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    WWD
    Earnings call· Mar 2026(Q2 FY26)

    Woodward Q2 FY26 earnings call WWD

    Apr 29, 2026 Source

    Executive summary

    Woodward Q2 FY26 — Record Sales and Adjusted EPS Driven by Strong Aerospace and Industrial Demand

    Woodward delivered a record-breaking second quarter, exceeding $1 billion in sales and achieving record adjusted EPS, fueled by robust demand across both Aerospace and Industrial segments. The company is strategically investing in capacity expansion, automation, and R&D for future growth, while actively managing its portfolio through acquisitions and divestitures. While monitoring geopolitical uncertainties and their potential FY27 impact, management raised its full-year sales and earnings guidance, confident in continued strong execution and market demand.

    Highlights

    5

    • Quarterly net sales surpassed $1 billion for the first time, reaching $1.1 billion, a 23% increase year-over-year.

    • Achieved record quarterly adjusted earnings per share of $2.27, up 34% from the prior year.

    • Aerospace segment sales increased 25%, driven by strong Commercial Aerospace and services growth.

    • Industrial segment sales increased 20%, with core industrial sales up 19% and strong growth in Marine Transportation (34%) and Oil and Gas (18%).

    • Generated $109 million of free cash flow in the first half of FY26, up from $60 million in the prior year period.

    Concerns

    4

    • Industrial core margins were negatively impacted by a reserve for a product performance claim in Q2 FY26.

    • Strategic investments in Aerospace (manufacturing enhancements, R&D for next-gen aircraft, ERP upgrade) reduced flow-through in Q2 FY26.

    • Higher inventory levels are being maintained to meet customer demand, impacting free cash flow generation in FY26.

    • Geopolitical developments and potential impacts on defense spending or airline traffic are being monitored, with potential effects in FY27.

    Guidance & targets

    13
    CategoryTargetConfidence
    Aerospace sales growth
    between 21% and 24%
    high materiality
    High
    Aerospace segment margin
    between 23% and 23.5%
    high materiality
    High
    Industrial sales growth
    between 18% and 20%
    high materiality
    High
    Industrial segment margin
    between 18% and 18.5%
    high materiality
    High
    Total Woodward sales growth
    between 20% and 23%
    high materiality
    High
    Adjusted EPS
    between $9.15 and $9.45
    high materiality
    High
    Free cash flow
    between $300 million and $350 million
    high materiality
    High
    Capital expenditures
    approximately $290 million
    medium materiality
    High
    Average diluted shares outstanding
    approximately 61.5 million
    low materiality
    High
    Adjusted effective tax rate
    unchanged
    low materiality
    High
    China On-Highway sales
    approximately $30 million
    low materiality
    High
    China On-Highway sales
    minimal sales
    low materiality
    High
    Aerospace flow-through rate
    approximately 30% to 35%
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Aerospace
    Strong growth primarily driven by Commercial Aerospace, with higher repair volume for legacy aircraft and increased LEAP and GTF activity. Margin expansion driven by Commercial Services, higher commercial OEM volumes, and solid price realization, partially offset by strategic investments and inflationary pressures.
    Segment sales margin: 22.5%Segment sales margin Q2 FY25: 22.2%Segment earnings Q2 FY25: $125 millionCommercial Services growth: 36%Commercial OEM sales growth: 30%Defense OEM sales growth: 9%Defense Services growth: 8%
    		$703 million25%—$158 million
    Industrial
    Momentum across all major markets. Core Industrial margins were approximately flat at 14.7% excluding a product performance claim reserve. China On-Highway business added 230 bps to margin growth.
    Segment sales margin: 17%Segment sales margin Q2 FY25: 14.3%Segment earnings Q2 FY25: $46 millionCore Industrial sales growth (ex-China On-Highway): 19%Marine Transportation sales growth: 34%Oil and Gas sales growth: 18%Power Generation sales growth (ex-divestiture): high teensChina On-Highway sales: $29 million
    		$387 million20%—$66 million

    Operational metrics

    22
    Adjusted earnings per share
    $2.27up 34% YoY
    Q2 FY26

    Record quarterly adjusted earnings per share.

    Net cash provided by operating activities
    $205 millionvs $112 million H1 FY25
    H1 FY26

    Largely driven by higher earnings.

    Capital expenditures
    $97 million
    H1 FY26

    Meaningful increase expected over the next two quarters.

    Debt leverage
    1.4x
    as of March 31, 2026

    Strong balance sheet provides flexibility.

    Capital returned to stockholders
    over $355 million
    H1 FY26

    Part of capital allocation strategy.

    Dividends paid
    $36 million
    H1 FY26

    Part of capital allocation strategy.

    Total capital return plan
    between $650 million and $700 million
    FY26

    Assumed in fiscal 2026 guidance.

    Commercial Aerospace Services growth
    36%YoY
    Q2 FY26

    Reflecting higher repair volume and increased LEAP and GTF activity.

    Commercial Aerospace OEM sales growth
    30%YoY
    Q2 FY26

    Destocking largely behind, output aligned with airframer build rates.

    Defense OEM sales growth
    9%YoY
    Q2 FY26

    Primarily due to increased JDAM pricing.

    Defense Services growth
    8%YoY
    Q2 FY26

    Not specified.

    Core Industrial sales growth
    19%YoY
    Q2 FY26

    Driven by higher volume, price, and favorable foreign currency impacts.

    Marine Transportation sales growth
    34%YoY
    Q2 FY26

    Reflecting higher shipyard output and services activity.

    Oil and Gas sales growth
    18%YoY
    Q2 FY26

    Driven by higher volume, primarily related to greater midstream and downstream gas investment.

    Power Generation sales growth
    high teensYoY
    Q2 FY26

    Driven by increasing data center demand for both base and backup power generation.

    China On-Highway sales
    $29 million
    Q2 FY26

    Reflected in second quarter results as part of wind-down.

    Industrial segment margin
    14.7%approximately flat QoQ
    Q2 FY26

    Strong price realization and higher sales volume partially offset by inflation.

    China On-Highway margin contribution
    230 bps
    Q2 FY26

    Added to Industrial segment margin growth.

    Nonsegment expenses
    $45 millionvs $27 million Q2 FY25
    Q2 FY26

    Not specified.

    Adjusted nonsegment expenses
    $38 millionvs $34 million Q2 FY25
    Q2 FY26

    Not specified.

    Price realization
    around 6.5% to 7%
    Q2 FY26

    Roughly projected for total year, Aero stronger on price side than Industrial.

    Legacy fleet shop visit status
    40%
    current

    Refers to airplanes with engines and LRUs that have only seen one shop visit and are still capable assets.

    Industry KPIs

    1
    MetricValueDetails
    Aftermarket services split36%%

    Product announcements

    1
    ProductTypeDetails
    New actuation platformlaunch

    Deals & partnerships

    5
    Valve Research & ManufacturingAcquisition of premier designer and manufacturer of solenoids.

    Closed in March. Integration progressing well.

    OnticSale of Niles-based pilot controls product line.

    Will enable Woodward to refocus on areas with greatest potential. Woodward will remain a supplier of components to Ontic.

    Lufthansa TechnikNew licensed repair service facility agreement.

    Announced at MRO Americas. Rate-limiting step for scaling is procurement, installation, and calibration of test stands (9-12+ months away).

    Air France KLMNew licensed repair service facility agreement.

    Announced at MRO Americas. Rate-limiting step for scaling is procurement, installation, and calibration of test stands (9-12+ months away).

    AARNew distribution agreement.

    Announced at MRO Americas.

    Capital programs

    2
    Spartanburg facilityunderway

    Benefit: location for Airbus A350 spoiler actuation systems

    Construction is progressing as planned, walls erected and floors being poured. On track to finish building over next few quarters, beginning to purchase production equipment.

    Glatten expansionnearing completion

    Benefit: deliver more diesel fuel injectors for data center backup power, substantial capacity increases with reduced lead times, cost productivity, better inventory turns

    Moved over 100 machines within new hall and legacy areas to perfect flow. Teams demonstrated small batch flow.

    Risks & headwinds

    6
    Geopolitical developmentsfiscal 2027

    not quantified

    Mitigation: Closely monitoring broader geopolitical developments and how those might impact defense spending or airline traffic; ensuring safety of team members in the Middle East.

