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Date

Monday, July 28, 2025, at 5 p.m. ET

Call participants

  • Chairman and Chief Executive Officer — Chip Blankenship
  • Chief Financial Officer — Bill Lacey
  • Director of Investor Relations — Dan Provaznik

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Takeaways

  • Net sales: $915 million in net sales for the fiscal third quarter ended June 30, 2025, up 8% year-over-year compared to the fiscal third quarter ended June 30, 2024, a company record driven by robust aerospace demand.
  • Adjusted EPS: $1.76 in earnings per share for the fiscal third quarter ended June 30, 2025, up 8% year-over-year, alongside higher volumes and improved price realization.
  • Aerospace segment sales: $596 million in aerospace segment sales for the fiscal third quarter ended June 30, 2025, up 15% year-over-year; commercial services sales rose 30% year-over-year, while commercial OEM sales declined 8% and defense services decreased 16% year-over-year.
  • Aerospace margins: 21.1% aerospace segment margin for the fiscal third quarter ended June 30, 2025, a 140-basis-point expansion attributed to higher pricing and operational improvements, partially offset by inflation and unfavorable product mix.
  • Defense OEM sales: Defense OEM sales increased 56% year-over-year in the fiscal third quarter ended June 30, 2025, largely due to "smart defense" program strength, though margins were lower relative to other aerospace products.
  • Industrial segment sales: $319 million in industrial segment sales for the fiscal third quarter ended June 30, 2025, down 3% year-over-year, primarily reflecting a $36 million (69%) decrease in China on-highway sales; excluding China on-highway and divested combustion, core industrial sales grew double digits.
  • Oil & gas and marine transportation: Oil & gas and marine transportation categories each recorded 16% growth in the fiscal third quarter ended June 30, 2025, driven by price and volume.
  • Free cash flow: $159 million in free cash flow for the first nine months of fiscal 2025, down from $225 million in the prior-year period, reflecting elevated working capital requirements.
  • Capital expenditures: Capital expenditures were $79 million for the first nine months of fiscal 2025, a $7 million increase compared to the same period of the prior year.
  • Shareholder returns: $172 million returned in the first nine months of fiscal 2025 ($124 million in share repurchases, $48 million in dividends); full-year returns to stockholders are expected to reach $235 million.
  • Guidance updates: Full-year consolidated sales guidance raised to $3.45-$3.525 billion; aerospace sales growth guidance increased to 11%-13%, industrial sales guidance updated to a 5%-7% decrease; adjusted EPS guided at $6.50-$6.75.
  • A350 spoiler actuator contract: The company selected by Airbus for spoiler control actuators on the A350, marking the first actuation LRU win for a primary flight control on a commercial platform.
  • Safran acquisition: Completed the purchase of Safran’s North American electromechanical actuation business, expanding into horizontal stabilizer trim actuation technology for major platforms.
  • Upcoming CapEx: Significant investments planned over fiscal 2026-fiscal 2027 for a U.S. facility supporting the A350 spoiler contract, described as “a couple of $100 million” spread over multiple years, with most of the investment expected in fiscal 2026 and fiscal 2027.
  • Pricing: Company-wide pricing delivered close to 7% for fiscal 2025, with aerospace contributing more than industrial; the previous estimate for price was approximately 5%.
  • Free cash flow guidance: Lowered to a range of $315-$350 million in free cash flow for fiscal 2025 due to increased working capital tied to higher sales and inventory management amid supply chain variability.
  • Tax rate: Adjusted effective tax rate for fiscal 2025 revised to approximately 17%, supported by exercised stock options.
  • LEAP and GTF contribution: LEAP and GTF aftermarket volumes are approaching legacy product levels as of the fiscal third quarter ended June 30, 2025, and meaningfully boosting aero services revenue, with crossover to legacy volume projected in fiscal 2028.

Summary

Woodward (WWD -0.96%) management raised full-year fiscal 2025 sales and earnings guidance after reporting record fiscal third quarter revenue and earnings, underpinned by aerospace services and strong defense demand. Two strategic moves—a major A350 spoiler actuator win with Airbus and the Safran actuation acquisition—significantly enhance Woodward's commercial aerospace positioning ahead of upcoming platform competitions. While core industrial growth was robust outside China on-highway and divested combustion products, overall industrial revenue and margins reflected headwinds from China exposure and working capital increases. Planned capital allocation priorities focused on substantial investments to support new wins and automation initiatives are expected to elevate capital expenditures in fiscal 2026 and fiscal 2027, shaping the company’s longer-term growth profile and cash generation capacity.

