Woodward, Inc. (WWD) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A session reflect a positive outlook, with strong demand across aerospace and industrial segments, higher-than-expected pricing, and strategic investments in capacity and automation. Despite some management ambiguities, the optimistic guidance for 2026 sales and earnings, along with robust order visibility, supports a positive sentiment. However, the decision to not raise free cash flow guidance despite earnings gains suggests caution. Overall, the stock is likely to experience a positive movement of 2% to 8% over the next two weeks, driven by strong demand and strategic growth plans.
Key Financial Performance
Sales Growth Woodward sales grew 29% year-over-year in the first quarter of 2026. This growth was driven by robust demand across Aerospace and Industrial segments, combined with disciplined execution by the teams.
Earnings Per Share (EPS) EPS increased 54% year-over-year to $2.17 in the first quarter of 2026, compared to $1.42 in the prior year. This was attributed to strong demand and consistent execution.
Free Cash Flow Generated $70 million of free cash flow in the first quarter of 2026, compared to $1 million in the prior year. This increase was primarily driven by higher earnings related to the outperformance in the quarter.
Aerospace Segment Sales Sales were $635 million in the first quarter of 2026, up 29% from $494 million in the prior year. The growth was primarily driven by a 50% increase in commercial services sales, higher volumes for legacy aircraft, and increased LEAP and GTF activity.
Aerospace Segment Margins Segment earnings were $148 million or 23.4% of sales, compared to $95 million or 19.2% of sales in the prior year. The 420 basis point improvement was due to solid price realization, higher volumes, and favorable mix, partially offset by strategic investments and inflation.
Industrial Segment Sales Sales were $362 million in the first quarter of 2026, up 30% from $279 million in the prior year. Core industrial sales (excluding China on-highway) increased 22%, driven by broad-based growth across end markets, price, and FX.
Industrial Segment Margins Segment earnings were $67 million or 18.5% of sales, compared to $40 million or 14.4% of sales in the prior year. Margins expanded due to higher sales volume, strong price realization, and favorable mix, partially offset by inflation.
Net Cash Provided by Operating Activities Generated $114 million in the first quarter of 2026, compared to $35 million in the prior year. This increase was largely driven by higher net earnings.
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Operating Highlights
Aerospace commercial services: Demand growth in commercial and defense OEM aligned to expectations, while commercial services exceeded forecasts. LEAP, GTF, and legacy narrow-body repair volume increased year-over-year. Elevated spare LRU provisioning orders were executed and delivered.
Industrial segment: Robust growth across power generation, transportation, and oil and gas. Operational improvements and volume leverage led to a 410 basis point margin expansion.
Expansion of services capacity: Expansion in Prestwick, Scotland facility to add square footage and optimize layout for reduced turnaround times. Additional test stands and layout optimization in Rockford facility to improve flow.
Inventory efficiency: Investing in process improvement and control to improve inventory turns, with impacts expected in late 2026 or early 2027.
Operational excellence: Stabilizing end-to-end supply chain to improve on-time delivery, increase inventory turns, and enhance resilience.
China on-highway product lines: Strategic decision to wind down China on-highway product lines by the end of fiscal year 2026 due to limited order visibility and inconsistent performance.
R&D focus shift: Shifting R&D focus from baseline technology development to customer value demonstration on selected technologies for increased content on next single-aisle platforms.
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Risk or Challenges
Supply Chain Alignment: The company is still working through supply chain alignment with customers and suppliers, which is expected to delay improvements in inventory turns until late 2026 or early 2027. This could impact operational efficiency and financial performance.
China On-Highway Business: The decision to wind down the China on-highway product lines by the end of the fiscal year is due to limited order visibility and inconsistent performance. This could result in short-term costs and operational adjustments.
Inventory Levels: Higher-than-anticipated inventory levels are being maintained to meet customer demand, which could strain cash flow and operational efficiency.
Commercial Services Growth: The company does not expect the same level of commercial services growth going forward due to more difficult comparisons and reduced spare LRU sales, potentially impacting revenue growth.
Inflation and Costs: Inflation and strategic investments in manufacturing capabilities are partially offsetting margin improvements, which could pressure profitability.
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Guidance & Outlook
Inventory Efficiency: Inventory efficiency is a priority, with substantial resources being invested in process improvement and control. However, the impact of these efforts is likely to be felt in late calendar 2026 or early 2027.
Aerospace Segment: Demand growth in commercial and defense OEM aligned with expectations, while commercial services exceeded forecasts. Expansion of services capacity is planned to address increasing demand and improve turnaround times, including facility upgrades in Prestwick, Scotland, and Rockford.
Industrial Segment: The company announced the wind-down of its China on-highway product lines by the end of fiscal 2026, aligning with long-term growth strategy. Continued benefits are expected from operational excellence, including supply chain stabilization and improved on-time delivery.
