Detailed narrative
End Market Tailwinds Driving Growth
Loar is experiencing strong tailwinds across all end markets. The commercial aftermarket benefits from an aging in-service fleet, now averaging over 14 years (up from 11 years pre-COVID), and a reduced retirement rate of 1.5% in 2025 (down from a historical 2.5%).
Commercial OEM demand is supported by planned production increases from Airbus (1,900 aircraft) and Boeing (1,300 aircraft) over the next two years, representing a 15% CAGR increase over 2025 rates. The defense market is also robust, influenced by increased European military spending and discussions of a potential $1.5 trillion U.S. defense budget.
Strategic M&A and Portfolio Expansion
Loar maintains a disciplined M&A strategy, typically completing 1-2 deals annually, and has invested over $1.1 billion in M&A since going public less than two years ago, effectively doubling the business size. Recent acquisitions include LMB, a French manufacturer of engineered cooling devices for military applications, and Harper Engineering, a U.S. supplier of interior latching mechanisms with a strong relationship with Boeing.
These acquisitions add new proprietary capabilities and expand Loar's market reach, particularly in the European defense sector and commercial aftermarket.
Proprietary Products and Organic Growth Drivers
The company's portfolio is increasingly proprietary, with 89% of its products now classified as such, up from 85% at its S-1 filing. New product introduction is identified as the primary driver of organic growth for 2026 and beyond. Loar has a pipeline of opportunities representing over $600 million in sales over the next five years, which is expected to fuel increased sales starting in the second half of 2026 as new parts are qualified.
Consistent Margin Expansion Strategy
Loar executes along four value streams: organically launching new products, optimizing manufacturing and go-to-market strategies, leveraging data for operational efficiencies, and achieving price realization that exceeds inflation. This approach has consistently driven margin improvement, with the company targeting an adjusted EBITDA margin of approximately 40% for calendar year 2026. Management emphasizes a focus on long-term partnerships and growth over short-term price gouging.
Strong Financial Performance in FY25
For calendar year 2025, Loar achieved record sales of $500 million, a 15% increase year-over-year on a pro forma basis, and record adjusted EBITDA of $189 million, up $43 million from FY24. Gross profit margin for the full year expanded by 330 basis points to 52.7%. Free cash flow conversion was 138%, or 160% excluding a one-time📎 tax benefit, demonstrating strong cash generation.
EPS Guidance Adjustment Clarification
The revised FY26 adjusted EPS guidance, which is lower than previous expectations, is primarily attributed to non-cash impacts from recent acquisitions. These include incremental depreciation and amortization resulting from asset write-ups for accounting purposes, as well as increased interest expense incurred to fund the LMB and Harper acquisitions. Management explicitly stated that this adjustment does not reflect a change in operational performance or outlook.