  • Blankenship said, “LEAP and GTF volume is now having a meaningful impact on our commercial aero services revenue and margin.”
  • Lacey disclosed, “as a total business, we saw about 7% price,” with both segments contributing, and “Aero contributed a little more than industrial.”
  • Blankenship described the A350 spoiler win as enabling Woodward to “apply our deep expertise in military hydraulic flight controls to a very important and already successful key commercial aircraft program.”
  • Lacey stated the decision to lower free cash flow guidance was due to “investing more in work capital, specifically inventory,” enabling support for changing customer demand profiles within a dynamic supply chain environment.
  • Lacey said the incremental margin trends in aerospace were affected in part by “unfavorable mix, driven by growth in our defense OEM products, which carry lower margins.”

Industry glossary

  • LEAP: CFM International’s advanced high-bypass turbofan engine family for next-generation commercial aircraft; key driver of Woodward’s aftermarket revenue.
  • GTF: Pratt & Whitney’s Geared Turbofan engine program, representing a significant portion of Woodward’s components and service activity.
  • LRU: Line Replaceable Unit; a modular component designed for quick replacement in the field, such as the spoiler actuator in aircraft.
  • China on-highway: Woodward’s business supplying components to heavy-duty trucks within the Chinese domestic market.
  • Smart defense: Refers to Woodward’s advanced portfolio of defense OEM programs, including precision-guided weapon components such as JDAM.

Full Conference Call Transcript

Operator: Thank you for standing by. Welcome to the Woodward, Inc. Third Quarter Fiscal Year 2025 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 a listen-only mode. Following the presentation, you are invited to a question-and-answer session. Joining us today for the company are Chip Blankenship, Chairman and Chief Executive Officer, Bill Lacey, Chief Financial Officer, and Dan Provaznik, Director of Investor Relations. I would now like to turn the call over to Dan Provaznik.

Dan Provaznik: We would like to welcome all of you to Woodward's third-quarter fiscal year 2025 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. For those who have not seen today's earnings release, you can find it on our website at woodward.com. We have included some presentation materials to go along with today's call that are also accessible on our website. 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 shown on Slide two in 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. 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-US GAAP financial measures.

We direct your attention to the reconciliations of non-US 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 will turn the call over to Chip.

Chip Blankenship: Thank you, Dan. Good evening, everyone, and thank you for joining us. We are 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. 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%. In industrial, our reported sales declined 3%.

When China On-Highway and the divested combustion product lines are excluded, industrial delivered double-digit growth. Our year-to-date performance reaffirms our midterm 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. I am also excited to share with you updates on two important developments for Woodward. At the Paris Air Show, we held an event with Airbus to announce that we have 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. 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 are investing in a new manufacturing facility for the A350 spoiler actuation production in the US. We will be able to share more details on the location as agreements are finalized. What I can tell you is that we are designing a showcase facility, vertically integrated, highly automated, special processes included, and built on the lessons learned at our Rock Cut facility during the LEAP and GTF programs. It is 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 are 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 190-E2, Gulfstream 650, 700, and 800, and Dassault Falcon 7X and 8X. Together, these two strategic moves, one organic, one inorganic, strengthen our core capabilities and commercial aircraft pedigree ahead of the next single-aisle competition.

Dan Provaznik: 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 is 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. Aero services exhibited sustained strong growth in the third quarter.

The softening in services we had anticipated in our plans and guidance has not 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. 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 Aero as expected, led by strong performance in smart defense. 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 have had with customers along with what we see directly in orders, we are getting confirmation that the growth predictions are real, and we are prepared to serve that growth. We are focusing our lean transformation on and lead-type improvements on our model gas turbine control valve production line to better serve customers. In fact, we have increased output more than 30% year-to-date. We are more than halfway through the Glatten expansion project to increase capacity to meet data center backup power demand.

