Howmet Aerospace Inc.

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.

Q3 2025 Earnings Call — October 30, 2025

Analyst Christine Li-Wing (Morgan Stanley): Hey, good morning, everyone, and can... 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 has yielded in HOMET being a clear leader in this area, especially for the hot section of the jet engine. Now pivoting to this data center build, 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?

Executive John (Title): Okay, so that's a very broad question. It gives me the opportunity to talk now for at least an hour I'll keep it to that question though, John. Yeah, thank you. This is only one question. So first of all, clearly this build out of data centers and the requirement for electricity to not only, I'll say, drive the processing and the microchips or these advanced microchips that are being installed, but also the electricity required to pull them is producing an extraordinary level of demand, which I think we know that the utility companies themselves and the grid is struggling to cope with. And how can that be satisfied? It did change again at the new incoming administration in the early part of this year when there's a greater emphasis on fossil fuels and really the 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 back class of the fundamentals appears to be well set. Certainly, you look for the next few years, the build-out and the requirements are extraordinary. The question remains, of course, what would it look like 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 that electricity demand will be there and so solid. It gives us a lot of confidence to invest, albeit 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 I'll say clarity and visibility into the back orders. So it's caused us to keep rethinking our investments and we've picked it up again this year and you've seen 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. We're excited to be part of this growth opportunity. When I think about what's happening, there is growth in both the large industrial gas turbines that you see bought by utilities, 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 going to get that big land-based gas turbine until probably into the 2030 or beyond.

Is that as a case where a lot of mid-sized 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 centers is uninterrupted. and therefore it's providing a lot of stimulated demand for the aeroderivatives. 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 had done in aerospace where we have moved or are moving from turbine blades which are solid to turbine blades which are increasingly cord.

And what I mean by cord 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. And 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 a 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, I'll say, serpentine air pathway through those turbine blades so and of course with that goes content and value because it is again is producing a level of capability electricity generation well above what you could have achieved with turbines and let's say five years ago or ten years ago so it's a pretty exciting exciting landscape in terms of playing to our spreads of 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 Anselmo etc. 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 U.S. facility. So we're expanding in each of our three major sites where we produce gas turbine parts and are 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 midsize 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 want to make sure it hit the point of your question, Christine. Well, thank you very much, John, and I'll keep it to that one.

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

Executive John (Title): Let me deal with your latter point first regarding margins and incrementals. I think, as you know, I don't really give color on that.

At this time of 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%. Obviously, we've given 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. We never seem to be able to quite satisfy your expectations. At the same time, I think that whatever we come up with will be 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-party question, which was where do we see end market growth? So my sense is without getting too deep into the subject, guide at this point because it's you know it's it's approximation um I think commercial aerospace will be stronger in uh in in 2026 so I think the build out of narrow bodies uh both for airbus and for boeing will be stronger in uh in 2026 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, coming off this year, which is pretty strong, but plus 20, I can see us having a mid-single digits increase again. On top of that, into 2026, I'm pretty confident about our positioning on the defense side. I was going to call it the industrial segment, which will wrap up three segments, which is the gas turbine one which I think you can sense is going to be at the high end the oil and gas which will be in the middle and then general industrial which will be at the lower end I'll combine all of that and say basically just getting into double digits as an increase so that will 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 going to follow up with the question, like, what's your underlying assumptions? So, you know, I think Boeing 737 will be higher. So I'll say I'll use 40 or getting into the 40s as an approximation. the A320 into the early 60s, so maybe, I don't know, 62, 3, 787, I'll use 7.5, and the A350, maybe 6.5, could be 7. So it's in those sort of areas. So it's giving you directionally what I think you want without getting too specific because, again, I'd like to see how people close out, our customers close out this year, what the state of their inventory is. Certain of our airframe customers have been taking inventory down and I have to think about the roughness of their build while they've been taking inventory down and the consistency. And hopefully we're going to 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.