R&D Focus: Shifting R&D focus from baseline technology development to customer value demonstration on selected technologies to position for increased content on next single-aisle platforms.
Capital Allocation: Ongoing organic growth and a strong balance sheet provide flexibility for potential inorganic opportunities with strategic fit and risk-adjusted returns, while continuing investments in internal growth and shareholder returns.
2026 Guidance: Aerospace sales growth expected between 15%-20% with margins of 22%-23%. Industrial sales growth projected between 11%-14% with margins of 16%-17%. Consolidated sales growth forecasted between 14%-18%, and EPS guidance raised to $8.20-$8.60. Free cash flow expected between $300 million and $350 million.
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Shareholder Return Plan
Dividends: The company plans to return capital to shareholders through dividends as part of its fiscal 2026 guidance. This is included in the overall plan to return between $650 million and $700 million through dividends and share repurchases.
Share Repurchase: The company plans to return capital to shareholders through share repurchases as part of its fiscal 2026 guidance. This is included in the overall plan to return between $650 million and $700 million through dividends and share repurchases.
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Key Q&A
Q:Will the $245 million of commercial aftermarket sales in the first quarter be the low point for the year?
A:Charles Blankenship stated that it is hard to say if it will be the low point. While they do not anticipate the same amount of spare LRU shipping, they have modeled increasing repair and spare parts sales. The market demand is strong, and they are investing in capacity to improve turn times and customer service.
Q:Could Boeing and Airbus hitting their production rates drive more upside through higher initial provisioning sales for the aftermarket?
A:Charles Blankenship explained that while higher output rates over the long term will drive more spare LRUs, they do not see new tail logos in the near future, so this is not expected to be a 2026 opportunity. The challenge to volume would be softer demand from OEMs, while opportunities lie in having more spare LRUs or repair volume than forecasted.
Q:Was the 5% increase in the Aerospace sales outlook primarily an increase in the aftermarket?
A:William Lacey confirmed that the increase was primarily driven by commercial services in the first quarter.
Q:Why does the margin guidance for Aerospace not benefit from the higher aftermarket mix and operating leverage?
A:William Lacey explained that while the higher aftermarket mix did flow through in Q1, the increased OEM sales in the remaining year will temper the margin rate going forward.
Q:What drove the growth acceleration in oil and gas and marine transportation this quarter?
A:Charles Blankenship attributed the oil and gas growth to activities like gas turbine-related overhauls and control systems upgrades. Marine transportation growth was driven by high shipyard activity and fleet utilization, leading to overhaul and service activity using their spare parts.
Q:Does the total company full-year guidance revision imply that the remaining 9 months of the year are the same as the prior plan?
A:William Lacey confirmed that the upside to the full-year guidance is primarily from Q1, with additional growth related to build rates and services already included in the total year guide. Some Q1 drivers, like spare LRUs and China on-highway increases, are not expected to continue.
Q:What was the LEAP and GTF contribution to the aftermarket, and what was the spare LRU contribution?
A:Charles Blankenship declined to quantify the contributions but noted that spare LRUs are high-dollar and profitable items, while repairs have good percentage profitability but lower revenue impact. Growth was seen across wide-body, regional, and narrow-body platforms.
Q:Was the counterseasonal growth in legacy narrow-body due to catching up on past dues or volume unlock?
A:Charles Blankenship attributed the growth to consistent output and operational improvements, rather than catching up on past dues or volume unlock.
Q:Why is there more confidence that the LRU activity was due to prior underprovisioning rather than pull-forward related to tariffs?
A:Charles Blankenship explained that statistical analysis showed customers were behind on provisioning, leading to the conclusion that the activity was due to underprovisioning.
Q:What are the growth rates by aerospace subsegments assumed for the year?
A:Charles Blankenship stated that OEM demand is strong for both defense and commercial, commercial services have good demand on top of hard comps, and defense services are flat. He declined to provide more specific growth rates.
Q:Are you capacity constrained in the commercial aftermarket, or are productivity initiatives showing through?
A:Charles Blankenship mentioned that they are adding capacity, including expanding the Prestwick facility and adding test cells in Rockford. Productivity initiatives are helping, but they are still working to meet demand.
Q:How does the agreement with external MRO providers work in terms of revenue and margin contribution?
A:Charles Blankenship explained that they provide technical support, materials, and repair support to MRO providers, who then contract with customers. This allows them to share capacity and provide more customer choice.
Q:How was pricing this quarter relative to the 5% expectation for the full year?
A:William Lacey stated that pricing came in at about 8% for the quarter, higher than the 5% expectation. The full-year pricing expectation has been revised to closer to 7%.
Q:What percentage of the installed base is being served in the aftermarket, and is there a goal for this?
A:Charles Blankenship stated that they are not missing out on market share but are working to stay ahead of growth predictions. They are addressing constraints like test stand capacity to improve turn times.
