David Strauss • Barclays

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President and CEO John Mengucci explained that Federal Civilian is only about 6% of revenue, a result of a deliberate strategic shift towards defense and intelligence, minimizing exposure to that segment's budget pressures. CFO Jeffrey MacLauchlan projected the $40 million tax refund would be received in the second half of FY26 and confirmed the Section 174 benefit of around $50 million per year would continue into the next fiscal year before tapering off.

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CFO Jeffrey MacLauchlan responded that while the company is always evaluating all options, the near-term capital deployment priority is on deleveraging to get comfortably within its target range. He emphasized that CACI remains committed to a flexible and opportunistic approach to capital allocation.

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CEO John Mengucci explained the guidance range accounts for multiple scenarios: the high end is supported by strong execution, while the low end considers risks like an extended Continuing Resolution or macro uncertainty. He noted that while it is early in the fiscal year, strong Q1 performance trends the company toward the upper end of the range. CFO Jeffrey MacLauchlan added that the guidance covers most foreseen scenarios and that 'a lot of the game' is left to play.

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Co-COO Mike Lisman explained that commercial aftermarket growth moderation was expected post-COVID and current performance aligns with flight activity. He noted that TransDigm has less exposure to the high-growth engine segment compared to some peers, though their own engine business was strong. He affirmed the full-year guidance, stating the company feels good about hitting its targets.

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CEO Kevin Stein confirmed the aftermarket was "a little bit stronger" than anticipated. Co-COO Joel Reiss detailed that all submarkets except interiors are above pre-pandemic volumes, with interiors lagging due to a slow refurbishment market. He also estimated that freight constitutes about 15-20% of the commercial aftermarket.

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Co-COO Mike Lisman stated that the forecast is built bottoms-up from operating units, not based on a top-down traffic assumption. CEO Kevin Stein addressed the margin question, explaining that the full-year dilutive impact from recent acquisitions, which closed late in fiscal 2024, accounts for the seemingly modest expansion.

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Executive Chairman and CEO John Plant provided updated assumptions: the 737 MAX average rate for the year was raised from 28 to 33 per month. The 787 is assumed to average six per month for the year, moving to a rate of seven in the second half. The A350 assumption remains at six per month. Regarding tariffs, Plant stated the net effect is now expected to be below $15 million for the year, with the Q2 drag being significantly below $5 million, noting it's primarily a timing issue of cost versus customer compensation.

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Executive Chairman and CEO John Plant stated that production of new turbine airfoils is proceeding according to plan and ahead of engine manufacturers' requirements. He confirmed the LEAP-1A and GTF Advantage are certified, with the LEAP-1B likely heading towards certification by the end of the calendar year.

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Executive Chairman and CEO John Plant confirmed that with the balance sheet in great shape, the benefits of cash flow will be 'largely, if not wholly, repatriated to shareholders' through dividends and buybacks, with share repurchases expected to exceed 2024 levels. CFO Ken Giacobbe added that the cash flow guide assumes a working capital burn of about $18 million, which includes a strategic inventory build to prepare for potential increases in narrow-body production.

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Executive Chairman and CEO John Plant expressed optimism that 2026 should be a 'further step up' from 2025. He anticipates that as OEM supply chain constraints ease and production normalizes, the fundamental demand for new aircraft will drive growth. This, combined with increasing demand from the IGT and defense markets, supports a positive outlook for accelerated growth in 2026.

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EVP & CFO Don Newman explained that industrial markets are flattish due to tariff impacts and soft macro conditions, with President & CEO Kimberly Fields adding that this market is now only 20% of revenue. For HPMC, Newman stated that while Q2 incremental margins were exceptionally high due to a divestiture, a normalized rate in the 40% range is a rational expectation going forward, with segment EBITDA margins expected to be north of 24%.

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Executive Vice President and CFO Don Newman outlined a quarterly EBITDA ramp, expecting low $200 million levels in Q2 and rising to the $220+ million range in the second half of 2025. President and CEO Kimberly Fields added that ATI is well-positioned against potential tariffs, with Canadian nickel representing less than 25% of its supply and robust pass-through mechanisms already in place within customer contracts.

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EVP and CFO Don Newman explained the Q4 guidance bridge, noting that while some headwinds persist, certain Q3-specific negative impacts (like a hurricane and a VAM outage) will not repeat. He also stated the Q4 guidance is conservative due to market volatility. President and CEO Kim Fields added that airframe shipping rates have stabilized, with titanium shipments expected to be flat to slightly up in Q4, supported by steady demand from Airbus and stable, albeit realigned, demand from engine OEMs.

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EVP & CFO Brian West explained that the inventory increase from the 777X program was offset by the liquidation of other wide-body aircraft. On deliveries, he stated the 787 program is tracking toward the high end of its 70-80 aircraft range for the year, while the 737 MAX is 'poised to do a little better' than the previously targeted 400 deliveries.

