Howmet (HWM) Q3 2025 Earnings Call Transcript

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Date

Thursday, October 30, 2025 at 10 a.m. ET

Call participants

Chairman and Chief Executive Officer — John C. Plant

Executive Vice President and Chief Financial Officer — Kenneth J. Giacobbe

Vice President, Investor Relations — Paul Thomas Luther

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Takeaways

Total revenue -- Total revenue increased 14% year-over-year in the third quarter of 2025. Commercial aerospace revenue rose 15% to over $1.1 billion. Defense aerospace increased 24%.

Commercial aero parts sales -- Rose 38%. Total spares increased 31%.

EBITDA -- EBITDA rose 26% to over $600 million in the third quarter of 2025, with margin expanding 290 basis points to 29.4%.

Operating income -- Operating income increased 29%.

Earnings per share -- Earnings per share rose 34% to $0.95 in the third quarter of 2025.

Free cash flow -- Delivered $423 million in free cash flow after $108 million in capital expenditure for the quarter, and approximately $330 million year-to-date.

Capital expenditure -- Approximately 70% directed toward the engines business. Annual capital expenditures are trending above the fiscal 2024 full-year level.

Debt repayment -- Paid down $63 million of a U.S. term loan due in November 2026, bringing net leverage to 1.1 times net debt to EBITDA.

Share repurchases -- Deployed $200 million. An additional $100 million of common stock was repurchased in October. Year-to-date repurchases stand at $600 million at an average price of $156 per share as of October 2025.

Dividend increase -- The quarterly dividend was raised 20% sequentially in the third quarter to $0.12 per share, and is up 50% year-over-year compared to the third quarter of the prior year.

S&P rating upgrade -- S&P upgraded Howmet Aerospace (NYSE:HWM) from BBB to BBB+ in the third quarter of 2025.

Engines segment -- Revenue rose 17% to $1.1 billion. EBITDA increased 20% to $368 million. Defense aerospace rose 23%. Oil and gas increased 33%. IGT rose 23%.

Fastening systems segment -- Revenue increased 14% to $448 million. Commercial aerospace increased 27%. Commercial transportation declined 17%.

Engineered structures segment -- Revenue increased 14% to $289 million. Defense aerospace sales rose 42%, driven by F-35 destocking completion. EBITDA increased 53% to $58 million.

Forged wheels segment -- Revenue was essentially flat for the Forged Wheels segment. A 16% decline in volume was offset by higher aluminum costs, tariffs, and favorable currency. EBITDA increased 14% to $73 million. EBITDA margin increased 350 basis points.

Cash and liquidity -- $660 million in cash at quarter-end. $1 billion undrawn revolver and $1 billion unused commercial paper program available.

Headcount -- Increased by 265, primarily in engines. Total incremental hiring in engines since the investment cycle began is approximately 1,125.

2025 guidance (full year) -- Revenue: $8.15 billion (+/- $10 million). EBITDA: $2.38 billion (+/- $5 million). EPS: $3.67 (+/- $0.01). Free cash flow: $1.3 billion (+/- $25 million).

2026 outlook -- Anticipated revenue of $9 billion (range not specified), representing an increase of about 10% year-over-year compared to 2025, with more precise guidance expected in February 2026.

Margin incrementals -- Incrementals reported at 50%; similar expectation cited for the fourth quarter.

Tariff drag -- Net financial impact remains below $5 million for 2025, described as minimal by Plant.

Capital allocation -- $770 million deployed year-to-date on buybacks, debt paydown, and dividends through September, with $1.6 billion in remaining board authorization for repurchases as of October.

Summary

Management increased full-year revenue and free cash flow guidance for fiscal 2025, citing stronger-than-expected demand for engine spares and higher Boeing 737 build rates. Headcount growth moderated as new manufacturing investments came online, with major expansion focused on Michigan for advanced aero engine components. S&P upgraded Howmet Aerospace's credit rating to BBB+, reflecting reduced net leverage to 1.1 times and continued strong liquidity, despite ongoing weakness in commercial transportation and persistent aluminum cost and tariff dynamics.

Chairman Plant emphasized long-term growth in both large and mid-sized turbine markets, driven by demand for electricity from data centers and utilities, but noted less visibility into backlogs compared to aerospace.

Capital expenditures are projected to remain elevated into 2026 and 2027, with a higher relative mix allocated to industrial gas turbine and mid-sized turbine investments; hurdle rates and customer commitments were cited as justification for ongoing deployment.

Incremental margins remain higher than historical targets, driven by a blend of price, volume leverage, automation, and yield improvements, while labor additions create modest near-term drag offset by productivity investments.

Plant stated, "I think destocking essentially is finished. This quarter," suggesting stabilization in commercial aerospace supply chains, but residual titanium inventory could remain.

Howmet Aerospace plans to host an investor technology day in March 2026 to showcase digital manufacturing advancements, including the digital thread and the use of artificial intelligence for yield and design improvements.

