Woodward (NASDAQ:WWD) reported fiscal third-quarter results marked by double-digit sales growth, higher margins and increased earnings, prompting the aerospace and industrial components supplier to raise its fiscal 2026 adjusted earnings guidance.
Chairman and Chief Executive Officer Chip Blankenship said sales increased 21% year over year during the quarter, while adjusted earnings per share rose 43%. He attributed the performance to demand across aerospace and industrial markets, pricing actions, higher factory output and early productivity gains from the company’s lean-transformation efforts.
Quarterly financial performance
Chief Financial Officer Bill Lacey said Woodward generated record quarterly net sales of $1.1 billion, up 21% from the prior-year period. Reported earnings per share were $2.40, compared with $1.76 a year earlier, while adjusted EPS was $2.52, also compared with $1.76.
Free cash flow totaled $87 million in the quarter, bringing the fiscal year-to-date total to $196 million, up 23% year over year. For the first nine months of fiscal 2026, operating cash flow was $352 million, compared with $238 million in the prior-year period, largely reflecting higher earnings.
Woodward had capital expenditures of $156 million through the first nine months and expects a meaningful increase in spending during the fiscal fourth quarter. Lacey said the expected spending includes completing the Spartanburg facility and purchasing production machinery for an A350 spoiler program. The company continues to expect approximately $290 million in capital expenditures for the full year.
The company ended the quarter with debt leverage of 1.6 times EBITDA. Through the first nine months, Woodward returned $608 million to shareholders, including $553 million in share repurchases and $55 million in dividends. It now expects to return approximately $700 million to shareholders through dividends and repurchases during fiscal 2026.
Aerospace growth driven by commercial markets
Aerospace segment sales rose 19% to $709 million. Commercial original-equipment sales increased 34%, with output generally aligned with rising airframer production rates, while commercial services revenue rose 24%.
Lacey said commercial services demand reflected high utilization of legacy aircraft, growing activity on CFM LEAP and Pratt & Whitney GTF engines, and continued service demand across wide-body and regional aircraft platforms. Defense services sales increased 20%, aided by a large delivery of T700 spares and improved casting supply.
Defense OEM sales declined 6% because of a one-time revenue-recognition adjustment. Excluding that item, defense OEM revenue would have grown by the mid-single digits, according to Lacey.
Aerospace segment earnings increased to $170 million, or 24% of sales, from $126 million, or 21.1% of sales, a year earlier. The margin improvement reflected pricing and volume leverage, partly offset by inflation and unfavorable mix. A one-time retroactive pricing adjustment tied to a contract under negotiation contributed about 100 basis points to aerospace margin in the quarter.
Management said it does not see evidence of unusual inventory buildup in commercial aerospace channels. Blankenship said customer inventory appears to have returned to normal or slightly below levels preferred by customer planning systems, while Woodward continues to experience strong demand for deliveries.
The company also announced a partnership with HAECO to establish an elite licensed service facility for Woodward line-replaceable units on CFM LEAP engines in Greater China and the Asia-Pacific region. Blankenship said the company’s service-capacity strategy is defined for the next several years and is focused on staying ahead of customer demand.
Industrial sales and margins advance
Industrial segment sales increased 26% to $401 million. Core industrial sales, excluding China on-highway activity, grew 19%, supported by higher volume across the segment’s primary markets and price realization.
- Marine transportation sales increased about 24%, driven by higher shipyard output and services demand.
- Oil and gas sales grew 11%, primarily due to LNG infrastructure-related volume. Management said upstream capital spending is showing signs of recovery, particularly in the Middle East.
- Power generation sales rose 19%, reflecting demand for data-center base and backup power.
China on-highway sales were $40 million, exceeding management’s expectations. However, Woodward does not expect significant China on-highway sales in the fiscal fourth quarter as it completes the wind-down of that business.
Industrial segment earnings rose to $88 million, or 22.1% of sales, from $48 million, or 14.9% of sales. Core industrial margins were 21.2%, compared with 15.6% a year earlier. China on-highway contributed approximately 90 basis points to segment margin.
Lacey said favorable product and business mix helped the segment’s third-quarter margin performance, but he expects core industrial earnings margins to return closer to levels seen in the first half during the fourth quarter as a lower-margin growth business line resumes a larger contribution.
Capacity, automation and outlook
Woodward completed an expansion of its high-speed fuel-injection production value stream in Glatten, Germany, which is supporting demand from Rolls-Royce’s mtu Solutions division for power-generation applications. The company is also transferring production and engineering from a recently acquired Canadian electronic-products facility to existing operations in Poland and Bulgaria, a move management said should generate cost synergies and improve returns from its THSA and related electromechanical portfolio acquisition.
In addition, Woodward plans to move a Niles JDAM production line to Spartanburg to improve supply continuity and support future growth.
Blankenship said automation investments are intended to expand capacity, raise productivity and reduce the need for direct-labor hiring. The company is targeting about 1,000 fewer incremental hires by 2029, representing roughly half of projected hiring needs over that period when accounting for attrition and growth. He said the initiative is not intended to replace employees, as Woodward expects to continue hiring to support growth.
For fiscal 2026, Woodward raised its adjusted EPS outlook to a range of $9.30 to $9.50. It now expects aerospace sales growth of 21% to 23%, with aerospace margins of about 23.5%, and industrial sales growth of 19% to 21%, with industrial margins of about 19%. The company expects an adjusted effective tax rate of approximately 22.5%.
Management said pricing should moderate after the company completed the first round of renegotiations on long-term agreements following 2022. Lacey said a more normal future pricing range would be about 3% to 5%, with further margin expansion expected to depend increasingly on productivity, lean initiatives and automation.
About Woodward (NASDAQ:WWD)
Woodward, Inc (NASDAQ: WWD) is a global leader in the design, manufacture and service of control systems and components for the aerospace and industrial markets. Founded in 1870 and headquartered in Fort Collins, Colorado, the company specializes in motion control, fuel systems, actuation, and digital control solutions. Its offerings enable precision management of flow, pressure and motion in critical applications ranging from aircraft engines and power turbines to hydraulic systems.
Woodward’s product portfolio is organized into two primary segments: Aerospace and Industrial.
