Louis Raffetto • Wolfe Research

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CEO Chip Blankenship and CFO Bill Lacey declined to disclose specific financials for the Safran deal, emphasizing its strategic nature and minimal macro impact on segment reporting. For China On-Highway, CFO Bill Lacey updated the full-year sales expectation to be around $60 million, with approximately $10 million expected in Q4.

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CFO William Lacey clarified that there were no gains affecting segment results; a facility sale gain was adjusted out at the non-segment level. He attributed the higher non-segment costs partly to the timing of long-term incentive compensation and specified that China on-highway sales were $20 million in the quarter.

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CFO William Lacey stated that price realization was approximately 6% at the total Woodward level in Q1. He explained that the adjusted business development expenses were related to recent M&A activity and were excluded to provide a clearer view of operational performance. He declined to comment on the financial specifics of the transactions until they close.

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CFO William Lacey explained a rebate reversal made the China On-Highway business accretive in Q4, confirming the core industrial margin decline was due to an unfavorable mix shift. CEO Charles Blankenship advised against over-reading quarterly trends in Power Gen, noting strong full-year growth and a positive outlook. Lacey also confirmed the divestiture is factored into guidance.

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Co-CEO Eric Mendelson described the M&A market as 'very competitive,' partly because HEICO's success has inspired emulation. He expressed confidence that HEICO's unique culture, speed, and decentralized model—which offers autonomy to sellers—provide a distinct advantage and make it the 'best home' for many target companies.

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Eric Mendelson, Co-President, clarified that on the parts side, they typically don't offer both PMA and OE for the same product, but in the repair business, they stock both and use whichever the customer prefers. He did not size the distribution business but noted aftermarket replacement parts is a ~$1.8B annualized business. Carlos Macau, EVP and CFO, guided for a full-year effective tax rate of 18-19% and an NCI rate around 7-7.5% of pretax income.

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Co-President Eric Mendelson confirmed that both the MRO and Specialty Products segments grew organically by about 11% in the fourth quarter. CFO Carlos Macau explained that the impairment and contingent earn-out adjustments were normal course of business items, not unusual for the quarter, and were split between the two operating segments.

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CFO Carlos Macau explained that the impairment charge on a trade name and the reversal of a contingent earnout were unrelated events at two different ETG subsidiaries that largely offset each other in SG&A. He clarified that the Capewell acquisition was immaterial, funded by debt, and is not dilutive to segment margins, but did not provide a specific cash usage figure.

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President Austin Willis attributed the sales increase partly to a large back-to-back parts transaction but also noted strong underlying demand for USM. He explained their decision-making involves a present-value analysis comparing part-out revenue, repair costs, and third-party cash offers. CFO Scott Flaherty clarified that 'equipment sales' are trading activities for assets never on lease, distinct from sales of previously leased assets.

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President Austin Willis confirmed the engine market remains strong for both whole engines and parts, contributing to healthy gain on sale margins. He acknowledged scarcity in originating typical lease transactions but highlighted Willis's success through value-added solutions like its 'Constant Thrust' program. Willis confirmed they do not currently have a test cell but are exploring it, and noted that slot availability varies.

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Chairman, CEO and President Tom Gentile clarified that the A350 issue was a direct reduction in demand, with expected 2025 shipsets falling from 84 to 68, accounting for $76 million of the $85 million revenue guidance reduction. VP of Investor Relations Patrick Winterlich explained that the lower corporate expense was due to a few credits and differences in stock compensation related to the new CEO's tenure.

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COO David Moreno explained that FTAI now focuses on acquiring run-out engines that require shop visits, as this is where they can add the most value, a shift from prior years. CEO Joe Adams clarified that in the Pratt partnership, FTAI acquires the engine and markets it, while Pratt performs the performance restoration. He added that FTAI may have missed its 2024 PMA target due to approval delays and did not provide 2025 guidance.

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CFO Antonio Carlos Garcia indicated that while performance is strong, the margin should be viewed in the mid-teens range for the full year. He explained that ongoing investments in service expansion, such as in Portugal, have initial ramp-up costs that will temper the margin slightly from the high level seen in Q2. He also noted one-time benefits were not a major factor.

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