Woodward - Earnings Call - Q1 2025
February 3, 2025
Executive Summary
- Q1 FY2025 net sales were $773M (-2% YoY) and diluted EPS $1.42 (-3% YoY); adjusted EPS was $1.35 (-7% YoY). Management said results were in line with expectations and reaffirmed full-year guidance, narrowing adjusted EPS to $5.85–$6.25 on a lower adjusted tax rate (~19%).
- Aerospace outperformed with revenue up 7% to $494M and margin up 200 bps to 19.2% on price realization; Industrial revenue fell 15% to $279M with margin down 610 bps to 14.4% due to lower China on-highway volumes and mix pressure.
- Cash from operations was $35M and free cash flow $1M, in line with typical first-quarter seasonality; leverage stood at ~1.5x EBITDA. The company returned $50M in Q1 via $35M buybacks and $15M dividends, and increased its quarterly dividend 12% to $0.28 per share (payable March 6, 2025).
- Key catalysts: strong defense OEM demand and robust commercial aftermarket, Boeing restart into Q2 and 2H ramp, disciplined pricing (~6% in Q1, ~5% FY), and dividend increase; risks include supply chain constraints and China on-highway volatility.
What Went Well and What Went Wrong
What Went Well
- Aerospace delivered growth across commercial aftermarket (+19%), defense OEM (+21%), and defense aftermarket (+8%), driving segment margin expansion to 19.2% on price realization.
- Management highlighted execution and lean improvements, including Kaizen events and automation (Rock Cut Campus deburring cobots), enabling improved flow and productivity despite Boeing delivery pauses.
- Capital returns and dividend policy were supportive: $35M buybacks and $15M dividends in Q1, with a 12% dividend increase to $0.28 per share.
What Went Wrong
- Industrial segment revenue declined 15% and margin fell 610 bps to 14.4% due to a $65M YoY decline in China on-highway sales and unfavorable mix; China on-highway sales were $10M in Q1, with FY outlook ~ $40M.
- Free cash flow fell to $1M (-81% YoY) on lower earnings; cash from operations declined 26% to $35M, consistent with typical Q1 seasonality but a headwind nonetheless.
- Ongoing supply chain/labor challenges post-COVID continued to pressure output and quality, with ~15–20 suppliers on a highly escalated list across Aerospace and Industrial.
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by. Welcome to the Woodward Incorporated First Quarter Fiscal Year 2025 earnings call. At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. Following the presentation, you are invited to participate in a question-and-answer session. Joining us today from the company are Chip Blankenship, Chairman and Chief Executive Officer; Bill Lacey, Chief Financial Officer; and Dan Provaznik, Director of Investor Relations. I would now like to turn the call over to Dan Provaznik.
Dan Provaznik (Director of Investor Relations)
Thank you, Operator. We'd like to welcome all of you to Woodward's First Quarter Fiscal Year 2025 earnings call. In today's call, Chip will comment on our strategies and related markets. Bill will then discuss our financial results as outlined in our earnings release. At the end of our presentation, we will take questions. For those who have not seen today's earnings release, you can find it on our website at woodward.com. We've included some presentation materials to go along with today's call that are also accessible on our website. A webcast of this call will be available on our website for one year, and all references in this call, all references to years in this call, are references to the company's fiscal year unless otherwise stated. I would like to highlight our cautionary statement as shown on slide two of the presentation materials.
As always, elements of this presentation are forward-looking, including our guidance, and are based on our current outlook and assumptions for the global economy and our businesses more specifically. Those elements can and do frequently change. Our forward-looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify in our filings with the SEC. These statements are made as of today, and we do not intend to update them except as required by law. In addition, we're providing certain non-GAAP financial measures. We direct your attention to the reconciliation of non-GAAP financial measures, which are included in today's slide presentation and our earnings release. We believe this additional financial information will help in understanding our results. Now, I'll turn the call over to Chip.
Chip Blankenship (Chairman and CEO)
Thank you, Dan, and thanks to everyone for joining us today. I'm pleased to report that the first quarter of 2025 was a strong start to our year with robust market demand from most corners and results that highlight the strength of our strategy, continued improvement in execution, and our members' commitment to serving our customers. While our first quarter reported results are down slightly compared to last year, we delivered strong growth in both our aerospace segment and core industrial business. While our aerospace team managed through a pause in deliveries of some product lines to Boeing, we were able to balance the labor across other product lines in both aerospace and industrial. We made the most out of the situation with additional Kaizen events and workstation rearrangement for improved flow in the facility prior to Boeing's restart of 737 MAX production.
Woodward now has clear demand signals from airframe and engine OEMs that represent growth, and we will be ready to meet that demand. We have some direct labor hiring to do ourselves, and we have a lot of work to do with suppliers to support the increased demand signal. As other companies have acknowledged, there are still some suppliers struggling with output and quality. We remain forward-deployed, working with our suppliers on problem-solving to ensure we are able to serve customers. Core industrial performance was strong in the quarter, with sustained robust demand across power generation, oil and gas, and marine transportation markets. The $65 million year-over-year decline in China on-highway sales overshadowed the 7% core industrial growth. Across industrial and aerospace, I'm pleased to see tangible results of our operational improvements and the acceleration of our lean transformation.
