Woodward, Inc.

Woodward reported third-quarter fiscal 2026 net sales of $1.1 billion, up 21% year over year. EPS was $2.40 versus $1.76 a year ago, and adjusted EPS was $2.52 versus $1.76. Free cash flow was $87 million, bringing year-to-date free cash flow to $196 million, up 23%. Aerospace sales were $709 million, up 19%, with segment earnings of $170 million or 24% of sales; Industrial sales were $401 million, up 26%, with segment earnings of $88 million or 22.1% of sales. For full-year 2026, Woodward raised adjusted EPS guidance to $9.30-$9.50, expects Aerospace sales growth of 21%-23% with margins of approximately 23.5%, Industrial sales growth of 19%-21% with margins of approximately 19%, and an adjusted effective tax rate of approximately 22.5%. All other guidance was unchanged. The company also said it expects to return approximately $700 million to shareholders in fiscal 2026.

Chip Blankenship characterized the quarter as outstanding and said the company is benefiting from strong customer demand, disciplined execution, pricing, and early lean-transformation productivity gains. He highlighted momentum in Aerospace at Farnborough, capacity investments in services and Industrial, and automation initiatives aimed at expanding capacity and reducing future hiring needs by about 1,000 incremental hires by 2029. His tone was constructive and confident, with repeated emphasis that Woodward is well positioned to keep executing and expand margins over time.

Bill Lacey detailed the financial drivers behind the quarter: $1.1 billion of sales, $2.40 reported EPS, $2.52 adjusted EPS, and $87 million of free cash flow. He said Aerospace margin expansion benefited from strong price realization, including a one-time retroactive pricing adjustment that added about 100 basis points to Aerospace margins, while Industrial margins improved on volume leverage and price realization. He also noted operating cash flow of $352 million for the first nine months, capex of $156 million so far with a meaningful Q4 step-up expected, debt leverage of 1.6x EBITDA, and $608 million returned to shareholders year to date; he expects full-year shareholder returns of about $700 million.

Analysts focused on whether aftermarket and spare LRU demand was being pulled forward or could later destock, but management said monthly inputs remain steady to slightly up and that they do not see an abnormal inventory build. Questions also centered on strong Industrial margins, with management saying Q3 benefited from mix and that core Industrial margins should revert closer to first-half levels next quarter. On Aerospace pricing and margin expansion, management said the recent one-time pricing benefit is not the norm, expects pricing to normalize to 3%-5% going forward, and still believes Aerospace can expand margins in 2027 despite headwinds like spare-LRU normalization, hiring, ERP costs, and OE mix.