Scott Deuschle

Scott Deuschle asked Carlos Macau to clarify if specialty products gross margins are generally higher or lower than other sub-markets within the Flight Support Group (FSG). He also asked Eric Mendelson if HEICO's largest and most established airline customers are buying everything they can from FSG or if significant white space for further sales still exists.

Answer

Carlos Macau stated that HEICO does not disclose vertical margin profiles but noted PMA business has the highest margins, with other FSG verticals around the segment average. Eric Mendelson confirmed that while large customers buy a lot, tremendous potential and white space still exist due to existing competitor contracts or approval inertia, expressing continued bullishness on securing new wins with major airlines.

Scott Deuschle asked about the gross margin profile of specialty products compared to other sub-markets within the Flight Support Group (FSG), and whether there is still significant 'white space' for HEICO to expand its PMA and repair solutions with its largest and most established customers.

Answer

Carlos Macau stated that HEICO does not disclose vertical margin profiles but noted that PMA business has the highest margins, with other FSG verticals floating around the segment average. Eric Mendelson confirmed tremendous potential for growth with existing large customers, attributing remaining 'white space' to existing contracts with competitors and the inertia involved in getting new parts approved within customer organizations.

Scott Deuschle asked whether the Flight Support Group's growth is currently constrained more by supply or demand, and requested an update on demand trends from the Asian market.

Answer

Co-CEO Eric Mendelson confirmed that growth is 'definitely supply constrained,' specifically regarding materials from outside suppliers, though HEICO is managing it well. He also noted that demand in Asia is very strong, and the China market is returning to a more stabilized rate after some tariff-related pre-buying.

Scott Deuschle of Deutsche Bank asked if HEICO's Specialty Products has capabilities in the fastener space and if the company would consider entering that market. He also inquired if PMA parts are now fully penetrated in the auxiliary power unit (APU) market.

Answer

Eric Mendelson, Co-President, stated it would be "foolish" for HEICO to try to compete with PCC in the mainstream fastener business, calling them a "phenomenal" and well-run company. Regarding APUs, he declined to comment on specific products, consistent with company policy, but noted that APUs have not historically been a huge area for HEICO.

Scott Deuschle from Deutsche Bank asked about the potential growth acceleration for the Specialty Products business in the next year and whether there is evidence of customers building inventory of HEICO's parts.

Answer

Co-President Eric Mendelson indicated that while internal numbers for Specialty Products are strong, a reasonable expectation for organic growth is at least 10%, calling it a "tremendous" rate in the current supply-constrained market. He also stated that customers are generally "hand to mouth" for HEICO parts and are not building up inventory, partly due to HEICO's reliable delivery performance.

Scott Deuschle inquired about Woodward's assumed growth rate for legacy narrowbody engine aftermarket in fiscal year 2026. He also asked if the earnings per share guidance incorporates any benefits from the recent share repurchase authorization increase and sought information on the portion of current power generation revenue tied to Caterpillar, along with the growth outlook from that customer.

Answer

CFO Bill Lacey indicated an expectation of single-digit growth rates for legacy narrowbody aftermarket in 2026, including some price realization. Mr. Lacey confirmed that the EPS guidance does include the expected share repurchases. Chairman and CEO Chip Blankenship noted healthy growth from all power generation customers, including Caterpillar, INNIO, and Baker Hughes, but did not disclose specific revenue tied to Caterpillar, stating that Woodward's products are distributed across their gas and liquid fuel engines.

Scott Deuschle inquired about the assumed growth rate for legacy narrowbody engine aftermarket in fiscal year 2026. He also asked if the EPS guidance incorporates the benefit from the recent share repurchase authorization increase and about the portion of current power generation revenue tied to Caterpillar, seeking insights into the growth outlook from that customer.

Answer

CFO Bill Lacey projected single-digit growth for legacy narrowbody in 2026, including some price realization. Mr. Lacey confirmed that the EPS guidance does account for the share repurchase authorization. Chairman and CEO Chip Blankenship stated Woodward does not disclose revenue for single customers like Caterpillar but noted healthy growth from all power generation customers, including Caterpillar, INNIO, and Baker Hughes, in behind-the-meter applications, confirming Woodward's growth aligns with Caterpillar's.

Scott Deuschle of Deutsche Bank inquired about the reasons for the sequential margin decline in the Aerospace segment in Q3 and the drivers for the implied margin improvement in Q4. He also asked if power generation growth would track major OEMs.

Answer

CFO Bill Lacey attributed the Q3 Aerospace margin pressure to an unfavorable sales mix, with very strong growth in lower-margin Defense OE. He expects Q4 margins to improve as new lot pricing on smart defense programs is realized, alongside continued strength in commercial aftermarket. CEO Chip Blankenship added that power generation growth broadly aligns with OEMs but is nuanced by specific platform wins.

Scott Deuschle asked for a breakdown of the drivers behind the strong commercial aftermarket growth and inquired about the backlog visibility in the marine transportation market.

Answer

CEO Charles Blankenship explained that commercial aftermarket growth was broad-based, boosted by late-quarter spare parts orders for MROs, and noted that China's activity was actually slowing. He added that the marine OE backlog extends to 2029, though aftermarket activity could be at risk from trade tensions.

Scott Deuschle asked about the strength of Boeing's purchase order restart, the expected timing for commercial OE revenue to return to growth, and whether LEAP engine retrofits have materially contributed to aftermarket growth.

Answer

CEO Charles Blankenship stated that the demand signal from Boeing is "pretty strong" out of the gate. While not providing quarterly guidance, he expressed confidence that commercial OE revenue would be in a growth mode in the second half of the fiscal year. He also clarified that the LEAP reverse bleed valve fleet program has not been a significant contributor to aftermarket growth.

Scott Deuschle asked for the specific value of the steam generator content won with Rolls-Royce for its SMR, and whether BWXT might build a manufacturing footprint in Europe for future work.