This progress is enabling us to achieve stable operations and disciplined rate increase planning to keep pace with customer demand. As I visit our sites, I see a shift in mindset as our members build lean muscle and apply their problem-solving skills to improve in areas such as safety, quality, delivery, and cost. I'm also pleased with the progress we're making on our automation journey. The team at Rock Cut Campus commissioned an industry-leading bank of automated deburring stations last quarter, with multiple cobots and a myriad of end-effector tools to accomplish tasks that we earlier dismissed as likely impossible. I'm extremely proud of our Rockford team and all our members contributing to automation across our Woodward production sites. I'd like to take a moment to highlight some strategic decisions that we made in the first quarter.
These will contribute to shareholder value creation, strengthen our competitive position, and expand our technology offerings for the next single-aisle aircraft. In December, we signed a definitive agreement to acquire Safran's Electronics & Defense electromechanical actuation business. This includes technology, operational assets, and long-term customer agreements for the horizontal stabilizer trim actuation, or HSTA, system. The acquisition also includes electromechanical components for braking, steering, de-icing, and auxiliary power, and importantly, increases our shipset content on the Airbus A350. While this acquisition significantly bolsters our existing electromechanical flight controls capabilities, we're also investing organically in hydraulic flight control actuation. These investments enhance our ability to participate in single-aisle aircraft trade studies and development programs with airframe OEMs and provide valuable insight with design experience and product pedigree on both sides of the trade study.
Woodward can remain technology agnostic regarding the winning architecture as we offer electromechanical, hydraulic, or a hybrid system approach, whichever is best for the aircraft. In the quarter, we also announced that we were selling our build-to-print industrial fuel nozzle product business in Greenville to GE Vernova. The Greenville plant serves one customer, which owns all service revenues. The divestiture allows us to concentrate on industrial products that create the most shareholder value while supporting our customers' goals. We remain focused on our gas and liquid fuel control systems for aeroderivative and heavy frame gas turbine genset applications. These are industry-leading product lines critical to our customers' ability to deliver gas turbine power generation growth. We've made additional progress on industrial product rationalization by selling certain small product lines, primarily legacy small engine diesel products.
We're also strengthening our product management discipline by inserting it directly into our Woodward Operating System. This will enable us to allocate resources more directly to the highest return opportunities throughout the life cycle of our products and actively manage our product offerings in a timely fashion. These actions support our strategy of building a stronger, more focused Woodward that's both well-equipped to compete in the near term and well-positioned to drive future growth. Moving to our markets. In aerospace, commercial passenger traffic continues to grow. While market demand remains robust, industry supply challenges continue to affect OEM build rates. As I stated earlier, we see a stronger OEM demand signal starting in our second quarter, and we will respond accordingly. Our plan is designed to be flexible and responsive to actual product dynamics. Commercial aftermarket activity remains healthy, driven by high utilization rates of legacy aircraft and engines.
This has resulted in high shop visit rates for extended periods. Low delivery rates of newer aircraft and early engine durability issues contributed to extending the legacy fleet's high shop visit rate and, in some cases, increased the level of investment that airlines have been willing to make in engine and LRU work scopes. In defense, geopolitical developments continue to drive demand for defense products. For 2025, we continue to anticipate robust growth in Smart Defense, driven by a substantial increase in order activity and production, which will fulfill the remaining open lots. We expect margin expansion from improved pricing in late 2025 or early 2026, depending on delivery rates. Turning to industrial, global demand for power generation capacity remains robust. Investment in gas-fired power generation equipment is increasing for both primary and backup power to enhance grid stability and support the expansion of renewable energy.
Additionally, demand for data center power generation is expected to increase significantly. In transportation, the global marine market remains healthy. Elevated ship build rates support strong OEM engine demand and future aftermarket opportunity, and high utilization rates continue to drive current aftermarket revenue. Demand for alternative fuels across marine transportation continues to increase as an industry-wide strategy to support emissions reduction goals. As expected, demand for heavy-duty trucks in China remains subdued due to local economic challenges. In oil and gas, while production remains at record levels in the U.S., this is not translating into upstream service growth due to efficiency improvements and low commodity prices. Optimism is being fueled by sustained investment in refining and petrochemical activities in China, the Middle East, and India.
In summary, we continue to see robust demand across most of our end markets, providing significant opportunities that we are effectively leveraging and will continue to capitalize on. As we seize these opportunities, we remain diligently focused on pursuing profitable growth, operational excellence, and innovating for the future to deliver on our purpose. We are on track to deliver our 2025 guidance and create long-term shareholder value. And now, I'll turn it over to Bill, who will share our financial results.
Bill Lacey (CFO)
Thank you, Chip, and good afternoon, everyone. As a reminder, all references to years are references to the company's fiscal year unless otherwise stated, and all comparisons are year-over-year unless otherwise stated. Net sales for the first quarter of 2025 were $773 million, a decrease of 2%. Earnings per share for the first quarter of 2025 were $1.42 compared to $1.46. Adjusted earnings per share for the first quarter of 2025 were $1.35 compared to $1.45. Aero segment sales for the first quarter of 2025 were $494 million compared to $461 million, an increase of 7%. Commercial OEM sales were down 10%, largely due to the impact from the Boeing work stoppage. This impact was more than offset by higher sales with commercial aftermarket up 19%, defense OEM up 21%, and defense aftermarket up 8%.