Analyst Ronald Epstein (Bank of America): Good morning, everyone. This is Mariana Perez-Moran from Rome Today. First of all, congratulations, Ken, on the retirement and congratulations on your contribution to the company and the industry in general. Great. Thank you. I'd like to follow up on and try to dig deeper as we think about next year into two things. Number one, how we think about, I'll say, on the commercial aero part, destocking trends and aftermarket trends or spare engine trends. despite this ramp that we are all expecting on OE. 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 incremental capacity?

Executive John (Title): 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 and probably a slightly higher build in terms of those mid-sized turbines and percentage increase. But this year's also featured an increase in spares as the existing fleet of both types of turbines and maybe the midsize 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 going to 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 going to be obviously a factor of are all the turbines going to 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, but still solid on the OE side. Then next year, I think we're probably going to see a higher vector compared to this year on the OE demand, but still strong spares demand. So again, I'm feeling pretty positive about those segments. It's difficult to judge exactly yet which one will win in terms of those two, if there was a race between them.

Moving on back to the commercial aero question. I've already given you a commentary regarding what I think build rates are. I think the stocking 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 out of BSMPO. In terms of spares and engine spares, I think that 2026 is going to be another very strong year for that. If you deal with CFM first, then I envisage that it's going to be strong on the CFM56 because the existing fleet can continue to work hard. There's still a backlog of parts and engines are going to be put back on wing and into the air.

And similarly, and maybe even a higher area for those B2500 and the GTF engines. So spares demand is going to be very strong. And as these jet engines transition to the new I'll say versions of them, so the new parts which have 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.

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

Executive John (Title): 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. 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, thinking now in the Class 8 area. So 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's just in terms of timing of recovery so as an issue for how much it really is I'm going to call it a non-issue sub 5 million and therefore hopefully it disappears into the woodwork in 2026.

Analyst Sheila (Jeffrey's): Good morning, guys, and congrats, John, on great results and, Ken, on your retirement, although I'd argue with Christine that working with John is plenty of fun, so I don't know what you'll do in retirement that's even better. Ken, I'm going to throw this one back at you. I can agree with that. You could just say stop there and, Ken, what the heck are you thinking? Ken, I'm going to actually put this one on you. Just given, I thought, the comments on how MET being more valuable than the three pieces was very interesting. So over the next few years, where do you see how MET's end state, 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 MET over the next few years?

Executive Ken (Title): Yeah, Sheila, I think I'm going to have to let John answer that one. I don't want to get fired this late, right? So think the if you look at the journey um that we've made over the the recent years um you know from you know say trying to install the performance culture through uh I'll say more difficult times of of covid it came upon us fairly quickly and then trying to really invest in our technology and really address growing the company, then I think the growth trajectory is very encouraging.

And so while we've been walking and chewing gum or doing the and, it's not an or, we've been growing and improving our margin. And my thought is that we'll continue to do that. But if the value equation, then I think maybe the growth will be a more significant factor over the next five years than the margin factor. And that's not to say that the margin won't improve. That's what we come to work for every day to try to achieve that. I think there's lots of things yet to further expand in terms of whether it's the increased automation capacities that we have or capabilities that we have in a 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 at extremes that we've never seen before. And when we have the opportunity next March, where we're planning on an investor day or investor company technology day, but basing it at a white salt plant again, and we'll showcase the new manufacturing plant that we have there.

And beyond just the fundamental increase in robotics, which, uh, 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, uh, than that is that the, uh, what we've termed the digital thread that we've been building throughout the manufacturing process from the chemical compounding right the way through core prep and, uh, and then into the shell and casting and being able to provide data and individual traceability right back to its fundamental elements for each of our parts that we're manufacturing.

And then with that huge amount of data that 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're going to have available to us takes us something beyond that any human being could possibly analyze in data crunch. So I think that's going to lend towards a further improvement in our ability to improve yields and an improved use of course goes with economics and then with the improvement in the yields we can take the design tolerances to 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 a combination of automation and AI and all the things we're trying to position for is going to be good for Sheila.

