Quarter 1
Q1 2026 Earnings Call — May 7, 2026
Scott Duschel (Deutsche Bank): Hi, good morning. John, can you walk through in a bit more detail as to what factors drove this step function change in commercial aerospace growth and engine products in the quarter? And then related to that, is engine products currently seeing much growth benefit from GTF Advantage, Hot Section Plus, or LEAP-1B Maverick shipments, or is that all still largely in front of you? Thank you.
John (Executive): Okay, so first of all, the engine revenue increase is above aircraft build in the first quarter for sure. Some of it clearly reflects that we need to be ahead of future volume increases. And as you know, that the aircraft manufacturers want to raise rates during the course of the year. So there's some anticipation of that. I think the second point would be there's been very little, by way of available, inventory in engine build. I think everything was thrown out, increasing inventory, both leap in GTF production in 2025. And so there was very little. And so for us, again, seeing strong demand to some degree catch up. In addition to that, I'd point to there is some share increase. I'd point to the fact that there is some price increase. And then finally, it shouldn't be underestimated that the spares business was very strong. So whereas the overall spares increase for the company was 35%, Plus, it was actually 45%, more like 48%, in fact, in the first quarter. So if you put strong spares along with the aircraft bill, the anticipated bill, the share, the price, there's a lot of very positive things happening for us in the engine business.
In terms of the question or part of the question you asked regarding DTF and then the changeover for the leap from Circuit to Maverick, let me deal with, say, the DTF first. In the first quarter, there was a fairly small amount of DTF production. I think during last year, I'd commented that we were running at about six engine sets a month in the second half. That's increased during the first quarter, but it's going to increase again significantly as we go through the balance of this year. So my expectation is that we'll be providing full production of the legacy GTF product and then increasing GTF Advantage products as we go through this year. I think, as you know, Scott, those will have a higher content and then therefore higher value. That production rate increase will actually continue into 2027. So 2027 is going to be a much bigger year, I think, for the GTF advantage than 2026. But you are going to see a steady climb throughout this year as you bring further rate tooling to bear. And as you know, the GTF advantage has now had both certifications at the customer and from the regulatory agencies. In terms of the Maverick, that production is just starting for the Leap 1B.
So it's underway. Again, volumes will be increasing during the second quarter and then more in Q3 and Q4. but it won't be changed over until the second half of the year with, again, a date to be determined for the exact month of changeover. But we do see, say, the Elite 1B changing in the back end of the year and certainly, we think, before the turn of the year into 2027. So for the first part, we'll be doing the existing... to buying blades and then increasingly make that changeover such that by, let's say Q3 and certainly by Q4 will be fully changed to raise my expectation. Thank you very much.
Ron Epstein (Bank of America): Yeah, good morning guys. So, John, maybe a big picture question for you. How should we think about how IGP is going to go for you all over time, kind of given the contracts that you're signing, the CapEx that is being invested, the hyperscaler spend? And then ultimately, how does that compete with your aerospace business? Because it seems like the hyperscalers are competing against the engine guys for similar assets and supply chains. How are you thinking about that?
John (Executive): Okay. IDG is a big subject at the moment. Big subject for us, for sure. And trying to, I'm going to say, feel our way through to the right outcome for the company. It's clearly... an opportunity to deploy capital for increased organic growth. At the same time, we just want to make sure that we're not getting ahead of ourselves and we do see a continuing bright future for it such that we don't end up with a period of overinvestment and overcapacitization because that would not be a good outcome for us. So what we've been doing is to truly understand as best we can the market dynamics of what the hyperscalers are really needing and paying close attention to build out of data centers and just the underlying growth anyway, excluding AI, which is just a function of just fundamentally a huge increase in data and data storage required around the world. And then on top of that, the increased use and use cases for the application of artificial intelligence, which is, you know, there's a huge amount of money, maybe $700 billion being invested this year, and trying to assess when all of that is required and what capacities will need to be brought online.
And indeed, what are the alternatives for electricity production as we go through the next few years? Our assessment is that natural gas is fundamental to that build-up because of the, I'll say, ability to have fast acting and to underpin any form of renewable energy and also as a baseload provision as well. So we're confident that for the next three years, five years, that that growth is clearly there. The kick-up of investment by the hyperscalers. I mean, you see numbers that say going from maybe Microsoft saying they're going to go from 125 billion to 185 or, you know, then Google matches it and Amazon talks about 200 billion. And so clearly, the amount of investment is enormous and probably still not yet reflected in the current demand pattern that we're seeing through our IGT customers.
At the same time, for us, we have to consider what happens to 2030 through the balance of this decade. into the following decade and having really detailed meetings with those large IGT customers of what turbines that they expect to make and that which they want to invest in new products compared to just making more of the same, which is a very live topic at the moment, and indeed what their own capacities are and what the demand is. pattern looks like through, let's say, 2032, 2034, et cetera. And while we're evaluating all that, we're also looking at the smaller and mid-sized turbines, which are also required because sometimes data center installations cannot get electricity sufficiently from utilities or indeed from their own large-scale gas turbine availability. So banks of small and mid-sized turbines are required. And so evaluating all of that, and then also the fact that it's probably likely that insufficient electricity production will be provided in the decade as we see it beyond 2030. So for major industrial complexes, we see standalone microgrids being required for a small and medium-sized turbine. So again, a very healthy demand pattern.
