Woodward (NASDAQ:WWD) reported a strong start to fiscal 2026, with management citing robust demand across both its aerospace and industrial segments and improved execution as key drivers of first-quarter outperformance. Chairman and CEO Chip Blankenship said the company is focused on increasing output to meet rising demand while continuing to work through ongoing supply chain alignment challenges that have kept inventory levels elevated.
First-quarter results reflect strong demand and execution
Chief Financial Officer Bill Lacey said first-quarter fiscal 2026 net sales rose 29% year-over-year to $996 million. Earnings per share were $2.17, compared with $1.42 in the prior-year quarter. Woodward generated $70 million of free cash flow in the quarter, which Lacey said was stronger than the company’s historical first-quarter performance.
Aerospace: services strength and margin expansion
Aerospace segment sales increased 29% to $635 million. Lacey said the growth was driven primarily by commercial services, which increased 50% due to higher volumes supporting sustained high utilization of legacy aircraft and increased LEAP and GTF activity. Woodward also saw significantly higher Spare LRU volumes during the quarter, primarily for China, which management said appeared to be driven by customer under-provisioning rather than pull-forward demand.
Blankenship noted that activity was robust across narrowbody, widebody, and regional platforms. He said LEAP, GTF, and legacy narrowbody repair volume increased year-over-year and was relatively flat versus the fourth quarter of fiscal 2025. He also highlighted elevated spare LRU provisioning orders that the company was able to deliver.
Aerospace segment earnings were $148 million, or 23.4% of segment sales, compared with $95 million, or 19.2%, in the prior-year quarter. The 420 basis point margin improvement was attributed to price realization (including new JDAM pricing that took effect last quarter), higher volumes, and favorable mix from strong commercial services growth, partially offset by strategic manufacturing investments and inflation.
During Q&A, management cautioned that it is not forecasting spare LRU sales at the elevated levels seen in the last couple of quarters and does not expect the same pace of commercial services growth as comparisons become more difficult. Lacey also explained that aerospace margin guidance did not increase despite a higher sales outlook because the company expects increased OEM sales mix in the remaining quarters to temper margins.
Industrial: broad-based growth; China On-Highway wind-down planned
Industrial segment sales grew 30% to $362 million. Lacey said core industrial sales (excluding China On-Highway) rose 22% on broad-based growth across end markets, as well as price and foreign exchange. By end market, marine transportation sales increased 38%, oil and gas rose 28%, and power generation increased 7%. Lacey noted that power generation results reflected the combustion business divestiture in the prior year; excluding the divestiture impact (about $15 million per quarter), power generation sales grew in the mid-20% range on a percentage basis.
China On-Highway sales were $32 million in the quarter, higher than planned. Lacey characterized the business as volatile and said the result further demonstrated limited visibility and quarter-to-quarter swings.
Industrial segment earnings were $67 million, or 18.5% of segment sales, compared with $40 million, or 14.4%, a year ago. Core industrial margins expanded 200 basis points to 17.3%, driven by higher volumes, price realization, and favorable mix, partially offset by inflation. China On-Highway contributed an additional 210 basis points of margin expansion, according to Lacey.
Blankenship said Woodward recently made a strategic decision to wind down its China On-Highway product lines by the end of fiscal 2026, citing inconsistent revenue and profitability and limited order visibility. Lacey said the company expects $20 million to $25 million of restructuring-related costs, largely people-related and cash, plus potential costs tied to contract cancellations and lingering inventory. The company expects China On-Highway sales of roughly $60 million for fiscal 2026 and does not expect revenue to “leak over” into fiscal 2027.
Operations, capacity investments, and supply chain constraints
Blankenship said Woodward is expanding services capacity to address demand and improve turnaround times. He highlighted planning work to add square footage and optimize layout at its Prestwick, Scotland MRO facility, and additional test-stand commissioning and layout optimization efforts in Rockford. He also said Woodward is partnering with industry MRO providers through licensed support offerings to provide customers additional capacity and choice; Woodward expects to support those providers with technical support, materials, documentation, and kits.
Despite improvements, management said supply chain and capacity constraints remain a central issue. Blankenship said Woodward still has “30-ish” suppliers on risk watch and that missing one or two parts can delay key deliveries—one reason inventory remains higher than desired. He said the company does not expect inventory turns to improve as much as it would like in fiscal 2026, with the impact of process improvements likely arriving in late calendar 2026 or early 2027.
Guidance raised; free cash flow outlook unchanged
Based on the first-quarter outperformance, Woodward raised its fiscal 2026 sales and EPS guidance while reaffirming other elements of its outlook. Lacey said the updated assumptions incorporate the first-quarter upside while leaving the outlook for the remaining quarters largely unchanged, reflecting that two key upside drivers—spare LRU strength and China On-Highway revenue—are not expected to repeat at the same level.
- Aerospace: sales growth of 15% to 20%, margins of 22% to 23%
- Industrial: sales growth of 11% to 14%, margins of 16% to 17%
- Consolidated: sales growth of 14% to 18%, EPS of $8.20 to $8.60
- Free cash flow: $300 million to $350 million (unchanged)
Lacey said free cash flow guidance was held steady despite higher earnings because the company expects to maintain higher working capital, mainly inventory, to ensure it can meet customer demand while supply chain efficiency improves. He also said capital spending is expected to increase meaningfully over the remaining three quarters, driven primarily by the Spartanburg facility buildout and other automation projects.
On pricing, Lacey said Woodward saw about 8% price contribution at the company level in the quarter, above its prior full-year expectation of 5%, and said the company is revising its full-year pricing expectation to closer to 7%.
As of Dec. 31, 2025, Woodward’s debt leverage was 1.2 times EBITDA. Lacey said the company continues to allocate capital toward organic growth, selective M&A, and shareholder returns, with fiscal 2026 guidance still assuming $650 million to $700 million returned through dividends and share repurchases.
About Woodward (NASDAQ:WWD)
Woodward, Inc (NASDAQ: WWD) is a global leader in the design, manufacture and service of control systems and components for the aerospace and industrial markets. Founded in 1870 and headquartered in Fort Collins, Colorado, the company specializes in motion control, fuel systems, actuation, and digital control solutions. Its offerings enable precision management of flow, pressure and motion in critical applications ranging from aircraft engines and power turbines to hydraulic systems.
Woodward’s product portfolio is organized into two primary segments: Aerospace and Industrial.