Aerospace segment earnings for the first quarter of 2025 were $95 million, or 19.2% of segment sales, compared to $79 million, or 17.2% of segment sales. The increase in segment earnings was primarily a result of price realization, partially offset by inflation, unfavorable mix, and lower volumes. Turning to industrial. Industrial segment sales for the first quarter of 2025 were $279 million compared to $326 million, a decrease of 15%. Transportation was down 33% due to a decline in China on-highway sales, which we had anticipated because of local economic challenges. China on-highway sales were $10 million in the first quarter. Our core industrial sales, which excludes China on-highway, were up 7%, driven by broad-based strength across the business, with marine transportation, power generation, and oil and gas each up 7%.
Industrial segment earnings for the first quarter of 2025 were $40 million, or 14.4% of segment sales, compared to $67 million, or 20.5% of segment sales. Industrial segment earnings decreased primarily due to lower China on-highway volume and unfavorable mix, partially offset by price realization and favorable foreign exchange rates. Margins for our core industrial business were approximately 15% in the first quarter. We continue to expect core industrial margins of 14%-15% of sales for the year. Non-segment expenses were $22 million for the first quarter of 2025, compared to $26 million. Adjusted non-segment expenses were $28 million for the first quarter of 2025, compared to $27 million. At the Woodward level, R&D for the first quarter of 2025 was $30 million, or 3.9% of sales, compared to $31 million, or 3.9% of sales.
SG&A for the first quarter of 2025 was $70 million, or 9% of sales, compared to $75 million, or 9.5% of sales. The effective tax rate was 14.5% for the first quarter of 2025, compared to 17.9%. The adjusted effective tax rate for the first quarter of 2025 was 14%, compared to 17.7%. Looking at cash flows, net cash provided by operating activities for fiscal 2025 was $35 million, compared to $47 million. Capital expenditures were $34 million for fiscal 2025, compared to $42 million. Free cash flow was $1 million for the first quarter, compared to $5 million, which is in line with our typical first quarter levels. The decrease in free cash flow was primarily due to lower earnings, partially offset by lower capital expenditures. As of December 31st, 2024, debt leverage was 1.5x EBITDA. Our capital allocation strategy remains unchanged.
We continue to prioritize investing in organic growth, returning cash to stockholders, and pursuing strategic M&A. During the first quarter, we returned $15 million to stockholders, comprised of $35 million of share repurchases and $15 million of dividends. In aggregate, we are currently planning to return approximately $215 million in 2025, including approximately $150 million of share repurchases and $65 million in dividends. Turning to our 2025 guidance, we are reaffirming our guidance for 2025 with the exception of adjusted effective tax rate and adjusted earnings per share.
Based on the favorable tax rate in the first quarter, we now expect the adjusted effective tax rate for 2025 to be approximately 19%. As a result, we are narrowing our adjusted earnings per share range and now expect it to be between $5.85 and $6.25. This concludes our comments on the business and results for the first quarter of fiscal year 2025. Operator, we are now ready to open the call to questions.
Operator (participant)
Thank you. The question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star one on your push button phone. Should you wish to withdraw your question, press star one a second time. To be able to take as many questions as possible, we ask that you please limit yourself to one question. We will take follow-up questions if time allows. Your question will be taken in the order it is received, and please stand by for your first question. Our first question comes from the line of Scott Mikus with Melius Research. Your line is open.
Scott Mikus (VP of Equity Research)
Good evening.
Bill Lacey (CFO)
Afternoon, Scott.
Scott Mikus (VP of Equity Research)
Chip, Bill, quick question just on the guidance for the aerospace segment. The sales growth is kind of wide. In the last quarter, I think you mentioned that you expected defense OEM to be the fastest end market within aerospace, followed by commercial OEM, aftermarket, and then defense aftermarket. I'm just wondering, has there been any change in that pecking order given the strong start you've had in the commercial aftermarket and defense aftermarket?
Chip Blankenship (Chairman and CEO)
Yes, Scott. So we're still keeping that wide range because it's still early yet from a Boeing performance standpoint and some of the other supply chain issues to sort of narrow the upper range yet. Your point is a good one on the strong commercial aftermarket in 1Q. I will remind you that it was a relatively easy compare, 1Q to last year, 1Q 2024. So as we look forward going on for the rest of FY 2025, we have more difficult compares. We think that that high double digits we showed this quarter will moderate significantly. Sequentially, the performance should be similar. I think it'll be neck and neck between commercial OE and commercial aftermarket for what second in line. We still expect defense OE to be the largest driver of growth for this fiscal year.
Scott Mikus (VP of Equity Research)
Okay, that's helpful. And then over the past several years, you've invested quite a bit to alleviate some of the supply chain bottlenecks in your production system. So just wondering if you could characterize the performance of your supply chain relative to pre-COVID. Is it almost back to normal? And then is there any material difference in the performance of your aerospace supply chain versus the industrial segment supply chain?
Chip Blankenship (Chairman and CEO)
I'd echo the comments of many of my colleagues on earnings calls recently saying that we really haven't solved the post-COVID supply chain issues yet. I don't know that we do get back to a pre-COVID normal that we wish for. There's still plenty of labor challenges out there, and the less experienced labor, we're having challenges across the supply chain with some supplier quality issues that are due to the things people that knew how to do before they retired or left. As people come up the learning curves, we're solving those problems and we're getting more involved. As you noted, we have invested over $10 million in flexible manufacturing equipment to temporarily or permanently insource where our suppliers are having trouble. That is still ongoing.
