Woodward (WWD) Q2 2026 Earnings Transcript
Woodward (WWD) Q2 2026 Earnings Transcript
Motley Fool Transcribing, The Motley FoolWed, April 29, 2026 at 11:01 PM UTC
0
Logo of jester cap with thought bubble.
Image source: The Motley Fool.
Wednesday, April 29, 2026 at 5 p.m. ET
CALL PARTICIPANTS -
Chairman and Chief Executive Officer — Charles P. Blankenship
Chief Financial Officer — William F. Lacey
Director of Investor Relations — Daniel Provaznik
Need a quote from a Motley Fool analyst? Email pr@fool.com
TAKEAWAYS -
Revenue -- Achieved record quarterly net sales of approximately $1.1 billion, representing a 23% increase, surpassing $1 billion in a quarter for the first time.
Adjusted Earnings Per Share -- Reported $2.27, up 34% compared to $1.69 in the prior-year quarter.
GAAP Earnings Per Share -- $2.19 versus $1.78 in the prior-year quarter.
Free Cash Flow -- Generated $38 million in the quarter.
Aerospace Segment Sales -- $703 million, a 25% increase, with commercial services up 36% and commercial OEM sales up 30%.
Defense OEM Sales -- Increased 9%, primarily due to higher JDAM pricing initiated in fiscal 2025; defense services up 8%.
Aerospace Segment Margin -- 22.5% of segment sales, increasing by 30 basis points compared to the prior-year quarter.
Industrial Segment Sales -- $387 million, up 20%, with marine transportation up 34%, oil and gas up 18%, and power generation up 7%.
Industrial Core Margins -- Flat at 14.7% (excluding China On-Highway), with margin impact from a product performance claim reserve; China On-Highway added 230 basis points to margin.
Capital Expenditures -- $97 million in the quarter, with expectations for higher capital outlays in the next two quarters; full-year target remains $299 million.
Balance Sheet and Return of Capital -- Debt leverage at 1.4x EBITDA; $109 million free cash flow in first half; over $355 million returned via share repurchases, $36 million in dividends.
Guidance Update -- Raised 2026 guidance: total sales growth expected at 20%-23%, adjusted EPS now $9.15-$9.45, free cash flow guidance unchanged at $300 million-$350 million; Aerospace sales growth 21%-24% with margins 23%-23.5%, Industrial growth 18%-20% with margins 18%-18.5%.
Strategic Portfolio Actions -- Closed the acquisition of Valve Research and Manufacturing; announced divestiture of Niles-based pilot controls product line; continued wind-down of China On-Highway business.
Operational and Capacity Investments -- Construction of Spartanburg (Airbus A350 systems) and Glatten (diesel injectors for data centers) facilities progressing as scheduled.
Aftermarket and MRO Service Expansion -- New MRO agreements with Lufthansa Technik and Air France-KLM plus a distribution partnership with AAR to expand service footprint and capacity.
Pricing -- Realized price increases of 6.5%-7% in the quarter, with Aerospace stronger than Industrial; same range projected for the full year.
Management raised full-year sales and earnings guidance, citing elevated demand and execution across both core segments. Aerospace commercial and defense end markets both contributed significant year-over-year revenue and margin gains, supporting upward revision in segment margin targets. Industrial benefited from strength in marine transportation, oil and gas, and power generation, with last-time-buy China On-Highway revenue highlighted as tapering off in future quarters. Supply chain dual-sourcing and capacity expansion projects were mentioned as current operational constraints, with efforts underway to resolve bottlenecks. The company advanced selective M&A and divestitures, increased R&D for new aircraft components, and moved major construction projects toward completion. Management reiterated plans to return $650 million-$700 million to shareholders through dividends and repurchases in the fiscal year.
Blankenship stated, "we are raising our full-year sales and earnings guidance based on our second quarter results and confidence in the remainder of 2026."
The company experienced steady shop inputs and no drop-off in orders for spare LRUs despite industry-wide airline capacity reductions, with management saying, "We have not seen any drop-off in inputs to our shop from LRUs for repair, and we have not seen any slowdown in the order rate for spare LRUs."