Industry glossary

IGT (Industrial Gas Turbines): Turbines designed for power generation in industrial applications, including utilities and data centers, distinct from aircraft engines.

LEAP 1A/1B: Next-generation narrow-body jet engines produced by CFM International, referenced for their transition to new technology-content parts.

GTF (Geared Turbofan): Advanced jet engine architecture from Pratt & Whitney, cited for aftermarket and retrofit content growth.

CFM 56: Legacy commercial aircraft engine model referenced for continued demand in spares.

F-35, F-15, F-16: Designations for major military jet programs representing key defense-related revenue.

OE (Original Equipment): Refers to production and sales of new components for original equipment manufacturing, distinct from spares and aftermarket.

Destocking: Reduction in customer or supply chain inventories, notably cited as complete for most commercial aerospace programs this quarter.

Full Conference Call Transcript

John Plant: Thank you, Paul, and welcome to the Howmet Aerospace Inc. Q3 call. Let's start with the company highlights on Slide four. Q3 was a very strong quarter for Howmet Aerospace Inc. Revenue growth continues to accelerate and was up 14% to 8% in the first half. Within this revenue growth, Commercial Aerospace increased 15% and within this number, commercial aero part sales increased by 38%, for a total spares increase of 31%. EBITDA was up 26% and operating income up 29%. Cash flow was also healthy at $423 million, after capital expenditure of $108 million. Year-to-date capital expenditure is approximately $330 million.

Regarding share buyback, $200 million of cash was deployed to buybacks in Q3 with an additional $100 million buyback in October. October year-to-date buyback is now $600 million, which is $100 million higher than the 2024 full year. We also paid off the balance of $63 million of a US term loan early, which was due in November 2026, and with the resulting net leverage now stands at 1.1 times net debt to EBITDA. Dividend payments were also increased in August by a further 20% versus the prior quarter, and earnings per share increased by just over 34%.

Other commentary which may be helpful is that working capital days improved year-over-year allowing for the increased capital expenditure for future growth, and all within the free cash flow number previously referenced. Headcount did increase by a further 265 people mainly within the engines business as we staff our new manufacturing plant. As planned, the increase in headcount has slowed as we go into the second half, although we envisage hiring again as we pick up in early 2026. Let me turn the call over to Ken to cover the markets and segment performance.

Kenneth J. Giacobbe: Okay. Thank you, John. Let's move to Slide five. So end markets continue to be strong, with total revenue up 14%. Commercial aerospace was up 15%, exceeding $1.1 billion in the quarter. Commercial aerospace growth is driven by accelerating demand for engine spares, and a record backlog for new, more fuel-efficient aircraft with reduced carbon emissions. Defense aerospace growth continued to be robust at 24%. Growth was driven by engine spares, which increased 33%, and new F-35 aircraft builds. As expected, commercial transportation was challenging with revenue down 3% in the third quarter, including the pass-through of higher aluminum costs and tariffs. On a volume basis, wheels volume was down 16%.

Finally, the industrial and other markets were up a healthy 18%, driven by oil and gas up 33%, and IGT up 23%. In the future, it's likely that we will combine oil and gas in IGT when reporting revenue by market. The definition of oil and gas versus mid to small IGT has become somewhat blurred since many turbines now have increasing end use for data centers. So in summary, continued strong performance in commercial aerospace, defense aerospace, and industrial, partially offset by commercial transportation. Within Howmet's markets, the combination of spares for commercial aero, defense aero, IGT, and oil and gas was up 31% in the third quarter. Now let's move to slide six.

So starting with the P&L, Q3 revenue, EBITDA, EBITDA margin, and earnings per share were all records and exceeded the high end of guidance. Revenue was up 14%, EBITDA exceeded $600 million as it outpaced revenue growth and was up 26%. EBITDA margin increased 290 basis points to 29.4% while absorbing the cost of approximately 265 net headcount additions. Earnings per share was 95¢, which was up a solid 34%. Moving to the balance sheet and free cash flow. The balance sheet continues to strengthen. Free cash flow was excellent at $423 million.

Free cash flow included the acceleration of capital expenditures, with $108 million invested in the quarter and approximately $330 million year-to-date, which is higher than the full year 2024 capital expenditures. About 70% of the capital expenditures year-to-date is for our engines business as we continue to invest for growth in commercial aerospace and IGT. Investments are backed by customer contracts. Quarter-end cash was a healthy $660 million. Year-to-date, debt has been reduced by $140 million as we paid off at par the US term loan, which was due in November 2026. The early prepayments will reduce annualized interest drag by approximately $8 million. Net debt to trailing EBITDA continues to improve to a record low of 1.1 times.