Those machines are pretty much loaded five days a week, two shifts, and we're continuing to add soft capacity to those as the supply chain challenges would dictate. I'd say we have similar challenges in industrial to aerospace supply chain. We're looking at 15-20 suppliers overall on the highly escalated challenge list on performance, and it's about half and half.
Scott Mikus (VP of Equity Research)
Got it. Thank you.
Chip Blankenship (Chairman and CEO)
You're welcome.
Operator (participant)
Your next question comes from the line of Scott Deuschle with Deutsche Bank. Your line is open.
Scott Deuschle (Research Analyst)
Hey, good evening.
Chip Blankenship (Chairman and CEO)
Good evening.
Bill Lacey (CFO)
Good evening, Scott.
Scott Deuschle (Research Analyst)
Chip, is Boeing restarting purchase orders at a very low rate, or are they coming out of the gates relatively strong in terms of the rates they're asking you to ship to?
Chip Blankenship (Chairman and CEO)
The Boeing demand signal is pretty strong, so it's pretty strong out of the gate. As you know, there's some inventory in the system, so we're responding in a disciplined way to bring our line rates up to meet that demand.
Scott Deuschle (Research Analyst)
Okay. So should we expect commercial OE revenue to return to growth in the second quarter, or could it still be down given the tougher comp you see in the second quarter?
Chip Blankenship (Chairman and CEO)
While we don't give quarterly guidance, I have more confidence the second half of this year will be in a growth mode from an OE standpoint.
Scott Deuschle (Research Analyst)
Okay. That's fair. And then have the retrofits for the LEAP engines, new Reverse Bleed Valve system, contributed very materially to the company's aftermarket growth over the last few quarters? And then does that normalize at some point if that has been a driver of the aftermarket growth? Thank you.
Chip Blankenship (Chairman and CEO)
The Reverse Bleed Valve fleet program has not contributed significantly to our aftermarket growth.
Scott Deuschle (Research Analyst)
All right. Thank you.
Chip Blankenship (Chairman and CEO)
You're welcome.
Operator (participant)
And your next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is open.
Sheila Kahyaoglu (Aerospace and Defense and Airlines Equity Research)
Hey. Good afternoon, guys, and thank you. But maybe just on the last question. Hey, I think last quarter you guys indicated aftermarket would level off, but obviously first quarter off to a great start, 20%. Can you maybe talk about what drove that, just given you said you would level off given shop visits? When we think about the 9,000 engine LEAP, how do we think about those shop visits coming in, your percentage of those shop visits? Any sort of guide you could provide?
Chip Blankenship (Chairman and CEO)
I think the guidance that we sent was about the full year from a commercial aftermarket standpoint. Just pointing back to that, it was a relatively easier compare in the first quarter than it is two, three, and four for the year. Just want to draw your attention to that. It was sort of across the board. Our lean transformation is allowing us to show better turn times and get more product out back to the customers in the aftermarket. Supply chain alleviating some of the issues as well. Those contributed to our ability to serve the market a little bit better in first quarter 2025 than we did in first quarter 2024. Of course, there's some price in there as well, which shows up on the top line. What was the rest of your question, Sheila? I'm sorry.
Sheila Kahyaoglu (Aerospace and Defense and Airlines Equity Research)
Just what's the shop visit revenue we could think about with Woodward? Is it like 10% of your overall content? And how do we think about when that cadence really picks up just given the current LEAP fleet?
Chip Blankenship (Chairman and CEO)
I'd like to remind you also that much of our aftermarket content is Line Replaceable Units. While shop visit rate is interesting and some customers do route the LRUs for component repair during a shop visit, we also see about, I'd say, just largely a 50/50 split from LRUs, whether it's shop visit or line removal. It's really better correlated with overall engine hours than we are event-driven shop visits. I want to make sure everyone still understands that that's the case for Woodward content. We are seeing LEAP and GTF inputs grow year-over-year. We're on track for that growth like we've modeled it. We're very pleased at how that's developing.
Sheila Kahyaoglu (Aerospace and Defense and Airlines Equity Research)
Okay. And then maybe if I could ask one on industrial, switching gears a little bit. Profitability has come in better, core margins of 15%+. Can you walk us through how that improved? What drives the deceleration? And I think in your prepared remarks, you mentioned certain licensing sales, but I didn't catch if it was industrial or aero. If you could clarify that.
Chip Blankenship (Chairman and CEO)
I'll clarify that point, and then I'll turn it over to Bill. So we did divest of some small product lines in industrial, and that's adjusted out of our earnings. You'll see that in the GAAP results. But it's a relatively small amount and not a big driver, not included in that margin number. Over to Bill on the makeup of the 15%.
Bill Lacey (CFO)
Yeah. So yeah, we are real pleased with the core industrial coming out of the gate at 15%. As you know, Sheila, our guide on core industrial margins is between 14% and 15%. This quarter, in Q1, we did see some favorability related to foreign exchange rates. And so backing that out, core industrial margins were closer to 14%. And we expect through the year, we'll see their margin rates go between 14% and 15%, with us finishing strong in Q4, depending on sort of the volume and the mix that comes through any given quarter.
So we feel really good about all the work that we've done. I remember when I started here, core industrial margins were in the high single digits, 9%. And so all the work that we've done in operational excellence, working on price, driving lean, we are seeing that improvement. We really feel good about our guide on Core Industrial 14, 15 for the year.
