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Howmet Aerospace Inc. reported stronger-than-expected earnings for the second quarter of 2025, with earnings per share (EPS) of $0.91, surpassing analyst forecasts of $0.87. The company’s revenue reached $2.53 billion, slightly exceeding the forecasted $2.02 billion. Despite the positive earnings report, Howmet’s stock fell by 6.73% in pre-market trading, settling at $190. The company maintains excellent financial health, earning a "GREAT" rating from InvestingPro, with a perfect Piotroski Score of 9, indicating strong operational efficiency and financial stability.
Key Takeaways
- Howmet Aerospace’s Q2 EPS of $0.91 exceeded expectations by 4.6%.
- Revenue increased by 9% year-over-year, reaching $2.53 billion.
- The stock price dropped 6.73% in pre-market trading despite positive earnings.
- The company raised its full-year 2025 guidance across revenue, EBITDA, and EPS.
- Significant growth in defense aerospace and industrial markets was reported.
Company Performance
Howmet Aerospace demonstrated robust performance in the second quarter, driven by strong growth in its defense aerospace and industrial markets, which grew by 21% and 17%, respectively. The company also reported a 40% year-over-year increase in its spares business, now contributing to 20% of total revenue. The strategic focus on expanding capacity in aerospace and industrial gas turbines is expected to support future growth.
Financial Highlights
- Revenue: $2.53 billion, up 9% year-over-year
- EPS: $0.91, up 36% year-over-year
- EBITDA: $589 million, with a margin of 28.7%
- Free Cash Flow: $344 million
- Share Repurchases: $175 million in Q2, $300 million year-to-date
- Dividend: Increased by 20% to $0.12 per share
Earnings vs. Forecast
Howmet Aerospace’s EPS of $0.91 surpassed the forecast of $0.87, marking a 4.6% positive surprise. Revenue also exceeded expectations, coming in at $2.53 billion compared to the forecasted $2.02 billion. This outperformance reflects the company’s strong execution and market position.
Market Reaction
Despite the positive earnings report, Howmet’s stock fell by 6.73% in pre-market trading, closing at $190. This decline could be attributed to broader market conditions or investor concerns about future growth prospects, particularly given the stock’s high valuation multiples. According to InvestingPro analysis, the company currently trades at a P/E ratio of 57.9x and an EV/EBITDA multiple of 37.13x, suggesting premium pricing. The stock’s performance is notable given its proximity to the 52-week high of $193.26, following an impressive YTD return of 75.93%.
Outlook & Guidance
Howmet Aerospace raised its full-year 2025 guidance, now expecting revenue of $8.13 billion, an increase of $100 million. The company also revised its EBITDA forecast to $2.32 billion and EPS to $3.60, reflecting an increase of $70 million and $0.20, respectively. The company anticipates continued strength in commercial aerospace, defense, and industrial gas turbines.
Executive Commentary
CEO John Plant highlighted the company’s strategic focus on organic growth and capacity expansion. He stated, "Organic growth is by far the best for us in terms of return on capital." Plant also emphasized the importance of expanding capacity, noting, "We’re putting capacity in, and we’re seeing increments of that capacity currently, but with the majority of it to come on stream in 2026 and into 2027."
Risks and Challenges
- Supply Chain: Potential bottlenecks could impact production timelines.
- Market Saturation: Increased competition in aerospace and industrial markets.
- Economic Conditions: Macroeconomic pressures could affect demand.
- Regulatory Changes: New regulations in key markets may impact operations.
- Currency Fluctuations: Exchange rate volatility could affect financial performance.
Q&A
During the earnings call, analysts inquired about the company’s new manufacturing capacity in engines and industrial gas turbines. Concerns were also raised about potential supply chain bottlenecks and the company’s pricing strategy. Executives addressed these by highlighting the strategic initiatives in place to mitigate risks and capitalize on market opportunities.
Full transcript - Howmet Aerospace Inc (HWM) Q2 2025:
Conference Operator: After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2.
Please note this event is being recorded. I would now like to turn the conference over to Paul Luther, Vice President, Investor Relations. Please go ahead.
Paul Luther, Vice President, Investor Relations, Hamed Aerospace: Thank you, Megan. Good morning, and welcome to the Hamed Aerospace second quarter twenty twenty five results conference call. I’m joined by John Plant, Executive Chairman and Chief Executive Officer and Ken Giacobbe, Executive Vice President and Chief Financial Officer. After comments by John and Ken, we will have a question and answer session. I would like to remind you that today’s discussion will contain forward looking statements relating to future events and expectations.
You can find factors that could cause the company’s actual results to differ materially from these projections listed in today’s presentation and earnings press release and in our most recent SEC filings. In today’s presentation, references to EBITDA, operating income, and EPS mean adjusted EBITDA, excluding special items, adjusted operating income, excluding special items and adjusted EPS, excluding special items. These measures are among the non GAAP financial measures that we’ve included in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today’s press release and in the appendix in today’s presentation. In addition, unless otherwise stated, all comparisons are on a year over year basis.
With that, I’d like to turn the call over to John.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Thanks, P. T, and welcome, everyone. The results for the second quarter were strong. Revenue growth increased 9% year over year compared to 6% in the first quarter, and the revenue broke through $2,000,000,000 to $2,530,000,000 and exceeded the high end of guidance. The revenue growth enabled us to carry out the costs of the additional headcount as we prepare for the new capacity coming on at the 2025, notably for turbine airfoils and the IGT build out during 2026 and 2027.