All long-term debt is unsecured and at fixed rates. Howmet's improved financial leverage and strong cash generation were reflected in S&P's Q3 rating upgrade from BBB to BBB+, which is three notches into investment grade. Liquidity remains strong, a healthy cash balance and a $1 billion undrawn revolver complemented by the flexibility of a $1 billion commercial paper program, both of which have not been utilized. Regarding capital deployment, we deployed approximately $770 million of cash on common stock repurchases, debt paydown, and quarterly dividends, year-to-date through September. In the quarter, we repurchased $200 million of common stock at an average price of approximately $182 per share. Q3 was the eighteenth consecutive quarter of common stock repurchases.

The average diluted share count improved to a Q3 exit rate of 405 million shares. Additionally, in October, we repurchased $100 million of common stock at an average price of approximately $192 per share. October year-to-date common stock repurchases are $600 million, at an average price of approximately $156 per share. Remaining authorization from the board of directors for share repurchases is approximately $1.6 billion as of October. Finally, we continue to be confident in free cash flow. We increased the quarterly dividend by 20% in the third quarter to $0.12 per share, which is up 50% higher than Q3 of last year. Now let's move to slide seven to cover the segment results for the third quarter.

The engine's products team delivered another record quarter for revenue, EBITDA, and EBITDA margin. Quarterly revenue increased 17% to $1.1 billion. Commercial aerospace was up 13%, defense aerospace was up 23%, oil and gas was up 33%, and IGT was up 23%. Demand continues to be strong across all of our engines markets with strong engine spares volume. EBITDA outpaced revenue growth with an increase of 20% to $368 million. Engines has invested in approximately 1,125 incremental headcount, which has a near-term margin drag but positions us well for future growth. Now let's move to slide eight. The fastening systems team also delivered a record quarter for revenue, EBITDA, and EBITDA margin. Revenue increased 14% to $448 million.

Commercial aerospace was up 27%, defense aerospace was up 2%, general industrial was up 3%, and commercial transportation, which represents approximately 12% of Faster's revenue, was down 17%. EBITDA continues to outpace revenue growth with an increase of 35% to $138 million. Despite the sluggish recovery of wide-body aircraft builds along with weakness in commercial transportation, EBITDA margin increased to a robust 480 basis points year-over-year to 30.8% as the team has continued to expand margins through commercial and operational performance. Now let's move to slide nine. Engineered structures had a solid quarter. Revenue increased 14% to $289 million.

Commercial aero was up 7% and defense aerospace was up 42%, primarily driven by the end of the destocking of the F-35 program. EBITDA outpaced revenue growth, with an increase of 53% to $58 million. EBITDA margin increased 510 basis points to 20.1% as we continue to optimize the structure's manufacturing footprint and rationalize the product mix to maximize profitability. Finally, let's move to slide ten. Forged wheels revenue was essentially flat as a 16% decrease in volume was offset by higher aluminum costs, tariff pass-through, and favorable currency. EBITDA was strong at $73 million, an increase of 14% despite a challenging market. EBITDA margin increased 350 basis points to 29.6%.

The unfavorable margin impact of lower volumes and higher pass-throughs were more than offset by flexing of costs, favorable product mix driven by our premium products, and favorable foreign currency. The Wheels team has continued to expand margins despite market metal cost and tariff uncertainty. Now let me turn it back over to John.

John Plant: Thank you, Ken. Let's move to Slide 11 to discuss the outlook. In summary, before I go into details, the outlook is solid. Air travel continues to grow year-over-year, after a solid summer period. The backlog of commercial aircraft extends for many years, even after assuming increases in build rates throughout the next five years. The current aircraft fleet has aged. These factors combine to provide both healthy OE demand and a growing demand for aircraft aftermarket parts, especially in the engine for wearing parts, namely the turbine blades in the hot gas pass section of the engine.

Defense sales continued to be strong with steady F-35 OE sales plus some increase in legacy fighter jets, namely the F-15 and the F-16. This is also combined with growth in defense spare sales. In oil and gas, the demand is steady, while growth in IGT is extremely strong, again in both OE and aftermarket sectors. The part of the market which I have not previously made much commentary on is the mid-sized turbines of up to 45 megawatts, where growth of both aero derivative engines and dedicated mid-sized turbines is expected to grow for many years.

This is mainly the result of data center build-outs and the need to supply these data centers with either independent fundamental electricity supply or with very fast-acting turbine response to ensure uninterrupted supply from the grid and from utilities. It is increasingly difficult for us to separate the end market for these turbines between oil and gas compared to IGT. Commercial truck volumes continue to struggle with smaller fleets in particular not buying trucks due to the low freight rates and also combine this with the large price increases for Class A trucks, principally due to tariffs.

The tariff changes continued to produce uncertainty for Howmet Aerospace Inc., however, the net tariff drag continues to be small at around $5 million plus or minus as discussed in the last earnings call. The revenue outlook for the balance of 2025 has increased compared to the prior guide benefiting from the stronger Boeing 737 builds and also engine spares. The build-out of our footprint with the five new manufacturing plants or extensions continues. The most vital immediate part of our expansion going into 2026 is the new Michigan aero engine core and casting plant, which is on track with the machines now building some parts.

