you limit yourself to one question to allow time for the other participants to ask their questions.

[Operator]

Our first question comes from David Strauss with Barclays. Please state your question.

[William Lacey, EVP & CFO at Woodward]

Yeah. Hey, Dave. Before you jump in, I just wanna make sure I I clarify something. When I noted our third quarter sales of 915,000,000, I may have said 18%. I just want to be clear that that is a 8% increase. You. I'll turn it over Great. To you,

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

Thanks. Thanks, Bill. Chip, I thought I heard you say that LEAP and GTF aftermarket volumes are now close to legacy volumes. Maybe I didn't hear that correctly, but I thought in the past you talked about getting to those kind of levels a couple of years out from now.

[Charles Blankenship, CEO & Chairman at Woodward]

Yes. So hey, thanks for the question, David. In fact, they were getting close last quarter. This quarter, they've just got into the same neighborhood, ZIP code range, short of the legacy total volume. And we forecast the crossover, which is what we said before in sort of the 2028 time period.

[Charles Blankenship, CEO & Chairman at Woodward]

So we're still sticking with that as as our outlook. The things that could make that happen faster is if the legacy fleet, you know, starts to see less hours and cycles and see less investment as as Boeing and Airbus continue to pump out the neos and maxes to to take the places of those of those aircraft. So right now, we're still calling 2028, but I do want the folks out there to know that LEAP and GTF volume is now having a meaningful impact on our commercial aero services revenue and margin, and we're very excited about that.

[Operator]

Our next question comes from Scott Deuschel with Deutsche Bank.

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

Bill, can you walk us through what drove the sequential margin decline in Aerospace in the third quarter and then the drivers behind the implied Aerospace margin improvement in the fourth quarter?

[William Lacey, EVP & CFO at Woodward]

Yes, Scott. Thanks. As you look at it, think the incrementals are around 30%. Again, we we typically advise that we look for income incrementals between thirty and thirty five. I do realize that the first half incrementals for Aero were in the were in the forties.

[William Lacey, EVP & CFO at Woodward]

What caused those incrementals to drop was the while we did have strong growth in aftermarket, we had very strong growth in our defense OE. That comes with a lower profit margin and therefore caused the unfavorable mix of that product line caused the decline in our incrementals. You highlighted our as you look at our guidance and what that implies for 4Q, we do expect our incrementals to get back to the ranges that we saw in the first half of the year. We will still see we expect to see strong defense OE still, but that should come along with our smart defense program realizing the price increases as we have moved into the newer lots. So that's what will, the the sustained growth in defense OE with the move in pricing.

[William Lacey, EVP & CFO at Woodward]

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

[Operator]

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

[Noah Poponak, Research Analyst at Goldman Sachs]

Hey. Good afternoon, guys.

[William Lacey, EVP & CFO at Woodward]

Good afternoon.

[Noah Poponak, Research Analyst at Goldman Sachs]

Lot of discussion of some new investments or maybe a few we hadn't fully calibrated here. So in the release, you also cite aerospace investments impacting the third quarter margin.

[Noah Poponak, Research Analyst at Goldman Sachs]

Can you talk more about what that was and why it seems like only one quarter? And then, what are you actually spending 35 to $50,000,000 on in the free cash flow reduction? Can you can you be more specific there? And then Yeah. How much and for how long are we talking about higher CapEx beyond this year? And what's it for?

[William Lacey, EVP & CFO at Woodward]

Yeah. Thanks for those questions. First of all, on the investments that we highlighted in in our manufacturing space, It was not necessarily a hit to margin rate, more of a hit to margin dollars. But what those investments are are to drive productivity. We are investing in our team our team leaders.

[William Lacey, EVP & CFO at Woodward]

We're investing in our, operation supervisors, again, to work with our direct employees, in in order to help us to increase our our productivity. We are also adding manufacturing engineers that will better allow us to implement our automation and allow us to get to the productivity benefits that we're looking for. Finally, we're adding in supplier engineers to continue to work with our supply base to make sure we can improve, improve that air improve on those areas. The second part of your question is, around free cash flow and us lowering our range there. In in the simple answer is we are investing more in working capital, specifically inventory.

[William Lacey, EVP & CFO at Woodward]

As we look at the need to meet the demands of our customer in in the mix that they're looking for and get it there on time and understanding the the capabilities of our process, we made the decision to invest a bit more in inventory to allow us to do that. We continue to work that area. We are investing in resources and in processes and in systems so that going forward, we don't need to invest into those levels, and we expect that you will see that benefit as we get to 2026.