EBITDA margins were healthy at 28.7%, up 300 basis points year over year, which was excellent given the significant sequential revenue and EBITDA growth. EBITDA was EUR $589,000,000. Free cash flow was also healthy at $344,000,000. This cash flow enables share repurchases of $175,000,000 in the quarter to total $300,000,000 in the first half, with an additional $100,000,000 already completed in July. Additionally, debt repayment was 76,000,000 We also announced an increase in the common stock dividend to $0.12 per quarter starting in August.
This is a 20% increase quarter over quarter, which builds on the significant increases in 2023 and 2024. Lastly, earnings per share was $0.91 an increase of 36% year over year. In terms of business segment commentary, Forged Wheels continues to do well with a 27.5 margin, a slight increase on the first quarter. Additionally, Structured printed another solid quarter with EBITDA margins above 20%, the exact number being 21.4%. Lastly, how many incrementals were above 60% year over year?
I’ll now pass the call to Ken to comment specifically on market sector performance and provide business segment commentary.
Ken Giacobbe, Executive Vice President and Chief Financial Officer, Hamed Aerospace: Thank you, John. Good morning, everyone. In the deck, you’ll notice that we’ve added Slide five, which gives you a quick snapshot of the first half performance. But we’re going to move to Slide six now to talk about the markets. So end markets continued to be healthy, with total revenue up 9% year over year and 6% sequentially.
Commercial aerospace was up 8%, driven by accelerating demand for engine spares. Commercial aerospace growth is further supported by the record backlog for new, more fuel efficient aircraft with reduced carbon emissions. Defense aerospace growth continued to be robust, printing record quarterly revenue of $352,000,000 which was up 21%. Growth was driven by engine spares, new engine builds and F-thirty five structures. As we expected, commercial transportation was challenging with revenue down 4% in the second quarter, including the pass through of higher aluminum costs.
On a volume basis, Wheels volume was down 11%. Although down year over year, the Wheels team did an excellent job to flex costs and deliver strong EBITDA margin of 27.5. Finally, the industrial and other markets were up a healthy 17%, driven by oil and gas up 26% and IGT up 25%. Within helmet’s markets, the combinations of spares for commercial aerospace, defense aerospace, IGT and oil and gas continues to accelerate and was up 40% in the second quarter and represented 20% of total revenue. As a compare, total spares in 2019 was 11% of total revenue on a smaller base.
So in summary, continued strong performance in commercial aerospace, defense aerospace and industrial, partially offset by commercial transportation. Now let’s move to slide seven. So as usual, we’ll start with the P and L. Q2 revenue, EBITDA and earnings per share were all records and exceeded the high end of guidance. Revenue was up 9% year over year, exceeding $2,000,000,000 EBITDA outpaced revenue growth, up 22%.
EBITDA margin increased 300 basis points to 28.7%, while absorbing the costs of approximately 400 net headcount additions. Earnings per share was $0.91 which was up a healthy 36% year over year. Now let’s cover the balance sheet and cash flow. The balance sheet continues to strengthen. Quarter end cash balance was healthy at $546,000,000 Free cash flow was excellent at $344,000,000 which was a record for the second quarter.
Free cash flow included the acceleration of capital expenditures with approximately $100,000,000 invested in the quarter and $220,000,000 invested in the first half, which is up approximately 60% year over year. About 70% of the first half CapEx investment was in our engines business as we continue to invest for growth in commercial aerospace and IGT, which is backed by customer contracts. Debt continues to be reduced, and we paid down an additional $76,000,000 of our U. S. Term loan, which is due in November 2026.
The paydown will reduce annualized interest expense drag by approximately $4,000,000 Net debt to trailing EBITDA continues to improve to a record low of 1.3 times. All long term debt is unsecured and at fixed rates. Regarding liquidity, it remains strong with a healthy cash balance and a $1,000,000,000 undrawn revolver, complemented by the flexibility of a $1,000,000,000 commercial paper program, both of which have not been utilized. Regarding capital deployment, we deployed $292,000,000 of cash to common stock repurchases, debt paydown and quarterly dividends. In the quarter, we repurchased $175,000,000 of common stock at an average price of approximately $142 per share.
Q2 was the seventeenth consecutive quarter of common stock repurchases. The average diluted share count improved to a record Q2 exit rate of $4.00 6,000,000 shares. Additionally, in July, we repurchased $100,000,000 of common stock at an average price of approximately $183 per share. July year to date common stock repurchases is $400,000,000 at an average price of approximately $144 per share. Remaining authorization from the Board of Directors for share repurchases is approximately $1,800,000,000 as of the July.
Finally, we continue to be confident in free cash flow. We’ve announced an increase in the Q3 quarterly stock dividend by 20% from $0.10 per share to $0.12 per share payable this August. Now let’s move to Slide eight to cover the segment results for the second quarter. The engine products team delivered another record quarter for revenue, EBITDA and EBITDA margin. Quarterly revenue broke through the $1,000,000,000 mark with an increase of 13% to 1,056,000,000.000.
Commercial aerospace was up 9%, and defense aerospace was up 13%, both driven by engine spares growth. Both oil and gas and IGT were up approximately 25%. Demand continues to be strong across all of our engines markets with record engine spares volume. EBITDA margin outpaced revenue growth with an increase of 20% to $349,000,000 EBITDA margin increased 170 basis points year over year to a record 33%, while absorbing approximately three sixty net new employees in the quarter. Year to date, Engines has invested in approximately eight sixty incremental headcount, which has a near term margin drag, but positions us well for the future.
Now let’s move to slide nine. The fastening systems team also delivered a strong quarter. Revenue increased 9% to $431,000,000 Commercial aerospace was up 18%, defense aerospace was up 19%, general industrial was down 11%, and commercial transportation, which represents about 13% of Faster’s revenue, was down 18%. Segment EBITDA continues to outpace revenue growth with an increase of 25% to $126,000,000 despite the sluggish recovery of wide body aircraft builds along with weakness in commercial transportation. EBITDA margin increased a healthy three sixty basis points year over year to 29.2% after taking into account the impact of delayed tariff recovery.
The team has continued to expand margins through commercial and operational performance while flexing costs in the industrial and commercial transportation businesses. Now let’s move to slide 10. Engineered structures performance continues to improve. Revenue increased 5% to $290,000,000 Commercial aerospace was down 6% due to destocking and product rationalization and was essentially flat sequentially. Defense aerospace was up 49%, primarily driven by the end of the destocking of the F-thirty five program.
Segment EBITDA outpaced revenue growth with an increase of 55% to 62,000,000 despite the modest recovery of wide body aircraft. EBITDA margin increased six ninety basis points to 21.4% as we continue to optimize the structure’s manufacturing footprint and rationalize the product mix to maximize profitability. Finally, let’s move to Slide 11. Forged wheels revenue was down slightly despite higher aluminum cost. Excluding metal impacts, volume was down 11%.
The Wheels team flexed cost to hold EBITDA to prior year levels and delivered strong EBITDA margin of 27.5%. Lastly, before turning it back to John, I wanted to highlight on an additional item. We are reviewing the new tax legislation from the U. S. Administration related to the timing of expensing of R and D and CapEx.
We expect to have a modest free cash flow benefit in 2025, which will be used to fund additional CapEx investments. The modest benefit has been included in our increased free cash flow guide. With that, let me turn it back over to John.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Thank you, Ken, and let’s move to Slide 12. Firstly, Commercial Aerospace is expected to continue to grow. Q2 growth was 8% after some further destocking in certain product areas. This growth starts with passenger miles flown, which has been solid in Europe and relatively higher growth in Asia Pacific, while flat in North America. Aircraft backlogs are extraordinarily high due to prior period underbills and the need for modern fuel and emissions efficient aircraft to replace the increasingly aged fleet.
There have been positive signs for narrow body builds with Boeing achieving a recent 38 per month build rate for the seven thirty seven MAX. We also believe Airbus has achieved 60 builds per month for the a three twentythree ’21, with some 60 a three twenty’s being gliders at this stage awaiting engines. Wide body builds have not increased substantially in the second quarter, but are expected to go a little higher in the fourth quarter and going into 2026. The underlying seven thirty seven MAX assumption within our guidance today is raised from 28 per month average for the year to 33 per month average for the year and supports a higher expected revenue, which I’ll comment on later. Spares for commercial aerospace, defense aerospace and IGTindustrial have increased by some 40% year over year and were at 20 of total revenue.
This result is positive with a continued first half rate of it being 27% of total revenue currently. Defense revenue was up 21% and is seen to continue to exhibit this strength during the balance of year. IGT, oil and gas and industrial strength in the quarter was exceptional at 17%, with IGT up some 25%. Growth for the combined IGT oil and gas and industrial markets is expected to be high single digits for the year. And within the combined number, the IGT market is expected to be significantly higher.
Moving to Commercial Transportation. Within our Wheels segment, revenue was below $20.24 by only 1%. However, metals and tariff recovery are now included in that number. Volume was down 11% with continued softness expected in the second half. In terms of general outlook is that we expect to see continued strength in Commercial Aerospace, Defense Aerospace, IGT, Oil and Gas and with an offset only in the Commercial Truck segment, which continues throughout this year.
In 2026, the commercial truck market should stabilize, and hence, the overall picture for HAMET currently appears to be healthy. In terms of specific guidance, we see the third quarter as follows: revenue, 2,030,000,000.00, plus or minus EUR 10,000,000 EBITDA, EUR $580,000,000, plus or minus EUR 5,000,000 EPS at zero nine zero, plus or minus EUR $0.01. Q3 reflects the normal seasonality of lower European selling days due to annual vacations. The year’s full guidance has been increased. Revenue has been increased by $100,000,000 to $8,130,000,000 plus or minus $50,000,000 EBITDA has been increased $70,000,000 to $2,320,000,000 plus or minus 20,000,000 Earnings per share has been increased by $0.20 to $3.6 plus or minus $04 Free cash flow has been increased $75,000,000 to $1,225,000,000 plus or minus 50,000,000 Revenue, EBITDA and EBITDA margin have been increased above the second quarter beat.
