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Howmet Aerospace (HWM): Company Profile, Stock Price, News, Rankings

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Howmet Aerospace

howmet aerospace

Good day, and welcome to the Q3 2026 Howmet Aerospace earning conference call. All participants will be in the listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and one on a touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Paul Luther, Vice President, Investor Relations. Thank you, and over to you, Paul.

Thank you, Danish. Good morning and welcome to the Howmet Aerospace third quarter 2026 results conference call. I am joined by John Plant, Executive Chairman and Chief Executive Officer, and Patrick Winterlich, Executive Vice President and Chief Financial Officer. After comments by John and Patrick, we will have a question and answer session. I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations.

You can find the factors that could cause actual results to differ materially from these projections listed in today's presentation and earnings press release, and in our most recent SEC filings. In today's presentation, references to EBITDA, operating income, and EPS mean adjusted EBITDA, adjusted operating income, and adjusted EPS. These measures are among the non-GAAP financial measures that we have included in our discussion.

Reconciliations to the most directly comparable GAAP measures can be found in today's press release and in the appendix in today's presentation. In addition, unless otherwise noted, all comparisons are on a year-over-year basis. With that, I would like to turn the call over to John.

Good morning, everybody, and welcome to Howmet's Q3 earnings call. Let's start with the highlights on slide 4. Howmet's performance in Q3 was solid in all dimensions. Revenues at $2.7 billion were up 29% year-over-year and up 25% through organic growth. EBITDA was $879 million and was up 43%, with a margin rate of 32.5%.

Margins were up 40 basis points from the second quarter, and year-over-year incrementals were 43% after the dampening effect of the CAM acquisition. Free cash flow in the quarter was $562 million after capital expenditure of $147 million, which was a quarterly record. A strong cash flow supported by share buybacks of $500 million. In addition, gross debt was reduced by $60 million in the quarter. And we ended with approximately 1.3 times net debt to EBITDA.

We have repurchased $1.1 billion of shares to date, which is $400 million more than the total repurchases in 2025. I would like to note that our diluted share count fell to just below 400 million outstanding shares at 399.5 million at the end of Q3. Over the last eight years, the share count has been reduced by in excess of 100 million shares. Earnings per share were $1.46, a 54% increase year-over-year. This sets us up well to achieve the remainder of our 2026 objectives.

Good progress was made on several fronts, with new business being booked in line with our outlook expectations in commercial aerospace, defense aerospace, and industrial gas turbines. Of particular note in the quarter was the 45% gas turbine revenue growth, which demonstrates both the extraordinary addition to output and even more importantly, the increased market share. Further commentary will be provided during the outlook section of the call. I'll now turn the call over to Patrick, who will provide further commentary on end market growth and segment performance.

Thank you, John. Good morning, everyone. Please move to slide five. Howmet delivered another strong quarter with all end markets growing. We are well positioned for the future and continue to invest for growth. Total revenue was up 29% in the third quarter. Excluding the net impact of the three transactions we completed this year, revenue was up 25% year-over-year, an acceleration from the 21% organic growth rate in the second quarter and 19% in the first quarter.

Commercial aerospace growth was very healthy at 32%, with organic growth of 27%, driven by demand for both OE and spares. Commercial aerospace spares demand continues to increase significantly, driven by both legacy and next generation engine programs. Defense aerospace growth was 10%, with organic growth of 3% driven by spares demand, particularly on legacy fighter platforms.

Commercial transport revenue was up 28%, reflecting both volume increases as the North America market recovery continued and the pass-through of higher aluminum costs. Gas turbine growth was very strong at 45% as end market demand remains robust. Growth in other markets of 48% was largely driven by the Brunner Fastener acquisition completed in February. Spares growth remained robust across Howmet's markets. Total spares revenue was up 30% to approximately $570 million and represented approximately 21% of total revenue in the quarter.