And everybody, basically, the word of the, I was going to say month, quarter, you could call it year, the answer is more. And so we are trying to meet that demand, not necessarily trying to add everybody's demand together and say, you know, is everybody expecting all of it to result in those market shares, but also to invest at a rate that makes sense to us and also underpin that with commercial agreements, again, which makes sense and trying to provide, I'll say, corridor sort of security for the habit investors. So there's a lot going on. You've seen the kick up in capital expenditures. I mean, if we were, I don't know, 450 million plus or minus last year, we've talked about, I think the last earnings call, a midpoint of 470 million, but trending towards the top end. We're seeing more like now this year, $500 million of capex, and those increases really do reflect the increased investments that we're making in the gas turbine market. And my current expectation is that 2027 is going to go higher.
But at the same time, you know, we're not spending this money and trashing our cash flow at all is that we've already glided to a higher capex number and a higher cash flow number and still maintaining our long-term commitment to that 90% conversion of net income. So we're trying to do everything. And I think I maybe said something quite bold on the last call, which is we're trying to do it all. And at the moment, we do have the cash flows to largely do it all between maintaining really a great leverage position, increasing air cap X, and also meeting some of the exciting parts of the market demand picture, of which gas turbines is particularly active at the moment. And you heard me say on the call earlier in my remarks that We've now reached agreement with six of seven major customers and with one more to go, which is a very significant customer to hopefully complete during the balance of the second quarter. So it's interesting, exciting, but at the same time, We're not trying to get carried away and do something which would not put us in a good position. And we've been very clear on that in the discussions with our customers. Got it. Thank you very much.
Robert Stollard (Vertical Research): Thanks so much. Good morning. John, you've given a pretty interesting growth outlook here for several of your end markets, but I'm wondering how you feel about the ability of your supply chain to deliver sufficient material, especially on, say, things like rare earths, and also the outlook for staffing, whether you're getting enough quality people.
John (Executive): Okay. Let me deal with input materials broadly and then rather specifically before moving on to human capital. For the most part, the metals that we use in our turbine blade business and structural casting business. Um, uh, and in these structure segments, we, uh, we get, the base metal. So we're buying from smelters and traders so that we will buy the base nickel or cobalt or whatever. And so we feel fairly secure of that and have a pretty good view of country of origin and security stocks around all base metal. So I feel quite comfortable there. During last year, I gave a picture about, I think I called out three rare earths and tried to describe the fact we had a year supply of two of them plus inventory held outside of its production. using territory outside of China. So we had inventory both in the US and Europe to provide us with security. And I think they called that the third rare earth, which was about a 10-year secure supply. It's something that I've to again in the first quarter of 2026, being really focused and have procurement operations focused on gaining increased security.
So right now, we have in hand, despite an improved inventory efficiency, we actually have increased the inventory of Reras such that we're fully covered through 26. And I think we're like 90% of 2027 and some products now well through the end of the decade. So it's been a major push to increase security around rare earths, such that, you know, with, again, some uncertainties around the geopolitical situation, you know, we recognize as a major political summit coming up between America and China, we want to make sure that we're able to be secure and supply our customers for a very extended period of time with the product we've got, which is essential particularly for some of our defense applications to provide that supply security. If you take the Savannah disposition, then that was one of the two operations where we buy alloyed metal from somebody else, which is let's say was about 5% input of metals into the company. So let's assume now that 5% is down to 3.5%. And then the 3.5%, 40% is supplied from our in-house operations in Europe.
And so we're down to like a very tiny percentage of, I'll say, of metals that we rely on, alloys. third-party suppliers and have very solid security stocks around Rare Earth. So I think we try to protect the company in a very significant way. I think the second part of your question was around human capital. We've continued to recruit, I think, about 230, 250 people net in the first quarter of this year. We're still anticipating well over 1,000 people of ads during the course of this year. So similar, maybe slightly higher number than we had in 2025. I've also spent a lot of time trying to improve all the methods that we have by way of recruitment and training and trying to reduce our employee turnover. We did make major strides during 2025 and the trajectory during the course of the year.
So far in 2026, employee turnover has been pretty stable with the fourth quarter of 2025, but with, again, plans to, again, provide additional efforts to provide training that we provide employees, showing the people the workplace, looking at spans of control within our plants, looking at the basic recruitment practices itself, and obviously pay rate and benefit programs and all the rest of it as well. So trying to provide a good work environment At the same time, also automate. In fact, when I was in Japan last week looking at a new manufacturing plant there, which was mainly focused on the gas turbine business, again, spent a lot of time talking about the recruitment of people in Japan, which is actually more difficult than, say, the U.S. or Europe. And also the importance of trying to find additional areas of automation such that we can put it more in our control than it is in something which is difficult to control, which is can you get sufficiently qualified and good people into your production operations.
A lot of efforts going in, Rob, and at the moment, I'm pretty convinced that we'll execute 2026 in a satisfactory way and still show further improvements in our employee retention. That's great. Thanks, John.
Christine Lawag (Morgan Stanley): Hey, good morning, everyone. So, you know, John, you know, you've done a few deals lately with buying the faster businesses and then also divesting the disk forging business. When you look at the portfolio today, where are there additional areas that you want to expand or are there areas that you want to prune, especially as we start seeing more industrial gas turbine demand come through? Thanks.
