Woodward NASDAQ: WWD reported a “exceptionally strong” second quarter of fiscal 2026, posting quarterly sales above $1 billion for the first time and delivering record adjusted earnings per share, as robust demand continued across both its aerospace and industrial businesses.
Quarterly results top $1 billion in sales
Chairman and CEO Chip Blankenship said Woodward is executing “with focus and discipline” to meet demand, while also navigating a complex global environment. Blankenship noted the company is monitoring geopolitical developments, including potential effects on defense spending and airline traffic that “if those impacts do occur, we expect them to be felt in fiscal 2027.”
Chief Financial Officer Bill Lacey said second-quarter net sales rose 23% year over year to $1.1 billion. Woodward reported EPS of $2.19, up from $1.78 a year earlier, and adjusted EPS of $2.27, up from $1.69. Free cash flow in the quarter was $38 million.
Aerospace growth led by commercial services and OEM
Aerospace segment sales increased 25% year over year to $703 million. Lacey attributed the growth primarily to commercial aerospace, with commercial services up 36% as repair volume increased to support high utilization of legacy aircraft alongside rising activity on LEAP and GTF engines. He said spare line replaceable unit (LRU) sales growth was strong and volumes were consistent with the prior two quarters.
Commercial OEM sales rose 30%. Lacey said Woodward believes de-stocking is “largely behind us,” with output more aligned to airframers’ current build rates. Defense OEM sales grew 9%, which he said was driven primarily by increased JDAM pricing that took effect in fiscal Q4 2025. Defense services grew 8%.
Aerospace segment earnings were $158 million, or 22.5% of segment sales, compared with $125 million, or 22.2%, a year earlier. Lacey said margin gains from commercial services strength, higher commercial OEM volumes, and price realization were “largely offset” by planned strategic investments and inflation, resulting in a net 30-basis-point improvement. He said investments included manufacturing capability enhancements, incremental R&D tied to early-stage efforts for the next single-aisle aircraft platform, and an enterprise-wide ERP upgrade. Lacey added that aerospace flow-through for the full-year 2026 guide is expected to be “approximately 30%–35%.”
Industrial sales rise 20% as data center power demand builds
Industrial segment sales increased 20% to $387 million. Lacey said core industrial sales (excluding China on-highway) rose 19% on higher volume, price, and favorable foreign currency. He highlighted strength in:
- Marine transportation: sales up 34% on higher shipyard output and services activity
- Oil and gas: sales up 18% on higher volume tied to midstream and downstream gas investment
- Power generation: sales up 7%; excluding the prior-year combustion business divestiture, power generation grew “in the high teens” driven by increasing data center demand for base and backup power
Outside core industrial, China on-highway sales were $29 million. Lacey said Woodward expects approximately $30 million of China on-highway sales in the third quarter and “minimal sales in the fourth quarter.”
Industrial segment earnings were $66 million, or 17% of segment sales, compared with $46 million, or 14.3%, a year earlier. Lacey said core industrial margins were approximately flat at 14.7%, as price realization and higher volume were partially offset by inflation. He also said margins were negatively impacted by a reserve for a product performance claim; excluding the reserve, core industrial margins would have been in line with the first quarter. Lacey added that the China on-highway business contributed an additional 230 basis points of margin growth in the quarter.
Asked about the product reserve, Blankenship said it involves “a long-standing product development program” where Woodward and a customer view results differently, adding that the matter is being handled through a legal process and the company would not provide additional details.
Portfolio actions, capacity investments, and MRO partnerships
Blankenship highlighted several portfolio and footprint moves aimed at sharpening Woodward’s focus on areas where it can be “best-in-class.” He said Woodward closed its acquisition of Valve Research & Manufacturing in March, adding solenoid technology to its control systems portfolio and seeing opportunities in both aircraft and industrial gas turbine control systems. He also noted the company announced the sale of its Niles-based pilot controls product line to Ontic and said the transaction will allow Woodward to refocus resources while remaining a supplier of enabling components to the buyer.
Woodward also disclosed production footprint changes, including relocating servovalve production lines from Santa Clarita to Rockford to target quality and delivery improvements. In industrial, Blankenship said the wind-down of the China on-highway product line remains on track, with last-time buy volumes reflected in the quarter.
On capacity expansion, Blankenship said two major construction projects—Spartanburg and Glatten—are on schedule. Spartanburg, which will support Airbus A350 spoiler actuation systems, is targeted to be operational in 2027, with deliveries beginning the following year. The Glatten expansion to produce more diesel fuel injectors for data center backup power is “almost complete,” with more than 100 machines moved to improve flow and increase capacity.
Blankenship also said multiple customers have recently shared potential increases to power-generation-related forecasts, driven largely by data center demand, and Woodward is conducting capacity studies through 2030+ in response.
In aerospace services, Woodward reiterated a strategy that combines in-house repair and overhaul with licensed providers. Blankenship said the company recently announced new licensed repair service facility agreements with Lufthansa Technik and Air France-KLM and a new distribution agreement with AAR. He said the “rate limiting step” for licensed providers is procuring, installing, and calibrating test stands—typically a 9-to-12-month process—making it “definitely not a 2026 kind of thing.”
Cash flow, capital returns, and raised guidance
For the first half of fiscal 2026, Lacey said net cash provided by operating activities was $205 million, up from $112 million a year earlier, driven largely by higher earnings. Capital expenditures were $97 million in the first half, and Woodward expects a “meaningful increase” in capex over the next two quarters, consistent with full-year guidance of about $290 million. Free cash flow for the first half was $109 million, up from $60 million, with higher earnings partially offset by higher capex.
As of March 31, 2026, Lacey said debt leverage was 1.4 times EBITDA. In the first half, Woodward returned more than $355 million to shareholders through share repurchases and $36 million in dividends, and its fiscal 2026 plan still assumes $650 million to $700 million of combined dividends and repurchases.
Management raised full-year fiscal 2026 sales and earnings guidance based on second-quarter performance and confidence in the second half. Lacey said Woodward now expects:
- Aerospace: sales growth of 21%–24% and margins of 23%–23.5%
- Industrial: sales growth of 18%–20% and margins of 18%–18.5%
- Total company: sales growth of 20%–23% and adjusted EPS of $9.15 to $9.45
- Free cash flow: $300 million to $350 million (unchanged)
- Capital expenditures: approximately $290 million (unchanged)
On free cash flow, Blankenship said the unchanged outlook largely reflects higher working capital needs. Lacey added Woodward expects to maintain higher inventory levels than previously anticipated to meet demand and improve end-to-end supply chain alignment, with inventory initiatives intended to support improved free cash flow generation in fiscal 2027.
During Q&A, Blankenship said Woodward has not seen a slowdown in spare LRU orders or shop inputs tied to airline capacity reductions that have been announced. He said the company continues to monitor fuel price duration and broader macro and geopolitical conditions as potential factors that could influence aftermarket demand in fiscal 2027.
About Woodward NASDAQ: WWD
Woodward, Inc NASDAQ: WWD is a global leader in the design, manufacture and service of control systems and components for the aerospace and industrial markets. Founded in 1870 and headquartered in Fort Collins, Colorado, the company specializes in motion control, fuel systems, actuation, and digital control solutions. Its offerings enable precision management of flow, pressure and motion in critical applications ranging from aircraft engines and power turbines to hydraulic systems.
Woodward's product portfolio is organized into two primary segments: Aerospace and Industrial.
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