Recent automation initiatives and manufacturing investments were identified as drivers for current and future productivity increases.
Capital projects such as the Spartanburg Airbus A350 actuation facility and Glatten expansion for data center backup systems are proceeding on target for 2027 operational dates.
Management addressed uncertainty in the broader geopolitical environment, indicating any demand impacts would "be felt in fiscal 2027" if realized.
INDUSTRY GLOSSARY -
LEAP: A family of high-bypass turbofan aircraft engines used on new-generation single-aisle commercial jets, co-developed by GE and Safran.
GTF: Geared Turbofan, an engine technology developed by Pratt & Whitney for fuel efficiency and reduced emissions, primarily on commercial narrow-body aircraft.
JDAM: Joint Direct Attack Munition, a guidance kit that converts unguided bombs into precision-guided munitions, used in defense aircraft.
LRU: Line Replaceable Unit, modular components in aircraft or industrial systems designed for rapid replacement and maintenance.
EPC: Engineering, Procurement, and Construction firm involved in major infrastructure and industrial project delivery.
MRO: Maintenance, Repair, and Overhaul, services that support ongoing operational readiness and compliance of aerospace and industrial equipment.
SOGAV: Smart, electronically actuated gas admission valve used in large reciprocating gas engines for precise fuel control.
Full Conference Call Transcript
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Woodward, Inc. Second Quarter Fiscal Year 2026 Earnings Call. At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. Following the presentation, you are invited to participate in the question-and-answer session. Joining us today from the company are Charles P. Blankenship, chairman and chief executive officer; William F. Lacey, chief financial officer; and Daniel Provaznik, director of investor relations. I would now like to turn the call over to Daniel Provaznik. Thank you, operator.
Daniel Provaznik: We would like to welcome all of you to Woodward, Inc.’s second quarter fiscal year 2026 earnings call. In today’s call, Charles P. Blankenship will comment on our strategies and related markets, and then William F. Lacey will discuss our financial results as outlined in our earnings release. At the end of our presentation, we will take questions. For those who have not seen today’s earnings release, you can find it on our website at woodward.com. We have included presentation materials to go along with today’s call that are also accessible on our website. A webcast of this call will be available on our website for one year.
All references to years in this call are references to the company’s fiscal year unless otherwise stated. I would like to highlight our cautionary statement as shown on slide two of the presentation materials. As always, elements of this presentation are forward-looking, including our guidance, and are based on our current outlook and assumptions for the global economy and our businesses more specifically. These elements can and do frequently change. Our forward-looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify in our filings with the SEC. These statements are made as of today, and we do not intend to update them except as required by law.
In addition, we are providing certain non-U.S. GAAP financial measures. We direct your attention to the reconciliations of non-U.S. GAAP financial measures, which are included in today’s slide presentation and our earnings release. We believe this additional financial information will help in understanding our results. Now I will turn the call over to Charles. Thank you, and good afternoon to all who are joining our second quarter 2026 earnings call.
Charles P. Blankenship: I am pleased to report that Woodward, Inc. delivered an exceptionally strong second quarter. Our team continues to execute with focus and discipline to meet ongoing robust demand across both our Aerospace and Industrial segments. Before we get into the results, I want to acknowledge the complex global environment we are operating in. I would like to thank our Woodward, Inc. security professionals, our leaders, and our members in the region for their vigilance in keeping our team members operating in the Middle East safe. I also greatly appreciate our customers in the region for their collaboration on safety and coordination as we adjust projects that are underway there.
While the safety of our team is our first priority, we are also closely monitoring broader geopolitical developments and how those might impact defense spending or airline traffic. If those impacts do occur, we expect them to be felt in fiscal 2027. The second quarter marked a significant milestone for Woodward, Inc. as we surpassed $1 billion in quarterly sales for the first time in our history. Sales increased 23% year over year, reaching all-time highs in both Aerospace and Industrial. We also delivered margin expansion, including record quarterly adjusted earnings per share, up 34% from the prior year.