[Noah Poponak, Research Analyst at Goldman Sachs]

Okay. And, Bill, you have a few years in a row now where the full year aerospace margin lands higher than the prior year's fourth quarter. So the the fourth quarter proves to be an exit rate that you build off of. The guidance implies the last quarter of this year will be in the mid twenty twos. Do we use that as the jumping off point off which you expand next year?

[William Lacey, EVP & CFO at Woodward]

No. Not necessarily. Again, I think we we are expecting to have a very strong q four in in Aero. There's a few reasons for that. And as we get into '26, we'll we'll talk a little bit more about the rate that you can expect for Aero for the total year, but we're very pleased with where the implied 4Q exit of Arrow.

[Operator]

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

[Scott Mikus, Vice President - Equity Research at Melius Research LLC]

Good morning, Chip, Bill. Nice to been there, and you displaced an incumbent supplier on the a three fifty spoiler actuation system, and that makes you a tier one supplier to Airbus now. So do you see other opportunities to displace incumbents on current platforms, or is this more of a one off opportunity? And then for future aircraft engine plans, programs, do you plan to pursue more work packages as a tier one supplier, or is the intention to primarily stay a tier two supplier except where you have a differentiated offering?

[Charles Blankenship, CEO & Chairman at Woodward]

Yes, Scott. Thanks for the question. As you probably know and most people in the industry know, displacements in the middle of really successful aircraft programs are somewhat rare. So we wouldn't view that as a wave of opportunities in front of us. But the combination of that opportunity and acquiring Safran's North American electromechanical actuation business allows us to get into the Airbus Tier one supplier structure, which we think is a great place to be as we look toward the next single aisle aircraft opportunity.

[Charles Blankenship, CEO & Chairman at Woodward]

As far as tier one and tier two for us, we're we're, you know, kind of a little bit of a humble company. I mean, we're willing to to do work at at tier one levels. We're we're willing and able to do systems, subsystems, or components and where we can add value to customers and to products we're willing to serve if we can make it a profitable high return business for our shareholders.

[Scott Mikus, Vice President - Equity Research at Melius Research LLC]

Okay. And then one quick one for Bill. Do you happen to have the pricing in the quarter? And can you perhaps parse that out by aero and industrial?

[William Lacey, EVP & CFO at Woodward]

Yes. So as a total business, we saw about 7% price. And I would say that aero contributed a little more than industrial, but both did a great job. We we had we have said in the past that price for the year will be close to 5%. Based on where we are, it will be closer to delivering 7% at the Woodward level for price for '25.

[Operator]

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

[Christopher Glynn, Equity Analyst - Industrials at Oppenheimer Holdings]

Thanks. Good afternoon. Afternoon, I want to ask about the hey, so the Marine is doing better than you've talked about the long term profile given industry capacity, kind of at that level. So just curious what's driving the upside this year. Maybe it's simply price, but also curious if you're taking share in some respect or building out the naval profile alongside commercial and merchant.

[Charles Blankenship, CEO & Chairman at Woodward]

Chris, I think the easiest way to think about how marine is going for Woodward is that our customers are taking share as well as the the the capacity increases in orders from the shipyards and the services business. So it's like it's those three things. It's price. It's the platforms that we're on. They're winning positions on the ships.

[Charles Blankenship, CEO & Chairman at Woodward]

And then the service opportunity from the utilization is quite strong.

[Christopher Glynn, Equity Analyst - Industrials at Oppenheimer Holdings]

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

[William Lacey, EVP & CFO at Woodward]

First, it will start in fourth quarter.

[Christopher Glynn, Equity Analyst - Industrials at Oppenheimer Holdings]

Tax rates come down a good bet a couple, separate times during the year. Just wondering what's driving that and if we should be thinking of a new baseline beyond the current year other than the kind of 20% anchor.

[William Lacey, EVP & CFO at Woodward]

Yeah. With with the level of stock options we have, to support our members, historically, with the record, stock prices that we've had, we've seen a lot of those stock options that came in, which provides us with the tax benefit. And that's what really drove that rate down. As we as we continue to increase our net earnings, that's gonna put pressure on our on our tax rate. And so and so I I would expect a bit more pressure.