The higher revenue expectation is supported by both an increased spares expectation and the higher Boeing seven thirty seven MAX rate assumption. Full year incrementals continue to be healthy at the mid-fifty percents within and with the second half in the mid-40s. The increased cash flow guidance includes an increase in our capital expenditure guidance to invest in future revenue growth with modest expected benefits from the new tax legislation. It is encouraging to see our guide increase, especially the free cash flow guide, which provides even further optionality for capital deployment. And with that, we’ll now move to your questions.
Conference Operator: We will now begin the question and answer session. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. We ask that you please limit yourself to one question only. At this time, we will pause momentarily to assemble our roster. Our first question comes from Myles Walton with Wolfe Research.
Please go ahead.
Analyst: Thanks. Good morning. Hey, Myles. Wondered if, John, you can comment on the rationalization of products within structures. How meaningful is that?
Is is it, going to be to the margins as well as maybe any headwind, to departing from from some lines of businesses or products?
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: The majority of the rationalization, has already occurred, on this on Miles. And so if you go back to, commentary provided in the two prior earnings calls, I mentioned the sale of one business within structures and also the closure of another manufacturing plant, which was in Europe. And those two combined with us, probably possibly being a little bit more discerning, on order intake has enabled us to, continue the momentum on, improved margins. So the way I see it is that revenues continued to, to be healthy and grow, and margins have solidified. And and I and I quite like, again, it’s the and conversation doing a revenue increase and, and margin enhancement, and which has played well for the company.
The total revenue, which, in our structures business was, you know, certainly healthy from the defense side, less so from the commercial aerospace side, But that was, essentially due to some destocking, particularly in the, I will say, distribution markets where some orders had been cut, I think as, I think Boeing in particular decided to, to to do some destocking throughout their their supply chain. So I’m not expecting significant further rationalizations, but we always remain alert for anything where, if it doesn’t really contribute in a significant way to improving the business, then we’ll always take a hard look at it.
Analyst: So should we expect the margins seen year to date to persist for the second half within structures at these new levels?
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Well, was our goal for the second quarter. And I will say, yes, we did achieve it. And so my expectation is that we’ll hopefully maintain where we are. So that would be a pretty significant increase year on year. And you’ll see from the guide that, we’ve maintained our margin outlook of EBITDA, above 28%.
So that assumes that we’ll achieve that objective.
Analyst: All right. Thanks.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Thank you.
Conference Operator: Our next question comes from Sheila Kahyaoglu with Jefferies. Please go ahead.
Sheila Kahyaoglu, Analyst, Jefferies: Good morning, John and Ken. Crazy good results. So can you hear me, by the way? My voice is a little hoarse. Yeah.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: No. I can hear you well.
Sheila Kahyaoglu, Analyst, Jefferies: Okay. Thank you.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: And by the way, thank you for the thank you for the compliment. Heck. I I like the word crazy good.
Sheila Kahyaoglu, Analyst, Jefferies: Yes. Very good. If you could update us on the timing of maybe the revenue contributions from the various engine expansions you’ve announced, across Aero and IGT as it seems like CapEx is increasing and pulling forward. Is it fair to think unlike other companies profitability on day one? Are those sites dilutive to the segment?
How do we think about pricing expected volumes? And just what are the key pacing items for those coming online?
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Okay. So we’ve got two complete new plants, which are being or have been built, in the engine segments and two significant extensions. So that’s that’s a lot of square footage that we’ve been putting in place. The first plant that we have essentially completed now in terms of the construction equipment that has been arriving is in our Michigan facilities. And, you know, I’m expecting some outputs from that, that’s saleable output in the fourth quarter of the year going into 2026.
And I think that’s going to be important for us, particularly in turbine airfalls market. And that’s supported by the extension that we have done in one of our Tennessee plants. So that covers that one. The other two are aimed at the industrial gas turbine market. Again, these are large to the large industrial gas turbines rather than the aero derivatives.
And that is a brand new manufacturing plant in in Japan for which that construction will not be completed until the end of this calendar year and then just to sell itization in the first quarter, probably going into the 2026 and therefore, hoped for output in the 2026. And then an extension of our plant in Europe, again, with similar time frames with so the expansion and capitalization in terms of assets which can produce parts leading to the in the 2026 and then with them both coming on full bore for 2027. So that gives, the the picture across, say, the aerospace business and the gas turbine business. So quite a lot going on, Sheila.
Sheila Kahyaoglu, Analyst, Jefferies: And how do we think about the the profitability profile of those coming online?
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: I’m expecting that, any costs that we incur, and we’ve been incurring costs each quarter, you’ve seen another headcount increase in the second quarter of, just under 400 net new jobs into our engine business. Clearly, we’re those, those employees today, and, essentially, let’s say, training and getting ready for production. And so, the the the drag associated with that has really been offset by the the leverage of of the volume, increased volumes, and so it’s it’s working out. And I’m hopeful that, as those things in terms of launch costs smooth out as we go into 2026, particularly in the second half and in 2027, that those can really get better and enable us to hopefully produce an improved outlook for the business, which is also, I’d say, pretty high today. So that’s the expectation, and it’s a combination of we hopefully reduced labor cost drag and also less production of scrap because obviously people are still training and using materials which are which then don’t get sold at this current stage.
Sheila Kahyaoglu, Analyst, Jefferies: Got it. Thank you.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Thank you.