Construction is tracking ahead of schedule, we have ordered all remaining machines in July, and we will be ready to begin moving into the new hall in November. This value stream has been completely redesigned with 3P principles, that is, production, preparation, process. We are using this expansion opportunity to create better flow, introduce higher levels of automation, and improve inventory turns. 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. 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 is clear we are on the right path to deliver on the commitments we have made to you. We will continue to create shareholder value through our value drivers of profitable growth, operational excellence, and innovation.

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

Bill Lacey: 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 2025 of $915 million, reflecting the strong demand across our end markets. Earnings per share for 2025 were $1.76 compared to $1.63. At the segment level, aerospace segment sales for 2025 were a record $596 million compared to $518 million, an increase of 15%. Defense OEM sales were strong in the quarter, up 56%, largely driven by increased demand for our smart defense program.

Commercial services sales rose 30%, exceeding expectations, driven 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 manage 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%. 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 million.

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. 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 2025 were $319 million compared to $330 million, a decrease of 3%.

This was primarily due to the expected decline of China on-highway sales, which were down $36 million or 69%. Our core industrial sales, which exclude China on-highway, grew by 9% in the quarter. 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, power generation sales grew double digits. For context, the combustion business averaged approximately $10 million of sales per quarter.

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 2025 were $48 million or 14.9% of segment sales compared to $60 million 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. 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 million for 2025 compared to $30 million. 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 2025 was $238 million compared to $297 million. Capital expenditures were $79 million for the first nine months compared to $72 million. Free cash flow was $159 million for the first nine months of 2025 compared to $225 million.

The decrease in free cash flow was primarily due to an increase in working capital. As of June 30, 2025, debt leverage was 1.5 times EBITDA. During the third quarter, we returned over $62 million to stockholders, including $45 million in share repurchases and $17 million in dividends. Through the first nine months of 2025, we returned $172 million to stockholders, including $124 million in share repurchases and $48 million in dividends. We now expect to return approximately $235 million to stockholders in 2025, exceeding our initial goal of returning $250 million. This should consist of $170 million of share repurchases and $65 million in dividends. We will continue to manage this with flexibility as conditions evolve.

We remain disciplined in deploying capital across three priorities: reinvesting for growth, returning cash to shareholders, and selective returns focused on M&A. As Chip highlighted, we will be making a multi-year 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.

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 a strong fourth-quarter outlook. For 2025, we now expect consolidated sales of $3.45 to $3.525 billion, which includes aerospace sales growth between 11% and 13%, and a decrease in industrial sales between 5% and 7%. Now we expect adjusted EPS between $6.50 and $6.75, with aerospace margins to be between 21% and 21.5%, and industrial margins to be approximately 14.5%. We now expect the fiscal year 2025 adjusted effective tax rate to be approximately 17%.

We now expect our 2025 free cash flow to be between $315 and $350 million. 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 2025.

Operator: We are now ready to open the call for questions. Thank you. The question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any number. Should you have a question, please press star 1 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. If there is remaining time, you are welcome to rejoin with additional questions. Your question will be taken in the order it is received. Please stand by for your first question.

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

David Strauss: Yeah. Hey, Dave. Before you jump in, I just want to make sure I clarify something. I noted our third quarter sales of $915 million, I may have said 18%. I just want to be clear that is an 8% increase. Thank you. I will turn it over to you, David.

David Strauss: Great. Thanks. Thanks, Bill. Chip, I thought I heard you say that LEAP and GTF aftermarket volumes are now close to legacy volumes? Maybe I did not hear that correctly, but I thought in the past you talked about getting to those kinds of levels a couple of years out from now.

Chip Blankenship: Yeah. So hey. Thanks for the question, David. In fact, you know, they are getting close last quarter. This quarter, they have just got into the same neighborhood ZIP code range. Still short of the legacy total volume. And we forecast the crossover, which is what we said before, in sort of the 2028 time period. So we are still sticking with that as our outlook. The things that could make that happen faster is if the legacy fleet starts to see fewer hours and cycles and sees less investment, as Boeing and Airbus continue to pump out the Neos and Maxes to take the places of those aircraft. So right now, we are 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 are very excited about that.

Operator: Our next question comes from Scott Deuschle with Deutsche Bank. Please state your question.

Scott Deuschle: Hi. Good evening. Hey, Scott. Hey, Scott. 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?