John (Executive): We pretty much have the same stance today on the portfolios we've had for the last few years. We examine acquisition opportunities as they arise. It takes a willing seller as well as a willing buyer to transact. And we've also been very selective on those that we wanted to proceed with or potentially proceed with. So if you go back to the CAM acquisition, it wasn't the only one that had come up, but it was the only one that we ever got beyond expressing an interest in to actually showing the willingness to move and move quickly through to execution and sign the share purchase agreement. So we want to be very selective in deploying that capital and be convinced that it adds something to us and passes all of the gates that we want to have with revenue synergy, which is always possibly very difficult to get, but we're convinced we will have revenue synergy as well as cost synergies. and a good solid business where we can improve margins. And so it passed all of those.
And I could say likewise, obviously a much smaller acquisition in Bruna, but solid operations, which we've got very clear plans, again, through those types of synergy, including the opportunity of improving its tough line. So I'd say we're pretty discerning. At the same time, we always do look at our leverage and to make sure that we're in a good zone. And excluding CAM, we got ourselves to below one in terms of net leverage. Now it's 1.6, but it's going to decay rapidly back towards the one level during the course of this year. So we are still very open to considering further acquisitive steps and be positive about it, but again be very discerning So if something comes up that doesn't stretch ourselves too far and maintains our ratings and debt ratings, we'll certainly give it a good look, but without getting what's called deal fever. And at the same time, we think that we'll be able to maintain our shared buyback program and also re-look at the dividend. So we're in a good zone where We're deploying a lot of cash for capital expenditure for organic growth, which is always the best source of returns for us, both for margin and for return on capital.
Then, obviously, we have the opportunity of buying back our shares. And you've seen another, I say, great execution buying in the first quarter at 230. I think today we're well ahead of that. So again, a very accretive position for shareholders. And I think that beyond that, acquisitions are also something that we should give very active consideration to where we can see both revenue improvement and margin improvement as we go through. And still able to continue faith with both buyback and improve our dividend payout. So I think it's all good at the moment, Christine. Sounds great. Well, thank you very much, John.
Miles Walton (Wolf Research): Hey, good morning. John, could you comment on where you are relative to capacity on the gas side? I think the first half of this year, I think you're pretty capacity constrained, and so is the growth we're seeing purely price related. And then at the whole portfolio level, I know you won't give us the specifics on price anymore, but how would you compare it to last year? And do you see a year when price year on year price increases don't grow?
John (Executive): Okay, so the increase in revenue in the first quarter was, I'm going to say, very good. I mean, maybe it's more for you to say than me, but I thought 39% was outstanding. And as you know, we'd invested... at a higher rate in gas turbines in 2024, but it's very modest, like maybe 30 million more than normal. We kicked that up in 2025, and so saw some modest increasing capacity. But essentially, for the first half of this year, it was going to be more that which we could obtain from yield improvement. Bear in mind, we'd also improved our yields and I think we were able to increase our total revenue from the gas turbine segment in the second half of last year. So the outcome for this year, which was a lot of volume, but some price in that 39%, was great. And in fact, again, if I refer to one of the resources in Japan was to see our new manufacturing plant and the first piece of equipment arriving there. And those are now being assembled into working castling furnaces which will be, I say, ready by the, let's say, July, August timeframe and starting to have their first production by the fourth quarter.
So, you know, capacity is coming on and that will help as we go towards the back end of the year. But between now and then, Again, it's going to come mainly from that yield focus that we have. The other thing which is happening, and it will happen progressively, and it is already happening, is that as the volume's been increasing, it's also given us the opportunity to consider moving, increasingly move from batch production to flow production. and with tack time and so with that increase of repeatability and flow production then that in itself is an opportunity where with the application of a lot of engineering effort again our yields are increasing and in our guide we've just been a little bit cautious about when exactly the capacity will come on what yields we can really drive further in the next few months because the comps get harder given the production increases we achieved in the second half of last year. So we're a bit cautious about it, but at the same time, positive that total... gas turbine production will increase progressively during each quarter during 2026. And then again, we'll see increases in 27.
And we and, in fact, we and our customers are highly focused on 27 and 28 for further production increases because that capacity is really, I mean, we use it almost desperately needed And then another wave of investment that we're doing now, which will really only begin to affect the back end of 2018 going into 2029. So that's the shape of the, I'll say, what we're doing by way of yield, flow production, tech time, capacities that we committed to investment last year flowing into this year, and then what we've been investing in this year and continue to invest in 2027, which will come in to benefit our production in the back end of 2018 to 2029. So there's a lot going on and that's what has given me confidence when I think about all those bricks in the wall that we're placing. to bring those capacities and therefore future revenue on. That's why I talked about us doubling or even more than doubling our revenue from this particular segment.
David Strauss (Wells Fargo): Morning, everyone. John, within the 14% organic growth for this year, could you kind of break that out? What's baked into that for aero, defense, and IGT, and I guess transportation wheels, kind of what builds up to that? And As we think about 27 with, you know, the incremental additional capacity coming online, you know, GTF advantage, you know, full year of LEAP 1B, IGT, is it possible that organic growth accelerates in 27 relative to the 14% you're now calling for in 26?
John (Executive): That's a big one. I think I'm happier talking about 2026 than 2027 at the moment. And it's essentially down to the conviction over the aircraft manufacturers now truly poised to increase their production to the rates they want and also the macroeconomic and probably the effects of inflation on the consumer. So there's a lot to be determined before you can be precise about a 2027 growth rate. I'm pretty clear that it's going to be positive for us. The exact angle of growth yet, I don't think I want to go there until we know more, and I guess we'll know more as we go through the balance of this year. And as you, I'm sure, but you probably more than most appreciate, we're all subject to that daily news cycle of global agreements or not, or maybe it's two or three times a day of us in news cycle currently. rather than a daily news cycle. And that seems to weigh heavily on our lives. Um, but dealing with this year, um, if I look at the, uh, the guide we've given, I think we're going to see commercial aero in that, uh, in that 20% range, maybe defense in the 10% range, um, gas turbines somewhere, 25 percentage, 30%.