Conference Operator: Our next question comes from Steph Seifman with JPMorgan. Please go ahead.
Analyst: Hey, thanks very much and good morning everyone.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Good morning, Steph.
Analyst: Good morning. John, you talked about the strength in the defense end market this quarter and expect continued strength going forward. I guess if you could talk a little bit about the contribution of F-thirty five in defense overall this year and how you think about, setting up for the future in F-thirty ’5, given some concerns about future production rates?
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Yeah. So this year, I’d point to just on the F-thirty five. I think generally, the, defense business has been strong with the legacy programs as well. But specifically for the F-thirty five, we received, I think, two volume inputs, which, have been quite welcome. One is that, we appear to have arrived at the tipping point when our spares business for our engine products, exceeds the OE production.
And so that that which we’ve been talking about would happen in 2025 for the last two or three years. It looks as though, it it it that moment has arrived. And with the increased build, let’s assume a 150 aircraft per month sorry, per year for the next few years through the end of the decade means that the fleet will continue to expand from its 1,100 to maybe 2,000 aircraft. And therefore, again, we see increasing contributions coming for those for that spares business as we go forward. The second, input to the F 35 volume has been, during 2023 and 2024, I noted that our bulkhead provision from our structures business, we were receiving input orders well below the Lockheed production rates as inventory was burnt off from the, I’ll say, excess supply relative to their COVID impaired builds back in 2020 and 2021.
And so, as that inventory was depleted, we’re now running at a one to one rate, we believe, relative to relative to Lockheed’s production. And and we are also optimistic that with the large input of new orders that have been there to interlock it for the, also international programs for that fighter aircraft that we’ll see solid one fifty per year rates through to the end of the decade and beyond.
Analyst: Excellent. Thank you very much.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Thank you.
Conference Operator: Our next question comes from David Strauss with Barclays. Please go ahead.
Analyst: Thank you. Good morning.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Hey, David.
Analyst: Hey, John. So I think you talked about your forecast for MAX for the year. If you wouldn’t mind running through your assumptions your other key programs, ’87, three fifty, so on. And then a quick one for Ken. Just if you could quantify, Ken, the amount of the tariff drag
Thanks.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Okay. So in terms of underlying assumptions, the major shift from previous commentary was that MAX shift from the average of 28 per month for the year to 33. And that basically assumes that Boeing will consistently maintain rate 38 for the balance of the year, having come off a significantly lower rate in the early part of the year. Seven eighty seven, should be around six average for the year with us moving to a rate seven, I think, in the second half. So sometime, I’ll say, during the third quarter or by end of third quarter, a solid rate seven on a consistent basis.
On Airbus A350, it’s the same six till we, understand more about, some of the relief of the fuselage constraints there. And the the other bright spots, which, is is not really confusing at this stage is, well, A320, the builds have been solid. We’re still unclear about whether that build will be maintained, and that’s also really subject to the supply of engines because of the state of aircraft, you know, the quantity of aircraft with with no engines at this point in time. So that covers the the major part of it. And I’ll I’ll cover tariffs rather than break the call up.
It’s you know, we gave you some metrics around, the gross and net effect of eighty and fifty, on the last call. Since then, Tash Grag, we think, has probably gotten better. So if we ask, to name it today, we’d be going a net effect below 15. But, again, as I said, it wasn’t going to be material for a year. And, so let’s say, if it was reduced, which it is, it is not significant.
So, that’s been good. And tariff drag for the second quarter was, which is the probably the biggest quarter of drag, but get cop shows that everything’s, you know, sorted out was, was below $5,000,000 just significantly below And $5,000,000 in the as you said, it was down to timing of us incurring the cost and us receiving compensation from our customers.
Analyst: Great. Thanks, Sean.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Thank you.
Conference Operator: Our next question comes from Doug Harned with Bernstein. Please go ahead.
Doug Harned, Analyst, Bernstein: Good morning. Thank you. So industrial is now the fastest growing part of engine products. And is the accelerated growth you’re looking at, how does that depend on getting long term agreements in place such as with Mitsubishi? And basically, where you stand on this process?
And
Analyst: ultimately,
Doug Harned, Analyst, Bernstein: how do you expect IGT margins to compare with those in commercial aero?
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Okay, so do with the margin one first, is that IGT and aero are very comparable in terms of margins, so there’s no dilution at all from that currently relatively high growth rates that we see. So that’s encouraging. And then, in terms of agreements, we’ve, now have agreements with, I will say, three of the four majors and completing with the other one in terms of the gas turbine area, yes, the big gas turbines. And we’ve also just completed agreement with, let’s call it, the not aero derivatives, but something like that with gas turbines in the up to 35, 38 megawatt type of output. And so business in aeroderivatives is also very strong.
And it’s sometimes a little bit hard for us to truly understand when we receive the orders that which is designated for oil and gas or aero derivatives, and then those derivatives going to whether it’s the, I’ll say, marine market or, other military bases or oil and gas or indeed IGT, but the the growth rate of aero derivative type of the size of it of, of turbines is is certainly becoming very significant. And, the the way we see it is gonna be a really important part of data center build out of energy supply over the next few years.
Doug Harned, Analyst, Bernstein: Is there any way to say when you structure these agreements, how soon that growth will come from an individual agreement?