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

As you highlighted, our as you look at our guidance and what that implies for April, 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 lives. So that is what will the sustained growth in defense OE with the move in pricing 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: Hey. Good afternoon, guys. Good afternoon. Lot of discussion of some new investments or maybe a few we had not fully calibrated. Here. So in the release, you also cite Aerospace Investments impacting the third quarter margin. 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 million on in the free cash flow reduction? Can you be more specific there? And then how much and for how long are we talking about higher CapEx beyond this year, and what is it for?

Bill Lacey: Yeah. Thanks for those questions. First of all, on the investments that we highlighted 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 to drive productivity. We are investing in our team leaders. We are investing in our operation again, to work with our direct employees in order to help us to increase 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 are looking for.

Finally, we are adding in supplier engineers to continue to work with our supply base to make sure we can improve on those areas. The second part of your question is around free cash flow and us lowering our range there. And the simple answer is we are investing more in work capital, specifically inventory. As we look at the need to meet the demands of our customer in the mix that they are looking for and get it there on time. And understanding 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 systems. So that going forward, we do not need to invest that into those levels and we expect that you will see that benefit as we get to 2026. 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 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-20s. Do we use that as the jumping-off point off which you expand next year? No. Not necessarily.

Again, I think we are expecting to have a very strong Q4 in Aero. There are a few reasons for that. And as we get into '26, we will talk a little bit more about the rate that you can expect for aero for the total year, but we are very pleased with what the implied four q exit of ARROW.

Operator: Our next question comes from Scott Nicholas with Melius Research. Please state your question.

Scott Nicholas: Morning, Chip, Bill. Nice to be there. And you displaced an incumbent supplier on the A350 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?

Chip Blankenship: 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 would not 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. As far as tier-one and tier-two for us, we are kind of a little bit of a humble company. I mean, we are willing to do work at tier-one levels.

We are willing and able to do systems, subsystems, or components. And, you know, where we can add value to customers and to products we are willing to serve if we can make it a profitable high-return business for our shareholders. 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? Yeah. So yeah, 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 have said in the past that price for the year would 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: Thanks. Good afternoon. Good afternoon, Chris. I want to ask about the hey. So the marine is doing better than you have talked about the long-term profile given industry capacity. You know, kind of at that level. So just curious what is driving the upside this year? Maybe it is simply price but also curious if you are taking share in some respect or building out the naval profile alongside commercial and merchant.

Chip Blankenship: 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 capacity increases in orders from the shipyards. And the services business. So it is like those three things. It is price, it is the platforms that we are on. They are winning positions on the ships. And then the service opportunity from the utilization is quite strong. Okay. Great. And then the third quarter, did that see any of the new lots pricing in the smart weapons? First, we it will start in the fourth quarter. Tax rates come down a good bit, a couple of separate times during the year.

Just wondering what is driving that and if we should be thinking of a new baseline beyond the current year other than the kind of 20% anchor. Yeah. With the level of stock options we have, to support our members, historically. With the record stock prices that we have had we have seen a lot of those stock options that came in, which provides us with a tax benefit. And that is what really drove that rate down. As we continue to increase our net earnings, that is going to put pressure on our tax rate. And so I would expect a bit more pressure.

But right now, with the stock price at the levels they are they have been at, that is causing us to get this benefit which results in these lower tax rates. And hence, our upgrading our us adjusting the guidance on that effective tax rate for twenty-five.

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

Gavin Parsons: Hey, thanks. Good afternoon. Hello, Gavin. Speaking, Gavin. 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 Safran business?

Chip Blankenship: Yeah. But it is safe to say that all the inventory increase is with current programs, and it is really in a lot of people talk about it in the industry. It is a factor of fluctuation in our own production system fluctuation in demand from customers that have supply chain issues that maybe are not ours and they are 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 have 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 '26, 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 stable supply chain altogether. So that is work in process, but we are just seeing the effects of that in the third and fourth quarters probably.

As far as the investments go, you know, we are looking at the facility for A350 spoiler production. These types of facilities tend to run a couple of $100 million that can be spread across a couple of three years and that is what we are looking at. We have 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 is kind of what the price tag looks like.

And then it is also with our acquisition of Safran's electromechanical business. You know, we will be 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. Okay. That is great. I mean, just to put a finer point on the working capital, is that more to enable an acceleration in your growth? Or de-risk your own supply chain visibility? It really does both. So thanks for that.