In summary, continued strong performance in commercial aerospace, defense aerospace, gas turbines, and commercial transportation. Moving to slide six, starting with the P&L. Third quarter revenue, EBITDA margin, and earnings per share all exceeded the high end of guidance. On a year-over-year basis, revenue was up 29% and 25% organically, the strongest quarterly growth rate on record for Howmet. EBITDA continued to outpace revenue growth, up 43%.

EBITDA margin increased 310 basis points to 32.5%. Incremental flow-through of revenue to EBITDA was solid at 43% year-over-year. Earnings per share were $1.46, up 54% compared to Q3 2025. Let's cover the balance sheet and cash flow. The balance sheet remains a source of strength for Howmet. The quarter end cash balance was $508 million, with quarterly free cash flow of $562 million. Net debt to trailing EBITDA improved to 1.3 times.

During the quarter, we paid down $60 million of commercial paper. Liquidity remains strong with an undrawn $1 billion revolver, complemented by a $1 billion commercial paper program, with $390 million outstanding from the $450 million that was drawn to support the CAM acquisition. Turning to capital deployment, CapEx was $147 million.

The majority of our capital spend continues to be in the Engine Products segment, as we continue to invest for growth in both aerospace and gas turbines markets. Investments are backed by long-term customer contracts. In the quarter, we repurchased $500 million of common stock at an average price of $265 per share. This brings year-to-date repurchases to $1.1 billion, at an average price of $251 per share. We continue to be confident in strong future free cash flow.

We increased the quarterly stock dividend in Q3 by 17%, from $0.12 per share to $0.14 per share. Let's move to slide 7 to cover the segment results for the third quarter. The Engine Products team delivered exceptional performance again across revenue, EBITDA, and EBITDA margin. Revenue grew 33% to $1.45 billion. Commercial aerospace was up 39%, and gas turbines was up 44%.

Demand continues to be strong across both original equipment and spares. EBITDA outpaced revenue growth with an increase of 57% to $567 million. EBITDA margin increased 580 basis points to 39.1%, while absorbing approximately 520 net new employees in the quarter, positioning us well for future growth. Please move to slide 8. Fastening Systems delivered another solid quarter. Revenue increased 41% to $630 million, including the impact from the CAM and Brunner acquisitions.

Commercial aerospace was up 42%, and defense aerospace was up 56%. Commercial transportation was up 6% year-over-year. Excluding the impact from acquisitions, total Fasteners growth was up 10%. EBITDA increased 34% to $185 million. EBITDA margin declined 140 basis points year-over-year and 70 points sequentially, reflecting the increased revenues from CAM, which we acquired in April. Moving to slide 9. The Engineered Structures team continues to drive improvement in the business.

Revenue declined 4% to $295 million due to the divestiture of the Savannah Disc forging facility. Excluding the impact of Savannah, revenue growth was 8%. We continue to focus on higher margin and stronger return opportunities in the business. Sequentially, revenue was up 10% from the second quarter, driven by increased commercial aerospace OE demand. EBITDA increased 9% year-over-year, despite the revenue decline, and EBITDA margin expanded 290 basis points to 23.7% as we continue to focus and optimize the structure segment to maximize profitability.

Please let's turn to slide 10. Forged Wheels delivered another solid quarter. Revenue was up 32%, driven by higher volumes in addition to increased aluminum cost pass-through. Volumes also increased sequentially from Q2 as the North American market recovery continued. EBITDA was $86 million, an 18% increase year-over-year. EBITDA margins declined year over year and sequentially, reflecting the significant dilutive effect of sharply higher aluminum cost pass-through. We continue to outperform the market, driven by our premium products. Now let me turn the call back to John.

Thanks, Patrick, and let's move to slide 11 and turn the call to the outlook. Firstly, of course, we provided guides for Q4. Our glide path continues towards the conclusion of another good year for Howmet. The specific numbers will be commented upon in a few moments, plus our initial sighting shot of 2027. Regarding commercial aerospace, the flight schedules and load factors held up well during the summer months, both for domestic and international travel.