There remains a lot more equipment to be installed during the next six months, but everything is currently as it should be. The new plant we've installed for tooling is now equipped and staffing well underway. Being a little bit more specific regarding the 2026 outlook, we see revenues of $9 billion plus or minus, which is an increase of about 10% year-on-year. This number will be further refined in our February 2026 earnings call where we will also provide more detailed guidance. Moving to the 2025, we see revenue to be $2.1 billion plus or minus $10 million, EBITDA $610 million plus or minus $5 million, earnings per share $0.95 plus or minus a penny.

And for the year, the numbers are there. Revenue is $8.15 billion plus or minus $10 million, EBITDA at $2.375 billion plus or minus five, earnings per share at $3.67 plus or minus a penny, and free cash flow at $1.3 billion plus or minus $25 million. In summary, 2025 is another good year for Howmet Aerospace Inc. with free cash flow guided substantially higher than the last earnings call even after the higher capital expenditure, which is therefore future growth in the company. Before moving to Q&A, I did want to thank Ken Giacobbe for his years of dedicated service.

It's been quite the journey for Ken, and him being my partner in all of this from his days at Alcoa to Howmet Aerospace Inc., which interestingly was one of the three parts of former Alcoa, is now worth more than the single Alcoa company ever was. All the very best to Ken in his well-earned retirement.

Kenneth J. Giacobbe: Thank you, John. I want to offer you the opportunity of adding any comments. Yeah, John, I appreciate the kind words and appreciate the partnership. You know, it's been a privilege and a pleasure to work with you, the board of directors, and the Howmet team. Results have been remarkable. I think a lot of that is driven by the positive culture that you have built over the years. That culture is one that we talk about quite a bit, one of focus, innovation in terms of everything we do, empowerment, accountability, shared purpose, and winning, which is quite refreshing.

As I look forward, I believe Howmet Aerospace Inc. is well-positioned for the future with a clear path forward and an exceptional leadership team at the helm. So as I conclude my twenty-one-year tenure with immense gratitude and also confidence in Howmet's future, I want to thank you for the opportunity to be part of such a remarkable organization. So wishing you and the team continued success.

John Plant: So I guess, Drew, we could move to Q&A.

Operator: Yes, sir. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, you'd like to withdraw your question, please press star then 2. Please keep yourself to one question only. To assemble our roster. The first question comes from Kristine Liwag with Morgan Stanley. Please go ahead.

Kristine T. Liwag: Hey. Good morning, everyone. And, Ken, congratulations on your retirement. Thank you for all the thoughtful insights over the years. And hope you've got something very fun planned. So maybe, John, the investments in technology you've made in aerospace have yielded in Howmet Aerospace Inc. being a clear leader in this area, especially for the hot section of the jet engine. Now pivoting to this data center build, you know, we're starting to see this industry really gain a lot of traction. You've called out CapEx increases last quarter and also this quarter. Can you just take a step back and provide us more color on what the competitive landscape is like for turbines and IGT?

How differentiated is your technology, the pricing environment? And what's your expected returns in this sector and how that compares with aerospace?

John Plant: Okay. So that's a very broad question. It gives me the opportunity to talk now for at least an hour. And I'll keep it to that question though, John. Yeah. Thank you. This is only one question. But so first of all, clearly, build-out of data centers and the requirement for electricity to not only drive the processing and the microchips that or these advanced microchips that are being installed but also the electricity required to cool them is producing an extraordinary level of demand which I think we know that the utility companies themselves and the grid are struggling to cope with. And how could that be satisfied?

It did change again with the new incoming administration in the early part of this year, when there's a greater emphasis on fossil fuels and really with natural gas being the technology of choice, compared to renewables. And so that had caused us to think again regarding the investment profile for this business. The fundamentals appear to be well set. Certainly, you look for the next few years the build-out and the requirements are extraordinary. And the question remains, of course, what would it look like when we when the at the turn of the decade, in terms of its future growth.

But having said that, I do think these data centers which are there not just for the introduction and use of AI, but also just fundamental requirement for storage. Means that electricity demand will be there and so solid. And it gives us a lot of confidence to invest albeit that we don't have the same clarity regarding backlog numbers that we have in the commercial aerospace market. So you don't quite have that same clarity and visibility into the back orders. So it caused us to keep rethinking our investments, and we've picked it up again this year.

And you see with our guided capital expenditure increases in investments that we are making and we expect that CapEx in 2026 and indeed going into 2027 will be also at high levels. While not disturbing what our fundamental aim is, which is to convert 90% of our net income into free cash flow. And so you know, it's a tall order at the same time. You know, we're excited to be part of this growth opportunity. When I think about, so what's happening there is growth in both the large industrial gas turbines that you see bought by utilities and which provide the electricity which is transmitted over the grid.

But now given the large demand is that there are gas turbines being installed at the data center sites or clusters of data center sites in a centralized facility to provide that underlying electricity. And then beyond that, is that there's backups to all this or in the case of where you just can't get a large gas turbine at the moment because they're quite scarce and orders are now going out. If you place a new order, you're not gonna get that big land-based gas turbine till probably into the 2030 or beyond. Is that is a case where a lot of midsized turbines are now being installed.