Answer

Mike Fitzgerald, Senior Vice President and CFO, stated that specific values haven't been disclosed but indicated it falls within the $50 million-$100 million range for SMR content. Rex Geveden, President and CEO, confirmed they are evaluating localization opportunities, including in Europe, as it aligns with trends in commercial nuclear power. Scott Deuschle also inquired about the puts and takes for the 2026 free cash flow guidance of flat to slightly up. Mike Fitzgerald explained that while working capital improvements are expected, they are offset by the timing of milestone payments for new large contracts (DUSE, HBDU) and higher CapEx (5.5%-6% of sales) for growth initiatives.

Scott Deuschle asked if rare earth handling or processing is an area of strategic interest for BWX Technologies, given their existing experience in handling and processing hazardous materials.

Answer

Rex Geveden, BWX Technologies' President and CEO, stated that rare earth handling is generally not an area of strategic interest for the company. He clarified that their capabilities are focused on special nuclear materials and associated handling and accountability systems, with Ytterbium-176 being an exception, but rare earths are not typically in their playbook.

Scott Deuschle of Deutsche Bank inquired about a $29 million favorable contract adjustment in nuclear operations and asked about the potential for BWXT to secure content on new-build AP1000 reactors in the U.S.

Answer

SVP & CFO Mike Fitzgerald clarified the adjustment related to a special materials contract that performed better than anticipated. President, CEO & Director Rex Geveden confirmed BWXT has an MOU with Westinghouse to potentially supply high-pressure components for AP1000s, similar in scope to their work on CANDU reactors, though the total content might not be as extensive.

Scott Deuschle from Deutsche Bank inquired about the source of the quarter's negative EAC adjustments and the offsetting factors that led to strong margins in Government Operations. He also asked if BWXT expects to receive any of the recent government funding allocated to the shipbuilding industry.

Answer

EVP and CFO Robb LeMasters clarified that the negative EACs were split between the commercial and government segments, with the commercial portion related to a temporary zirconium cost impact that will be recovered. CEO Rex Geveden noted that while the continuing resolution offered little, the reconciliation bill contains interesting potential funding for defense enrichment and DoD nuclear reactor acceleration.

Scott Deuschle of Deutsche Bank inquired about the profitability and growth outlook for the medical business, SMR manufacturing capacity for potential U.S. orders, and the company's assessment of potential U.S.-Canada tariff risks.

Answer

EVP & CFO Robb LeMasters confirmed medical margins are accretive to the commercial segment and that 2025 revenue growth should mirror 2024's 23%. President & CEO Rex Geveden stated that existing Canadian facilities can service initial U.S. SMR orders. Regarding tariffs, LeMasters noted the government business is insulated, while the medical segment poses a concern, which they plan to manage through customer collaboration.

Scott Deuschle questioned the implied sequential EPS decline from Q3 to Q4, which contradicts typical seasonality, and asked if the base BWXT Medical business, excluding tech-99, is expected to maintain its ~25% growth rate next year.

Answer

CFO Robb LeMasters explained that strong performance throughout the year pulled some earnings forward from Q4. He also noted a sequential headwind from the three-week shutdown in Tennessee due to Hurricane Helene and a typical seasonal increase in corporate healthcare costs in Q4. Regarding BWXT Medical, LeMasters confirmed that the business is expected to achieve similar growth in 2025 driven by the strong underlying portfolio, without relying on significant contributions from tech-99.

Scott Deuschle sought clarification on Howmet Aerospace's capital expenditure outlook for 2026 and 2027, asking if CapEx would remain flat or increase, and whether the allocation mix would shift more towards industrial gas turbines (IGT) and midsize turbines or continue to prioritize aerospace.

Answer

Executive Chairman and CEO John Plant confirmed that while the absolute dollar majority of CapEx will still be directed towards aerospace, the percentage mix allocated to IGT and midsize turbines is expected to increase. He reiterated that the economic returns for IGT are comparable to aerospace, making investments in either segment highly attractive. He also indicated that 2027 is likely to be another significant CapEx year, driven by expanding business opportunities and customer commitments, with high hurdle rates for capital deployment.

Scott Deuschle from Deutsche Bank asked for more specific guidance on Howmet Aerospace's capital expenditures for 2026 and 2027, inquiring if they would remain flat or increase relative to 2025, and whether the CapEx mix would shift more towards IGT and midsize turbines or continue to be primarily aerospace-focused.

Answer

Executive Chairman and CEO John Plant confirmed that capital expenditures would remain at high levels, potentially increasing in 2026 and 2027, as the company sees increasing opportunities. He stated that while the absolute dollar amount for aerospace CapEx would still be higher, the percentage mix towards IGT and midsize turbines would likely increase. Plant emphasized that the economics and returns for IGT investments are comparable to aerospace, both being very good, and that capital deployment is driven by customer commitment and high hurdle rates for economic return.

Scott Deuschle of Deutsche Bank questioned why strong sequential revenue growth in the Fastening Systems segment did not translate into sequential EBITDA growth, asking if this was solely due to tariff recovery lag.

Answer

Executive Chairman and CEO John Plant affirmed that the margin performance was strong at over 29% and that the lack of sequential profit growth was primarily due to tariff drag, which was most pronounced in the Fastening Systems business in Q2. He explained it is a timing issue and that adjusting for this drag would result in a margin "starting with a three." He dismissed other factors as insignificant and expressed no concern over the sequential movement.

Scott Deuschle of Deutsche Bank asked for a breakdown of the 33% spares growth by end market and inquired about the status of any destocking headwinds for LEAP engine components.

Answer

Executive Chairman and CEO John Plant clarified that spares growth was over 40% in Commercial Aero and Defense, and around 15% in IGT and Oil & Gas. He confirmed an ongoing destocking effect for certain LEAP engine parts but expects it to resolve in H2 2025 if OEM engine production ramps up as anticipated.