These results reflect the strength of our end markets, the benefits of our strategic focus, and the steady progress we are making in our operations. Our members’ efforts and dedication to continuous improvement not only enabled us to deliver another quarter of outperformance, but also positioned us well for the second half of the year. While we are monitoring uncertainties in the geopolitical environment, we are raising our full-year sales and earnings guidance based on our second quarter results and confidence in the remainder of 2026. Turning to our markets, here is a breakdown on what is driving the robust demand in Aerospace and Industrial and what it means to Woodward, Inc.
In Aerospace, commercial aircraft build-rate increases are coupled with overlapping maintenance cycles of legacy and current-generation fleets. In Industrial, we see power generation demand expressed in both power gen and oil and gas end markets. These market drivers create durable growth opportunities for Woodward, Inc. Our challenge in this environment is to continue to expand our capacity and that of our supply chain in ways that are well managed and resilient. We are doing the right work to achieve these outcomes. At times, however, we have seen demand outstrip our activities — dual-sourcing projects and additional test stand procurement, installation, and calibration are two real examples of what constrained output for us last quarter.
In Aerospace, we saw expected growth in both commercial and defense OEM along with continued strength in commercial services. Legacy services activity remains solid, and we are seeing steady increases in volume for our control systems on LEAP and GTF engines. Shop inputs remained steady, and we have not seen any decreases as a result of airlines’ recently announced capacity and utilization reductions. In Industrial, momentum continued across all our major markets, including oil and gas, transportation, and power generation. Our ability to deliver on this robust demand reflects strong execution across the company.
Moreover, our team is managing order growth while simultaneously undertaking numerous critical projects to optimize our portfolio, strengthen our competitiveness, and position Woodward, Inc. for long-term growth. We remain focused on our value drivers: growth, operational excellence, and innovation. Our profitable growth pillar contains both organic and inorganic lines of effort along with selective divestitures and investments in capability, efficiency, and capacity. These projects are changing the game in how we operate. They are also allowing us to focus on areas with the greatest potential to strengthen value creation. Our recent announcements reflect purposeful portfolio management decisions that our team has been working to activate over the last one to two years.
In March, we closed the acquisition of Valve Research and Manufacturing, adding the premier designer and manufacturer of solenoids to the Woodward, Inc. portfolio of control systems. These are critical enabling technologies for current and future aircraft, with next-generation single-aisle platforms clearly in our sights. We also see opportunities related to industrial gas turbine control systems. Integration is progressing well as we welcome our new team members in Southeastern Florida. We also announced the sale of our Niles-based pilot controls product line to Ontic, a mutually beneficial transaction that will enable us to refocus resources. In addition, we communicated the relocation of servo valve production lines from our facility in Santa Clarita to Rockford.
Rockford is our world-class servo technology design and manufacturing center where we intend to achieve the necessary quality and delivery improvements required for our customers and shareholders. In Industrial, our actions to wind down the China On-Highway product line remain on track and last-time-buy volumes are reflected in our second quarter results. All of these actions streamline and strengthen our portfolio and sharpen our focus on our most attractive near- and long-term growth opportunities.
These decisions allow us to serve customers better on our current book of business, and by trimming product lines that do not have a path for us to be best in class, and by moving work to where we can be more effective and efficient, we can focus on partnering with our customers to tackle their biggest challenges with their next generation of products. Our two biggest construction projects — Spartanburg and Glatten — are both on track. Our new facility in Spartanburg, which will be the location for Airbus A350 spoiler actuation systems, is on schedule. Walls are erected, and floors are being poured as we speak.
We are on target to be operational in 2027, and begin deliveries the following year. Our Glatten expansion to deliver more diesel fuel injectors for data center backup power is almost complete. We have moved over 100 machines within the new hall and legacy areas to perfect flow. Our teams have demonstrated the major achievement of small-batch flow and customers will see substantial capacity increases with reduced lead times. This will translate into cost productivity and better inventory turns.
While I have been vocal with many analysts and investors that Woodward, Inc. has the facilities and capacity to support the ongoing power generation demand and data center accelerator to that demand, multiple customers have recently shared potential increases to their forecasts. We are working with our customers to evaluate the opportunities and capacity options. Shifting to growth in Aero MRO, the volume on LEAP and GTF is growing quickly. We continue to increase capacity at our Rockford and Prestwick sites with Kaizen activities focused on flow and turn time. We have added test-stand capacity at Rockford, and we are progressing with the expansion plans for Prestwick.