Not just for the fundamental production of electricity, but also because they're very fast-reacting is that it ensures that the supply of electricity to the data center is uninterrupted. And therefore, it's providing a lot of stimulated demand for the aero derivatives. And in fact, if you look at the results this week of Caterpillar, you're seeing that, and they're one of our major customers in those midsize turbines. So it's quite exciting. And then in terms of technology, it's going very much along the same lines that we have in had done in aerospace where we have moved or are moving from turbine blades, which are solid to turbine blades, which are increasingly cored.

And what I mean by cored is that you have air paths through those turbine blades to provide them with cooling air such that those turbines can be run at higher temperatures. So it's very much going along the evolution path that we've had in the aerospace world. And so as we move forward over the next let's say, two, three, four, five years, and it's happening right now, is that we're installing additional capabilities to be able to produce the sophisticated finely tolerance cores that enable that next level of technology to be achieved. That's both for the mid-sized turbines and indeed for the very large turbines that utilities tend to buy.

If you look at the most recent developments, without giving you specific model numbers or customers, some of those now initial turbine blades are as sophisticated as the possibly most sophisticated commercial, not necessarily military, but commercial aerospace use in terms of the numbers of serpentine pathways through those turbine blades. So and, of course, with that goes content and value, because it is again, it's producing a level of capability electricity generation, well above what you could have achieved with turbines of, let's say, five years ago or ten years ago. So it's a pretty exciting landscape in terms of playing to our spreads the most sophisticated technology.

It's causing us to expand and you've heard me talk about the new manufacturing plant that we have or are building. In fact, at the end of this year, the structure will be complete to enable us to put new capabilities and, for example, new casting machines into that plant in the early part of 2026 to bring capacity on, not just for our customers in Japan, like Mitsubishi Heavy, but also other customers like Siemens and GE and Anselba, etcetera. So and we're doing that, plus we're also expanding a plant in Europe significantly. And also placing new capital in the existing footprint of our US facility.

So we're expanding in each of our three major sites where we produce gas turbine parts. And really excited to be part of this journey which really is evolving very much in the same way as our aerospace business, not only for those midsized turbines, but also now for the very large gas turbines. And so it's a pretty exciting time for us to be able to build out this business to be a very significant contributor for the company. So I'll stop there just in case I'm now getting too carried away with it. But I just wanna make sure it hit the points of your question, Kristine.

Kristine T. Liwag: Well, thank you very much, John, and I'll keep it to that one.

John Plant: Okay. Thank you.

Operator: The next question comes from Myles Walton with Wolfe Research. Please go ahead.

Myles Alexander Walton: Thanks. Good morning. John. I'll try to ask a question that won't let you go on too long. But the end market in plot growth in your $9 billion, could you share that? As well as perhaps you've been running, obviously, well ahead of long-term incrementals. At the 30 or 40% that you'd previously spoken of long been blown past. Is '26 another year of very high incrementals as we've seen in the last couple of years?

John Plant: Let me deal with your last point first regarding margins and incrementals. I think, as you know, I don't really give color on that at this time of the year. That's more for the February call, so I'll certainly reserve any profit guidance for February. I note that in Q3, our incrementals were again, quite healthy at 50%. And you know, I obviously would give you a guide already for Q4. So I think it's a similar number for Q4, but Ken could always correct me on that. So it's pretty strong for this year. Next year, I guess, when we come up with a number, I mean, it'll probably underwhelm you because it always does.

You know, we never seem to be able to quite satisfy your expectations. At the same time, you know, I think that whatever we come up with will be very excited. Very satisfactory in 2026. So it's a long way of talking about the subject for a minute or two without actually saying much at all. In terms of the first part of your question, which was where do we see end market growth? So my sense is that getting too deep into the guide at this point because it's, you know, it's approximation. I think commercial aerospace will be stronger in 2026.

So I think the build-out of narrow bodies both for Airbus and for Boeing will be stronger in 2026. So it has been in 2025. And also, the likelihood of the wide bodies, particularly the Airbus A350 and the Boeing 787. I think both of those are going to be at a higher build rate than this year. So I'm pretty optimistic about commercial aero. So I see that being a few percentage points as an absolute higher than in 2025. In defense, you know, coming off this year, which is pretty strong, like, plus '20, I can see us having a mid-single digits increase again on top of that into 2026.

Pretty confident about our positioning on the defense side. And on the I was gonna call it the industrial segment, which will wrap up three segments, which is the gas turbine one, which I think you consent is gonna be, at the high end the oil and gas, which should be in the middle, and then general industrial, which should be at the lower end. I'll combine all of that and say, basically, I don't know. Just getting into double digits as an increase. So that would be the sense I have for the underlying big segment commentary for next year?