Um, Not that it's a fundamental deceleration, but more just the area near comps. And I want to be cautious on how much we can get by way of yield in the next, say, five to six months before that capacity comes on stream. And then with a very cautious assumption around commercial transportation at the moment regarding that business, because, I mean, freight rates have increased and that's good. On the other hand, diesel fuel has gone up a lot, and we're all subject to what will happen to GDP and growth rates for the economy, and therefore the amount of transportation required, both in North America and Europe in the back end of the year. So while I could believe that commercial truck customers are scheduling more, and they are, without doubt. And there is evidence of some pre-buy from the 2027 reg change in North America. At this point, we've taken a very modest, below 5% assumption on the commercial transportation market, even though customer schedules are significantly ahead of that. And we just want to see that play out, David.
Seth Seifman (J.P. Morgan): Thanks very much, and morning, everyone. I wanted to ask, in terms of the legacy aftermarket and the potential exposure there to the macro environment, I think, and correct me if I'm wrong, I don't want to put words in your mouth, but I think, John, you've kind of talked before about the expected endurance of the legacy fleet. And I assume that it's early to be making any judgments about that, but I'm wondering if you can comment a bit further and talk about some of the things that you're looking for there. Oh, and also what proportion of the spares is that kind of legacy fleet?
John (Executive): Oh, the essential picture is pretty similar to what I've talked about in the past, where we see, if you take the... the CFM range of engines, starting off with the CFM56, we expect that production will increase during 2026 and 2027. So I have no concerns about that. Should it peak in 2028 or is it 2029? It's all going to depend upon a new aircraft build. It seems as though any decay will be very modest, so it's going to be a really good program going forward for many years. So we're clear that that's going to be a growth program for us. If you now go to the LEAP range of engines, we also see that the spares business for that is going to grow continuously every year. for the next probably 8-10 years and you don't want to call it beyond that and initially it's probably higher level due to durability issues and there on the GTF that is exactly the same is that we will be supplying full production level of the existing GTF throughout 26 and a lot into 27 and while also preparing for the GTF advantage.
And so we're going to be raising rates, and a lot of that is going to be destined for the MRO market, well beyond the total engine sets that I expect that we'll be producing, for example, in 2027 at full rate. My expectation is that the majority of those are actually going to go into the MRO network, on a refit compared to a rebuild, even though there will be increased OE build as well. So it's a pretty healthy picture overall for spares. And my expectation for commercial aero is that we're going to see growth every year for the balance of this decade and then beyond. The only thing we're going to be debating is what's the angle of growth. I think we're going to see more in the in the first two or three years or the first couple of years now than we will see in the latter two years of the decade, but still growing every year. So it's a pretty positive part of the portfolio. And I think Patrick already gave you the numbers that As for the total company, it's risen again from 21% of revenues, which was, again, higher than we'd said to you last year. We said it's getting to about 20%. We're at 21%. And first quarter was at 23%. And, you know, we don't know yet.
But, I mean, it wouldn't surprise me that we sustained 23% through this year. And then, depending on OE build, I suspect it could even go higher next year, while also seeing a higher OE build. So, you know, but again, you've got to bake in, you know, is there a, I'll say, any macroeconomic upsets? But at this point, it looks okay for us. And certainly... The guide we've given you is, I don't believe it's going to be blown off course by any agreement or lack of agreement with the Iran situation that we have in terms of what spares are going to be required for this year. This is the enormous backlog that we have.
John (Executive): Thank you. And this concludes our question and answer session as well as today's conference session. Thank you for attending today's presentation and you may now disconnect.
Quarter 2
Q4 2025 Earnings Call — February 12, 2026
Executive Name (Title): The demand for electricity generation, especially from natural gas for data centers, is extremely high. If we aggregate both large gas turbines and small to medium-sized gas turbines, we expect that our base business of approximately $1 billion should double in revenue to $2 billion over the next three to five years. And even more growth is envisaged beyond that, especially for mini-grids. Hammett is well positioned in this segment, via the supply of turbine blades, where we are the largest manufacturer of gas turbine blades in the world, covering our key customers at GE Venova, Seams Power, Mitsubishi Heavy, Ansaldo, Solar and Baker Hughes, plus parts for aero-derivative engines produced by GE Aviation. We have recently completed new contracts with four of these seven customers, while negotiations continue with the other three. Additionally, the build-out of the turbine fleet over the next five years ensures a healthy and growing spares market for years to come.
Turning now to commercial truck wheels, we weathered the volume downturn in 2025, especially in the second half. Share growth and penetration versus steel wheels helped. For the year, commercial transportation revenue was down 5%, despite material and tariff recovery covering part of the volume downdraft. The market appears to be stabilising, and we now believe that Q1 will be the quarterly low point. Given the new 2027 emissions regulations remaining in place, we anticipate that this will begin to help demand in the second half of 2026, and then we should see the inventory multiplier effects take effect as the truck bills increase.
I'd like to mention the commercial aircraft build rate assumptions upon which our guidance is based, albeit we will match aircraft build rates whatever they eventually turn out to be. For Boeing, the 737 assumption is 40 aircraft per month based on a rate of 42 as a daily average, coming to a month without vacations. And the 787 is 7 a month, rising to 8 a month by the fourth quarter. For Oebus, the A320 is assumed to be 60 a month, while the A350 is at 6 per month.