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Yes. From an individual agreement, we know pretty well the growth that we’ll see. Obviously, it’s always dependent upon the complete supply chain. It’s not just what HAMMET does in terms of vision of the turbine airfoils. But assuming that everybody’s, you know, on stream for those program those new project introductions, then we have a pretty good idea of when the increased requirements are there.
And, essentially, it lines up with my commentary that I provided earlier in the call, Doug, where, you know, we’ve we’re putting capacity in, and we’re seeing increments of that capacity currently, but with the majority of it to come on stream in the 2026 and into 2027. You know, there’s no there’s no major step function this year for sure, lower capacity because when we stepped it up last year, and, again, it takes, you know, a full twelve, eighteen months for us to be gone. And we’ve been, as you can see from our CapEx numbers, been increasing that significantly as we’ve been moving through 2025, and that takes time to deploy. And we kicked it up again by some $40,000,000 by way of expectation in the for this year. So it’s a significant outlay that we believe will give us good results and good growth into the future.
Doug Harned, Analyst, Bernstein: Very good. Thank you.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Thank you.
Conference Operator: Our next question comes from Robert Stallard with Vertical Research. Please go ahead.
Robert Stallard, Analyst, Vertical Research: Thanks so much. Good morning.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Hey, Rob.
Robert Stallard, Analyst, Vertical Research: John, last quarter, you talked about your worry beads. And it does sound like you’re a little bit more confident about some of the issues like tariffs or the Boeing build rates, than you were three months ago. But I was wondering if there’s anything else on your worry radar that we should be worried about.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Well, not really. I mean, I can’t call the commercial truck market precisely because, you know, we’re not sure whether any, I’ll say, volume points we may have seen from the, additional emissions requirements for ’27 will result in, you know, security of volumes in the next twelve months. We don’t know whether those emissions regs will continue to apply. It depends on what the the the new administration, Disney, ultimately decides. Or, basically, everybody’s now prepared for those new emissions by way of equipment for the truck.
That’s that’s one where it’s it’s difficult to be absolutely certain. We’ve tried to be on the cautious side of those assumptions. And so, you know, thinking that ’26 is similar to ’25, but could be better. So that’s you know, the the important thing there is, you know, we don’t think it’s gonna get worse, and so that’s great. Elsewhere at the moment, things appear to be pretty solid
Defense aero budgets, particularly for Europe, are going up. F thirty five, to us, seems solid, and we know we’ve got enhancements coming from the from the block four coming in 2028, unless that’s delayed another year or so. So that that is looking helpful. And the the, you know, IGT or error derivatives for the, data center, this is all solid. So, I mean, I still have my you know, the I’m always I think I’m worried.
I’m paid to worry about things. And, providing I do it, then you don’t have to.
Robert Stallard, Analyst, Vertical Research: Sounds sensible. Alright. Thanks a lot, John.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Thank you.
Conference Operator: Our next question comes from Peter Arment with Baird. Please go ahead.
Analyst: Yes. Good morning, John, Ken, PT. Nice results. Hey, John, you’ve talked a lot about in the past about headcount and basically, I think in some of your plants, you’re producing more parts today than you were, say, in 2019, and you’re doing it with a lot less people. And fasteners this quarter added no people and you had great growth.
So maybe just talk a little bit about what you’re seeing on the headcount in the productivity that you’re actually seeing amongst your various plants? Okay.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: So I think our productivity numbers for three of our divisions has been really solid. That’s clearly not the case in aggregate for our engine business just because of the all the amount of people we’ve been recruiting in preparation for the for, you know, I’ll say, future capacity. Yeah. There’s underlying, you know, productivity improvement, adding in those gross numbers of maybe 1,500, 1,800 people over the last, twelve, eighteen months is obviously, to some degree, you know, weighing on us as we as we go through this. But productivity for the company has been solid.
It has been helped by some of the automation that we had put in, over the last, I’ll say, two or three years. Albeit now, we’re slightly pausing on the automation, given our thirst for capital, really for capacity. And so where we’re putting new equipment in, we’re trying to ensure that’s at a highly automated level. But we’re not yet going back and still completing some of the projects that we know we could do just so we can stay within our marks for capital and, I’ll say, free cash flow yields, substantive net income where we aspire to get to that 90% on average over the period of time. But the important thing is for us to serve the markets, gain the market share, and then if we have the opportunity, let’s say, in ’27 or ’28 to go back and focus and refocus on some of the, the automation and further labor productivity opportunities that we have.
So our pass through is, currently, let’s build and focus on the capacity and share, and then we’ll go back and mop up in a couple of years’ time any remaining productivity opportunities that we know we have, which we just can’t currently focus on at the moment.
Analyst: Appreciate the color. Thanks, John.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Thank you.
Conference Operator: Our next question comes from Ken Herbert with RBC Capital Markets. Please go ahead.
Analyst: Yes. Hey, good morning, John. I just wanted to follow-up on some of your comments on inventory levels and destocking. It seems like that narrative has gotten a little more robust here across the supply chain. And you talked about it a little bit in structures, but as you look across sort of your portfolio, are there any areas where you see incremental risk of this if we do see maybe any slower ramp at either Airbus or Boeing on some of their programs?
And how would you characterize for you sort of the inventory or destocking risk over the next few quarters?
