Woodward Q1 Earnings Soar on Aerospace Demand; Can Supply Chain Keep Pace?
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Woodward's Q1 2026 sales rose 29% to $996 million, driven by robust commercial aerospace aftermarket and defense OEM growth; full-year guidance was raised.
Key Takeaways
- •Net Sales increased 29% to $996 million; EPS rose 54% to $2.17, driven by robust aerospace and industrial demand.
- •Aerospace segment sales grew 29%, propelled by 15% growth in commercial services and elevated spare LRU orders, primarily for China.
- •Woodward is raising full-year consolidated sales guidance to 14%-18% and EPS to $8.20-$8.60, while reiterating free cash flow due to planned higher inventory.
- •The company announced a strategic wind-down of the volatile China on-highway business by fiscal year-end, with $20-$25 million in estimated restructuring costs.
Woodward, a key aerospace and industrial control systems provider, reported an exceptional start to its fiscal year 2026. The company's first-quarter performance significantly exceeded expectations. Net sales climbed 29% year-over-year to $996 million. Earnings per share (EPS) saw a 54% increase, reaching $2.17. This strong growth was fueled by robust demand across both major segments. Management cited disciplined execution for the outperformance. The company has since raised its full-year outlook for sales and earnings.
Aerospace Segment Drives Profit
The aerospace segment sales reached $635 million, a 29% increase. Commercial services were a primary driver, growing 15%. This included high volumes for legacy aircraft maintenance. Activity on newer platforms like LEAP and GTF engines also increased. A significant factor was elevated spare Line Replaceable Unit (LRU) orders. These orders were primarily from customers in China. Chief Financial Officer William F. Lacey clarified this was due to customer under-provisioning. It was not a pull-forward of future demand. Woodward does not expect this high LRU volume to recur near term.
Commercial OEM sales rose 22% in the quarter. This reflects increased airframe production rates. It also signals the tapering of destocking by customers. Defense OEM sales grew 23%. This was largely attributed to new pricing for the JDAM program. The aerospace segment margin expanded by 420 basis points to 23.4%. This benefit came from pricing, volume, and favorable mix.
Strategic Capacity and Supply Chain
Woodward is actively addressing MRO capacity constraints. CEO Charles P. Blankenship noted that turn times are limiting growth. The company is expanding its Prestwick, Scotland facility. This will add square footage and optimize the layout. Enhancements are also underway at the Rockford site. This includes commissioning additional test stands. Woodward is also forging new partnerships. They plan to license support offerings to independent MRO providers. This will expand customer choice and service capacity.
Despite strong orders, supply chain constraints remain a risk. Blankenship cited "supplier challenges" and "hard capacity constraints in our factories." These factors could limit the ability to meet all demand. They also temper the chance of hitting the highest end of guidance. Free cash flow guidance remains unchanged. Lacey explained this is due to a decision to keep inventory levels higher. This elevated inventory ensures customer deliveries. Inventory efficiency improvements are expected in late 2026 or 2027.
Industrial Portfolio Shift
The industrial segment also saw strong growth, with sales up 30% to $362 million. Core industrial sales, excluding the China on-highway business, rose 22%. Marine transportation sales jumped 38%. Oil and gas sales grew 28%. The industrial segment margin expanded to 18.5%.
Woodward announced a strategic decision to wind down the China on-highway business. This unit has been a source of volatility and inconsistent results. The wind-down is expected to be complete by fiscal year-end. Restructuring costs are estimated at $20-$25 million. No revenue is expected from this business in fiscal 2027. This move aligns the industrial portfolio with long-term growth priorities.
Outlook and Price Realization
Based on the strong start, Woodward raised its full-year guidance. Consolidated sales growth is now projected between 14%-18%. EPS guidance was raised to $8.20-$8.60. Free cash flow guidance was reiterated at $303 million-$350 million. The company also updated its price realization outlook. Consolidated pricing is now expected to rise closer to 7% for the full year. This is up from a prior 5% expectation. Aerospace is expected to contribute more to this price gain. Woodward's strong order book supports the high end of the new guide. However, output and supply chain efficiency remain the main limiting factors. The company continues to prioritize organic growth and automation investments. This includes the new Spartanburg, South Carolina facility. Woodward's focus remains on meeting OEM demand and providing world-class aftermarket service.
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Written by Ujjwal Sukhwani
Aviation News Editor & Industry Analyst delivering clear coverage for a worldwide audience. Covers flight operations, safety regulations, and market trends with expert analysis.
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