Naturally, the Middle East was lower given the Iran conflict and its fallout. Oil prices, notably jet fuel and diesel, are especially high, and with the resultant effect on ticket prices, overall travel will potentially impact some schedules as we go through the winter into 2027. Having said that, we do not expect there to be any impact on our spares deliveries during this period, and indeed throughout 2027.

In fact, we expect solid demand given the time on wing issues experienced by the new generation of narrow body engines, and also the backlog of aircraft engines which are scheduled for shop visits, and the ongoing underbuild of aircraft compared to plans. This means that spares demand will continue to be very robust. The current extraordinary aircraft OE order backlog will ensure that new aircraft production continues and increases throughout 2027 and beyond.

We expect volume increases for the 737, the A320, the 787, and the A350 to be healthy, and they help to underpin our commercial aerospace business outlook. Defense sales continue to be strong, with further increases likely in legacy aircraft build and spares. Notably, F-35 spares continue to be healthy with an expanding fleet of aircraft.

We have not yet assumed in our forward look the replenishment of inventories, which have been depleted as a result of the Iran conflict. The most important growth vector as a percent of sales of the one sector of defense sales is that of missile parts. We are being asked to increase production significantly, albeit final agreements have yet to be concluded.

We believe that Howmet's technological and operational leadership position in the industry, coupled with our ability to develop the most sophisticated turbine blades at scale in both commercial and the defense aerospace sectors, will ensure that Howmet's market position and strong financial performance will continue well into the middle of the next decade and beyond. Industrial gas turbines growth and the growth we continue to look forward to with customers will strengthen, and we look forward to further increases in volumes into the future beyond the previous expectations.

This impact is likely to be felt in the outer years beyond 2028, since the new capacity currently being installed is totally sold out. More recently, we have seen major gas turbine customers state that 2031 is now also sold out, and indeed 2032 will likely be sold out in the next one or two quarters. This growing level of demand continues into the 2030s, and combined with the need for significant increases in future gas turbine spares, provides us with even greater confidence.

Further capacity is likely to be considered for addition, albeit within the framework of maintaining a high level of free cash flow conversion. Most importantly, the whole of the IGT growth serving broad-based demand across industrial, oil and gas, as well as data centers, will be completed without adding any debt to the company.

Indeed, this year, we will have completed two acquisitions for approximately $2 billion, spent half a billion dollars on CapEx, and bought back shares in excess of $1 billion. Yet our leverage level at the end of 2026 is expected to be similar to the exit level of 2025. The commercial transportation sector continues to experience North American market recovery.

Production volumes continue to climb after the Q1 low point, with truck OEM build slots largely full in the second half and now into the first part of 2027. The more gradual phase-in of the 2027 NOx emissions regulations should also be supportive of industry volumes going into 2027. While I will comment on specific Q4 numbers in a moment, the new guide has been raised from the prior outlook.

Perhaps the most important view is the initial growth outlook for 2027, which is seen at 12% plus or minus half a percent, resulting in revenues of approximately $11.5 billion. Further refinement and underlying aircraft volume build assumptions will be provided during our February 2027 earnings call. Finally, the share buyback authorization has also been addressed by the board and has been increased by a further $5 billion.

Moving to specific numbers for Q4. We envisage revenues to be approximately $2.75 billion plus or minus $10 million, EBITDA at $900 million plus or minus $5 million, earnings per share at $1.50 plus or minus a penny. For the full year, the guidance increased again across the board to revenues of $10.3 billion, plus or minus $10 million, EBITDA at $3.33 billion plus or minus $5 million, and earnings per share at $5.50, plus or minus a penny.

Free cash flow has been increased to $2 billion, plus or minus $50 million. In terms of the full-year commentary, we are pleased with our sales growth of 25%, including a 22% organic growth so far this year, and an earnings per share growth of over 45%. We note that free cash flow of around $2 billion represents a very healthy cash flow to revenue, and the margin, a cash margin of over 19%, which is a very high level. We can now move to Q&A.

Thank you so much. Ladies and gentlemen, we will now begin with a question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Kristine Liwag with Morgan Stanley. Please go ahead.

Morning, everyone. John, Patrick, PT. I guess blades and vanes remain a critical bottleneck in aerospace supply chain, which seems to be driving OEMs to take greater control of their manufacturing capabilities. We saw this with Pratt when they invested in the Asheville facility and GE announced its acquisition of CPP.

John, you previously highlighted the difficulty of replicating Howmet's technology, your manufacturing yields and scale, but how do you view these vertical integration initiatives reshaping the competitive dynamics in this aerospace blades and vanes market? What implications could they have for Howmet's future market share, and how do you think about pricing power?

Thanks, Kristine, and good morning. I think the first comment I would like to make is that we have excellent relationships with all of our engine customers, namely GE, Safran, Pratt & Whitney, Rolls-Royce, to name just a few. Our investments in technology, quality, and ability to invest in capacity have been fundamental to the increase in volume of modern jet engines and indeed support of the airline fleets worldwide.

This capability has taken years, if not decades, to achieve. Right now we are actually poised to further increase capacity for GE, which will take two years to install, and then there will be a multi-year runway after that. In fact, regarding this particular capacity for GE, I was reviewing it yesterday for one of our sites, and it is a significant investment.

We are also in dialogue with what has been called the Blue First Blade and its future industrialization in the 2030s. I know that this audience, though, likes to have quantification and numbers rather than just words. Of course, it is difficult to give dollar values since I also recognize that competitors are listening.

So I thought I would try to provide some view, some scale, some quantification of the central thrust of your question, which was the GE acquisition of CPP. I think I was thinking about, so how do we move into the 2030s and beyond, especially given the investments I have talked about in commercial aerospace, but also you have seen us make a lot of investments in this year and already talked to the planned increase in investment in 2027 and beyond in the IGT space.

I thought maybe I could give some quantification of this by just think about the fleet of turbines that we are enabling to be built from 2025 through 2030 and the large increase in the fleet of turbines, which will produce for us spares demand into the 2030s. When we have done our modeling, we think about that increase in spares demand and just pick, let's say, one year.

I just picked at random 2031 and what our expectations are in our planning assumptions is that we see the sales value increase in spares revenues from IGT in that one year. That would exceed the total value of the sales of the first blade of our largest narrow body engine blade to any of our customers.

If you think about it, we don't expect to lose any of that business anyway, but just to try to provide and put the context, should we lose a first blade to a narrow body engine, is that would be more than compensated by just one thing, which would be the spares increases in our IGT segment in one year. Then, of course, we're expecting similar values of increases in 2032, 2033, 2034, and beyond, given the continued build-out that we envisage.

Let me just turn back from the quantification back to some more, I'll say, thoughts around CPP. When we consider their capabilities, we see them to be probably of the higher order in structural castings, and that's probably augmented recently by the acquisition of Precicast from Switzerland that they closed in the last month or so.

When I think about the industry, we've heard a lot about forgings and castings, which seems to be the word that people reach for immediately. In fact, structural castings have probably been the main pain point of the industry that commercial aerospace has suffered in recent years. Therefore, I consider the capabilities that maybe CPP has in structural castings to be possibly of any more important relevance.

When I think about it, even though Howmet has been increasing our market share, and we're actually currently considering a further build-out of another manufacturing plant in this area, maybe it'll affect the scale of the plant that we're considering, and indeed, where we'll place that investment. So we expect that we'll continue to grow, even in this segment, with the relative strength that CPP may have in the future.

Then I think just turning the call into a broader perspective for what Howmet's going to do over the next few years. I think I'd just like to return to that IGT theme, and I think it's maybe worthy of updating our guide regarding growth that I provided, I think, during last year. Especially in the light of our growth in 2026. As you know, it's been above expectations. In fact, growth accelerated in the third quarter from the 30%+ revenue increases in the first and second quarters to a 45% level.