Q:Why was free cash flow guidance not raised despite earnings gains?
A:William Lacey explained that they are keeping working capital higher, particularly inventory, to meet customer demand and manage supply chain challenges.
Q:How are you balancing expanding capacity with extending licenses?
A:Charles Blankenship stated that they aim to do a significant amount of work in-house while partnering with others to share investments and capacity.
Q:Have bookings slowed down, and what is the visibility for the next six months?
A:Charles Blankenship stated that orders are strong and support the high end of the guide. The challenge lies in the ability of their supply chain to deliver, not in demand.
Q:How has the profitability of the commercial aerospace OE business trended, and how does it compare to the segment average margin?
A:Charles Blankenship noted that commercial aerospace OE margins are considerably below the blended margin. Improvements depend on consistent higher rates and supply chain alignment.
Q:What are the costs for the China on-highway divestiture, and will there be revenue spillover into FY '27?
A:William Lacey stated that wind-down costs are expected to be $20-25 million, with no revenue spillover into FY '27. FY '26 expectations remain around $60 million.
Q:Why is defense aftermarket lagging behind defense OEM, and are there other opportunities?
A:Charles Blankenship explained that defense services are steady in some areas but lumpy in others due to customer order patterns. They are exploring opportunities for more stable demand.
Q:What impact could a hypothetical $1.5 trillion 2027 defense package for spare parts have on Woodward?
A:Charles Blankenship stated that it is hard to predict the impact as they lack visibility into current inventory levels. Supplier inquiries for capacity could indicate potential opportunities.
Q:Review of Unclear Management Responses
A:Management avoided directly answering the question about quantifying the LEAP and GTF contribution to the aftermarket and the spare LRU contribution. Charles Blankenship declined to provide specific growth rates by aerospace subsegments. Additionally, he did not provide a clear answer on the profitability of the commercial aerospace OE business, only stating that it is considerably below the blended margin and focusing on lifecycle margins instead.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Aerospace basis
Aerospace demand
Chip afternoon
GTF gas
Inc Instructions
Industrial result
Industrial trajectory
Instructions rebroadcast
Inventory efficiency
LEAP GTF
LRU provisioning
MRO center
MRO provider
OEM demand
OEM expectation
OEMs aerospace
Prestwick Scotland
Price improvement
Provaznik
RD focus
Rockford test
Scotland facility
activity body
aerospace center
aerospace legacy
afternoon start
airplane engine
aisle platform
alignment inventory
alignment supplier
allocation standpoint
approach capacity
decision
effort
industry
layout
priority
time
world
WWD Transcript
Woodward, Inc. (WWD) Q1 2026 Earnings Call Transcript
Positive2-2
The earnings call summary and Q&A session reflect a positive outlook, with strong demand across aerospace and industrial segments, higher-than-expected pricing, and strategic investments in capacity and automation. Despite some management ambiguities, the optimistic guidance for 2026 sales and earnings, along with robust order visibility, supports a positive sentiment. However, the decision to not raise free cash flow guidance despite earnings gains suggests caution. Overall, the stock is likely to experience a positive movement of 2% to 8% over the next two weeks, driven by strong demand and strategic growth plans.
Woodward, Inc. (WWD) Q4 2025 Earnings Call Transcript
Positive11-24
The earnings call indicates strong positive factors: raised full-year sales and earnings guidance, aerospace segment growth, and a strong outlook for LEAP and GTF aftermarket growth. While industrial sales are expected to decline, the overall sentiment is positive with optimistic guidance and shareholder return plans. The Q&A session supports this with no structural barriers to margin improvement and confidence in aftermarket growth. The raised guidance and positive outlook for key segments suggest a likely stock price increase.
Woodward, Inc. (WWD) Q3 2025 Earnings Call Transcript
Unknown7-28
The earnings call presents a mixed picture: strong aerospace performance and strategic partnerships (e.g., Safran deal) are positive, but industrial sales decline and lack of specific guidance on key financial metrics (e.g., CapEx spend) create uncertainty. Management's reluctance to provide details on some aspects adds to the neutral sentiment. The positive impact of the aerospace segment and strategic initiatives are offset by industrial challenges and guidance ambiguity, leading to a neutral stock price prediction.
Woodward, Inc. (NASDAQ:WWD) Q2 2025 Earnings Call Transcript
Unknown4-29
The earnings report showed mixed results: record high revenue and positive developments in the Aerospace segment, but challenges in the Industrial segment and China on-highway sales. The Q&A revealed concerns about trade tensions and vague management responses, which could weigh on sentiment. Shareholder returns through dividends and repurchases are positive, but the lack of strong guidance and potential risks from global recession and currency fluctuations temper the outlook. Overall, the stock is likely to remain stable within the neutral range.
WWD Slides
WWD Report
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