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: So one of the things I noted from this quarter was in some of the other aerospace companies that have reported that they had, some, I would say, it’s high single digit or maybe low double digit reductions and drawdowns in their OE business for for commercial aerospace. And one of the things I thought was particularly good for Hamed was that, despite us facing the same customers and the same, I’ll say, you know, inventory reductions, our underlying growth was sufficient that our, our commercial aerospace business was still in, you know, positive and growth territory despite that. And then when you layer in the, the addition, business of spares, etcetera, then we produced what I think was pretty solid growth for the quarter, which was, again, a higher growth rate than we had in the first quarter. So we’ve been powering through some of that aerospace destocking, which has been occurring. And, you know, I can’t be certain exactly where, I’ll say, the likes of Boeing is on it.
I, you know, I I I read that they’re going to maintain a healthy level of inventory of parts to guarantee their build. And I’m I’m sure that they will because they need to achieve that smoothness of build. But in in the way we’ve guided forward, we still layer in there the sum destocking as we go into third quarter while still producing positive growth in our commercial aerospace OE business added with the spares and the defense and all that sort of thing. And in aggregate, we expect a higher growth. In fact, I think from our guide, you can see that we’ve ticked up the growth rate to maybe 10%, 11% from, what it was 9% in the second quarter.
So that’s, again, a signal of that. But obviously, with the absolute numbers reflecting the, let’s say, European vacations that occur. So solid year on year growth, and if anything, a slight acceleration in the second half starting with the third quarter.
Analyst: Great. Thanks, John.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Thank you.
Conference Operator: Our next question comes from Scott Dochel with Deutsche Bank. Please go ahead.
Paul Luther, Vice President, Investor Relations, Hamed Aerospace: Hey, good morning. John, you had some very strong sequential growth in aerospace fastener revenues this quarter, but it didn’t really drop through to sequential EBITDA growth at Fastening Systems. So can you just walk us through why we didn’t see much sequential profit drop through on those higher aerospace sales? And is that just tariff recovery lag, as you referenced earlier? Or was that something else?
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Yeah. No. The the majority of, any, first of I I thought 29 something percent was pretty good, actually, Scott. So it’s not exactly a number I’m, I’ll say crying about. Having said that, the you know, if if you look at the tariff drag that we experienced for the company, then in fact, the the highest area of tariff drag was in our faster business.
Again, we’re expecting recovery as we go through the year. It’s more of a timing issue. But if you adjust for tariff drag, then, it’s easy to get to a number starting with a three. And so, I don’t think that’s anything to be, concerned about at all. You know, I I could go on and say, well, there’s FX and this, that, the other, but there’s no point really.
The answer is it was a pretty good margin step up year on year, very sensible in terms of sequential movement given that tariff drag I mentioned to you.
Paul Luther, Vice President, Investor Relations, Hamed Aerospace: Okay. Thank you.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Thank you.
Conference Operator: Our next question comes from Noah Poponak with Goldman Sachs. Please go ahead.
Analyst: Hey, good morning, everyone. I wondered, is there any framework for, when we’re looking at the upward revision of CapEx each of the last two years, how much you pick up from that in run rate revenue or the content gain on the engines and the IGTs where it’s happening as a percentage, anything like that? And then how much of a tailwind and when does CapEx become to free cash as you get through that?
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Yes. So right now, clearly, we would not be investing and taking up the CapEx without that expectation of future growth. Some of it, I think, is going to come in 2026 and, hopefully, further in 2027, as we’ve obviously been actually further increased that number, and if that if we’ve increased the number, it’s gonna take a full year plus just for that capital to be deployed. And so that’s more going to affect 27% than what the increase that you just put through on this one, Noah. And then in in terms of profile, I I think we should be, you know, in that 4% zone, and I’m still thinking that we’re gonna have a pretty elevated number in 2026.
So this number, which in in now is in the, high three hundreds, I see that persisting through next year. And then with the, I’ll say, volume aspect of that pressure coming off in 2027 into 2028, and then we’ll have more, I’d say, optionality around investment for the automation and further productivity. So, compared to where we’d been, which was underspending depreciation, we’re now overspending depreciation, but we have a very keen eye on making sure that we achieve our conversion metrics. And so we’re not trying to get crazy about it, and again, very discerning of where and how we deploy that, that that capital. And just to reemphasize the point that in our view, organic growth is by far, the best for us in terms of return on capital.
You can see, the equity returns of the company, and that’s really an excellent return on organic growth and capital investment in the company. And given the choice of buying back shares or acquisitive steps, then I’m positive that the organic growth and stepping up CapEx is really good for us and will be good for the future. And it’s great, if you think about it, that we have those opportunities to deploy the capital. I’ve not given revenue guidance from it yet. If we follow to plan, then I’m sure we’ll be talking about, the 2027 revenue picture in November when we talk about earnings then.
So I’d prefer to defer on that just at the moment, Noah. But say that we do see positive revenue growth as we go into 2026 and positive revenue growth into 2027. And so we’re actually really pleased to deploy the capital and have more opportunities than we’re actually capitalizing for.
Analyst: Understood. Thank you.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Thank you.
Conference Operator: Our next question comes from Gautam Khanna with TD Cowen. Please go ahead.