Sheila Kahyaoglu (Aerospace and Defense and Airlines Equity Research)
Awesome. Thank you.
Bill Lacey (CFO)
You're welcome.
Operator (participant)
Your next question comes from the line of Matthew Akers with Wells Fargo. Your line is open.
Matthew Akers (Aerospace and Defense Research Analyst)
Yeah. Hey, guys. Good afternoon. Thanks for the question. I wanted to ask about the Safran acquisition, any more color you can give there and maybe what the new A350 content is. I think you said that we boosted that, I think it was like $40,000-$50,000 previously. And just curious, should we think of this as sort of a one-off opportunity that came up, or do you still see M&A as kind of a decent part of the capital allocation strategy here?
Bill Lacey (CFO)
So taking the last part first, I mean, I think we still see M&A strategy as a good opportunity to bolt on when we're looking for technology adds, market or customer adds to the Woodward portfolio. So we're very excited about this one. It brings us some unique additions to our electromechanical actuation business from a technology standpoint. And we do look forward to having the horizontal stabilizer trim actuation system for the A350. And that's the content add for the A350 that I was referring to. We didn't quantify what that means from a shipset standpoint, though.
Matthew Akers (Aerospace and Defense Research Analyst)
Yeah. Got it. Okay. And then I guess as a follow-up, I think you called that $215 million of cash you plan to return this year. Just curious, your free cash flow is above that. Is the remainder kind of earmarked for something, or should we think of that as maybe potential upside to deployment kind of depending on market opportunity?
Chip Blankenship (Chairman and CEO)
Yeah. Yeah, Matt. Again, we do think that we have capacity. There's a possibility for us to do more. And we don't have it earmarked right now. We're going to see how things progress. We feel good about where we are on our shares. And if there's opportunity to buy some more, we will take a look at it. If there aren't the other areas of organic growth investment, we will look at potentially doing some more. So $215 right now represents about $150 of share repurchases that deal with offsetting our dilution. And then we'll see how things develop over the rest of the year.
Matthew Akers (Aerospace and Defense Research Analyst)
Great. Thank you.
Chip Blankenship (Chairman and CEO)
You're welcome.
Bill Lacey (CFO)
You're welcome.
Operator (participant)
Your next question comes from the line of Pete Skibitski with Alembic Global Advisors. Your line is open.
Pete Skibitski (Director of Aerospace and Defense Equity Research)
Hey, good afternoon, guys.
Chip Blankenship (Chairman and CEO)
Good afternoon. Thank you.
Bill Lacey (CFO)
Yeah. Hey, Chip, just wondering, the ongoing CR and defense, has that impacted your bookings at all, or are the OEMs being pretty forward-leaning in order flow?
Chip Blankenship (Chairman and CEO)
We haven't seen any impact on that, Pete.
Pete Skibitski (Director of Aerospace and Defense Equity Research)
Okay. Just a follow-up. I get the sense that maybe your multi-year visibility in guided weapons, that maybe that's improving. I mean, the current outlook for defense spending is sort of low single digits. Should we expect guided weapons on a multi-year basis to kind of meaningfully exceed that? Is that kind of the target that you put out there, or is the visibility just not there yet?
Chip Blankenship (Chairman and CEO)
I don't think we have much visibility past early 2026, and that's kind of what we've limited our public comments on.
Pete Skibitski (Director of Aerospace and Defense Equity Research)
Okay. Fair enough. Thanks, guys.
Chip Blankenship (Chairman and CEO)
Yep. You're welcome.
Operator (participant)
Your next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open.
Christopher Glynn (Equity Analyst of Industrials)
Thanks. Good evening. Afternoon. So power gen markets have had a pretty steady, consistent drumbeat. Curious if you could just go into some of the long-term demand signals a little bit. I think Caterpillar announced substantial capacity plans for recips and gas turbines. Is that pretty telling of how you're looking at the market over the next handful of years?
Chip Blankenship (Chairman and CEO)
Yeah, it is. I mean, our customers are all pushing us to demonstrate what our capacity actions would be to meet the investments that they're making. And we're aligned pretty darn well with both our reciprocating engine and gas turbine customers. We're very bullish on that market. Just the math alone tells us that there should be a gas renaissance in terms of the power demands, both for grid stability due to renewables, but also just for base gigawatts per year growth required to support industry, but also the data center and AI demand. I mean, all of the deep-seated turmoil aside, we still see big demand and growth for gas-powered generation, and we're poised to take part in that.
Scott Mikus (VP of Equity Research)
Great. Also wanted to ask about the guided weapons JDAM area. Is that expected a pretty steady cadence through the year? It looks like maybe you had some load-in in the fourth quarter. And I don't know how the seasonality comes to bear on a program that's ramping up, but is that a consistent ramp through the year or kind of level loaded?
Bill Lacey (CFO)
Yeah. Go ahead.
Chip Blankenship (Chairman and CEO)
I'll start and then turn it to Bill. We plan it pretty level, but there's a lot of supply chain issues in that part of the world too. It's not limited just to commercial aircraft or industrial. So there can be some puts and takes from a production rate standpoint based on supplier performance, and also, other suppliers of our customers can cause them to not pull as high of a demand as they initially transmit for that month or that quarter.
Christopher Glynn (Equity Analyst of Industrials)
Okay. Thank you.
Chip Blankenship (Chairman and CEO)
You're welcome.
Operator (participant)
Your next question comes from the line of David Strauss with Barclays. Your line is open.
