Bradley Oyster

Bradley Oyster asked about the headwinds in the Aerospace and Industrial and Naval and Power segments during Q4 2025, specifically regarding mix, and whether these were seasonal or structural, seeking insight into the outlook for 2026.

Answer

EVP and CFO K. Christopher Farkas explained that the mix headwinds in Q4 were partly due to higher customer-funded R&D in Aerospace and Industrial, and unfavorable mix including higher R&D for next-generation SMR designs in Naval and Power. He noted that for 2026, continued ramp-up in naval defense and commercial nuclear, including SMR development transitioning to prototype, would present some margin challenges as it's not yet production work, but MRO growth in process markets and global aftermarket content would provide benefits.

Bradley Oyster asked about the headwinds related to business mix in the Aerospace & Industrial and Naval & Power segments during Q4 2025, seeking clarification on whether these were seasonal or structural and how they might influence the 2026 guidance.

Answer

EVP and CFO K. Christopher Farkas explained that for 2026, a heavy ramp-up is expected in naval defense (CVN-81 and Virginia-class submarine programs), commercial nuclear, and process markets. He noted that the process market is seeing MRO growth with accompanying margin benefits. Commercial nuclear, with 50% Q4 order growth, is transitioning from development to prototype for SMRs, which initially presents a margin challenge but is expected to convert to stronger margins as production scales, supported by global aftermarket content. Thematically, the process market and the SMR prototyping transition are key factors for 2026.