[William Lacey, EVP & CFO at Woodward]

But right now, with the with the stock price at the levels they are they're they've been at, that's causing us to get this benefit, which results in these lower tax rates. And hence, our upgrading our our us adjusting the guidance on that effective tax rate for '25.

[Operator]

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

[Gavin Parsons, Director - Aerospace & Defense Equity Research at UBS Group]

Hey, thanks. Good afternoon.

[Charles Blankenship, CEO & Chairman at Woodward]

Hello, Gavin.

[William Lacey, EVP & CFO at Woodward]

Hey, Gavin.

[Gavin Parsons, Director - Aerospace & Defense Equity Research at UBS Group]

I wanted to just parse out the working cap investment this year and the CapEx investment next two years. And how much of that is for, say, existing programs versus new wins like the A350 or maybe investing in the growth rate of the saffron business?

[Charles Blankenship, CEO & Chairman at Woodward]

Yeah. But it's safe to say that all the inventory increase is with current programs. And it's really a a and a lot of people talk about it in the industry. It's a factor of fluctuation in our own production system, fluctuation in demand from customers that have supply chain issues that maybe aren't ours, and they're holding a number of our parts and inventory, and then how our suppliers perform, and our desire not to make sudden movements with suppliers and lose that capacity that we've worked so hard to gain since COVID. So a lot of things going on, a lot of management decisions, a lot of strategic thinking around how do we make sure we can serve customers and meet this demand. But as we look into FY twenty six, we feel like we do have expertise deployed to work that down and improve the overall process as things tend to stabilize a bit more in terms of what we see from our customers and what their desires are to have a more of a stable supply chain altogether.

[Charles Blankenship, CEO & Chairman at Woodward]

So that's work in process, but we're just seeing the effects of that in third and fourth quarter probably. As far as the investments go, we're looking at the facility for A350 spoiler production. These type of facilities tend to run a couple $100,000,000 that can be spread across couple three years, and that that's what we're looking at. We've got a lot of experience with this from building rock cut for LEAP and GTF programs. You know, you can build a building for a lot less than that, but to build the capacity and capability to have a highly automated, vertically integrated production system in a factory like that, that's kind of what the price tag looks like.

[Charles Blankenship, CEO & Chairman at Woodward]

And then also with our acquisition of Safran's electromechanical business, we'll moving product to existing facilities and really working through making that an optimum supply chain and production system to serve Airbus and the other airframers.

[Gavin Parsons, Director - Aerospace & Defense Equity Research at UBS Group]

Okay. That's great. I mean, just to put a finer point on the working capital, is that more to enable an acceleration in your growth or derisk your own supply chain visibility?

[Charles Blankenship, CEO & Chairman at Woodward]

It really does both. So thanks for that.

[Operator]

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

[Louis Raffetto, SVP - Equity Research at Wolfe Research LLC]

Yeah. Thank you. Bill, you ballparked the quarterly sales rate for the Greenville divestiture. Could you speak to the impact of the Safran deal on results and then also what the cash usage was for this quarter?

[William Lacey, EVP & CFO at Woodward]

Yeah. No. For for Saffron, we you know, the I I think when when they got announced, they're they sized the the business. And, you know, we're we're focused on taking it, growing it, and improving it. But, again, the the the key matter about this acquisition was a strategic one to allow us to continue to grow our capability in this space, and and and that's what we're we're focused on.

[William Lacey, EVP & CFO at Woodward]

Loose, I didn't get the the second part of your question.

[Louis Raffetto, SVP - Equity Research at Wolfe Research LLC]

Just how much you spent on that deal? It'll be in the k. I guess we close it just after the

[William Lacey, EVP & CFO at Woodward]

Yeah. It it again, it it's a great deal for us, and and we're we're happy with that. We we we have it, and it's not something that we're we're covering right now.

[Charles Blankenship, CEO & Chairman at Woodward]

Yeah.

[Charles Blankenship, CEO & Chairman at Woodward]

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

[Louis Raffetto, SVP - Equity Research at Wolfe Research LLC]

Okay. And then maybe just latest on the China, On Highway expectations for the rest of the year. I think you'd you'd gone from $40,000,000 to $50,000,000 Are we at $70,000,000 now, I guess?

[William Lacey, EVP & CFO at Woodward]

We're yeah. And for four, we're around 60 And in 4Q, it'll be somewhere around 10, around 10,000,000.

[Operator]

Our next next question comes from Michael Ciarmoli with Truist Securities. Please state your question.