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CEO Robert Ortberg reported that all 787 KPIs are now 'green,' including the previously lagging metric for final snags. For the 737, the rework KPI is still being addressed but is improving according to plan. Regarding the SPS fire, he stated the team has managed the issue well by finding alternate sources and does not expect it to hold up aircraft programs, though it requires diligent management.

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CEO Kelly Ortberg described the MAX restart as deliberate and stable, supported by ample inventory. He detailed the six KPIs governing rate increases: notice of escape hours, part shortages, employee proficiency, rework, traveled work, and ticketing performance. CFO Brian West provided a framework for 2025 deliveries, noting a strong January start but declining to give formal guidance, suggesting the full year could be similar to or slightly better than 2023.

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EVP and CFO Brian West explained that Boeing is in active dialogue with rating agencies and has a plan to address the balance sheet, which could include an offering of equity or equity-linked securities to maintain its investment-grade rating. President and CEO Kelly Ortberg added that it is too early to comment on the $10 billion free cash flow target, as all long-term financial forecasts are currently under review.

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CEO Chip Blankenship confirmed that LEAP/GTF aftermarket revenue is now in the 'same neighborhood' as legacy revenue but maintained the 2028 forecast for a full crossover. CFO Bill Lacey stated that while the underlying business supports the $1.2 billion free cash flow target, the final CapEx spend in 2026 is still being evaluated and could have an impact, with more clarity to be provided at year-end.

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CEO Charles Blankenship attributed the aftermarket strength to a spike in spare parts orders for MROs but reiterated expectations for softer growth ahead. CFO William Lacey noted that currency impacts are largely balanced between revenue and costs, with minimal effect on operating earnings.

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CEO Charles Blankenship reported no change to his thinking on the volatile China on-highway business and stressed a focus on disciplined inventory management. CFO William Lacey reaffirmed the full-year sales estimate of approximately $40 million. Regarding tariffs, Mr. Blankenship stated they see no substantial risk at the moment, as their manufacturing footprint is largely located within the regions it serves.

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CEO Tom Gentile and CFO Patrick Winterlich clarified that effective A350 shipping rates were in the low sixes in Q1 and high fives in Q2. Patrick Winterlich added that the currency tailwind from hedging is expected to persist through 2025 but could begin to reverse in 2026 if current exchange rates hold.

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VP of Investor Relations Patrick Winterlich explained that Hexcel's 10-quarter hedging program provides significant near-term protection, but a sustained weak dollar would eventually lead to new hedges at less favorable rates. He confirmed the implied full-year margin guidance and projected that margins would be most impacted in Q2 and Q3 by lower A350 volumes, with a stronger recovery expected toward the end of the year.

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CEO Tom Gentile declined to give specific past rate assumptions, citing multiple schedule push-outs from OEMs as the reason for the withdrawal. Executive Patrick Winterlich stated Hexcel will focus on improving inventory days, will operate within its 1.5x-2.0x net debt-to-EBITDA target, and noted that 2024 corporate costs were elevated by CEO transition expenses which will not recur in 2025.

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Scott C. Donnelly, Chairman, CEO & President, detailed that the MV75 EMD acceleration is underway, with LRIP potentially pulling forward by 18 months. He noted the King Air production line has stabilized and expects strong H2 deliveries, while Kautex performance was as expected. David Rosenberg, EVP & CFO, explained that accelerated share repurchases offset the tax rate impact on EPS guidance and confirmed the tax rate increase would be reflected mainly in a Q3 catch-up.

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Chairman and CEO Scott Donnelly noted that the risk to Kautex is less about tariffs and more about macro demand for global auto markets. CFO David Rosenberg reaffirmed the full-year guidance, expecting corporate expense to normalize and industrial margins to see a slight benefit from the divestiture. He also confirmed the aftermarket piece was sold with the powersports business and immaterial proceeds will be in Q2 results.

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Chairman and CEO Scott Donnelly attributed the Q4 delivery miss directly to the strike, which halted production for one-third of the quarter. He expressed confidence in the 2025 ramp, citing an improved third-party parts supply chain and better workforce stability post-contract. For the Ascend, he expects certification during 2025, noting that while it's included in the guide, it is not a material driver for the year's results.

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CEO Scott Donnelly explained that the production ramp-up was underway, with the revenue forecast accounting for a roughly five-week disruption and subsequent recovery time. CFO Frank Connor added that the free cash flow reduction was primarily due to a strategic increase in inventory to ensure supply chain health post-strike, with that inventory expected to be sold in 2025.

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Chair, CEO & President Kathy Warden stated that Northrop is progressing well on F-35 modernization efforts, including the future APG-85 radar, in partnership with Lockheed Martin and the JPO. Regarding the B-21, she reiterated that accelerating the production ramp would likely require further company investment, and discussions with the Air Force are focused on an arrangement that would provide the opportunity to earn improved returns on that investment.

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CEO Kathy Warden described the B-21 process change as a joint decision made in the long-term best interest of national security and the program's overall profitability. Due to classification, she could not comment on any specific role on other platforms but noted Northrop is a merchant supplier of advanced mission systems.