And Q1 2026 guide numbers are revenue of 2.235 billion, plus or minus 10 million. EBITDA of 685 million, plus or minus 5 million. An EPS of $1.10 plus or minus a penny. You'll note that our Q1 revenue is an increase of 15% year-on-year above the average for 2025. We remain positive on the growth for 2026 while noting the dependency on aircraft builds. For 2026, the numbers provided exclude the acquisition of camp. Revenue of $9.1 billion plus or minus $100 million. EBITDA of $2.76 billion, plus or minus $50 million. Earnings per share of $4.45, plus or minus a penny. And finally, free cash flow of $1.6 billion, plus or minus $50 million. The EBITDA incremental for the year is guided to be approximately in the early 40%.
I would now like to turn to portfolio commentary. In the last few months, we've been very busy. We've signed and closed on the purchase of a fastness business in Wisconsin, Bruna Inc. We believe that this acquisition enhances our product offering and opens up new markets for Hammett to explore, especially in the longer length and wider diameter parts in the fastness market. The impact of this acquisition on Hammett's earnings is not material. However, it provides a very good platform for future growth.
The more significant acquisition is CAM in the aerospace, fastness and fittings business, for which we have agreed to pay $1.8 billion. Upon deal closure, the earnings per share effect in the balance of 2025 will not be of a material effect, and hence the guide is kept clean until the date of closing is known post the regulatory processes. These actions strengthen Hamet's portfolio of businesses going into 2027. The theme has been, and will continue to be, to play to our strengths and allocate capital decisively to businesses that are growing and show the strongest returns on capital and cash generation. We're excited about the future, given these portfolio improvements, as well as the growing commercial aerospace and gas turbine businesses. Further growth updates concerning the gas turbine business will be provided as we progress throughout the year.
I'll now stop and turn the meeting over to questions. Thank you.
Analyst Name (Firm):
The first question is from Doug Harted with Bernstein.
Analyst: Good morning. Thank you. So I'd like to understand sort of how your thinking has evolved when you look ahead over the next five years with engine products. Clearly things have changed. And, you know, can you contrast your expectations for the relative growth across commercial aero, defense, gas turbines, as you think about planning, investments, and so forth, investments and so forth. And then related to this, you just reached a record EBITDA margin of 34% for engine products. Are you near a ceiling with this? And what's enabling you to get to these higher margins?
Executive Name (Title): Okay, so as you said, my thinking has evolved. I guess Thinking always evolves with the passage of time and the circumstances change. I mean, I think the constant throughout this starts off with commercial aerospace, where I've been convinced that growth will be robust and continuing. As you know, sometimes over the last two or three years, or maybe four years, it hasn't been quite as good as we had envisaged, and that's principally due to the difficulties in final assembly of aircraft and also engines. But the trajectory has been positive, and the future continues to look really good.
And so when I consider the backlog, the commercial aircraft is there, I think it is quite extraordinary, and I think the word extraordinary is appropriate. And that applies to both narrow-body aircraft and wide-body aircraft. Since if you were to order a new aircraft today, you're really looking at delivery beyond 2030. And if build rates were not to increase, then it would be possibly almost towards the end of the 2030 decade. And so there's a very strong requirement for builds to increase today.
And so I think that backlog number gives great comfort in the investments that we've made. And you've seen capital expenditure develop very notably over the last few years. And we've talked previously about building out another complete manufacturing plant and extending, say, one and a half manufacturing plants for our commercial aerospace business. So that's been very significant, and that's on top of the new engine plant that we built in 2020, coming on stream at that time we started COVID. So there's been a tremendous investment for the commercial aerospace market.
At the same time, we've seen very solid demand for defense, and I think the surprise there has not been the solidity of the F-35s, more so the fact that the other legacy aircraft have also seen significant new orders but the F-35 is the flagship program that we have but now when we look out there's a significant emerging segments of missiles for us where we're seeing very significant demand increases. And just at the moment, we're also spending a lot of our engineering efforts to try and ensure that we have position on engines for drones and for the larger cruise missiles. And so, again, we see defense as a continuing good sector for us, and which we're backing with investment dollars in a significant way.
I think the biggest change to my thinking has been for the gas turbine market and historically if you've gone back by seven years I'd have said this was a more cyclical business it had shown you know periods of rapid growth and rapid decline and it was one where I was quite leery about making investments in that segment. And then I think things began to change with, I'll say, more consistency of product management by our customers, so far less new product introductions and therefore more buildable, repeatable products.
And then the emergence of demand, which seemed to be a long, ongoing need to support the renewable industries, with a base level of capability and fast response. But it didn't really stop there, and now I'll say the emphasis is probably a little bit less on renewables and more on fossil fuels, and certainly when you look at it, if coal-fired power stations are not being retired, then the tremendous demand that's there can only realistically be filled by the natural gas market.
And so when you look at it with the demand projections for data centers, and that was without the advent of AI, it caused me to think about the willingness to invest. And so we did tick up capital deployment in new equipment in 2024 and then more again in 2025. And you saw the capital expenditure for the year you know, very, very significantly above that which we envisaged at the beginning of the year to go back to our guide a year before. And now we're looking at 2026, where it's going to be a higher number again.
And we've picked a midpoint of about 470 million. But I could envisage it rising above that, But at the same time, we're really trying and ensuring that we have that consistency of free cash flow conversion of the 90%. And so 2025 was a year where there was not a lot of new output from the capital expenditures that we had put into the ground. And it was more a question of yield improvement to allow for the average of a 25% growth in that area.