As I commented earlier, that level of growth is clearly well in excess of the land-based gas turbine industry and a result of further market share increments that we've achieved during the course of the negotiations that I referred to in recent calls. So what I see now is that whereas our prior commentary had been around a doubling of IGT sales from 2025 as the base year within a three-to-five-year period, we now see this as being achieved in three years, so two years right at the front end of that.

And maybe it will rise to 2.5 times inside five years, which would take those sales to about $2.5 billion by the end of the decade. So hopefully, I have covered the perspective of the investments we are making commercial aero, the investments that we are anticipating making right now for GE, and the way that those investments will bring additional capacities on towards the end of this decade and into the 2030s. Also, the impact should something like a first blade have a different destination, albeit we do not think it does. We see growth in both commercial aero and IGT as we go into the next decade.

Great. Super helpful, John. Thank you very much.

Thank you. Our next question comes from the line of Seth Seifman of JPMorgan. Please go ahead.

Hey, thanks very much, and good morning. Maybe just to round that out, and this might be a quick one in light of your prior comments, but it might be a good time to round out. You addressed fairly directly potential impact from CPP and on your plans in aero. When you think about the IGT plans, how do you think about the role of potentially insourcing at SpaceX and what that might mean for the IGT market?

Thanks, Seth, and good morning. First, maybe the comment I should make is that SpaceX is indeed an extraordinary company which has almost limitless access to capital. I guess fundamental to their current plans as the company indeed is the build-out of their data center business, I think referred to as Colossus one and two.

If you study that part of SpaceX in detail, then it is clear that they sold capacity of those, let us say, ultra-modern data centers with the latest, say, custom silicon in them to other frontier AI companies such as Google and Anthropic, to name a couple. I think it is important, again, to note that for those cutting-edge data centers, the gross margins on the tokens that you use, like AI tokens, is exceptional.

I am sure you are aware of how high those are and hence the uptime and keeping those data centers going is fundamental. Indeed, you cannot have interruption of service to that really important revenue stream with that level of margin, and I am sure it is in their contracts with those frontier AI companies.

Specific to that is on their recent earnings call at SpaceX, they talked about power and specifically behind-the-meter power and its acquisition, which is so fundamental to achieving that compute increase and switching the compute capabilities on. So to solve those power issues and to get to today's level of compute power, which is using about approximately 1 gigawatt, then SpaceX bought the APR company and its fleet of mobile gas turbines to solve the problem.

These 69 mobile gas turbines were installed and are situated just across the state line to support Colossus. That power is needed in addition to what power was available from the grid. I guess you know that by the middle of next year, those mobile turbines have to be relocated, and therefore replacement is required. I think currently to an approximately 1.2 gigawatts of power level to support the Colossus Center.

My understanding from scouring of the Internet and knowing a little about the inside of the industry, there are some 33, I will say, fully fledged Titan turbines from Solar or Caterpillar, being installed and a further 10 ProEnergy PE6000 series turbines. You are probably not surprised when I say that Howmet does supply those turbine blades to both Titan and to the LM6000 series of aeroderivative turbines.

Getting a bit deeper into it then, on the recent call, Elon Musk talked about his plans going forward for 2027, and he talked about the plans to get to 20 gigawatts of power capabilities to provide the ability to turn on further compute capabilities. This was by various means, obviously IGT, wind, solar, the grid, et cetera. It is not coming from one singular source.

Part of this was that gas turbines were fundamental to it. If it is not 20 gigawatts, then maybe the thought was at least 10 gigawatts of power could be achieved, on top of getting to a 3 gigawatts capability by the mid-year, and to be able to turn on that additional compute capacity and then earn those high profits. He did comment that to do this, new turbines were required, but he realized the problem is that the availability of those turbines was restricted in the industry by the availability of turbine blades.