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

Hey, good evening, guys. Thanks for taking the question. Maybe, Chip, can you give a little bit more color on this this a three fifty spoiler win? I mean, in in terms of what the expected chipset content will be, I guess, you know, my understanding, you've gotta develop your own IP when when maybe those first sales are gonna occur and, you know, any any kind of expected margin profile you could talk to? It it it sounded like maybe the existing, incumbent on this walked away, you know, just given their return profile. And I guess a couple 100,000,000 of investment sounds sounds significant for just that one platform. Is this a broader play to position yourself for for future kinda actuation spoiler wins on that that next gen narrow body?

[Charles Blankenship, CEO & Chairman at Woodward]

Yeah, Mike. So thanks for the question. You know, the the the spoiler actuator business is quite substantial. The a three fifty program, if you, you know, look at Airbus' forecast for rate increases and where where that aircraft is going and what the demand is for that is a so it's a wonderful program to be a part of. When I look at the chipset content so there are there are 14 actuators, you know, seven per wing, and we have 12 of those.

[Charles Blankenship, CEO & Chairman at Woodward]

So we're we're it's a lot of it's a lot of hardware per shipset. It's gonna take a bit of factory space because we're gonna be vertically integrated. It is a substantial investment, but it's a manageable one. And we have a number of things we're looking at to add into that facility as we go forward. But as of now, we like the investment and our forecasted return on that for the h three fifty program, and we'll we'll pile on that, and we'll add things as we as we can and as we win them going forward.

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

Will they will this be margin dilutive as it ramps up out of the gate?

[Charles Blankenship, CEO & Chairman at Woodward]

You know, quite often on on programs, they can be margin dilutive, and a lot of that sometimes has to do with fits and starts and where is the program and where is the plane gonna be when it enters enters, you know, production. We're not burdened with some of that in this case on a displacement. We know exactly what rate we have to catch when. And your question your earlier question was about when we would see revenue.

[Charles Blankenship, CEO & Chairman at Woodward]

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

[Operator]

Our next question comes from Sheila Kahyaoglu with Jefferies. Please state your question.

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

Thank you, guys. Maybe just following up on the new facility. How do we think about the few 100,000,000? Is it '26 and '27? So $300,000,000 over two years?

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

And I know I'm making up numbers here. How do we think about the payback on that? If it's just the commercial So

[William Lacey, EVP & CFO at Woodward]

I'll Yes. We look at this to be about a couple of 100,000,000 investment, Sheila. And yes, it will be spread out over 2026, 2027. Some of it could leak into 2028, but most of it will happen between those two years. Again, this will be we love this program.

[William Lacey, EVP & CFO at Woodward]

We think it's and and it will have good returns for us, and it's a a great portfolio of of opportunity here with Airbus, and and we think it's gonna be a really good program.

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

Okay. And then on the defense continued outperformance there, any comments you can make on how long it lasts? How do we think about the JDAM contract in particular and its impact on profitability?

[William Lacey, EVP & CFO at Woodward]

Yeah. So first, smart defense, I wanna make sure to to say that all the all the products in our Smart Defense portfolio are performing well. Obviously, JDAM gets a lot of of coverage as it should, And we these programs are tough, but we think through at least the first half of twenty six, we feel good about seeing the demand, and we like we like the demand. It gets a little dangerous to take that view too much further than that, Sheila. So I'll say we feel good about this demand through the first half of twenty six.

[Operator]

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

[Gautam Khanna, Analyst at TD Cowen]

Hey, good afternoon guys.

[Charles Blankenship, CEO & Chairman at Woodward]

Afternoon Gautam.

[Gautam Khanna, Analyst at TD Cowen]

I had a couple questions and perhaps I dropped. So I'm just curious, did you address China natural gas and what demand signals, you're seeing from those customers?

[William Lacey, EVP & CFO at Woodward]

Yeah. We we briefly said that, q four will be around ten million. The overall economy continues to to dampen the demand and the order rate in that business.

[Gautam Khanna, Analyst at TD Cowen]

Okay. Any preliminary view on 2026 given fiscal twenty five has been an unnaturally low year?

[William Lacey, EVP & CFO at Woodward]

Yeah.

[Gautam Khanna, Analyst at TD Cowen]

What is normal?

[William Lacey, EVP & CFO at Woodward]

No.

[William Lacey, EVP & CFO at Woodward]

We're gonna continue to focus on, our core industrial business, and and that'll be our focus. And And as we said, it's a dynamic volatile business, and we will highlight that what we our view when we get to the end of the fourth quarter.