Operator: Our next question comes from Louis Raffetto with Wolfe Research. Please state your question.

Louis Raffetto: Yeah. Thank you. Bill, you ballparked the quarterly sales rate 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?

Bill Lacey: Yeah. No. Before of course, Safran, we you know, I think when it got announced, they sized the business. And, you know, we are focused on taking it, growing it, and improving it. But, the key matter, about this acquisition was a strategic one to allow us to continue to grow our capability in this space. And that is what we are focused on. Louis, I think the second part of your question. Just how much you spent on that deal? It will be in the k, I guess. We are you Yeah. Or is it after the Yeah. It again, it is a great deal for us. And we are happy with that.

We have it, and it is not something that we are covering right now. I think the reason we besides the Greenville for you is to help you going forward on what the industrial and power gen compares look like. There is really no macro impact on aero for that deal, so we are really not going to disclose that level of information on that small of an impact. Okay. Then maybe just latest on the China on-highway expectations for the rest of the year. I think you had gone from $40 million to $50 million. Are we at $70 million now, I guess, like, say at top already in. They were not Yeah.

And for four, we are around 60. In four q. It will be somewhere around 10 around $10 million.

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

Michael Ciarmoli: Hey, good evening, guys. Thanks for taking the question. Maybe, Chip, could you give a little bit more color on this A350 spoiler win? I mean, in terms of what the expected shipset content will be, I guess, you know, my understanding, you have got to develop your own IP when maybe those first sales are going to occur. And, you know, any kind of expected margin profile you could talk to. It sounded like maybe the existing incumbent on this walked away, you know, just given their return profile. And I guess a couple of $100 million of investment sounds significant for just that one platform.

Is this a broader play to position yourself for future kind of actuation spoiler wins on that next-gen narrow body?

Chip Blankenship: Yeah. Like so thanks for the question. You know, the spoiler actuator business is quite substantial. The A350 program if you look at Airbus' forecast for rate increases and where that aircraft is going and what the demand is for that as a it is a wonderful program to be a part of. When I look at the chipset content so there are 14 actuators you know, seven per wing, and we have 12 of those. So it is a lot of hardware per chipset. It is going to take a bit of factory space because we are going to be vertically integrated. It is a substantial investment, but it is a manageable one.

And we have a number of things we are 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 A350 program, and we will pile on that, and we will add things as we win them going forward. Will they will this be margin dilutive as it ramps up out of the gate? You know, quite often 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 going to be when it enters production.

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

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

Sheila Kahyaoglu: Thank you, guys. Maybe just following up on the facility. How do we think about the few $100 million? Is it 26 and 27? So $300 million over two years and I know I am making up numbers here. How do we think about the payback on that and essentially, commercial aerospace.

Bill Lacey: Yeah. So I will yeah. So we look at this to be about a couple of $100 million investment, Sheila. And yes, it will be spread out over twenty-six, twenty-seven, some of it could leak into 28, but most of it will happen between those two years. Again, this will be we love this program. We think it is and it will have good returns. For us, and it is a great portfolio of opportunity here with Airbus in think it is going to be a really good program. 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? Yeah. So first, smart defense I want to make sure to say that all the all the products in our smart defense portfolio are performing well. Honestly, JDAM gets a lot 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 the demand. It gets a little dangerous to take that view too much further than that, Sheila, so I will 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: Hey. Good afternoon, guys. Afternoon, Gautam. I had a couple of questions, and perhaps he I dropped. So I am just curious. Did you address China natural gas and what demand signals you are seeing from those customers? Yeah. We briefly said that, Q4 will be around $10 million. The overall economy continues to dampen the demand and the order rate in that business. Okay. Any preliminary view on 2026 given fiscal twenty-five has been an unnaturally low year? Yeah. What is normal? No. We are going to continue to focus on our core industrial business and that will be our focus.

And as we said, it is a dynamic volatile business in we will highlight that what we our view when we get to the end of the fourth quarter. Okay. And big picture, have you seen any demand erosion from US trade policy and all the changes we have had with US trade policy. Since April. Anywhere in the portfolio. I would not say we have seen demand drop off. I think we have seen some maybe unnatural volatility and some delays and then spikes.