Analyst Noah Popanek (Goldman Sachs): Hey, good morning, everyone. Congrats, Ken, on the retirement and the evolution of this financial model. Thank you. Wanted to come back to incremental margins. Guys, you had this historical framework a few years ago of 30% to 35% on the incremental. And you've now created this kind of wall of tough compares. But you've now had two quarters in a row where you've had a 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? And then as you move into 2026, can you stay above that historical targeted range despite the tougher compares?

Executive John (Title): Yeah, I mean, again, I'm going to try to steer away from 2026

at this time.

And, you know, any number is always going to be a combination of things. And, you know, in our incrementals, 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 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 ingestation of labor which takes I think as you know a fairly significant training time never mind just the cost of recruitment and there's a slight degradation initially from those employees in terms of yield and so 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 priming the pump again at the start of the year as some of the equipment I've talked about 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 through the threads of automation and the new equipment coming in with a much higher level of, I'll say, automation that we had in the past.

So there's 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 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 Um, but with that, you know, significantly increasing as we go into, into 2026, we need to get to a much fuller run rate in 2027. So there's so much going on.

Yeah. And, uh, you know, with the buildup, it's really difficult to give you, I just feel at this point we've managed our way through fairly well with really healthy incrementals. Um, And, I mean, anything above, I mean, if EBITDA is at 29%, anything above that is, you know, incremental beneficial to the company. So I'm feeling as though we're going to, you know, be above that for next year. But without, you know, I'm not willing to comment yet about whether we're going to be, you know, on par with our incremental this year or not, or whether... Inevitably, there has to be some flattening of that. I'll wait until February to comment about that.

Analyst Scott Deutschel (Deutsche Bank): Hey, good morning. John, I think you said CapEx will remain at high levels into 2026 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? Or could that increase? And then does the mix of that capex shift more toward IGT and midsize turbines? Or is the majority of it still focused on aerospace?

Executive John (Title): In terms of absolute numbers, the majority as absolute dollars will still be higher for aerospace. I think there'll be a percentage as a mix of a total. I think that the investments we're making in both the large and mid-sized turbines will 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 Absolutes and our Incrementals for either the IGT part of our business, both large and mid-sized, or Aero, then they're pretty much the same. So it doesn't really matter what they say the color of CapEx, 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, we've more or less framed out what I think we're going to do in 2026. But every time we sort of examine or have new conversations with our customers, in fact, I was in Europe for the first part of this week, and thank goodness I got back last night to be able to do our own call.

Again, it's only a conversation about improvement in opportunities which are there before us. And so what caused me to believe that 2027 is also going to be... you know, significant number for CapEx. And so, you know, this year we've moved up from what we thought was going to be, I don't know, 350 to 370 or something like that. Maybe a bit low on that side here. We're now probably going to burst 400. But as you see in 400, but with actually improving cash flow, is that I think the greatest pleasure that I'm going to have next year is being able to deploy that amount of capital or more and you know we don't we don't deploy capital just because it's fun to do it's hard work but it's got to be backed by you know clear-eyed thinking about customer utilization customer commitment and economic return.

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

Analyst: Agreed. It's a great thing. Thank you, John.

Analyst: There is no further questions or Drew, we're at the end. Drew, are you on the line? PT, I think we should close given the fact that we have less than a minute to get, we can't even ask a question. Mike, did you have a question, Mr. Siramoli?

Analyst Mike: Yeah, thanks. Please go ahead 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, 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 of trend back to normal?

Executive John (Title): Well, first of all, in the year, in the short term, pricing into a spares part and an OE part are 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, I have said that what we see is our spares business in total increasing every year for the next five years. Didn't really want to go beyond five.

We may discuss whether it's always going to 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 that's pretty positive.

Analyst Mike: Okay. Perfect. Thanks, guys.

Analyst: It's 1101, so Drew, close the call.

Executive Drew (Title): Yes, sir. This concludes our question and answer session and the Halmet Aerospace Third Quarter 2025 Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect.