What Loar (LOAR) Said on Its Q3 Earnings Call

Key Points

• Q3 growth and cash generation strengthened: Loar delivered 16% organic sales growth, a 40.8% adjusted EBITDA margin and 46% higher free cash flow year over year. Net income declined because of higher interest, amortization and tax expenses.
• Loar raised its 2026 outlook to $669 million–$679 million in revenue and $270 million–$275 million in adjusted EBITDA, while maintaining an approximately 40% margin target.
• Initial 2027 guidance points to continued expansion: Loar expects $745 million–$755 million in sales and $312 million–$317 million in adjusted EBITDA. Management cited record backlog and book-to-bill ratios above 1.1 across all end markets, with new business expected to be the largest organic growth driver.

Loar NYSE: LOAR raised its 2026 financial outlook and projected double-digit growth across its major aerospace and defense markets next year, citing new business wins, record backlog and improving supply chains.

The aerospace parts supplier reported 16% organic sales growth in the third quarter and a 46% increase in free cash flow from a year earlier. Chief Executive Officer and Executive Co-Chairman Dirkson Charles said the company recorded its 17th consecutive quarter of record adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA.

Adjusted EBITDA rose $23 million from the prior-year quarter, while the adjusted EBITDA margin expanded to 40.8% from 38.7%. Net income fell $8 million, however, as higher interest and amortization costs and increased income tax expense more than offset the benefit of higher operating income, Chief Financial Officer Glenn D'Alessandro said.

Commercial Production Leads Growth

Commercial original equipment sales increased 20% year over year, making it the fastest-growing end market for the third consecutive quarter, Charles said. He attributed the increase to stronger demand, an improved supply chain and shipments tied to new business wins.

Commercial aftermarket sales grew by a low double-digit percentage, while defense posted its strongest quarterly growth rate of 2026. Charles cautioned that defense sales could remain uneven from quarter to quarter despite increased military funding globally.

Gross profit margin rose 150 basis points from a year earlier, helped by operating leverage and the company's operational initiatives, D'Alessandro said. The improvement was partly offset by higher non-cash amortization associated with the LMB and Harper Engineering acquisitions.

Adjusted net income declined $3 million year over year, primarily because of higher interest and income tax expenses. D'Alessandro said the tax comparison was affected by a benefit recognized in the third quarter of 2025 following tax law changes.

Charles highlighted cash generation, saying that year-to-date operating cash flow less capital expenditures was approximately 200% of net income.

Higher 2026 Outlook and Initial 2027 Forecast

Loar increased its 2026 revenue forecast to $669 million to $679 million from $665 million to $675 million. It also raised its adjusted EBITDA outlook to $270 million to $275 million from $265 million to $270 million, while maintaining an expectation for an approximately 40% adjusted EBITDA margin.

The company now expects full-year net income of $60 million to $64 million and adjusted earnings per share of $1.36 to $1.40. Its revised outlook assumes commercial original equipment growth of 19% to 22%, up from its previous expectation of 17% to 20%. It also assumes low double-digit commercial aftermarket growth and mid-single-digit defense growth.

For 2027, Loar issued initial guidance of:

• Sales of $745 million to $755 million.
• Adjusted EBITDA of $312 million to $317 million and an approximately 42% margin.
• GAAP net income of $91 million to $95 million and adjusted earnings per share of $1.64 to $1.68.
• Capital expenditures of approximately $30 million, or about 4% of sales.

Charles said the 2027 forecast excludes additional acquisitions and assumes low double-digit growth in each of Loar's three end markets on a pro forma basis, as if the company had owned all its business units since the beginning of 2026. The forecast assumes commercial aftermarket available seat miles are flat to up roughly 2%, even as airlines manage capacity amid higher fuel costs.

During the question-and-answer session, Charles said book-to-bill ratios were above 1.1 across all end markets and that backlog was at record highs. He identified new business, pricing and volume, in that order, as the primary expected drivers of organic growth in 2027.

Charles also said margins on new business already being shipped were exceeding the company's expectations. Loar plans to direct some of its increased capital spending toward demand for products including seatbelt restraints, fans and motors, carbon brakes and seat track fittings.

New Business and Acquisition Pipeline

Director of Investor Relations Ian McKillop said Loar had previously shared visibility into $200 million in revenue generation from its new business pipeline over five years. The company expects to update investors on the pipeline when it reports first-quarter 2027 earnings, followed by an update on wins the next quarter.

Charles said the pipeline had grown from the prior quarter as customer discussions revealed additional opportunities. McKillop also said Loar was investing in its brake capabilities and seeing willingness among customers to adopt parts manufacturer approval, or PMA, products in that area.

Executive Co-Chairman Brett Milgrim said acquisition opportunities have expanded beyond the defense-heavy selection the company saw earlier in the year and in 2025. Loar has historically acquired one or two brands annually, but Milgrim emphasized that deal timing is unpredictable and that the company remains disciplined in selecting targets.

“It's unpredictable and it's lumpy,” Milgrim said of acquisition activity, adding that Loar would pursue transactions it believes increase the company's equity value.

About Loar (NYSE:LOAR)

Loar Holdings Inc is an aerospace and defense company that designs, manufactures and sells highly engineered, mission-critical components and systems. Its products are used in commercial and military aircraft, business jets, general aviation, space vehicles and other defense applications.

The company's product portfolio includes specialized components such as shock absorbers, vibration-control products, elastomeric components, seals, electronic systems and other aircraft and defense parts.

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