And we had been, I'll say, quite successful and probably exceeded our expectations of the improvements we could make. And as you know, in previous calls, I've talked about building a new plant in Japan, which has been done, building a new plant in Europe, which has been done, and then placing new capital into those two new manufacturing plants plus the existing one in the US. And so a lot of that capital will come on stream towards the back end of 2026 and into 2027.
But it hasn't really stopped there. And in dialogue with our customers more recently, we are seeing, again, further growth further demand patterns evolve where additional investments are required. So right now, if I were to call it, I envisage that 2027 we'll see an even higher capital number if all of our discussions come home. And I quoted in my prepared remarks about four out of seven customers. That was both the very large gas turbine customers and the I'll say small and mid-sized, but if I just confine it to the large gas turbines for the principal utilities, but now some of them being sold directly to data centers where, you know, it's a gigawatt of energy output is required, then we've now completed three out of four, I will say, outcomes or discussions with those customers, and have reached agreements whereby we would seek to invest more for the future while ensuring, again, that we have healthy returns for how much shareholders.
So I think that really covers how I think that it's evolved in our thinking, both through commercial areas based defence, supplementary areas and further market opportunity in defence, There will be collaborative combat aircraft as well and their engine requirements. And they're in the gas turbine market, so it's a particularly exciting time. And as you know, we always back the areas of investment in the company which earn high returns. I hope that covers it, Doug.
Analyst: Well, and just on margins, 34%, which was unusually high.
Executive Name (Title): Well, I think it's a good margin. As you know, I never am willing to consider what margins are for the future because I find it always a very difficult topic to cover. As you know, we don't seek to take them down. But at the same time, predicting increases is not something that I've ever been willing to do because so many factors come into play in regarding that.
At the moment, I see, for example, us having to take on additional costs, not only of the new manufacturing plants, but also I think that we're going to recruit another net 1,500 people plus in 2026 into our engine segment. And so, you know, and all of those people require training and, you know, et cetera, et cetera. So there's a lot going on.
And I'm also very clear that if we were to hit all of our marks, then, again, the output that we need to achieve won't come from just the new capital loan. We've got to try to attain further yield improvements, which then requires us to have, you know, effective labor, And then also bringing together all of the, I'll say, the flow that we have and trying to get more repeatable product through our manufacturing facilities.
And I think the opportunity, which I see in the midterm, is that we will be able to move from more batch production in the gas turbine area to more of a flow style production, which, again, towards the end of the decade should begin to, let's say, further give us impetus on yields and, therefore, margin. But it's way too early to predict that.
Analyst: Great. Very good. Thank you.
Analyst Name (Firm):
The next question is from Seth Seifman with J.P. Morgan.
Analyst: Please go ahead.
Analyst: Yeah. Hey, guys. This is Alex on for Seth today. Maybe one kind of more specific to the guide for this year is, You know, based on the guide for Q1, the midpoint of the rest of the guide for 2026 kind of implies minimal improvement in revenue adjusted EBITDA and adjusted EPS. You know, wondering if you could kind of walk us through the puts and takes there and why that is. And, you know, also on the margin, you know, the full year guide kind of implies that the margin is going to decline 30 bits for the full year from the 30.6 in Q1. You know, wondering how much of that might be related to maybe some startup friction, you know, related to the engine capacity additions you're expecting to come online this year, or if there's, you know, maybe some other things we should account for there. Thanks.
Executive Name (Title): I think, Alex, the most important thing to note is that we do have an extraordinary amount going on in the company. You know, we're deploying capital for new equipment at an extraordinary rate. You know, we're building, you know, we're extending five new manufacturing plants. And one thing I hadn't commented on is that we actually purchased another manufacturing plant. It was called the Brownfield in February of this year, essentially aimed at the gas turbine market because we've literally run out of square footage.
And so with all the capacitization that we've been considering. And then as you have heard, we're taking on two acquisitions, one of which we've closed, one of which we expect to close during the year. So between building out of capital equipment, building out of new sites, recruitment of labor and also the acquisitions we've talked about, that's an enormous amount going on.
And, you know, it's always a struggle to believe you'd be successful, you know, on every single one of them and et cetera, et cetera. So, I mean, for me, 30 basis points of margin is not really that significant. I'd look at the incrementals and I'll say, you know, it's like, I think 43% in Q1 and maybe I think 41% for the year. So again, pretty close.
And we've got to make sure that all of those new manufacturing facilities come on stream, build products while taking on labor. And there's always the possibility of us not hitting everything in quite the way we do it. Therefore, I think Caution is always the best way. And we take, as you've heard me say in the past, our guide seriously. So I think predicting 30.3% EBITDA margins for the year is pretty good at this point. And if we manage everything really well, then maybe it'll be better. But at this point, I think we're giving you that best shot of what we think is a balanced view of everything that's going on.
Analyst: Okay, thank you very much.
Analyst Name (Firm):
The next question is from Robert Stallard with Vertical Research.
Analyst: Please go ahead.
Analyst: Thanks so much. Good morning.
Analyst: Hey, Robert. John, I just want to follow up on your comments on the ITT investment. Do you think the ROIC on all this spending is going to be similar to what you've achieved in commercial aerospace in the past?