David Strauss (Managing Director of Equity Research in Aerospace and Defense)
Thanks. Good evening.
Chip Blankenship (Chairman and CEO)
Evening, David.
David Strauss (Managing Director of Equity Research in Aerospace and Defense)
Chip, has there been any change in your thinking around China on the highway and how that develops this year?
Chip Blankenship (Chairman and CEO)
Unfortunately, I report no change to my thinking. It's just a volatile product line that we're in. Our team is working hard to control fixed costs when volumes are down and ready to respond should there be an uptick. I think we'll also be mindful in terms of how we respond to demand signals from customers. We don't want to get in a position where we load up a lot of inventory like we did last year. So we're going to be very mindful of that. I think the other thing is we'll try to level load so we can better amortize our fixed costs when volume comes back. So I guess those were refinements to the thinking, but not changes.
David Strauss (Managing Director of Equity Research in Aerospace and Defense)
Okay. So you're still thinking minimal sales in the second quarter and then $10 million-$15 million a quarter in Q3 and Q4?
Bill Lacey (CFO)
Right. We still feel best about the $40 million estimate that we've put out there for China on the highway.
David Strauss (Managing Director of Equity Research in Aerospace and Defense)
Okay, and Chip, tariffs? I don't think you have any manufacturing in Canada and Mexico other than maybe it looks like the Safran business has some. Any exposure if these tariffs actually happen?
Chip Blankenship (Chairman and CEO)
As it turns out, we're largely in regions for regions. We've got some things that go back and forth globally, but mostly our manufacturing footprint and supply chain is in the region that it serves. We don't see any substantial tariff risk at this moment on this day at this time. As you know, it's a fairly fluid environment.
David Strauss (Managing Director of Equity Research in Aerospace and Defense)
Yeah. Exactly. All right. Thanks very much.
Chip Blankenship (Chairman and CEO)
You're welcome.
Bill Lacey (CFO)
Thanks, David.
Operator (participant)
Your next question comes from the line of Gavin Parsons with UBS. Your line is open.
Gavin Parsons (Director of Aerospace and Defense Equity Research)
Hey, guys. Good afternoon.
Chip Blankenship (Chairman and CEO)
Hey, Gavin.
Bill Lacey (CFO)
Hey, Gavin.
Gavin Parsons (Director of Aerospace and Defense Equity Research)
Appreciate the color on our guidance, but just wanted to kind of ask what pieces might take you to the high versus low end. It sounds like you have some destocking considered in there. Is that just airframe, or is that also on the engine side? Thanks.
Chip Blankenship (Chairman and CEO)
So I think the things that take us towards the high side is the supply chain performance, quite frankly, on the commercial and the defense OEM side of the business. That could take us to the high side. The things that would take us to the low side are non-performance or additional headwinds from a supply chain standpoint.
Gavin Parsons (Director of Aerospace and Defense Equity Research)
Great. And then on aero revenue, I guess you guys called out price with volume down. Do you still have good visibility into price for the rest of the year? Does that start to lap?
Bill Lacey (CFO)
Yeah. Gavin, as we talked about last quarter, we're expecting price at the total Woodward level to be around 5%. And we expect aero to deliver stronger price than industrial. So we've got pretty good visibility. As you remember, we were dealing with a number of fixed contracts that came due last year that got renegotiated. So we'll see some of that continue to come through the year. And we're mostly through those contracts, but we still have a few to deal with this year.
Gavin Parsons (Director of Aerospace and Defense Equity Research)
Thanks.
Bill Lacey (CFO)
You're welcome.
Operator (participant)
Your next question comes from the line of Noah Poponak with Goldman Sachs. Your line is open.
Noah Poponak (Managing Director of Aerospace and Defense Equity Research)
Hello, everyone.
Chip Blankenship (Chairman and CEO)
Hey, Noah.
Bill Lacey (CFO)
Hey, Noah.
Noah Poponak (Managing Director of Aerospace and Defense Equity Research)
What was the LEAP in GTF aftermarket revenue contribution in the quarter?
Bill Lacey (CFO)
Yeah. Noah, it continues to grow real nice, very nicely. And we're seeing very strong growth there. Again, Noah is still off of a lower base. But obviously, as we continue to see these very strong growth rates, as we get into 2026, 2027, we won't be talking about a low base. And as we see in these early quarters, it continuing to grow. So it's performing as we have expected it to perform. And we're really pleased with what we're seeing.
Noah Poponak (Managing Director of Aerospace and Defense Equity Research)
Is it correct to assume that the full-year guidance doesn't actually assume a ton of growth contribution from that? Because even though you have very specific 2027 guidance or a framework, that's because you know you'll have reached critical mass by then, whereas right now you're kind of waiting to see when you flip to critical mass. So you're just not sure what it contributes to 2025. Or do you have a very specific assumption in the 2025 guidance?
Bill Lacey (CFO)
Yeah. I'll jump in. I'll speak on that, Noah, and then turn it over to Chip. The team has a good feel from a range standpoint of what we expect a LEAP in GTF to contribute to the aftermarket. So far, the team who are very experienced with this have been pretty accurate with their estimates so far. So again, I feel comfortable that we have a good range of what we expect that piece of the business to deliver in 2025. Chip, I'll.