And while I'm on a roll, I'll just talk about inside Commercial Aero because I know you're gonna follow-up with the question, like, what's the what's your underlying assumptions? So you know, I think Boeing 737 will be higher. You know? So I'll say I'll use I'll use 40 or getting into the forties. As an approximation. The A320 into the early sixties, so maybe, I know, 62, three, 787 I'll use seven and a half and a 50 maybe six and a half, could be seven. So it's in those sort of areas.

So it's giving you directionally what I think you I'd like to see how people close out, our customers close out this year what the stated inventory is, as you know, certain of our airframe customers have been taking inventory down. And now have to think about the, you know, the rough business of their bill, while they've been taking inventory down and the consistency. And, hopefully, we're gonna see improved consistency into 2026 in the same way as we've seen it for the last two or three quarters where it's become somewhat, you know, a little bit more predictable.

Myles Alexander Walton: That's great. Thanks, and congrats, Ken.

Kenneth J. Giacobbe: Thanks, Myles.

Operator: The next question comes from Ronald Epstein with Bank of America. Please go ahead.

Mariana Perez Mora: Good morning, everyone. This is Mariana Perez Mora. I'm from Roam Today. First of all, congratulations, Ken, on the retirement, and congratulations on your contribution to the company and the industry. In general. Great. Great. Thank you. I'd like to follow-up on try to deeper as we think about next year. Into two things. Number one, how we think about I'll say, the commercial aero part, destocking trends and aftermarket trends or spare engine trends, despite, like, this ramp that we are all expecting on OE. And the second one is when you think about IGT, how dependent the guidance is on the capacity that will be coming online end of this year and mid next year.

How sensitive is guidance to the timing of that, like, incremental capacity?

John Plant: Okay. Let's deal with the IGT part first and then go back to commercial aero. This year, we've seen the benefits of both small increases in gas turbine build at the large land-based turbines. Probably a slightly higher build in terms of those midsized turbines as a percentage increase. But this year's also featured an increase in spares as the existing fleet of both types of turbines and maybe the midsized turbines being very strong in terms of their spares requirements because those fleets are working harder. So that gives you a picture there for this year.

When we move into 2026 and into '26 and '27, again, we're going to be, you know, we're gonna see fundamental demand and because demand and turbine bills are expected to increase again into '27 beyond '26. Is that on the OE side, it's gonna be obviously a factor of are all the turbines going to be actually be built? That are planned? And how we are able to step up to those bills. And so I see that as, you know, whereas this year, I'd say, been slightly stronger on the spares and, but still solid on the OE side than next year.

I think we're probably gonna see a higher vector compared to this year on the OE demand a still strong spares demand. So, again, feeling pretty positive about those segments. Think it's difficult to judge exactly yet which one will win in terms of those two if there was a race between them. Moving to the commercial aero question. I've already given you a commentary regarding what I think build rates are. I think destocking essentially is finished. This quarter. And I don't really see much evidence of that remaining. If anything, it could only be a little bit left in the titanium area.

Where people built up stocks because of either lack of build or trying to provide security stocks in the case of what happened after the Russian invasion of Ukraine and the supply issues at the BSNPO. In terms of spares and engine spares, I think 2026 is going to be another very strong year for that. If you deal with CFM first, then I envisage that it's gonna be strong on the CFM 50 because the existing fleets can continue to work hard. There's still a backlog of parts. And the end units are gonna be put back in on wing and into the air.

And similarly, and maybe even a higher area in for those V2500 and the GTF engine. So spares demand is going to be very strong. And as these tier two engines transition, to the new I'll say, versions of them. So the new parts which you've got into the LEAP 1A and the ones which should go into the 1B next year. And then into the GTFA then there'll be not only the OE demand, but also the retrofit requirements for improving the robustness of those engines. And to get a lot of engines back on wing. So I hope that covers it.

Mariana Perez Mora: Yes. You so much for the color. And if I may, squeeze another one. It looks like agent in history now because of how hectic the year is that it wasn't long ago that you guys have to call for force majeure. On the tariffs and raw materials. Could you mind, like, giving us some color around, like, how is that today? And how you think about risk on raw materials and pricing and pass-throughs going into next year?

John Plant: I think we're pretty solid. In terms of our pass-through capabilities. Either under existing contracts or with new agreements that we've made with our customers for each of our end markets. And so what was the gross effect that we could see? I think, originally, it was up to $100 million. That with the delay of implementation and certain exemptions that have been provided. Then maybe that number came down. And then recently, we've seen some of the tariffs increase again. I'm thinking now on the I mean, in the class eight area. It's been moving around and still continues to move around even as recently as yesterday. But the net effect is still sub $5 million.

For the year, and that essentially is the drag that just in terms of timing of recovery. So it's an issue for Howmet Aerospace Inc. really is I don't know, call it a non-issue you know, sub $5 million. And therefore, you know, hopefully, it disappears into the woodwork in 2026.

Operator: The next question comes from Sheila Kahyaoglu with Jefferies. Please go ahead.

Sheila Karin Kahyaoglu: Morning, guys, and congrats, John, on great results and Ken, on your retirement. Although, I'd argue with Kristine that working with John is plenty of fun, so I don't know what you'll do in retirement that's even better.

John Plant: I'm gonna throw the one back at agree with I can agree with that. Let me go and say stop there and can't what the? Heck are you thinking?

Sheila Karin Kahyaoglu: Ken, I'm gonna actually put this one on you. Just given I thought the on how that being more valuable than the three pieces was very interesting. So over the next few years, where do you see how that's end stage just given where the balance sheet is, leverages at record lows. Margins in each segment are terrific. So lots of areas of expansion. How do you think about how that over the next few years?

Kenneth J. Giacobbe: Yeah. Sheila, I think I'm gonna have to let John answer that one. I don't wanna get fired this late. Right?

John Plant: So I think the if you look at the journey, that we've made over the recent years, you know, from you know, say, trying to install a performance culture through I'll say, more difficult times of COVID. Came upon us fairly quickly. And then trying to really invest in our technology and then really address growing the company. And I think the growth trajectory is very encouraging. And so while, you know, we've been, like, all it's a walking and chewing gum or doing the and it's not at all. We've been growing and improving our margin. Then my thought is that we'll continue to do that.

But if the value equation, then I think maybe the gross will be a more significant factor over the next five years. Than, than the margin factor. And that's not to say that the margin won't improve. Because what we come to work for every day to try to achieve that. You know, there are I think there's lots of things yet to further expand in terms of whether it's the increased automation capabilities that we have or capabilities that we have in the company. There's the thing which we've been talking a lot about recently, about how we can use the artificial intelligence and machine learning in our manufacturing plants. So it isn't just basic automation.

It is data collection, ethics streams that we've never seen before. And when we have the opportunity next March where we're planning on an investor day or investor come technology day but basing it at Weisel plant again, and we'll showcase the new manufacturing plant that we have there. And, you know, beyond just the fundamental increase in robotics, which, I think people have seen. It's always at a high level. It's another stage beyond that. But for me, probably even more important than that is that the what we've termed the digital thread that we've been building throughout the manufacturing process from say, the chemical compounding right the way through core prep and then into shell and casting.

And being able to provide data and individual traceability right back to which fundamental elements for each of our parts that we're manufacturing. And then with that huge amount of data that we've you know, we are positioning ourselves to collect, is that using various techniques to be able to use artificial intelligence because the sheer scale of data we have or we gotta have available to us takes us something beyond that any human being could possibly analyze. Data crunch and, there is a I think that's going to lend towards further improvement in our ability to improve yields. And, an improved yields course goes with economics.

And then with the improvement in the yields, we can take the design tolerances to a, you know, a further level which will provide again for the next generation of content improvement and fuel efficiency. For both not only our aerospace segment, but also the gas turbine segment. So I think all of that coming together and using, let's say, a combination of automation and AI and all the things we're trying to position for is gonna be good for us, Sheila.

Sheila Karin Kahyaoglu: Great. That sounds great. Thank you.

Operator: The next question comes from Noah Poponak with Goldman Sachs. Please go ahead.

Noah Poponak: Hey, good morning, everyone. Congrats, Ken, on the retirement. And the evolution of this financial model. Wanted to come back to incremental margins guys. You've you had this historical framework few years ago of 30 to 35% on the incremental. And you've now created this kind of wall of tough compares. But now had two quarters in a row where you've had a, you know, well above the 30 to 35 despite comparing to well above that. And so I was hoping to better understand is price or productivity the bigger driver at the moment? Then as you move into 2026, can you stay above that historical targeted range despite the tougher compares?

John Plant: Yeah. I mean, again, I'm gonna try to steer away from a 2026. No. At this time, and you know, you're any number is always gonna be a combination of things. And, you know, in our incrementals, you know, we've got obviously some leverage for volume. We've got the benefits of automation. We've got the benefits of yield. We've got the benefits of content. And, and also we have the benefits of price as well. So we have many individual threads going into that. And the only I'll say, parts which are currently negative would be the fairly high ingestion of labor which takes, I think, as you know, a fairly significant trading time.

Never mind just the costs of, of recruitments. And there's, yeah, there's a there's a slight degradation in this from those employees in terms of yield. And so you know, what do I expect going forward is that hopefully, the drag of that labor becomes a little bit less because the denominator gets higher. But my guess is that we're probably going to have to hire a net higher number of people ultimately as we move through 2026 both for priming the pump again at the start of the year as some of the, you know, the equipment I talked about, you know, comes in plus the fact that we also envisage having to step up again into 2027.

And so if you had asked me to call it today, I'd say we'd probably end up with a higher net number. And so you've got that which will weigh upon us while still hopefully achieving all of the productivity improvements, you know, through the threads of automation and the new equipment coming in. With a much a much higher level of I'll say, again, automation that we had in the past. So such a lot of moving parts. It's difficult to pass all of that out. And then the only thing I haven't mentioned is, you know, the content on average will improve again.