Scott Deuschle asked for more detail on the 'product rationalization' that benefited the Engineered Structures segment and whether further opportunities exist, and also inquired about the assumed timing for the GTF Advantage engine certification.

Answer

Executive Chairman and CEO John Plant clarified that rationalization included closing facilities and selling a less profitable business, but the primary driver of margin improvement was enhanced productivity. Regarding engine programs, he stated they are optimistic for a mid-2025 changeover for the GTF Advantage, the LEAP-1A changeover occurred in January 2025, and the LEAP-1B changeover is not expected until mid-2026.

Scott Deuschle asked about the drivers behind the reacceleration of incremental margins in Q4 and the outlook for this trend into 2025.

Answer

Executive Chairman and CEO John Plant declined to provide specific 2025 margin guidance, cautioning that performance is not linear. He noted that while recent productivity has been strong, the company plans to accelerate hiring in 2025 to staff new capacity. This increase in labor and training costs is expected to be a headwind that will temper the margin benefits from higher volumes.

Scott Deuschle from Deutsche Bank inquired whether HII's 15% throughput improvement target is evenly distributed between its Ingalls and Newport News shipyards, and if the recent reduction from a 20% target was also equally split. He also asked about the market's reaction to Newport News's wage increases and its impact on HII's competitive wage positioning.

Answer

President and CEO Chris Kastner confirmed that the 15% throughput target is being achieved fairly equally across both Ingalls and Newport News, driven by a balanced mix of increased outsourcing and improved labor force performance. He also stated that the market has not materially adjusted in response to Newport News's wage increases, which have positively impacted attrition and enhanced the experience level of the workforce.

Scott Deuschle inquired whether the 15% throughput improvement target is equally distributed between Ingalls and Newport News, and if the reduction from the initial 20% target was also equally distributed. He also asked if the wage increases at Newport News had prompted other local industries to raise wages, impacting HII's competitive wage spread.

Answer

Chris Kastner, President and CEO, confirmed that the 15% throughput improvement is ending up about equally distributed between Ingalls and Newport News, driven by both increased outsourcing and labor force performance. He also stated that the reduction from the 20% target was fairly equal across both yards. Regarding the Newport News wage increases, Mr. Kastner noted that the local market has not materially adjusted, and the wage investment has positively impacted hiring and reduced attrition, particularly by attracting more experienced hires and leveraging regional workforce development pipelines.

Scott Deuschle asked if the negative EACs on Virginia-class submarines were on Block IV, Block V, or both, and questioned why Block V is considered pre-COVID. He also asked if a contract change on CVN 79 would alter its delivery timeline and requested a reminder on the reason for its original delay.

Answer

CFO Thomas Stiehle confirmed the negative EACs were on a mix of both Block IV and V boats. Both he and CEO Christopher Kastner clarified that Block V is considered a pre-COVID contract because it was negotiated in 2019. Regarding CVN 79, Kastner said a delivery timeline change is possible and under discussion with the Navy. He explained the original delay was from incorporating PSA work into the baseline, while the current potential change is for adding new capabilities learned from CVN 78's deployment.

Scott Deuschle questioned the risk of further negative earnings adjustments in Q4, why they weren't booked immediately, and asked for an update on the CVN 79 delivery schedule and whether it faced similar rework issues.

Answer

CFO Thomas Stiehle explained the updated 5-6% shipbuilding margin guidance for the year provides a range to account for Q4 performance uncertainty. CEO Christopher Kastner confirmed no change to the CVN 79 delivery milestone for 2025 but acknowledged that all pre-COVID ships, including the carrier, are impacted by rework requirements and supply chain fragility during their testing phases.

Scott Deuschle asked EVP and CFO Jay Malave for his perspective on the company's long-standing $10 billion free cash flow target and whether the business is on track to achieve it in the coming years.

Answer

EVP and CFO Jay Malave acknowledged the company's progress but emphasized that significant work remains for business stabilization and development programs. He expressed confidence in Boeing's underlying cash generation capability to return to historical levels, citing the strong backlog and the importance of operational excellence. He stated it's too early to comment on a specific long-term framework but plans to assess operating plans and cash flow drivers to develop one in the coming months.

Scott Deuschle asked for the CFO's perspective on the company's long-standing $10 billion free cash flow target, specifically if he endorses it and if the business is on a trajectory to achieve it in the next few years.

Answer

EVP and CFO Jay Malave stated that while the company has made great progress, it's too early for him to comment on a specific long-term framework after only two and a half months. He expressed confidence in the underlying cash generation capability to return to historical levels, driven by the backlog and operational excellence. He plans to assess operating plans and cash flow drivers to develop a framework for presentation at an appropriate time.

Scott Deuschle from Deutsche Bank asked about the timeline for Boeing to make key design decisions on its next-generation single-aisle aircraft, especially in the context of competitor Airbus's expected timeline.

Answer

President & CEO Kelly Ortberg stated he was not ready to announce any decision dates. He explained that a launch depends on the convergence of three factors: market readiness, company readiness (financial health and stability), and technology readiness. He noted that these streams have not yet converged and it is 'not today and probably not tomorrow.'

Scott Deuschle asked for an update on the full-year free cash flow guidance, previously referenced as a usage of $4 billion to $5 billion, and requested characterization of the cash flow cadence for the remainder of the year.

Answer

EVP and CFO Brian West stated that Q2 cash usage is expected to be similar to Q1, with the second half turning positive and accelerating into year-end. This improvement will be driven by production ramps and higher deliveries. He confirmed the full-year guidance range is unchanged for now, pending more clarity on the China and tariff situations, but expressed confidence in the company's conservative plan.

Scott Deuschle inquired about the expected pace of liquidating 777X inventory after its entry into service and whether there was a risk of seat certification delays for launch customers, similar to the 787 program.

Answer

CEO Kelly Ortberg expressed confidence in managing 777X seat certification, citing lessons learned from the 787 program. CFO Brian West outlined the 777X cash flow profile, noting heavy cash use in 2025, low-cash initial deliveries in 2026, and significant free cash flow generation beginning in 2027 as deliveries accelerate.

