Howmet Aerospace (HWM) Q1 FY26 earnings call: guidance and Q&A

What factors drove the strong 20% Commercial Aerospace growth, especially in Engine Products, and how much are new engine programs like GTF Advantage and LEAP-1B Maverick contributing?

John Plant attributed the strong Engine Products growth to being ahead of future volume increases, robust spares demand (up 48%), share gains, and price increases. He detailed that GTF Advantage production is steadily increasing through 2026 and significantly in 2027, offering higher content. LEAP-1B Maverick production is just starting, with volumes increasing through Q2-Q4, and full changeover expected by year-end 2026.

“So if you put strong spares along with the aircraft build, the anticipated build, the share, the price, there's a lot of very positive things happening for us in the Engine business.”

asked by Scott Deuschle · answered by John Plant

How should investors view the long-term growth trajectory of IGT given hyperscaler demand and capital investment, and does this segment compete with Aerospace for similar assets and supply chains?

John Plant highlighted IGT as a significant opportunity for organic growth, driven by data center demand, including AI. He emphasized a cautious approach to capital deployment to avoid overinvestment, securing commercial agreements with 6 of 7 major customers, and increasing CapEx to around $500 million in 2026, with further increases in 2027. He noted the company's strong cash flows allow it to pursue both IGT and Aerospace growth simultaneously.

“Our assessment is that natural gas is fundamental to that build-up because of the, I'll say, ability to have fast acting and to underpin any form of renewable energy and also as a baseload provision as well.”

asked by Ronald Epstein · answered by John Plant

How confident is Howmet in its ability to secure sufficient materials, particularly rare earths, and to staff up with quality personnel to meet growth demands?

John Plant expressed confidence in base metal supply and stated that rare earth inventory has been significantly increased, covering 2026 and 90% of 2027, with some products secured through the end of the decade. He mentioned the Savannah divestiture reduced reliance on third-party alloy metal. For human capital, the company added 230-250 net new employees in Q1, targeting over 1,000 for FY26, with ongoing efforts to improve recruitment, training, and reduce turnover.

“So right now, we have in hand and despite an improved inventory efficiency, we actually have increased the inventory of rare earths such that we're fully covered through '26 and I think we're like 90% of 2027 and some products now well through the end of the decade.”

asked by Robert Stallard · answered by John Plant

Given recent transactions, where does Howmet see additional opportunities for portfolio expansion or pruning, especially with growing industrial gas turbine demand?

John Plant reiterated a selective M&A strategy, focusing on opportunities that offer both revenue and cost synergies and maintain healthy leverage (targeting 1x by year-end) and credit ratings. He stated the company is open to further acquisitions that align with this approach, while also continuing share buybacks and potentially increasing dividends, indicating a balanced capital allocation strategy.

“So we want to be very selective in deploying that capital and be convinced that it adds something to us that passes all of the gates that we want to have with revenue synergy, which is always possibly most difficult to get, but we're convinced we will have revenue synergy as well as cost synergies and a good solid business where we can improve margins.”

asked by Kristine Liwag · answered by John Plant

Is the strong Gas Turbine growth primarily price-driven due to capacity constraints, and how does overall pricing compare to last year?

John Plant confirmed that the 39% Q1 Gas Turbine growth included both volume and some price. He acknowledged capacity constraints in the first half but noted that new capacity in Japan will begin production by Q4 2026. He explained that growth until then will be driven by yield improvements and a shift from batch to flow production. He expects progressive increases in Gas Turbine production throughout 2026 and further into 2027-2029.

“So the outcome for this year, which was a lot of volume, but some price in that 39% was great. And in fact, again, if I just refer to what we saw in Japan was to see our new manufacturing plant and the first piece of equipment arriving there.”

asked by Myles Walton · answered by John Plant

Could you provide a breakdown of the 14% FY26 organic growth by segment, and is it possible for organic growth to accelerate in 2027?

John Plant estimated FY26 organic growth: commercial aero in the 20% range, defense in the 10% range, gas turbines 25%-30% (with caution on yield/comps), and commercial transportation below 5%. He was hesitant to provide a precise 2027 growth rate due to macroeconomic uncertainties and aircraft manufacturer production rates, but expects it to be positive.

“I think I'm happier talking about 2026 than 2027 at the moment and essentially down to, I'd say, the conviction over the aircraft manufacturers now truly poised to increase their production to the rates they want and also the macroeconomic outlook and probably the effects of inflation on the consumer.”

asked by David Strauss · answered by John Plant

What is the outlook for the legacy aftermarket given the macro environment, and what proportion of total spares revenue comes from the legacy fleet?

John Plant expects CFM56 production to increase through 2026-2027, remaining a long-term growth program. LEAP spares are projected to grow continuously for 8-10 years, initially higher due to durability. GTF spares will see full production for existing models and GTF Advantage, with MRO demand potentially exceeding OE build. He anticipates commercial aero spares growth every year this decade, with spares revenue already at 23% of total.

“My expectation for commercial aero is that we're going to see growth every year for the balance of this decade and then beyond. The only thing we're going to be debating is what's the angle of growth.”

asked by Seth Seifman · answered by John Plant