It was commented on the call by SpaceX that these might take another 18 months to two years to achieve, and therefore maybe that SpaceX could accelerate the ability of power by providing the blades to those turbines, which turbine could be built, but the availability of the blades was not there. My understanding is that one Asian turbine manufacturing company has agreed to supply turbines without the blades, and I assume that those are central to the capability of casting that SpaceX talks about with their special casting capabilities.

I think that SpaceX can take that step and maybe even if those blades are not quite at the level that would have been for the original equipment, they can operate at a power rating maybe below the full power rating of the turbine and its full durability. The important thing, it gets power. If you think about it, this is all about power acquisition.

What we see generally, both for SpaceX and across the industry, that data centers are, and constructors are reaching out to get power from any source, and whether it is buying generations of turbines, so I think going back to like an E series turbine, not today's F series or the more modern H-class, just go to series E.

In addition to that, you've probably read about several startups, venture companies that are looking to get into this segment and launch new companies to provide power using aeroderivative engines, which are really at the end of life, or aero engines and repurpose them off, let's say, old 737s as an example. Our thought is that beneath power, those companies will exist, and they will start, but maybe they'll become less necessary when additional turbine capacity is brought on stream towards the end of the decade and into next decade.

I'm trying to give a specific SpaceX answer to your question and then broaden it out into the needs of power to achieve the compute levels which are being planned. I took note, and you probably took note from the GE Vernova call yesterday, their earnings call, which said that now they see that their 2032 order book is largely filled and that obviously, if you think about it, we've talked about being good through 2028, good through 2030.

Now it's looking at 2031, 2032 looks to be pretty booked. Our views are now turning towards the middle of the next decade for this level of capacity. My thought is, as we see each of those then, today's level of investment that we're envisaging is probably not enough. I don't know whether that covers your specific question, Seth, and then broadens it out into a wider perspective.

Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address all the question from the participant, we request you to please limit your question to one question per participant. If you have a follow-up question, please rejoin the queue. Our next question come from the line of Sheila Kahyaoglu with Jefferies. Please go ahead.

Good morning, guys, and thank you so much. John, you mentioned the Blue Blade coming in the 2030s. That is the first time you have talked about that. Obviously, Howmet's technology edge is what provides you additional content on the LEAP and GTF, and I am sure you are first in line for the next-gen LEAP Blade.

Maybe can you quantify for folks how much of your growth is coming from that technology edge content increases versus just volume and price? Perhaps to that kind of question, as you think about the industry players, perhaps starting from a more square one, how do you think about what supply-demand looks like today versus 2030 and 2035 and 2040?

Okay. I guess thematically, what we have been trying to do is step up to the need for fuel efficiency in the industry and providing a level of capability, particularly at the front end of the hot section of the turbine, which could achieve performances at considerably higher temperatures, and indeed the pressure those turbine blades are under, and therefore the structural integrity of them.

We have been doing that and increasing it with each generation or part generations and updates during the course of the life of the engines. Everybody is familiar with the upgrades currently going on for the LEAP part of the hot section for CFM, led by GE. That has already been launched for the LEAP-1A engine for Airbus last year.

We are currently now building in considerable volumes for the LEAP-1B, albeit those volumes are, I think, going through then all the normal processing, which will probably lead to a launch sometime during the first quarter of 2027. At the same time, we are also building and increasing our levels of production for the geared turbofan Advantage. Again, with a similar theme of increasing the thermal performance capabilities for the turbine blades for that engine, and because that has to operate at even a higher temperature level, and I have already described on previous calls about how we are approaching that.

Indeed, when you think about what is going to drive the economics of aircraft going over the next, let us say, decade, given the fact that inside the decade, it is probably unlikely that we are going to see totally new aircraft from Boeing or Airbus is that further improvements to fuel efficiency will be required, and hence the need to continue to upgrade those part of the turbines to provide that increased fuel efficiency, especially today, given the cost of jet fuel and maybe what it will cost during that period of time.

Thematically, it is just the same. What we envisaged is that further OE production will be required over the next few years with the increases envisaged by the airframe manufacturers and the engines to be supplied to them, whether it is for Boeing or indeed Airbus. If you think about it, those things are not going to stand still.

