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Woodward (WWD) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q2 FY26)· Apr 29, 2026

Source: earnings call transcript

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

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

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

Product announcements

ProductTypeDetails
New actuation platformlaunch

Deals & partnerships

Valve Research & Manufacturing Acquisition of premier designer and manufacturer of solenoids.

Closed in March. Integration progressing well.

Ontic Sale 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 Technik New 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 KLM New 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).

AAR New distribution agreement.

Announced at MRO Americas.

Capital programs

Spartanburg facility underway

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 expansion nearing 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

Geopolitical developments fiscal 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 capacity ongoing

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 pressures Q2 FY26

partially offset margin expansion in Aerospace and Industrial

Mitigation:Solid price realization, managing inflation well.

Product performance claim reserve Q2 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 levels FY26

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 prices FY27

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

Industrial core margin trajectory

H2 FY26
Current 14.7% (ex-reserve in Q2 FY26)
Target aligned 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.

Find out whether WWD delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 5 chapters

Detailed narrative

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.

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.

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.

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+.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.