You know, we had some delayed China service orders earlier in the year and then we have had some you know, piling on of orders, maybe at one and a half to two x the normal amount. In the third quarter and fourth quarter. So I think we have seen some unnatural volatility, but maybe not I would not characterize it as a like, a drop-off in demand or a long-term demand increase either way.

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

David Strauss: Thanks for taking the follow-up. So previously, you had this free cash flow target out through 2026. Of $1.2 billion cumulative. Is that now off the table given the reduction in the free cash flow forecast for this year and what you are talking about, it sounds like, for CapEx next year?

Bill Lacey: Yes. David, think our sort of our underlying business and our plan, we still are we still see being able to deliver the $1.2 billion. 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 will just come back to you at the end of the year with more clarity on exactly how that is looking. Okay. And do you guys have any impact from or any benefit from section one seventy-four amortization going away? Part of the big beautiful bill.

In the we from the from some of these elements, on that bill around what we can do around some of the R&D expenses, around what we can do as we are building the facilities, and can accelerate that depreciation. A lot of those things will help. There is still a lot of we got high-level views of what that is, but exactly how they it rolls out. We are going to have to spend a little more time and we can give you a better understanding of the impact as we get to giving 26 guidance.

Operator: Our next question comes from Scott Deuschle with Deutsche Bank. Please state your question.

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

Chip Blankenship: Well, good clarification question. 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. Okay. And then, Chip, when we think about growth in 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 those OEMs are looking at and then what you might look at. Thank you. 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 certain gas turbine wins, it starts to win more or a certain recip engine that is liquid wins, then our hardware may or may not be on those OEMs. So broadly speaking, you know, if you average the OEMs, I think you would get something close to what we are seeing.

So know, our SOGAF product line is on gas engines. Our DFS business, WLO in Germany is on MTUs, you know, reciprocating backup engine power. 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 are doing and how they are forecasting growth, know, that 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: Chip, the beginning of the year in the initial guidance, I recall, you had contemplated aerospace aftermarket revenue growing low to mid-single digits. And year-to-date, it is now I have it up 24%. I think that is right. 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 and the GTF are coming along a bit faster than you planned at the beginning of the year.

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

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

I think the challenge is it is all related to revenue passenger miles and how long airlines keep flying those legacy aircraft. To make up for delivery rates that are slower than they want them to be from the airframers. If there is a you know, if you listen to Southwest and United and American and Delta talk about US domestic travel. It is not such a rosy picture. If you listen to folks talk about, you know, what is going on in the rest of the world, there is 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 going to be robustly invested in, if you will. Because once airplanes start to get parked from the legacy fleet, more used serviceable material will be available. And while it could really, you know, I think, eat into that business pretty quickly, but for us, on the Woodward side, the great news about that is that there is 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 are a few quarters ahead of that legacy fleet tailing off. The one reminder you will hear from a lot of folks in the OEM business is that you know, do not know whether it is 40% or 50% of the CFM 56 dash fives and dash sevens have not 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 parked out when the demand curve turns a little bit. Or when the OEMs start producing at the rates they want to produce.

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

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

Chip Blankenship: Sure thing. You know, that is an exciting growth rate. I think the hours and cycles and utilizations support that obviously. For us, some of our LRUs are not necessarily correlated with a shop visit. In terms of when we see them. You know, we have been even though those growth rates are substantial still and we have a steep growth rate. We do not necessarily correlate one to one with the shop visits in terms of removals of our different LRU's. And we have kind of averaged that to talk about you know, the service content of the Leap and GTF being five x with the prior legacy engine configurations were.

And that kind of 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 are seeing pumps and fuel metering units and fuel nozzles come in. We have not seen many of the other products yet. But over time, we will. I just do not know if 25% is a good number. For us because we are not all that correlated to shop visits. We are more correlated directly to hours and cycles. That is helpful. And on JDAM, I did not see the step-up in the budget. Do you guys have that contract locked in?

Or I am just wondering your visibility on that going forward. So we have POs from our customer and we are responding to those. And fulfilling. We I do not know what the lock-in you are referring to, but we have deals from our customer.

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

Chip Blankenship: I would just like to thank everyone for joining us for today's call. We will 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.woodward.com for one year. We thank you for your participation in today's conference call.