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Chair, CEO and President Kathy Warden confirmed the B-21 program is on track for an LRIP 2 award in Q4 with no changes to pricing or its estimate at complete, stating it is performing in line with the plan. She added that the Aeronautics segment's outstanding margin performance is also driven by significant cost management and productivity improvements on its portfolio of mature production programs.

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CEO Christopher Calio stated that GTF AOGs have stabilized and are expected to decline 'meaningfully' in the second half, driven by continued MRO output growth. CFO Neil Mitchill explained that the non-recurring items included a charge at Pratt & Whitney for a customer bankruptcy and ongoing restructuring actions at Collins Aerospace aimed at transformation and rightsizing the business.

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CFO Neil Mitchill confirmed the V2500 outlook for 800 shop visits is on track and would likely hold up in a flatter environment due to strong narrow-body demand. CEO Christopher Calio addressed the GTF plan, stating that MRO capacity is sufficient and the key is improving the flow of material to the shops, not adding more facilities.

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CFO Neil Mitchill clarified that GTF aftermarket margins are near double digits and have averaged above that level for the past two years. For Collins, he noted the 2025 outlook implies a 40% incremental margin and sees no long-term barrier to returning to pre-COVID margin levels. Executive Christopher Calio added that improving GTF time-on-wing is key to margin expansion.

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Executive Neil Mitchill clarified that total payments for the year are still expected to be around $1 billion, with a significant ramp-up now anticipated in Q4. He explained that the timing of payments, made via cash or credits, depends on finalizing customer agreements, which has taken some time. He assured that the underlying financial assumptions for the total accrued charge remain consistent and the full amount will be paid out over the next couple of years.

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EVP and CFO Thomas Stiehle described the contract as a cost-type incentive fee (CTIF) hybrid that balances affordability and profitability. He reported a net zero EAC adjustment for the quarter. He attributed the Q2 margin guidance to conservatism, while President and CEO Christopher Kastner noted that the variable timing of contract incentives can impact quarterly results.

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President and CEO Christopher Kastner stated that 2025 hiring levels will be similar to 2024 but with a strategic focus on more experienced personnel. He clarified he is not seeking to buy another shipyard, viewing the W International acquisition as a unique opportunity. CFO Thomas Stiehle projected that free cash flow will ramp up and normalize as pre-COVID contracts roll off. He reaffirmed the capital deployment policy remains unchanged, though no guidance was given for 2025 share repurchases. Kastner added that free cash flow will remain lumpy due to the timing of large, incentive-based contract payments.

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CEO Christopher Kastner explained that SIB funding primarily goes to the supply base, with HII also benefiting, but noted the positive effects will take time to materialize. CFO Thomas Stiehle addressed working capital, acknowledging it was elevated but would be reduced by year-end. He projected a return to normal levels would take 12-18 months as the company works through its challenging pre-COVID contracts.

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James Taiclet, Chairman, President and CEO, confirmed they received a classified debrief and stated that Lockheed Martin will not protest the NGAD decision. He explained the strategy is to apply the technologies developed for their NGAD bid to enhance the existing F-35 and F-22 platforms, aiming to deliver 80% of sixth-generation capability at 50% of the cost.

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CFO Jesus Malave clarified that the 2025 baseline outlook is for low-single-digit growth, not 5%, though upside to mid-single-digits is possible. CEO James Taiclet reported that existing SRM partners are stepping up and detailed the new partnership with General Dynamics, which will serve as a third source. He outlined a timeline for the GD partnership to be producing at rate by 2027.

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Co-President Eric Mendelson responded that the growth mix should help FSG's margin, which he expects to continue "heading north" due to ongoing efficiency gains. Co-President Victor Mendelson stated that HEICO is budgeting for low-single-digit organic growth in the ETG for fiscal 2025, while noting that internal projections may be conservative.

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Eric Mendelson, Co-President, explained that maintaining high inventory is key to HEICO's strategy of superior customer service and capturing sales, noting the Honeywell display product line purchase contributed to the increase. CFO Carlos Macau added that the rate of inventory spend has slowed and expects it to moderate further. Regarding margins, Macau explained the sequential change was due to normal business ebbs and flows and mix shifts, not any unusual items.

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CEO Rex Geveden stated the goal for the new agreement is to drive margins into the high teens through operational excellence, consistent with their model. CFO Robb LeMasters added that for 2025, they aim to hold margins steady by offsetting mix headwinds from immature programs with underlying performance. Regarding the carrier lull, Geveden and LeMasters reiterated that the Navy's published shipbuilding plan could lead to an extra year of the lull, a possibility they have been signaling for a few quarters.

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CEO Pat Shanahan clarified that they have 'never stopped talking about price' with Airbus, although progress has been slow. He emphasized that conversations are focused on ensuring supply integrity for the steep A350 and A220 production ramps and that they have explored 'other economics and different relationship' options.

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