[Gautam Khanna, Analyst at TD Cowen]

Okay. And big picture, have you seen any demand erosion from U. S. Trade policy and all the changes we've had with U. S. Trade policy since April anywhere in the portfolio?

[Charles Blankenship, CEO & Chairman at Woodward]

I wouldn't say we've seen demand drop off. I think we've seen some maybe unnatural volatility and some delays and then spikes. We had some delayed China service orders earlier in the year. And then we've had some piling on of orders maybe at 1.5x to 2x the normal amount in third quarter and fourth quarter.

[Charles Blankenship, CEO & Chairman at Woodward]

So I think we've seen some unnatural volatility, but maybe not I wouldn't characterize it as a like a drop off in a demand or long term demand increase either way.

[Operator]

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

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

Thanks for taking the follow-up. So previously you had this free cash flow target out through 2026 of $1,200,000,000 cumulative. Is that now off the table given the reduction of free cash flow forecast for this year and what you're talking about, it sounds for CapEx next year?

[William Lacey, EVP & CFO at Woodward]

David, think our underlying business and our plan, still see being able to deliver the $1,200,000,000 But you did highlight a point, and that is that we are still figuring out what exactly the CapEx spend will be in '26, and that may have an impact on it. And we'll just come back to you at the end of the year with more clarity on exactly how that's looking.

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

Okay. And do you guys have any impact from or any benefit from, section one seventy four amortization going away as part of the, these, big beautiful bill?

[William Lacey, EVP & CFO at Woodward]

The the we from the, from some of these elements, on on that bill around around what we can do around some of the r and d expenses, what we can do as we're building the facilities and can accelerate that depreciation. A lot of those things will help. There's still a lot of, we got high level views of what that is, but exactly how it rolls out, we're going to have to spend a little more time and we can give you a better understanding of the impact as we get to, given '26 guidance.

[Operator]

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

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

Chip, just to clarify an earlier comment you made, were you saying that LEAP and GTF aftermarket revenue is approaching legacy narrow body aftermarket? Or was the comment that total revenue from LEAP and GTF, including OE, is approaching legacy aftermarket? Just want to clarify that.

[Charles Blankenship, CEO & Chairman at Woodward]

Well, good clarification question. I the the point I was making was that in the aftermarket, in the service business, which is comprised of spare end items, repair and overhaul, as well as spare parts in those categories that LEAP and GTF are gaining and getting into the same ZIP code as the legacy, which is very exciting for us.

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

Okay. And then, Chip, when we think about growth and power generation over the coming years, should we be looking at the growth at GE, Vernova and Rolls Royce, when we think about your growth? Or are there any specific nuances with respect to Woodward's position that would drive a meaningful divergence between what those OEMs are looking at and then what you might look at? Thank you.

[Charles Blankenship, CEO & Chairman at Woodward]

I think broadly speaking, we see the same kind of growth they do, but it can get a little bit nuanced in terms of which platform wins, which application. Because if a if a if a certain gas turbine wins, you know, it it starts to win more or a certain recip engine that's liquid wins, then our hardware may or may not be on those OEMs. So broadly speaking, if you average the OEMs, I think you'd get something close to what we're seeing. So, you know, we're our SOGAF product line is on gas engines. Our DFS business, WLO, in in Germany is on MTUs, you know, reciprocating backup engine power.

[Charles Blankenship, CEO & Chairman at Woodward]

And we have, you know, a lot of control valves on GE Vernova, Baker Hughes, and Mitsubishi gas turbines. So when you look at those OEMs and how they're doing and how they're forecasting growth, you can see how we can play in that market.

[Operator]

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

[Noah Poponak, Research Analyst at Goldman Sachs]

Chip, in the beginning of the year in the initial guidance, if I recall, you had contemplated aerospace aftermarket revenue growing low to mid single digits. And year to date, it's now I have it up 24%. I think that's right. The the excess 20 points of growth, how much of that is pent up demand, extended duration of the legacy fleet versus how much of that is sounds like maybe the leap in the GTF are coming along a bit faster than you planned at the beginning of the year.