    Demand outstripping capacityongoing

    constrained output last quarter (Q1 FY26)

    Mitigation: Expanding capacity of Woodward and supply chain, dual sourcing projects, additional test and procurement, installation and calibration.

    Inflationary pressuresQ2 FY26

    partially offset margin expansion in Aerospace and Industrial

    Mitigation: Solid price realization, managing inflation well.

    Product performance claim reserveQ2 FY26

    negatively impacted Industrial margins in Q2 FY26

    Mitigation: Undergoing legal process; core Industrial margins expected to align with Q1 levels in H2 FY26 excluding this.

    Higher inventory levelsFY26

    higher than previously anticipated

    Mitigation: Prioritizing to meet customer demand, striving for better alignment for end-to-end supply chain; inventory initiatives underway to drive improved FCF generation in 2027.

    Potential for oil shock / sustained high fuel pricesFY27

    not quantified

    Mitigation: Monitoring traffic demand, airlines' ability to pass on price; Woodward has a hedge with higher content on fuel-efficient newer aircraft if older fleets are retired.

    What to watch in Q3 FY26

    5

    Industrial core margin trajectory

    H2 FY26
    Current14.7% (ex-reserve in Q2 FY26)
    Targetaligned with Q1 FY26 levels

    Why it matters

    To confirm the underlying profitability of the Industrial segment after a one-time📎 reserve impact.

    If you back that out, the margin rates are on the bottom line with what we saw in Q1, and we expect the second half to be more aligned to that -- what we saw in Q1.

    Q&A highlights

    6

    Inquired about sequential commercial aftermarket sales, consistency of LRU volumes, and concerns about potential destocking or slowdown in H2 FY26 or FY27 due to airline capacity reductions.

    Management stated Q3 spare LRU orders are in line with prior quarters and they haven't seen a drop-off in shop inputs or LRU orders. They acknowledge airline capacity reductions but note these are within existing forecasts. They are monitoring geopolitical/macroeconomic factors for FY27 but see no slowdown for FY26.

    “We haven't seen any drop-off in inputs to our shop for -- from LRUs for repair. And we haven't seen any slowdown in the order rate for spare LRUs.”

    asked by Scott Mikus · answered by Charles Blankenship

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Portfolio Management

    Woodward is actively managing its portfolio, exemplified by the acquisition of Valve Research & Manufacturing to enhance solenoid capabilities for next-gen aircraft and the divestiture of the Niles-based pilot controls product line to Ontic for refocusing resources. The company is also relocating servo valve production to Rockford and winding down the China On-Highway product line, all aimed at streamlining operations and strengthening focus on core growth opportunities.

    02

    Capacity Expansion and Operational Excellence

    Significant investments are underway to expand capacity and improve efficiency. The Spartanburg facility for Airbus A350 spoiler actuation systems is on schedule for 2027 operations, and the Glatten expansion for diesel fuel injectors is nearing completion, promising substantial capacity increases and reduced lead times for data center backup power demand. Automation projects, including a recognized lab in Rock Cut, are driving productivity and addressing staffing challenges.

    03

    Aerospace Aftermarket Dynamics

    Commercial Aerospace services continue to show strong growth, driven by high utilization of legacy aircraft and increasing volume for LEAP and GTF engine control systems. Despite airline signaling of capacity reductions, Woodward has not observed a drop-off in shop inputs or spare LRU orders, indicating sustained aftermarket demand through the fiscal year. New partnerships with Lufthansa Technik, Air France KLM, and AAR are expanding the global service network and capacity for MRO.

    04

    Industrial Market Strength

    The Industrial segment maintains strong momentum across all major markets. Marine Transportation sales increased 34%, Oil and Gas sales grew 18% due to midstream/downstream investment, and Power Generation sales grew in the high teens (excluding divestiture impact), fueled by increasing data center demand. Management is evaluating potential capacity increases to meet customer forecasts extending to 2030+.

    05

    Innovation and Future Platforms

    Innovation remains a key differentiator, with Aerospace R&D expenses expected to tick up as the company engages in technology demonstration activities and collaborative agreements with customers for next-generation single-aisle aircraft. In Industrial, a new, more compact and efficient actuation platform for reciprocating engines is in development, designed for automated production and expected to enter service in 2027.

    AI-generated summary of the company’s earnings call. Not investment advice.