As we have indicated in prior earnings calls, we have a strategy to perform repair and overhaul service in-house as well as through licensed providers that will deliver to OEM standards. This approach allows us to optimize our capital and internal resources and support our airline customers in the way they prefer to contract for maintenance and repair. It is a well-respected open maintenance model that we have refined to suit Woodward, Inc.’s strategy on LEAP controls components. Last week, we announced new partnerships at MRO Americas, including new licensed repair service facility agreements with Lufthansa Technik and Air France-KLM, as well as a new distribution agreement with AAR.
We are thrilled to be partnering with industry leaders in MRO and material support. These partnerships expand our global service network, increase capacity, and give airlines flexibility in how they contract for service. Moving to our operational excellence pillar, investments in automation continue as we execute projects as simple as increasing the closed-door machining time as a total percent of the job and as complex as full assembly and test automation with vision systems and integrated inspection. We are also introducing repeat automation projects to additional sites, leveraging the automation lab in our Rock Cut facility. This lab was recently recognized by the Manufacturing Leadership Council as leading the way in manufacturing excellence.
I see firsthand the results of continuous improvement nearly every day. I was recently visiting the Industrial SOGAV value stream in our Fort Collins site and was impressed with an automated cell that allows one operator to manage three machines and turn a production bottleneck and staffing challenge into a high-speed machining cell that can outrun our current demand forecast. We need both capacity and productivity to achieve our goals in the long term. To us, it is equally exciting to create value for customers and for shareholders.
As indicated by the list of projects I described above, our team is managing a high level of activity across the company while at the same time improving delivery to our customers and our financial results. We continue to invest in our people and our talent pipeline to make sure we have the engineering, manufacturing, business support, and leadership needed to enable our growth trajectory. For example, we recently launched a rotational program to develop the next generation of Woodward, Inc. leaders, with the first cohort starting in June — yet another step to build a high-performing organization designed for the future.
Turning to innovation, innovation has always been and will continue to be a major competitive differentiator for Woodward, Inc. As I said last quarter, we are turning from pure technology development to more technology demonstration activities with our Aerospace customers. We have entered into collaborative agreements with many of our current customers to work together on trade studies and demonstration programs. This is an exciting time to be an innovator with a track record of industrialization. We will speak more about this trend at Investor Day late this calendar year. You will see Aerospace R&D expenses beginning to tick up this year and more so in the years that follow as future aircraft timelines firm up.
In Industrial, one focus is on a new actuation to provide precise fuel and air control on reciprocating engines that will deliver more customer value and is designed for a more efficient automated production system. It is more compact in size and produces a broader torque range than prior models, which allows us to simplify the product portfolio and use this platform in many applications. The product will enter service in 2027.
Our priorities remain clear as we head into the second half of the year: meet OEM demand growth; deliver world-class service across our installed base, including legacy Aerospace, LEAP, GTF, and industrial gas turbine systems; and demonstrate customer value on key technologies to position Woodward, Inc. for increased content on next-generation single-aisle aircraft. We are entering the second half of the year from a position of strength and will continue to invest with discipline and focus to deliver long-term shareholder value. With that, I will turn it over to William to take you through the financials in more detail. Over to you, William. Thank you, and good evening, everyone.
William F. Lacey: As Charles mentioned, Q2 was a strong quarter. Quarterly net sales exceeded $1 billion for the first time in Woodward, Inc.’s history, coming in at approximately $1.1 billion in Q2 2026, an increase of 23%. The significant growth reflects strong demand and increased output in both Aerospace and Industrial. We achieved GAAP earnings per share in Q2 2026 of $2.19 compared to $1.78 in the prior-year quarter. Adjusted earnings per share were $2.27, compared to $1.69. We generated $38 million of free cash flow in the second quarter. At the segment level, Aerospace segment sales for Q2 2026 were $703 million, an increase of 25%. The strong growth was primarily driven by commercial aerospace.