[Charles Blankenship, CEO & Chairman at Woodward]

It is a it is a combination of both of those, Noah, as well as price. You know, I just we we see few signs of the legacy slowing down, and I think that's one of the one of the bigger indications to us that, you know, that that we didn't see earlier in the year. I thought that would be flattish except for price, and the the the shops and the airlines have found ways to send more units in for overhaul and repair and order more spare parts than than we forecast that are modeled. But then again, LEAP and GTF has that steep curve has continued to deliver more units into overhaul for us. So we like the results.

[Charles Blankenship, CEO & Chairman at Woodward]

And I think I said early in the year when I was questioned by a number of folks, you know, are you are you just you know, do you do you think that that's gonna happen? And what if what if there's more demand? And I said if there's more demand, we will be ready with the capacity to capitalize on that opportunity, and that's kinda how it turned out.

[Noah Poponak, Research Analyst at Goldman Sachs]

Do you have a sense from those customers of how long that now goes into the forward, or is it just kind of hard to have that visibility in that business?

[Charles Blankenship, CEO & Chairman at Woodward]

I think the the the the the challenge is it's it's all related to revenue passenger miles and how long airlines keep flying those legacy aircraft to make up for the delivery rates that are slower than they want them to be from the airframers. If there's a you know, if you listen to Southwest and United and American and Delta talk about US domestic travel, it's not such a rosy picture. If you listen to folks talk about, you know, what's going on in the rest of the world, there's there's some good demand in Europe and other places. So just keeping a close eye on that demand, I think, helps us understand how long the legacy fleet is gonna be robustly invested in, if you will. Because once once airplanes started will start to get parked from the legacy fleet, more used serviceable material will be available.

[Charles Blankenship, CEO & Chairman at Woodward]

And while it it could really, you know, I think, eat into the into that business pretty quickly, but for us, on the Woodward side, the the the great news about that is that there's such a multiplier effect on LEAP and GTF in terms of how that fleet is accumulating hours and cycles that we feel like our growth profile is relatively secure. But I just you know, maybe we're a few quarters ahead of of that legacy fleet, you know, tailing off. The one reminder you'll hear from a lot of folks in the OEM business is that, you know, I don't know whether it's 40% or 50% of the the CFM 56 dash fives and dash sevens haven't seen their first shop visit yet. So those younger parts of the fleet still have a long way to go. The older parts of the fleet, you know, may get may get parked out when the when the demand curve turns a little bit or when the OEMs start producing at the rates they wanna produce.

[Operator]

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

[Gavin Parsons, Director - Aerospace & Defense Equity Research at UBS Group]

Hey. Thanks for the follow-up. On the LEAP, GE, a week or two ago, said they expect a 25% shop visit CAGR through the end of the decade. Anything to keep in mind about your growth rate relative to that? Thanks.

[Charles Blankenship, CEO & Chairman at Woodward]

Sure thing. That's an exciting growth rate. I think that hours and cycles and utilizations, you know, support that, obviously. For us, some of our LRUs are not necessarily correlated with the shop visit in terms of when we see them. You know, we've been even though those those our growth rates are substantial still and we have a steep growth rate, we don't necessarily correlate one to one with the shop visits in terms of removals of our different LRUs.

[Charles Blankenship, CEO & Chairman at Woodward]

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

[Gavin Parsons, Director - Aerospace & Defense Equity Research at UBS Group]

That's helpful. And on JDAM, I didn't see the step up in the budget. Do you guys have that contract locked in? Or I'm just wondering your visibility on that going forward.

[Charles Blankenship, CEO & Chairman at Woodward]

So we have POs from our customer, and and we're responding to those and and fulfilling. We I don't know what the locked in you're referring to, but we have POs from our customer.

[Operator]

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

[Charles Blankenship, CEO & Chairman at Woodward]

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

[Operator]

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

Participants

Executives

• Daniel Provaznik, Director of Investor Relations
• Charles Blankenship, CEO & Chairman
• William Lacey, EVP & CFO

Analysts

• David Strauss, MD, Equity Research - Aerospace & Defense at Barclays
• Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank
• Noah Poponak, Research Analyst at Goldman Sachs
• Scott Mikus, Vice President - Equity Research at Melius Research LLC
• Christopher Glynn, Equity Analyst - Industrials at Oppenheimer Holdings
• Gavin Parsons, Director - Aerospace & Defense Equity Research at UBS Group
• Louis Raffetto, SVP - Equity Research at Wolfe Research LLC
• Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities
• Sheila Kahyaoglu, Aerospace, Defense & Airlines Equity Research at Jefferies
• Gautam Khanna, Analyst at TD Cowen