As we move into next year because we'll be moving from one generation of technology to the new generation technology at some point during 2026 for the LEAP 1B program as an example. And then, of course, we have the GTF advantage which is also being made today in fairly small lots. But with that you know, significantly increasing as we go into 2026, we need to get to a much fuller run rate in 2027. So there's so much going on, and, you know, with the build-out, really difficult to give you. I just feel at this point we've managed our way through fairly well with really healthy incrementals.

And, I mean, anything above I mean, if our EBITDA is at 29%, anything above that is, you know, incremental beneficial to the company. So I'm feeling as though we're gonna, you know, be above that for next year. But without, you know, I'm not willing to comment yet about whether we're gonna be, you know, on par with our incrementals this year or not or whether you know, inevitably, there has to be, some flattening of that. That's it just I there's only way till February. To comment about that.

Noah Poponak: Okay. I appreciate all the detail, John. Thanks a lot.

John Plant: K. Thank you.

Operator: The next question comes from Scott Deuschle with Deutsche Bank. Please go ahead.

Scott Deuschle: Good morning. John, I think you said CapEx will remain at high levels into 2020 as well as into 2027? So just to put a finer point on that, should we be thinking about flattish CapEx in those years relative to 2025? Could that increase? And then does the mix of that CapEx shift more toward IGT and mid-sized turbines? Or is the majority of it still focused on aerospace? Thank you.

John Plant: In terms of absolute numbers, the majority is absolute dollars. It will still be higher for aerospace. But I think there'll be a percentage as a mix of a total think that the investments we're making in both the large and midsize turbines possibly be a higher relative percentage than it is this year. I think the one question I forgot to answer on the way through the Q&A section was what did the economics look like for these turbines and essentially, it's the same as for aero.

So if you were to pick up both our absolute and our incrementals for either the IGT part of our business, both large and mid-sized or aero and they're pretty much the same. So it doesn't really matter what they say the color of CapEx, which, you know, which segment it goes into because they're both very good. And for me, it's more the fact that we have the opportunities and it's just as I look forward, you know, we what I think we're gonna do in 2026.

But every time we sort of examine or have new conversations with Europe for the first part of this week, and thank goodness I got back last night to be able to do our earnings call. He said again, you know, it's only a conversation about you know, in improvement in opportunities which are there before us. And so at what caused him to believe that 2027 is also going to be a significant number for CapEx. And so you know, I you know, this year is we've moved up from what we thought was gonna be I don't know, three fifty to three seventy or something like that. Maybe a little bit lower than that.

We're moving now far away. Gonna burst 400. But as you see in 400, but with actually improving cash flow is that I think, the greatest pleasure that I'm gonna have next year is being able to deploy that amount of capital or more. And, you know, we don't deploy capital just because it's fun to do. It's hard work. But it's gotta be back by, you know, clear-eyed thinking about custom utilization customer commitment, and economic return. And I think, you know, we have pretty, you know, high hurdle rates for, for that to deploy that fresh capital.

So my view is it's a good thing if we can spend 2025 level in 2026 and more or in 2027 and more then that's gonna be a good thing. And, you know, we just see increasing opportunities to build out the business.

Scott Deuschle: Agreed. That's a great thing. Thank you, John.

John Plant: Thank you. I'm not sure there is no further questions or Drew, you end as we're at the end. So I know Drew, are you on the line?

Operator: Right.

John Plant: Paul, I think we should close given the fact. Yep. Less than a minute to get we can't even ask a question.

Paul Thomas Luther: Yeah. So when Mike, did you have a question, Mr. Ciarmoli?

Michael Ciarmoli: Yeah. Thanks. Please go ahead. If we have if we have time. Thanks, guys. John, not to belabor the point, and I'll try and be quick here. With the call closing out. But back to these incrementals, I mean, you're clearly benefiting from spares demand you know, combination of legacy utilization, combination of durability issues, I mean, are you over-earning on the aerospace spares now? And is that driving the strong incrementals? Does that normalize at some point, you know, as maybe some of these light work scopes or different kind of work scopes, you know, kind trend back to normal?

John Plant: Well, first of all, when in the in the year, in the short term pricing into a spares part and not only part or exactly the same. Right. Over a long-term basis, they are differentiated because of, let's say, parts going to past model. So, no, there's no case of that over-earning in the immediacy. If you go back to previous calls, have said that, what we see is spares business in total increasing every year for the next five years. Didn't really wanna go beyond five. We may discuss whether it's you know, it's always gonna be at the same angle of increase. But there's no case that I can see where spares don't increase every year.

Through the end of the decade. So pretty positive.

Michael Ciarmoli: Okay. Perfect. Thanks, guys.

John Plant: Thanks, Mike. It's 11:01. So Drew, close the call.

Operator: Yes, sir. This concludes our question and answer session and the Howmet Aerospace Inc. Third Quarter 2025 Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect.

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