Chip Blankenship (Chairman and CEO)
Yeah. I think it's fair to say that we're pretty good at modeling it and that we're tracking, as Bill said. What we shared at investor day was it's really more like the 2028 timeframe where we would see LEAP and GTF be equal to legacy fleet in terms of their contributions to our market. Now, we think legacy will come down some by that time also. But that's where we would see maybe a changeover in the 2028+ timeframe. LEAP and GTF is starting to contribute and be less of a footnote and more of a base load into our shop. So I don't want you to think it's not meaningful yet. But as Bill said, the numbers really aren't moving the needle in a big way from a growth standpoint yet.
Noah Poponak (Managing Director of Aerospace and Defense Equity Research)
Okay. And then I just want to also ask on the aerospace original equipment side. You had provided the guidance with its assumed growth rate while Boeing had you turned off. So I guess the down 10% isn't a huge surprise. Just curious how the down 10% compared to what you were thinking a few months ago. And then just how much I guess Boeing sort of is speaking to maybe a faster recovery in the back half than a lot of us thought. So yeah, I guess on the one hand, the down 10%, it needs a lot of growth to get to where your guidance was. But on the other hand, maybe was Boeing actually talking about a faster ramp than you anticipated?
Chip Blankenship (Chairman and CEO)
There's a lot there, Noah, but I'll do my best. Yeah. I think just to start off, our guidance is sort of a wide range at the top end on purpose because Boeing was lying down when we were developing our guidance. So that's why it's sort of a wider range from a revenue standpoint, first and foremost. Not really surprised by first quarter being where it is based on them just being turned on and taking a pause in a period of time to get workers back certified for the jobs that they're on and all these kinds of things before they really started back to work and moving airplanes on the line. I'm really impressed with the goals they've set for how they want to come back up and running.
What I understand based on my experience really well is their six-month stabilization and rate breaks that they talk about in the out years. How they're going to get from where they are right now to the 38 per month is the thing that we're all watching. We're all rooting for them as an industry, as a customer, as U.S. citizens. We're behind them all the way and hope that they can achieve those aggressive goals they've laid out for the second half of 2025.
Noah Poponak (Managing Director of Aerospace and Defense Equity Research)
Okay. Thank you.
Chip Blankenship (Chairman and CEO)
Thanks.
Operator (participant)
Your next question comes from the line of Michael Ciarmoli with Truist Securities. Your line is open.
Michael Ciarmoli (Managing Director of Aerospace and Defense Equity Research)
Hey, good evening, guys. Thanks for taking the question. Chip, just on aerospace, the margins in the quarter, I mean, you had a 21% sequential decline there in OE. You held the margins flat. Obviously, you got the strong aftermarket mix. You mentioned just flow and Kaizen events, but anything else that helped to drive that margin? And then just thinking about when Boeing and OE really starts to ramp up, do you kind of have to battle that negative mix shift?
Chip Blankenship (Chairman and CEO)
So, I guess I'll start, and I'll hand it over to Bill for some of the mechanics on the mix because we actually had some mixed headwind in there. The commercial aftermarket wasn't as useful as you might think. But from an overall standpoint, our lean transformation, our ability to get product flowing and deliver to a customer, we're making progress on our model lines. We have people coming up to speed. They've been on the job now a couple of years instead of the six months or 12 months we talked about before. So our members are more productive. All these things are flowing through to the bottom line. In addition, some healthy price on the aerospace, especially the aftermarket side. I'll hand it over to Bill if there's anything more you want to share.
Bill Lacey (CFO)
Yeah. I think just, Mike, you talked about the 19.2% that Aero delivered, and we are also excited about it. It's 200 basis points improvement over last year, about flat sequentially. And so kind of year-over-year, good price realization there. With the defense OEM, it does provide us with a little bit of a mixed headwind for now. As that volume continues to increase, though, that will provide us with some good volume leverage, which will drive margin expansion. So really, year-over-year, what drove it was price and continued work on our operational excellence initiatives to deliver that margin, which our full-year guide of 20%-21%. We feel good about how this quarter started and allowing us to get to that guide.
Michael Ciarmoli (Managing Director of Aerospace and Defense Equity Research)
Okay. Chip, you mentioned there was actually some negative mix, though, with aftermarket. Can you maybe just elaborate on that a bit? What kind of negative?
Chip Blankenship (Chairman and CEO)
Not negative.
Michael Ciarmoli (Managing Director of Aerospace and Defense Equity Research)
What?
Chip Blankenship (Chairman and CEO)
No, I was just saying that the Defense OEM was a mixdown, so.
Michael Ciarmoli (Managing Director of Aerospace and Defense Equity Research)
Okay. Gotcha.
Chip Blankenship (Chairman and CEO)
It wasn't all aftermarket up and no other pressure. So that was what I was mentioning.
Michael Ciarmoli (Managing Director of Aerospace and Defense Equity Research)
Got it. And then last one for me. You called out, I think, Chip, in your comments, direct labor and hiring. What are you guys looking at? What do you need to add in terms of headcount to kind of meet the objectives or not really get squeezed here and just any color on the hiring efforts?
Chip Blankenship (Chairman and CEO)
Yeah. Nothing really out of the usual challenges that we have in this environment. So we let attrition kind of walk our staffing numbers down a little bit during the Boeing strike and some of the other softness in demand. And so we saw it coming. We saw the demand signal coming back in plenty of time to return to the staffing levels we need to serve that. But I just want to call it out because it is part of the challenge we all face right now. And we probably have a couple of months' worth of hiring to make up as we look at this demand signal.