Executive Name (Title): I think, first of all, If you go back and review what I've said publicly is that there essentially is no difference between the margin that we have on gas turbines and output in our commercial aerospace or defense aerospace. And so it's all of a similar order of magnitude. If you look at the embedded return on capital gain of a very similar nature, of course, you know, the more I'll say brand new Virgin Capital you deploy, it can act as a bit of a drag on those returns.
And at the moment, you know, it's difficult to plan out all of the blends that might be going on since, you know, we haven't bottomed yet what the final capital deployment will be in the gas turbine sector. As I said, we've completed three out of four of the major large gas turbine customers or across the whole of the gas turbine segment, four out of seven. So there's still a lot to consider.
And each one of our customers are also looking themselves, you know, whether they can achieve an output increase across, you know, all of the, I'll say, their own bills plus other, you know, I'll say component suppliers. So all of those discussions are continuing. And therefore, the final capital bill and exactly the timing of it, it's going to be deployed. It's difficult to know.
But the direction I've tried to indicate, it's like we spent maybe $315 million plus a mindful $340 million, $415 million, $25 million. be saying 470 midpoints it's going to be a plus or minus 20 but if you ask me to give a gut feel I'll be saying more like a plus at this point and 27 again it's not fully baked by any means but I envisage at the moment to be at least the amount that we have in 2026 or possibly even higher as we complete all of these things and and then just trying to, say, bring it all to earth as we plan all these things out and, again, make sure that we can afford it even with the envelope of cash generation we've talked about.
So just specifically picking on ROIC, it's all of a similar order of magnitude today, but the blends of what's new capital versus the existing base, that can change as we move through the next two or three years.
Analyst: All right. That's great. Thanks, John.
Analyst Name (Firm):
The next question is from John Godin with Citi.
Analyst: Please go ahead.
Analyst: Hey, thanks for taking my question. Cash generation has been strong. Financial leverage at record lows, like you mentioned. I just wanted to talk about capital deployment a bit, how you're thinking about M&A versus buybacks. And with M&A, we saw... you know, the consolidated aerospace manufacturing deal, which was a bit larger. I'm just kind of curious how you're thinking about the landscape for larger M&A and growth opportunities that could unlock.
Executive Name (Title): First of all, we've been pretty bold on providing returns to our shareholders, essentially passing back all of the cash flow that we've achieved, whether it's been, you know, share repurchase, dividend, YC debt reduction, the same category, while ensuring that we have always invested enough to be able to basically drive the organic growth of the company forward.
And you've seen consistently growth in the double-digit area for several years and also indicating another double-digit growth for this year. And if we're successful on all of the capital expenditure this year, then I envision 27 are also going to be healthy. So, I mean, so first priority, John, is always the deployment of capital to enable the growth opportunities that we have, you know, say, come to fruition.
Then, clearly, we measure the, I'll say, share buyback, and also while taking into account the opportunity for M&A and where the leverage of the balance sheet is. And so if you think about CAM, it is, you know, $1.8 billion is significant. But at the same time, where we think about the leverage is that You know, we're below our long-run target average. Let's call it one and a half or less than that. And so, CAM doesn't really stretch us, and we envisage being able to continue to buy back shares as well.
So, currently, it's not a choice, one or the other. We're able to, I'll say, at this point, do it all. You know, we're investing in the business at record levels. So, 450 trending to 500 million. We're deploying shared buyback in a significant way and probably going to end up with a larger buyback in 2026 than we had in 2025. We're deploying capital into CAN of about $1.8 billion.
And if I give you dimensions for the Brunner acquisition, it's in that $120 million to $150 million range of capital and let's say about $60 million of revenue. So at the moment, if you think about it, and we'll also be kicking up dividends as well, even though the dividend yield is not the highest because we're growing so rapidly. I mean, we're managing at this point to do it all.
So I don't see why we have to fundamentally say we're going to do one or the other. And so, you know, we shall keep reviewing whether other M&A opportunities come up. But, again, be very disciplined. And you've seen the two we've done very much down the middle of the fairway of, you know, segments that we know well, segments that have earned the right to grow, segments that are producing very healthy absolute margins.
And so, you know, you know, An increased capex for fasteners, absolutely. I know willingness to deploy for an acquisition, absolutely. And it's not stopping us also buying back shares. It's an elevated rate above the previous years.
Analyst Name (Firm): Excellent. Thank you.
Analyst Name (Firm):
The next question is from Scott Deutschel with Deutsche Bank.
Analyst: Please go ahead.
Analyst: Hey, good morning. John, given the demand for gas turbines and the unique value that HEMET creates in that market, do you see a future scenario where your gas turbine revenue at engine products could ultimately be larger than the commercial jet engine revenue?
Executive Name (Title): That takes me too far out there. I don't think so because our commercial aerospace and our defense aerospace business is also, you know, growing rapidly, has grown. And, you know, I don't see that at this point in time. So, I guess the short answer would be no.
I think the most notable thing, though, that's going on, it's not just for us the growth in absolute volume. And I think I've talked about it in the past, but maybe not sufficiently. There's also a product mix change going on at the same time, whereby some of the technologies that were previously deployed in aerospace are also now being deployed in the gas turbine business, probably even more so in the small to mid-range gas turbines, but also now in the large gas turbine area, when that is providing airflow passages through the turbine blades and therefore requiring us to core the core tools to be able to provide those air passageways.
And that, again, produces for us a content increase. So we're looking at both the absolute requirement to build more puddles, plus also the evolving landscape over the next few years, I'll say more complex type of turbine blades, which again plays to our strength and capabilities. So it's all good, but I'm not yet ready for the premise that it could exceed. I mean, I don't know where we're going to be, say, 2030 or beyond. There's a lot of things that have to happen yet to get this current, I will say, requirements built out.