Commercial services increased 36%, reflecting higher repair volume to support the continued high utilization of legacy aircraft, as well as increased LEAP and GTF activity. In addition, spare LRU sales growth was strong in the quarter, with volume consistent with the previous two quarters. Commercial OEM sales were up 30%. We believe destocking is largely behind us, as our output is now more aligned with current airframers’ build rates. Defense OEM sales grew 9%, primarily due to increased JDAM pricing that took effect in fiscal 2025, and defense services grew 8%. Second-quarter Aerospace segment earnings were $158 million, or 22.5% of segment sales, compared to $125 million, or 22.2% of segment sales, in the prior-year quarter.
While the strength in commercial services, higher commercial OEM volumes, and solid price realization drove meaningful margin expansion, this was largely offset by planned strategic investments to support future growth and inflationary pressures. This reduced the Aerospace flow-through in the quarter, resulting in a net margin increase of 30 basis points. These strategic investments included enhancements to our manufacturing capabilities to deliver the content on current platforms, incremental R&D tied to early-stage efforts to compete for the next single-aisle aircraft platform, and an enterprise-wide ERP upgrade. While these initiatives are impacting margins, they are critical to positioning the company for sustained long-term growth, and we expect these investments to continue.
The flow-through in the full-year 2026 Aerospace guide is expected to be at a targeted rate of approximately 30% to 35%. Turning to Industrial, Industrial segment sales for the second quarter were $387 million, an increase of 20%. Core Industrial sales, which exclude the impact of China On-Highway, increased 19% in the quarter, driven by higher volume, price, and favorable foreign currency impacts. Marine transportation sales were strong, increasing 34%, reflecting higher shipyard output and services activity. Oil and gas sales grew 18%, driven by higher volume, primarily related to greater midstream and downstream gas investment. Power generation sales increased 7%.
Excluding the impact of the prior-year combustion business divestiture, power generation sales grew in the high teens on a percentage basis, driven by increasing data center demand for both base and backup power generation. Outside of our core Industrial business, China On-Highway sales were $29 million in the quarter. We expect approximately $30 million of sales in the third quarter and minimal sales in the fourth quarter. Industrial segment earnings for Q2 2026 were $66 million, or 17% of segment sales, compared to $46 million, or 14.3% of segment sales, in the prior-year quarter.
Within our core Industrial business, margins were approximately flat at 14.7% of core Industrial sales, as strong price realization and higher sales volume were partially offset by inflation. In addition, margins were negatively impacted in the quarter due to a reserve for a product performance claim. Excluding the reserve, core Industrial margins would have been in line with Q1. The China On-Highway business added an additional 230 basis points of margin growth in the quarter. Non-segment expenses were $45 million for Q2 2026, compared to $27 million in the prior year. Adjusted non-segment expenses were $38 million compared to $34 million.
Consolidated operating income in Q2 2026 was $205 million, compared to $112 million in the prior-year quarter, largely driven by higher earnings. Capital expenditures totaled $97 million for Q2 2026. We continue to expect a meaningful increase in capital expenditures over the next two quarters, consistent with our guidance for the full year. As Charles mentioned, construction of the Spartanburg facility to support future A350 production is progressing as planned. We remain on track to finish the building over the next few quarters and are beginning to purchase production equipment, with the site expected to become operational in 2027.
In addition, we continue to make strategic investments to support growth related to current platforms, including automation, preparing for increased LEAP and GTF service activity, our ERP upgrade, and product line moves. We generated $109 million of free cash flow in the first half of fiscal 2026, compared to $60 million in the prior-year period, driven primarily by higher earnings partially offset by higher capital expenditures. As of 03/31/2026, debt leverage was 1.4 times EBITDA. We continue to allocate capital according to our priorities: supporting organic growth, selectively pursuing strategic M&A opportunities, and returning capital to shareholders through dividends and share repurchases.
Advertisement
Regarding strategic M&A, we recently completed the acquisition of Valve Research and Manufacturing, consistent with our strategy of pursuing targeted, high-return opportunities that enhance our capabilities and improve our position to compete for the next single-aisle aircraft. In addition, in line with our portfolio optimization efforts, we recently announced the divestiture of our pilot controls product line, which we expect to close by the end of the year. We are building a stronger, more focused Woodward, Inc. as we invest in high-growth opportunities and expand in the right areas to position Woodward, Inc. to create additional value for shareholders.