There's going to be further content increases. I expect that we'll see, during the next decade, the further capacity that's going to be required for OE, further capacity that's going to be required to service these, I'll say, new fleet of engines and their improvements. I also think that fundamentally, when you put higher temperatures, higher pressure into engines, is that the replacement cycles actually become more frequent.

We do envisage a very healthy spares demand over that same period of time. You can see that by the build-out of further MRO shop capabilities, in fact, by all of the engine manufacturers. You can look at GE, Safran in particular, and also Pratt & Whitney. Everybody is building that capacity for further MRO refurb capabilities.

The broad view is, we're going to increase capacity, increase revenues into the aero segment during the next five years and 10 years and just keep the same thing going and continue to develop our technology. Here we are again, having already recruited in the last five years, probably several hundred engineers. We're going to increase our engineering staffing again in 2027 by a similar number that we did in 2025 and 2026, as an example, to keep ourselves at the forefront of all the developments.

Thank you. Next question comes from the line of John Godyn with Citi. Please go ahead.

Follow up on the outlook for the defense portfolio. John, you flagged that you do not have any replenishment of inventories in your outlook, but the demand signals are very strong. It feels like not long ago we were talking about IGT in a similar way. Maybe you can talk about the scale of the opportunity there, and just give us whatever color you are willing to offer. Thank you.

Yeah. Right now, defense is difficult to really give absolute clarity on in terms of expectation. Apart from thematically, what we are seeing is both a need for replenishment of inventories and parts. Of course, to some degree, we are not clear on the numbers of missions which have been flown over the last three months, but I think you could assume that they have been extensive and are going to require us to provide and provision for a replenishment of spares as we go through 2027.

The degree to which we will probably be also guided by the defense budget rather than the current situation where we have a continuing resolution of the existing level of expenditure. So I expect that sometime after the midterms, that might become more clear. At the same time, there is a lot of other questions that have to be answered in terms of truly definitizing all of the missile work that is there. It is there before us. We have been spending a lot of time with the existing large primes and indeed some of the, I will say, newer defense companies, getting ready for really putting that into production.

Albeit again, waiting for final definitization of every aspect of the contract as we do that. So again, probably my thought is that given the situation regarding missiles, is that at some point after the midterms, then that will get resolved as Congress comes back and the bipartisan agreement is achieved to give us a clarity regarding the defense budget for 2027. And indeed, going forward, given we are now talking about not individual lots, but multi-year contracts, which are also critical to investment in this area.

While I am optimistic, I think it is going to be good for us in our planning rounds. We know we see the opportunity. It is difficult to be precise about it, but we do expect our defense sales to be up in 2027 from what we already know. But with an agreed budget, it may become more robust for us.

Thank you. Our next question comes from the line of Doug Harned with Bernstein. Please go ahead. Doug, you may please proceed with the question.

Okay, good. John, when you talk about IGT demand, it seems like a pretty extraordinary profile going forward. You are up 45% in the quarter, which suggests you have already built ahead of some of this demand, a substantial amount of capacity. Yet, I think these seven contracts that you have set, with the one in Japan being first, that is not even kicked in yet.

So, I guess looking forward to this demand profile, can you give us a sense of when these next tranches would come in? But I think more importantly, given your position and the supply-demand imbalance, how should we expect margins to trend on IGT going forward relative to the rest of the business and particularly the aero engine side?

Yeah. I've talked about margins in the past, I guess, saying really that our IGT margins and our aerospace margins are roughly similar. Should the rate of growth continue in the IGT space, then we probably would have a little bit of leverage for that volume, just against the fixed cost associated with that segment. But I see it more as, I'll say, a continuum of development, looking for that revenue growth with healthy profitability. Because we really look to have long-term relationships with our customers. Never seek to take advantage because there's always tomorrow to think about.

Howmet Aerospace (HWM) Q3 2026 Earnings Call Transcript

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