But you know, you do see the need for electricity increasing at a rapid pace really for not just the next three years, but, you know, well beyond maybe the next decade and beyond.
Analyst: Thank you. Just testing your bullishness. Sounds like there's still some upside there. Thank you.
Analyst Name (Firm):
The next question is from Sheila Kayaglu with Jefferies.
Analyst: Please go ahead.
Analyst: John, Patrick, good morning. And, John, it does seem like you are doing it all. you know, you are in the process of closing CAM and you just did the Bruner acquisition. Marks more M&A than you've done in the past. Maybe if you could just give us greater depth in terms of the markets it opens up, the product offering, and how you're thinking about maybe the returns as you think about either building or buying in terms of these investments.
Executive Name (Title): Yeah. I think the, to start with the CAM acquisition, for us, it takes us into the fittings and couplings area of the wider fastener market. And that helps us to build out those segments in a more significant way and bring another very powerful force to market with the backing and the ability to play capital behind it. And so that's particularly exciting for us.
And also, I think it's also exciting for our customers because I think they need and they see the opportunity for Hamlet to provide fur support in those segments of the market. I mean, fastness, of course, you know, it's good, it's interesting, and, you know, we appreciate all of it, but I think the main thrust would be in those other adjacent segments that we can build out.
So, that would give you a bit of a theme on CAM. In terms of Bruna, what we saw, and so far, let's take just bolts as an example. We've been in the market producing, I'll say, the smaller range of bolts, threaded bolts in particular, plus obviously nuts, but I'm really concentrating this discussion on bolts.
But we've never really had the ability nor the size of capital to manage long lengths of bolts nor diameters in excess of an inch diameter. And so Brunner offers us a ready-made solution for that. And when we think about the markets that we don't serve both in aerospace and in parts of industrial where, you know, if we had got that product offering, then, you know, we would be more, you know, more significant in the market and therefore, again, help with our growth rate.
Then that's what, you know, Bruna brings to us. And so, if we were to try to build out that capability ourselves, particularly in the commercial aerospace thing, you know, by the time you've engineered it, by the time you've deployed the capital, you've got the certifications, whereas now we have ready-made, profitable, you know, base business, which we can now, you know, seek certification of into certain aerospace applications and also into the wider, you know, market.
So, again, it's where I think the application of, the heft of how Meta and our commercial position and the ability to deploy capital and make further investments is really going to see benefits for us and for our customers where we're bringing up the powerful new product capability to the market.
Analyst Name (Firm): Got it. Thank you.
Analyst Name (Firm):
The next question is Miles Walton with Wolf Research.
Analyst: Please go ahead.
Analyst: Hey, good morning. You have Louis on for Miles. Good morning.
Analyst: Good morning, John, and Patrick, welcome. John, I was hoping you could provide some additional color on how SPARES performed in the fourth quarter and the full year, 2025, between commercial and then defense, I guess, slash IGT, and what are your thoughts for 2026?
Executive Name (Title): Yeah, so... In aggregate, our spares business grew over 30%, probably getting close to 33% for the year. And so, again, a very healthy growth rate for us. Against the mark where I think I'd said that we saw spares moving towards 20% over 25% and 26% in terms of the total growth revenue of Hamet. In actual fact, we exceeded that. We were at 21% for the 2025 year.
So again, the overall growth rate helped us get to that level. And hopefully, we don't stop at 21%. Inside that 21% is that it's about 40% of our engines business. And to give you one other bit of color, inside our overall, let's say, 32%, 33% growth last year, commercial arrow was only 40%. And so healthy growth. And we see that growth continuing into 2026.
I haven't called out a specific number yet, but having achieved the 21%, then hopefully we don't regress from that and hopefully it continues to be a larger portion of the Hammett overall revenue picture.
Analyst Name (Firm): Thank you very much.
Analyst Name (Firm):
The next question is from Peter Arment with Baird.
Analyst: Please go ahead.
Analyst: Hey, yes, good morning, John, Patrick. Hey, John, regarding like engine margins in general, like automation has been a big part of kind of a beneficiary for you. Can you maybe give us a little more color on like kind of where you are in the automation journey for engines and are there other opportunities in the business that you see for automation? Thanks.
Executive Name (Title): We spent quite a bit of money over, I'd say, 23, 24 in automation. And that's obviously been very beneficial for us and has helped meet our need for additional employees. You know, you can see we've been hiring at a significant rate.
made sure that all of the new capital we deployed has a high level of automation so when we showcase our new manufacturing plant in Whitehall next month you'll see something that I talked about in one of the previous courses about digital thread and it was to track manufacturing to an extraordinary degree and also allow us to bring I'll say machine learning and AI to a degree across that plant, and so I'm very hopeful.
But I also know that the thirst for capital has been so high, and it's not just the can we deploy the cash, but it's also where we can. It's also our engineering bandwidth, which has been totally absorbed by, I'll say, the new markets that we've been developing for and customer requirements.
And so it's taken a bit of a backseat in 25 and 26. And so the moment our choice has been we'll match the market and achieve that. And that's far more important for us to maintain and grow our market share and meet customer demand.
And we have the opportunity maybe in Maybe it's 27 or probably more like 28, 29 to go back and automate some of the processes that we did not do while we were doing all of this, even though all of the new stuff we're doing is highly automated.
Analyst: I appreciate the call. Thanks, John.
Executive Name (Title): This concludes the question and answer session, and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.