In the first half of fiscal 2026, we returned over $355 million to stockholders through share repurchases, and $36 million in dividends. Our strong balance sheet provides flexibility to move decisively as compelling opportunities emerge. Lastly, our fiscal 2026 guidance still assumes the return of between $650 million and $700 million through dividends and share repurchases. Turning to our 2026 guidance, based on our strong second-quarter performance and confidence in the second-half outlook, we are raising our 2026 sales and earnings guidance. For 2026, we now expect the following: Aerospace sales growth between 21% and 24%, with margins increasing to between 23% and 23.5%. Industrial sales growth between 18% and 20%, with margins increasing to between 18% and 18.5%.
We now expect total Woodward, Inc. sales growth between 20% and 23% and adjusted EPS between $9.15 and $9.45. Free cash flow is still expected to be between $300 million and $350 million, and capital expenditures are still expected to be approximately $299 million. We expect to continue to maintain higher levels of inventory than previously anticipated, as we prioritize meeting customer demand while we strive for better alignment across the end-to-end supply chain. We have a number of inventory initiatives underway, which should drive improved free cash flow generation in 2027. We now expect our average diluted shares outstanding to be approximately 61.5 million. Adjusted effective tax rate guidance is unchanged.
This concludes our prepared remarks on the business and results for 2026. Operator, we are now ready to open the call to questions.
Operator: We will now open the call for questions. If you are using a speakerphone, please pick up a handset before pressing any numbers. Should you have a question, please press star 1 on your push-button phone. Should you wish to withdraw your question, press star 1 a second time. Your question will be taken in the order it is received. Please stand by for your first question. Our first question comes from the line of Scott Stephen Mikus with Melius Research. Your line is open.
Scott Stephen Mikus: Good evening, Charles and William. On a sequential basis, your commercial aftermarket sales were up 12%. In the opening remarks, I think it was mentioned that the LRU volumes were roughly consistent with the prior two quarters. Since the quarter has ended, have you seen a drop-off in orders for spare LRUs? And are you concerned that if there is a broader slowdown in the aftermarket, the amount of LRUs in the field could result in destocking pressures in the back half of this year or early in 2027?
William F. Lacey: Yes, Scott. Let me jump on the front part of that, and then maybe the second part. As we head into the third quarter, and as we have mentioned, orders for these spare LRUs are rather short-cycle, so we do not have a ton of visibility. But we are comfortable that, sequentially, Q3 spare LRUs are in line with what we have seen in the first two quarters. From a financial forecasting standpoint, it is tough to say what Q4 looks like currently.
Charles P. Blankenship: We have certainly seen some airlines signaling that they are removing a little bit of capacity — parking some planes — but none of that parking activity exceeds any of the forecasts that were already in play. We have not seen any drop-off in inputs to our shop from LRUs for repair, and we have not seen any slowdown in the order rate for spare LRUs. There are always assumptions in a forecast, but we have not seen any indications in our direct connections with customers to indicate we will see a slowdown inside our fiscal year.
That being said, we are obviously monitoring the situation at the higher level — geopolitical and macroeconomic — and as far as what that means for FY 2027, we will have to ride a little further along to see where that goes.
Scott Stephen Mikus: And then a lot of energy infrastructure in the Middle East has been damaged in the ongoing conflict, and it will need to be rebuilt. How are you thinking about that opportunity for your Industrial business? Are you receiving RFPs from your customers to support that reconstruction, fully understanding that probably will not hit the P&L until next year?
Charles P. Blankenship: We are a little bit further down in the supply chain to be seeing initial outreach on that for anything except service activity. We have some ongoing projects, and a number of them are back up and running as far as service for our customers — be it on valve-type equipment or on the control systems for gas turbines and power plants. That activity is ongoing. For things that need to be rebuilt, as the customers and operators reach out to EPC-type companies, that will flow down to us, and we have not seen anything along those lines yet. There will probably be some opportunity. You are welcome.
Operator: Our next question comes from the line of Sheila Karin Kahyaoglu with Jefferies. Your line is open.
Sheila Karin Kahyaoglu: Thank you. Maybe we could focus on margins for both Aerospace and Industrial. First on Aerospace, first-half margins were just under 23%, fiscal Q2 at 22.5%, yet you raised the full year to 23% to 23.5% at the high end. Can you talk about what drives that second-half margin expansion? What are the puts and takes? And then on Industrial core margins, they stepped down almost 300 bps — can you explain that and how to think about the second half?
Charles P. Blankenship: I will let William start there, and I will jump in at the end.
William F. Lacey: Sheila, we continue to see good growth on the services side of the business, which helps our margin rates, while volume growth creates leverage. As we have been discussing, we have been investing and working hard on our lean activity, and that work is paying off as we see shipments increase. We continue to have good pricing in Aero and are managing our inflation well, so we are seeing positive flow-through to the bottom line. On your Industrial question, in Q2 we recorded a reserve related to a product performance claim, and that impacted Q2 margins for core Industrial. If you back that out, margin rates are about in line with what we saw in Q1.
We expect the second half to be more aligned to that Q1 level, and operationally what we saw in Q2 — excluding the reserve — we expect that to continue in the second half.
Operator: Our next question comes from the line of Noah Poponak with Goldman Sachs. Your line is open.
Noah Poponak: Good afternoon. Everyone is trying to figure out what is going to happen with the Aerospace aftermarket. You described not really seeing much yet. Given your experience, why do you think you have not seen anything yet? Why do you think the airlines are not responding that much yet? And then, related, how does your content on current-generation narrow-bodies affect Woodward, Inc. if newer technology fleets are utilized more than older fleets?
Charles P. Blankenship: Demand is still strong, so I think people are continuing as they were with their maintenance programs. If the duration of higher fuel prices extends and price continues to climb, then load-factor breakeven points between city pairs could cause more planes to be parked, and maybe there will be some destruction of demand if prices go up too much. None of those “if” statements have happened yet, so I think it is business as usual on the maintenance side.
Some of our peers may seem a little more cautious with their announcements, but I will remind everyone we are halfway through our year, so we have more in the rearview mirror already accomplished and a little less in front of us on this duration question than our peers. On the content question, legacy narrow-body repair business continues to grow — more than we forecast for Q2 — so legacy utilization remains solid.
If we come to an oil shock that is longer and more severe, and the newer technology fleet gets utilized much more than the older technology fleet, for Woodward, Inc. that is actually a bit of a hedge because we have a faster-growing, higher-content position on that fleet. It is not what we wish for the industry, but it would be relatively favorable for us.
William F. Lacey: On your question about incremental investments and tracking the underlying trend, we are focused on making sure we have the systems and processes in place to execute on our key imperatives. We are going to be diligent and thoughtful about how we increase that investment — not getting too far ahead of the volume growth, but not so far behind that we cannot execute. As you can see, there is still margin expansion in our guide, so we believe we are being responsible with how we are increasing spend on strategic projects.
Charles P. Blankenship: We have increased our R&D spend in Aerospace. Much of that is aimed at preparation and technology demonstration projects with our customers. We have also invested in manufacturing engineering to accelerate our automation journey, which feeds how we will industrialize for next single-aisle aircraft components that we win. In addition, we are building the plant in South Carolina and are starting to staff key positions — plant leader, value stream leaders, and advanced manufacturing engineers. Some of these are longer-term investments. The automation investments will provide returns sooner, but the staffing and R&D are really aimed at the next generation.
William F. Lacey: On pricing, price in the quarter was around 6.5% to 7%, and that is roughly what we project for the total year, with Aero being a little stronger on price than Industrial.
Charles P. Blankenship: Thanks, Noah.
Operator: Our next question comes from the line of Gavin Eric Parsons with UBS. Your line is open.
Gavin Eric Parsons: Thank you. Good afternoon.
Should you buy stock in Woodward right now?
Before you buy stock in Woodward, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Woodward wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $497,606!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,306,846!*
Now, it’s worth noting Stock Advisor’s total average return is 985% — a market-crushing outperformance compared to 200% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
See the 10 stocks »
*Stock Advisor returns as of April 29, 2026.
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Source: “AOL Money”