Michael Ciarmoli (Managing Director of Aerospace and Defense Equity Research)
Okay. Perfect. Thanks, guys.
Chip Blankenship (Chairman and CEO)
You're welcome.
Operator (participant)
Your next question comes from the line of Louis Raffetto with Wolfe Research. Your line is open.
Louis Raffetto (SVP of Equity Research)
Hey, good evening. Thank you.
Chip Blankenship (Chairman and CEO)
Good evening, Louis.
Bill Lacey (CFO)
Hello, Louis.
Louis Raffetto (SVP of Equity Research)
Hey, Bill. Maybe just to follow up on the last question or two questions ago, just pricing. Do you have the pricing amount for the quarter?
Bill Lacey (CFO)
Yeah. For the quarter, at the total Woodward level, it came in around 6%. Again, total guide for the year is around 5%. And as we talked about for the total year, Aero contributed heavily to that 6%, but industrial also provided us with a good contribution.
Louis Raffetto (SVP of Equity Research)
All right. Great. Appreciate that, Bill. And then maybe just this is, I think, the maybe fifth quarter now that we're excluding some sort of business development expense. I'm just trying to understand exactly what that is, why it's being excluded.
Bill Lacey (CFO)
Yeah. This quarter, Louis, the business development expenses was related to the activity around the different deals that we talked about. And as always, we're trying to make sure that we provide you with clear operational performance. And so that is what drove that adjustment.
Louis Raffetto (SVP of Equity Research)
All right. Great. Thank you for your clarity. And then I may have missed this before, but is the acquisition and the divestiture, cash-wise, do they offset or is one sort of larger than the other? Any way to think about that?
Bill Lacey (CFO)
Yeah. Obviously, I don't want to get too far, and as these things close, we'll provide you with a little more insight into the financials.
Louis Raffetto (SVP of Equity Research)
All right. Thank you very much.
Bill Lacey (CFO)
You're welcome.
Operator (participant)
Your next question comes from the line of Gautam Khanna with TD Cowen. Your line is open.
Gautam Khanna (Analyst)
Yeah. Thank you, guys. Hey, I was wondering if you could comment on what commercial OEMs level of profitability was prior to the strike for Woodward.
Bill Lacey (CFO)
We don't really go down at that level of detail, Gautam.
Gautam Khanna (Analyst)
I know. But can you ballpark it relative to, is it A, profitable? B, was it 8?
Bill Lacey (CFO)
The OE business. Our commercial OE business is profitable, and it's a good business for sure. And so yeah, so hopefully that is ballpark enough.
Gautam Khanna (Analyst)
Fair enough. And then with respect to the tariffs you mentioned kind of being in-country, but is there any kind of demand destruction that could come from this in the industrial business that's factored into your guide?
Chip Blankenship (Chairman and CEO)
When you say demand destruction, you mean customers no longer ordering equipment or canceling orders?
Gautam Khanna (Analyst)
Yeah. On the margin does it weaken the demand environment? And is that factored in?
Chip Blankenship (Chairman and CEO)
That may be a better question for one of our customers, but it doesn't jump out at me as a big risk.
Gautam Khanna (Analyst)
All right. Thank you, guys.
Chip Blankenship (Chairman and CEO)
You're welcome.
Operator (participant)
Your next question comes from the line of Tony Bancroft with Gabelli Funds. Your line is open.
Tony Bancroft (Portfolio Manager and Research Analyst)
Hi. Good evening, gentlemen. Great job on the quarter and great job overall. Just with the recent, you saw obviously the acquisition today with Triumph and your recent acquisition of Safran, their business. And you mentioned a little bit before about customer adds and where you're focused. Maybe you could just sort of give us a little hip-pocket lecture on what's the most desirable businesses or customer adds and what the size of that market, the potential of that market is, obviously very broad strokes. But just want to get your view. In five years from now, do you see yourselves sort of on the OEM side of pure-play, pure-play fuel control business with actuation and some defense weapon system actuation? Just maybe you could just give us a picture of that.
Chip Blankenship (Chairman and CEO)
I think the simplest way, and it's broader than this, but I think the simplest way to explain it that I think will shed the most light on our strategy there is we have a stated strategy to increase our shipset content on the next single-aisle aircraft. So a lot of the activities that you'll see us talk about from an organic investment standpoint or from a potential bolt-on acquisition standpoint is around making sure we've got a clear path to be very competitive when that competition starts for content on the next single-aisle. We love high technology, challenging, precision manufacturing kinds of systems and components. And we like components that have healthy aftermarket opportunity associated with them. So that's kind of how we think about that.
Tony Bancroft (Portfolio Manager and Research Analyst)
That's great. Thanks so much. Great job.
Chip Blankenship (Chairman and CEO)
You're welcome.
Bill Lacey (CFO)
Thanks, Tony.
Chip Blankenship (Chairman and CEO)
Thank you.
Operator (participant)
Ladies and gentlemen, that concludes today's question and answer session. Mr. Blankenship, I will now turn the conference back over to you.
Chip Blankenship (Chairman and CEO)
I'd just like to thank everyone for joining today's call. I hope you have a great day.
Operator (participant)
Ladies and gentlemen, that concludes our conference call today. A rebroadcast will be available at the company's website, www.woodward.com, for one year. We thank you for your participation on today's conference call and ask that you please disconnect your line.