Scott Deuschle of Deutsche Bank asked for details on how Boeing is managing its supply chain through the work stoppage to ensure a smooth ramp-up and avoid repeating past challenges.

Answer

President and CEO Kelly Ortberg explained that the approach is highly tailored, managed on a supplier-by-supplier basis. He noted that some critical suppliers were kept 'hot' to mitigate risk, while others may use the downtime to improve their own operations. He expressed confidence that major issues would be avoided as the strike duration was not long enough to cause suppliers to decommission production lines.

Scot Deuschle asked for details on Process Flow Technologies' (PFT) benefits from power and data center demand, and if Crane has content on smaller reciprocating engines. He also inquired about organic investments at PFT to increase chipset content on the AP1000 and if it could become a larger driver, and later followed up on the F-16 brake retrofit program's revenue target, Aerospace & Electronics' organic growth acceleration for next year, and the corporate cost outlook.

Answer

Alex Alcala, EVP and COO, stated that PFT's power segment, primarily U.S.-based and less than 10% of the portfolio, benefits from investments in natural gas combined cycle plants, with Crane participating via its valve portfolio. He confirmed no content on smaller reciprocating engines. Max Mitchell, Chairman, President, and CEO, affirmed that long-term efforts are aimed at gaining AP1000 content, with technology investments underway to penetrate pressurized water reactors and identifying a 30% increase in content. Alcala confirmed the F-16 brake retrofit program is on track for a $30 million revenue target in 2026 with no base revenue in 2025. For Aerospace & Electronics, Alcala expects organic growth at the high end of the 7-9% long-term algorithm, while Mitchell noted commercial OE is positive but aftermarket pace is an unknown. Mitchell also stated that corporate costs are not expected to grow next year, aiming closer to 3% of revenue.

Scot Deuschle asked if the current corporate cost level of $85 million is sustainable for next year, or if it is expected to increase with the integration of PSI and other factors.

Answer

Max Mitchell, Chairman, President, and Chief Executive Officer, stated that corporate costs are not expected to grow next year. He anticipates leveraging growth to bring the corporate cost percentage closer to 3% of total revenue.

Scott Deuschle inquired about the specific programs driving the significant backlog growth in Aerospace & Electronics (A&E), the reasons for the expected margin decline in the second half, and the materiality of the GTF engine program to commercial aftermarket revenue.

Answer

EVP & CFO Rich Maue explained that A&E order strength was broad-based, highlighting air defense, C4ISR, and COMAC programs. He attributed the second-half margin moderation to a mix shift toward commercial OE and challenging aftermarket comps. EVP & COO Alejandro Alcala noted that while GTF aftermarket is growing rapidly, it currently constitutes less than 5% of commercial aftermarket sales.

Scott Deuschle asked for a breakdown of volume versus price growth in the Aerospace & Electronics (A&E) segment, the impact of commercial OE pricing, and if any major LTAs were repriced. He also questioned the potential for A&E EBIT to decline from Q1 levels and asked about COMAC C919 parts deliveries amidst tariffs.

Answer

EVP and CFO Rich Maue explained that A&E growth was roughly 50/50 between volume and price, with no major new LTA repricings in the quarter. He noted Q1 benefited from strong mix and engineering sales, which may not repeat at the same level. EVP and COO Alejandro Alcala confirmed that deliveries to COMAC for the C919 are proceeding smoothly and on track with their ramp-up plans.

Scott Deuschle requested the detailed core growth breakdown for Aerospace & Electronics sub-segments, asked about Crane's dollar shipset content on a new AP1000 nuclear reactor, and inquired about the factors enabling Crane's strong performance despite numerous operational headwinds.

Answer

SVP Jason Feldman provided the A&E core growth breakdown: Commercial OE up 7%, Military OE up 7%, Commercial Aftermarket up 12%, and Military Aftermarket up 30%. CEO Max Mitchell stated the AP1000 shipset content is a 'couple of millions' and not highly significant, but noted a strategic focus on new SMR designs. He attributed the company's resilience to the disciplined execution of the Crane Business System, operational prowess, and a strong culture focused on waste reduction.

Scott Deuschle asked about the line of sight for sequential aerospace and defense (A&D) growth in the current quarter, the potential for EBIT growth if volumes return, and when the benefits from recently repriced long-term agreements (LTAs) would impact financials.

Answer

Tony Thene, Chairman and CEO, confirmed expectations for continued growth in A&D order intake over the next several quarters, though not necessarily at the same high sequential rate. He agreed that if volumes return to growth, there's strong potential for significant EBIT growth. Thene explained that the timing for LTA benefits varies by contract, with some impacting the second half of the current fiscal year and others later.

Scott Deuschle asked if Carpenter Technology has line of sight to another quarter of sequential Aerospace & Defense (A&D) growth. He also questioned the potential for a repeat of strong EBIT growth if volumes return to growth, given the 42% year-over-year EBIT per pound increase on lower volumes. Additionally, he sought clarification on when the benefits from the recently repriced long-term agreements would impact financial results.

Answer

Chairman and CEO Tony Thene indicated an expectation for continued growth in A&D order intake over the next several quarters. He affirmed that if volumes increase, the company is well-positioned for strong EBIT growth, as current profitability is achieved with volumes not yet at peak levels. Thene explained that the timing of LTA repricing benefits varies by contract, with some impacting the second half of the current fiscal year and others being negotiated for later periods.

Scott Deuschle from Deutsche Bank asked if the initial FY2026 EBIT guidance was set with a similar level of conservatism as the FY2025 guide, questioned if current orders support an aerospace volume reacceleration, and requested the year-over-year growth for power generation revenue.

Answer

President and CEO Tony Thene affirmed that the company has a clear line of sight to achieving its FY2026 target. He noted that while some customers tied to Boeing are managing inventory, others are pulling aggressively, and defense demand is strong. CFO Timothy Lain and CEO Tony Thene later clarified that power generation revenue was up over 100% year-over-year, highlighting it as a significant growth driver.

In a follow-up, Scott Deuschle asked for an explanation of the high inventory-to-sales ratio, whether the build was in work-in-process (WIP) or finished goods, and if new aerospace LTAs were still of a shorter duration.

Answer

CFO Tim Lain acknowledged the inventory level and stated that the company expects inventory to come down in the fourth quarter, which is a key driver of its confidence in the full-year free cash flow target. He confirmed the inventory build is generally a 'story around WIP' and that WIP reduction will be the focus in Q4. CEO Tony Thene added that new LTAs are typically in the 3-to-5-year range, as a 10-year contract 'doesn't make any sense' in the current environment.

Scott Deuschle of Deutsche Bank questioned the drivers behind the 29% price-per-pound increase in the SAO segment (price vs. mix), the reasonableness of consensus EBIT growth deceleration for FY2026, and the timeline for the end of destocking in the Medical market.

Answer

CEO Tony Thene declined to give a specific price vs. mix breakdown but confirmed the strategy is to maximize profit, not tons, by focusing on higher-value, longer-cycle materials. Regarding FY2026 growth, he deferred a detailed outlook to the upcoming Investor Day but suggested the company has 'a lot more in the tank.' For the Medical market, he stated that while some destocking is constant, the demand outlook is very positive, driven by high surgical rates and customers asking Carpenter to supply new types of products.

Scott Deuschle asked if new orders carried higher prices than the existing backlog, questioned the drivers of the 35% growth in energy revenue, and inquired about demand from the space market. He also sought to clarify the source of pushouts within the PEP segment.

Answer

Tony Thene, President and CEO, confirmed that new orders are coming in at higher prices as contracts renew. He stated that the energy growth was entirely driven by a 200% year-over-year increase in the IGT submarket, while oil and gas was down. Regarding space, he noted it's a strong but small and inconsistent market for the additive business. Tim Lain, SVP and CFO, clarified that recent demand pushouts were in the additive business, not Dynamet, and related to aerospace materials.

Scott Deuschle sought clarification on whether Hexcel expects to enter 2026 at seven A350 aircraft per month. He also asked for quantification of the foreign exchange headwind flagged in the prepared remarks and questioned why Hexcel did not repurchase stock in Q3 when the price was lower, given the recent Accelerated Share Repurchase (ASR) announcement.

Answer

CEO Tom Gentile confirmed that Hexcel expects to enter 2026 at seven A350 aircraft per month, with plans to increase to eight and potentially nine by year-end. EVP and CFO Patrick Winterlich stated the FX headwind was immaterial (10 basis points) in Q4 and could be 10-30 basis points in 2026, depending on dollar movement, due to hedging. CEO Tom Gentile responded to the buyback question by referencing the recently announced $352 million ASR.

Scott Deuschle sought clarification on the expected A350 production rate at which Hexcel will enter 2026. He also asked for a quantification of the flagged foreign exchange (FX) headwind and the rationale behind not repurchasing stock in Q3 2025 when prices were lower, given the subsequent Accelerated Share Repurchase (ASR) announcement.

Answer

Tom Gentile, CEO, Chairman, and President, confirmed that Hexcel expects to enter 2026 at 7 A350 units per month, with targets to increase to 8 and potentially 9 by year-end, despite some Q4 destocking. Patrick Winterlich, EVP and CFO, stated that the FX headwind was immaterial (10 basis points) in Q4, and while a slight headwind (10-30 basis points) is expected in 2026, hedging mechanisms smooth the impact. Tom Gentile responded to the stock repurchase question by highlighting the recently announced $352 million ASR.

Scott Deuschle of Deutsche Bank questioned the implied incremental operating margin required in the second half to meet EPS guidance and its drivers. He also requested a cost of goods sold breakdown, particularly regarding the share of energy costs.

Answer

CFO Patrick Winterlich acknowledged a significant margin step-up is necessary in H2, driven by strong operating leverage from higher build rates in Q4. While declining a detailed COGS breakdown, he noted materials are the largest component and confirmed energy costs remain in the mid-single-digit percentage range.

Scott Deuschle of Deutsche Bank asked if Hexcel had lowered its guidance assumptions for the Boeing 787 program following a soft first quarter. He also questioned whether current purchase order activity supports a ramp-up in 787 production later in the year.

Answer

VP of Investor Relations Patrick Winterlich confirmed the 787 assumption is slightly down but clarified it was part of minor 'puts and takes' and not a primary driver of the overall guidance reduction, unlike the A350 and A320. Chairman, CEO and President Tom Gentile added the adjustment reflects the 3-to-6-month production delay signaled by Boeing. Patrick Winterlich noted they expect to ship materials for a full-year total in the 70s for the 787.

Scott Deuschle sought confirmation that Boeing had resumed purchase orders for airframe products and questioned why Hexcel's A350 build rate assumptions appeared higher than market expectations.

Answer

Chairman, CEO & President Tom Gentile confirmed that shipping to Boeing from all plants has resumed. Regarding the A350, he explained their 6-7 per month assumption is consistent with Airbus's ramp to 12 per month by 2028. Executive Patrick Winterlich added that Hexcel's shipments lead final assembly by 4-6 months, naturally resulting in a higher rate.

Scott Deuschle from Deutsche Bank inquired if there was a restocking benefit in the quarter from the A350 and 787 rate increases and asked about the long-term competitive threat from Chinese carbon fiber suppliers in the aerospace market.

Answer

Executive Patrick Winterlich stated there was no significant stocking impact for the A350 or 787, as pull rates were relatively consistent or saw a marginal seasonal slowdown. CEO Tom Gentile addressed the competitive question, noting that while China is a factor in industrial-grade fiber, they are not currently producers of aerospace-grade fiber and it would be a 'pretty big leap' for them to enter that market.