Robert Stallard, Analyst, Vertical Research: Yes, John and Ken, great results. I was curious if you could opine on pricing expectations next year and perhaps thereafter, if you expect any change
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: to kind of the rate of net increases you’ve had. Okay. I haven’t really talked much on the pricing front, except to say that we maintain the process that we’ve been going through, looking at wherever we renew our long term agreements, what the movement in has been by way of volume and variety, and those parts which have gone from OE to supply or OE and service just to service supply. And so we’re following that discipline as we’ve done now for the last six years. In terms of prior commentary, when I gave specific numbers, which I think the last one was in February 2024, And I said that ’25 would be, similar, if not greater, was the last words that I used on it, than 20, than in 2025 and ’24.
And my expectation is we’ll continue to process, and they could be a similar picture going forward into ’26 and into ’27. So just that consistent, movement, Gotham, in terms of price. Nothing’s changed for us by way of process nor by way of annual expectation. Thank you. Thank you.
Conference Operator: Our next question comes from Scott Micas with Melius Research. Please go ahead.
Paul Luther, Vice President, Investor Relations, Hamed Aerospace: Good morning, John and Ken. Industrial policy is a big priority for this administration. We’re in a pretty big ramp on both the commercial aero and defense side. When we look at the forging assets in the country, there’s only four presses that are over 35,000 tons in The US. They date back to the 40s and 50s and you happen to own two of them.
So are there any conversations between you and either the DoD or the administration about construction or upgrades to new heavy forging presses?
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: There has not been, Scott. I think we’ve missed something when you asked that question. And it’s certainly interesting because that capacity and that scale is unique, for for us. I think there’s only one other maybe press in the world that can, doing that sort of, I think, in in Russia. So, yeah, those are pretty important assets and are certainly absolutely critical to supplying the componentry that will be required for, let’s say, the new, fighter jet, the F 47, and presumably for the F 55 as well, those examples, plus I’m sure some other aircraft parts.
So those presses are, I’ll say, vital to the defense industry. And so it’s a conversation that maybe we should be having with the DOD by way of support. So guess thank you for asking the question. It’s certainly I was thinking about that, and maybe it’s gonna stimulate us into having that conversation.
Paul Luther, Vice President, Investor Relations, Hamed Aerospace: All right, thank you.
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Thank you.
Conference Operator: Our next question comes from Christine Lewag with Morgan Stanley. Please go ahead.
Christine Lewag, Analyst, Morgan Stanley: Hey, good morning everyone. John, you know, it’s great to finally see seven thirty seven MAX production rates continue to improve. And frankly, look, your execution has been stellar. But everyone in the supply chain needs to execute to be able to build a complete aircraft. So as you look around the industry to see where bottlenecks are for the Boeing and Airbus ramp ups, what do you monitor as potential canaries in the coal mine?
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: It’s very difficult for us to see through the complete supply base of what might occur. I think there’s probably other people that are placed to do that, maybe including yourselves. The one area which, I think said to be really important for the industry for in the commercial area for the second half and going into 2026 is the, the build out of, narrow body engines. I commented earlier that Airbus have reportedly got 60 aircraft awaiting, engines now, and therefore, the production of both the, the LEAP range of engines by CFM and the GTF by Pratt and Whitney are going to be vital to being able to deliver those aircraft and also to build consistently in the second half. And so, those production rates have to significantly increase.
And and my assumption is that they will because at the moment, what we can see on the HPT side, you know, we’re we’re intimate, particularly in the the the the first few blades of those turbines, there’s a a a good position a way of overall inventory to produce. The strike that happened in the first quarter in Safran is now over, therefore, that’s helping them. And we supply now back into volume on the LPT side. So I’m thinking that volumes are going to go up. But the question is, with the volume ramps of everybody, then is that supply going to be sufficient for everybody, including spare engines, etcetera, etcetera.
So that’s the one area which I’m I’m sort of trying to look at more closely because it’s closer to home. And elsewhere, it’s it’s it’s difficult for me to really see. I mean, I I can’t monitor laboratories or, you know, seats or AV system. It’s just too difficult.
Christine Lewag, Analyst, Morgan Stanley: Thanks, John. And maybe if I could have a follow-up there on fasteners. You know, precision cast parts had their facility accident in the first quarter. Are you seeing the orders materialize from customers to make sure that they can meet all of those products? I mean, is the largest or it was the largest fastener facility for aerospace in the world.
And the gains that you’re getting, how does that compare to what you initially thought?
John Plant, Executive Chairman and Chief Executive Officer, Hamed Aerospace: Okay. So I think PCC is trying really hard to maintain as much production as possible with movements to plants in California. They’ve also, been moving a lot of equipment that was still functioning or able to be able to be functional from Jenkins down to a local facility. I’d say, I believe something in the range of several 100 pieces of equipment have been moved. But at the same time, the complete picture cannot be serviced by just them alone.
In the last call, I commented that we’ve moved to about 25,000,000 of orders for that, and we’re still bidding out several 100 part numbers. The picture today is that we’ve moved much closer to 40,000,000, and therefore, that’s good. We are still building bidding out a lot of part numbers. We’re sort of gradually moving towards what we said is an internal target for us for that business and healthy increase in revenue for the company as we begin to supply those, not massively today, but you know, increasing over the next twelve months.
Conference Operator: Great. Thank you. Thank you. This concludes our question and answer session. The conference is now concluded.
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