Scott Deuschle requested quantitative details on the B-21 financial items in the quarter, specifically the higher EMD flight test costs versus the contract restructure, and asked about the year-to-date trend for international book-to-bill.

Answer

Ken Crews, CFO, stated that the cost growth from B-21 EMD flight test lessons learned was largely offset by the contract restructure, resulting in a very low, immaterial net impact. Kathy Warden, Chair, CEO, and President, and Ken Crews, CFO, noted that international sales grew 20% year-to-date, with a strong backlog built last year. While the current year-to-date international book-to-bill is slightly below one, it follows a strong 1.45 at the start of the year.

Scott Deuschle of Deutsche Bank asked for a framework on the growth outlook for the Space Systems segment over the next few years, given the dynamic budget environment for both NASA and the Department of Defense.

Answer

Chair, CEO & President Kathy Warden acknowledged the dynamic market but expressed optimism for the Space segment's future. She noted that while NASA is a small portion of sales, DoD space budgets are expected to grow after a period of flatness, with initiatives like Golden Dome for America being a significant driver. She reiterated the expectation that the Space business would return to growth in 2026 after a down year in 2025.

Scott Deuschle sought confirmation on whether Northrop Grumman was reiterating its multi-year free cash flow targets for 2026-2028 and if the outlook was now biased toward the lower end of the range due to the B-21 charge.

Answer

CFO Ken Crews confirmed that the company is holding its multi-year free cash flow guidance ranges. He noted that the ranges were established to account for various risks and opportunities, and the company is focused on executing to mitigate risks and stay within those ranges.

Scott Deuschle from Deutsche Bank asked about the pricing structure for potential accelerated B-21 production units and the key drivers behind the strong margin expansion guidance for Mission Systems.

Answer

CEO Kathy Warden explained that pricing for any accelerated B-21 units would be a negotiation with the Air Force, informed by accumulating performance data. CFO Ken Crews attributed the projected 50 basis point margin expansion in Mission Systems to ongoing performance improvements, cost reduction initiatives, factory enhancements, and the application of digital technologies, rather than a significant mix shift.

Scott Deuschle from Deutsche Bank asked if the F-35 program was a key driver of positive EACs at Aeronautics and if further margin expansion was possible on newer lots. He also asked which segments offer the greatest margin expansion opportunity next year.

Answer

CFO Ken Cruse clarified that positive earnings adjustments at Aeronautics were broad-based across the mature production portfolio, not from a single program. For 2025, he identified margin expansion opportunities in three of four segments, highlighting Defense Systems as a primary driver due to its international mix. He also expects Mission Systems to see accretive margins and Space to benefit from performance improvements.

Scott Deuschle observed that Pratt Commercial OE revenue was up 5% on 6% higher shipments and asked if the GTF spare engine ratio was down year-over-year, questioning if spare engines were being heavily discounted for customers affected by the powder metal issue.

Answer

CFO Neil Mitchill clarified that spare engines are not being heavily discounted. He explained that RTX balances the output of installed engines, spares, and material for the MRO network, with no major difference in mix observed in the quarter. He also noted expectations for continued OE step-up in Q4.

Scott Deuschle inquired about Pratt Commercial OE revenue being up 5% on 6% higher shipments and a down year-over-year GTF spare engine ratio, questioning if spare engines were heavily discounted due to powder metal issues.

Answer

CFO Neil Mitchill clarified that spare engines are not heavily discounted. He explained that Pratt is balancing the output of installs, spares, and material for the MRO network, with no significant change in mix. He anticipates continued OE step-up in Q4, with a slight headwind from higher negative engine margin, but a balanced performance.

Scott Deuschle of Deutsche Bank asked if the net impact of tariffs is expected to decline in 2026 compared to 2025, assuming current rates hold, and whether the cash impact would decline more than the EBIT impact.

Answer

CFO Neil Mitchill declined to provide a specific 2026 forecast but emphasized that RTX is aggressively pursuing mitigation strategies. These include leveraging USMCA provisions, military duty-free exemptions, and pricing actions, with the goal of preventing a larger year-over-year headwind in 2026.

Scott Deuschle asked about any operational impacts at Collins or Pratt from the recent fire at supplier SPS Technologies and whether RTX is sourcing lost fastener capacity from SPS or alternative suppliers.

Answer

Executive Chairman and CEO Christopher Calio stated that the company is working closely with both SPS and other potential suppliers to manage the situation. He conveyed growing optimism that RTX will be able to avoid any notable operational impacts resulting from the fire.

Scott Deuschle of Deutsche Bank asked about the 2025 free cash flow outlook, specifically if any components besides powder metal costs might reverse in 2026 and whether working capital improvements are sustainable. He also sought clarification on Boeing's 737 MAX purchase orders.

Answer

CFO Neil Mitchill explained that the 2025 free cash flow includes a $1.3 billion working capital improvement, which he believes has further runway beyond 2025. He also noted a non-recurring international tax payment in Q1. Executive Christopher Calio confirmed that RTX is actively working with Boeing on the 737 MAX production ramp.

Scott Deuschle of Deutsche Bank asked if Collins is the seating supplier for 787s awaiting seats and the status of the FAA review, and also requested a directional outlook for Pratt & Whitney's military aftermarket growth next year.

Answer

Executive Christopher Calio confirmed Collins is the seating supplier for "certain of those" 787s and is actively working through the certification process with Boeing and the FAA. On the second point, Executive Neil Mitchill highlighted the strong 20% military growth at Pratt in Q3 and expects continued strong growth next year as the installed base of F135 and F117 engines expands, though he did not provide a specific number.

Scott Deuschle questioned whether anything structurally changed in GE Aerospace's business model to cause commercial aftermarket revenue growth to decouple or sustainably outperform ASK growth, given its reacceleration despite decelerating ASK growth.

Answer

CFO Rahul Ghai reiterated that the disconnect between demand outlook and departure growth stems from pent-up demand for shop visits (still below 2019 levels), increased work scopes on widebody engines (e.g., GE90, GEnx), and the significant growth of the external LEAP channel (up 2X in Q3, projected to reach 30% by 2030). He also cited annual price increases as a contributing factor to the demand increase.

Scott Deuschle requested insights into the current thinking for 2026, particularly regarding Commercial Engines & Services (CES) revenue growth and margins, and any other important considerations for financial modeling.

Answer

Rahul Ghai, CFO, and Larry Culp, Chairman and CEO, indicated an improved environment for 2026, with services growth normalizing towards double-digit levels, driven by a projected double-digit increase in engine shop visits and continued work scope expansion. They anticipate strong OE backlog execution, including 2,000 LEAP engine shipments and incremental GE9X deliveries, though GE9X losses are expected to more than double. Overall, 2026 is viewed as a strong step towards the 2028 framework.

Scott Deuschle from Deutsche Bank AG questioned the 2025 guidance, which implies a nearly $500 million EBIT decline in the second half compared to the first, a reversal of typical seasonality.

Answer

SVP & CFO Rahul Ghai acknowledged the strong first half but attributed the second-half forecast to several factors: GE9X shipment headwinds, a lower spare engine ratio, planned step-ups in corporate expenses and R&D, and conservatism around second-half flight departures. He emphasized that strong year-over-year profit growth is still expected for the second half.

Scott Deuschle of Deutsche Bank referenced a prior investor presentation on LEAP pricing and asked how much of the significant price increase is now flowing through the income statement versus remaining in the backlog.

Answer

Chairman and CEO H. Culp explained that while LEAP shop visit pricing has increased as the program matures, these higher prices have not yet materially impacted the P&L. The benefit is delayed due to the long-term nature of service contracts and elongated aircraft delivery schedules, meaning it will take a couple more years for the full effect to be realized in reported earnings.

Scott Deuschle inquired about the 2025 guidance for LEAP original equipment (OE) profitability and whether the engine could become a significant profit center long-term.

Answer

CFO Rahul Ghai confirmed the LEAP program is expected to reach breakeven in 2025, with OE profitability following in 2026, consistent with prior expectations. He noted that overall program profitability in 2024 exceeded expectations due to strong spare parts sales, better pricing, and lower warranty costs. CEO H. Culp added that supply chain improvements are setting the stage for a 15-20% increase in LEAP unit deliveries in 2025, which will fuel future aftermarket opportunities.

Scott Deuschle of Deutsche Bank asked if GE has stockpiled the new LEAP-1A HPT blades ahead of certification and whether that certification is the primary catalyst for improving output in Q4.

Answer

Executive H. Culp clarified that while the new blade is in production, deliveries cannot begin until certification is granted. He emphasized that this is 'an unlock, not the unlock.' The new blade will help with durability and manufacturability, but the majority of Q4 output improvement will come from broad-based supply chain enhancements driven by the FLIGHT DECK operating model, not just this single component.

Scott Deuschle of Deutsche Bank asked why Curtiss-Wright's commercial aerospace growth is accelerating while peers see headwinds, and inquired about the applications and customers for its new NVIDIA-based GPU computing solutions.

Answer

VP & CFO K. Christopher Farkas explained that while some destocking adjustments are expected, customers are keen to maintain supply flow for future platform growth. President, CEO & Chair Lynn Bamford detailed that the GPU solutions are used at the 'tactical edge' for rapid sensor data processing in applications like vehicle defense systems and battlefield command and control.

Scott Deuschle of Deutsche Bank followed up on aftermarket growth, noting TransDigm has underpaced not only engine peers but also airframe peers. He asked if this was due to portfolio specifics or just natural business lumpiness.

Answer

Co-COO Mike Lisman attributed the variance to 'lumpiness.' He referenced the four-year post-COVID period, where TransDigm initially outgrew peers, and stated that current volumes are appropriate for today's flight activity levels. He suggested that small growth disparities between peers are difficult to dissect with precision.

Scott Deuschle inquired about the status of a previously mentioned OEM contract renegotiation, whether it had a retroactive impact on Q1 pricing, and the duration of the new contract.

Answer

CEO Kevin Stein confirmed the contract was successfully closed in December and became effective January 1, meaning there was no retroactive impact on the first quarter. He also stated that the duration of the new contract was the same as the one it replaced.

Scott Deuschle asked for the revenue breakdown between airframe and engine in the commercial aftermarket and whether the engine segment is expected to continue outpacing the airframe segment in fiscal 2025.

Answer

Co-COO Mike Lisman stated that TransDigm is 'generally about market-weighted' between engine and airframe. He confirmed that engine-focused businesses saw stronger growth in 2024 and that they 'probably expect something similar' in 2025 due to high demand at engine MRO shops.

Scott Deuschle from Deutsche Bank questioned if the GTF Advantage engine upgrade creates new opportunities for RBC, asked about the revenue synergy strategy for VACCO in the space sector, and inquired about potential supply chain constraints for specialty alloys.

Answer

Chairman, President & CEO Dr. Michael Hartnett confirmed RBC will "substantially" increase its content on the GTF Advantage engine, with a ramp beginning in calendar 2026. He detailed VACCO's space synergies, highlighting complementary customer bases and unique engineering talent. On the supply chain, he noted that while most materials are manageable, some exotic alloys have lead times up to 60 weeks, requiring extensive planning and inventory investment.

Scott Deuschle from Deutsche Bank questioned if the GTF Advantage engine upgrade creates a share-gain opportunity, asked about the revenue synergy strategy for VACCO in the space sector, and inquired about potential supply chain constraints for specialty alloys.

Answer

Dr. Michael Hartnett, Chairman, President & CEO, confirmed the GTF Advantage upgrade presents an opportunity to "substantially" increase content, ramping from calendar 2026. He highlighted VACCO's complementary space customers and unique engineering talent as key synergies. On the supply chain, he noted that while most materials are manageable, some exotic alloys have lead times up to 60 weeks, requiring extensive inventory planning.

Scott Deuschle from Deutsche Bank asked if the GTF Advantage engine upgrade created a content opportunity for RBC. He also inquired about the revenue synergy strategy for VACCO, particularly in space, and potential supply chain constraints for the A&D ramp.

Answer

Chairman, President & CEO Michael Hartnett emphatically confirmed that RBC will 'substantially' increase its content on the GTF Advantage engine, with a ramp starting in calendar 2026. He explained that VACCO synergies in space will come from cross-selling into different customer bases. He also noted that while exotic material procurement remains a challenge requiring long-term planning, it is a manageable issue.

Scott Deuschle sought clarification on the full-year jet engine growth outlook, the production status of a new alloy for Rolls-Royce's Trent engine, and the amount of remaining COVID-era employee retention credits.

Answer

EVP & CFO Don Newman confirmed the jet engine growth range should be viewed as 20-25%. President & CEO Kimberly Fields stated that ATI is ramping up production of the new alloy with Rolls-Royce, which she sees as a growth driver. Newman addressed the final question, noting that $5 million in credits remain on the books but are not in the second-half guide, with a potential release by 2028.

Scott Deuschle sought confirmation on whether the full-year guidance includes contingencies for softer industrial sales and asked for details on growth CapEx for nickel alloys.

Answer

Donald Newman, EVP and CFO, confirmed that the 2025 guidance already incorporates the risk from weaker industrial ordering patterns. He elaborated that nickel CapEx, part of the existing ~$200M annual plan, will focus on debottlenecking melt assets and adding incremental VIM capacity to defend ATI's strong position in jet engine hot sections, mirroring the successful strategy used for titanium.

Scott Deuschle asked if the elevated 2025 CapEx is a new run rate, inquired about the balance of wide-body versus narrow-body jet engine growth, and questioned if wide-body sales are higher margin.

Answer

Executive Vice President and CFO Don Newman clarified that the 2025 CapEx is not a new run rate but reflects the redeployment of asset sale proceeds, with spending expected to normalize. President and CEO Kimberly Fields noted that engine growth is currently led by single-aisle and MRO, and confirmed that a future shift to wide-body production would be margin-accretive due to the highly differentiated materials involved.

Scott Deuschle of Deutsche Bank inquired if engine demand changes were concentrated in forged products or also affected nickel alloys, and asked whether the 2025 and 2027 guidance includes a cushion for potential disruptions.

Answer

President and CEO Kim Fields clarified that demand changes from engine customers impacted both forged products and specialty materials (nickel alloys) within the HPMC segment. EVP and CFO Don Newman explained that while the 2025 guidance of $800M-$900M EBITDA remains intact, near-term headwinds may prevent the full realization of an incremental $40M from new contracts. He affirmed the 2027 targets are robust and account for various scenarios.

Scott Deuschle asked if achieving high-teens margins in Aerospace requires significantly higher delivery volumes or if it's primarily driven by mix and learning curves. He also inquired if recent order strength was broad-based.

Answer

Chairman and CEO Phebe Novakovic confirmed that reaching higher margins is a combination of volume, mix, and learning curve efficiencies. She also stated that the strong Q2 order demand was broad-based across all aircraft models, particularly the G700 and G600, with good geographic distribution and sustained interest in the G800.

Scott Deuschle from Deutsche Bank asked about the G700 margins for the initial production lots and sought confirmation on the previously mentioned 600 basis point margin step-up for subsequent lots. He also inquired about the drivers of the strong Aerospace margin performance in the quarter, given the stated delivery challenges.

Answer

Phebe Novakovic, Chairman and CEO, confirmed that margins on early G700 lots were lower than expected and that the 600 basis point step-up for Lots 3 and 4 is still anticipated, with potential for further improvement. She attributed the quarter's overall Aerospace margin strength to a favorable mix of services, special missions, and other factors within the large and diverse group.

Scott Deuschle of Deutsche Bank asked if obtaining certifications for highly customized G700 interiors this year will prevent it from being a constraint in the future. He also inquired if the Combat Systems segment engages in Direct Commercial Sales (DCS) and if there is growing demand through that channel.

Answer

CEO Phebe Novakovic confirmed that since these are the first customized G700s, getting through the process now helps de-risk it as a constraining item for next year. Regarding Combat Systems, she explained that direct sales are primarily conducted by their European businesses, a long-standing practice, and that demand for these products in Eastern and Western Europe remains 'very, very strong'.

Scott Deuschle sought clarification on the plan to enhance the F-35 with NGAD technologies, asking if the effort would be self-funded or customer-funded and what drives confidence in the integration, given past challenges.

Answer

James Taiclet, CEO, described the effort as a co-investment between the U.S. government, allies, and Lockheed Martin's own R&D. He expressed confidence by framing it as a 'best value' approach, applying proven NGAD-developed technologies for sensing, stealth, and weapons to the existing F-35 'chassis' to achieve 80% of sixth-gen capability at half the cost.

Scott Deuschle of Deutsche Bank asked for the drivers behind the underlying year-over-year margin decline forecasted for the Aeronautics segment in 2025, even after adjusting for 2024's charges.

Answer

CFO Jesus Malave attributed the margin decline from an adjusted 10.2% in 2024 to around 10% in 2025 primarily to an assumption of lower net profit adjustments. He explained that this headwind, along with a mix shift towards growing classified programs, offsets margin benefits from other areas like the F-16 program.

Asked if Spirit has priced its content on the B-21 program and requested clarification on the 'operating elements' being discussed in the Airbus negotiations.

Answer

Management stated they have not yet priced their B-21 content. The Airbus negotiations are focused on price, substantiating costs, determining appropriate productivity levels, and aligning on performance expectations for the A220 and A350 programs.