Howmet Aerospace Inc. (HWM) Q4 2025 Earnings Call Transcript

Commercial Aerospace Engine Spares: Revenue up 44% for the full year, driven by both legacy and next-generation engines.

Gas Turbines: Revenue up 32% in Q4 and 25% for the full year, driven by increased demand for electricity generation, especially from natural gas for data centers. Expected to double revenue from $1 billion to $2 billion over the next 3-5 years due to strong demand for electricity generation.

Fasteners Business Acquisition: Acquired Brunner Inc. to enhance product offerings and explore new markets in fasteners.

Commercial Aerospace: Revenue up 13% in Q4 and 12% for the full year, driven by demand for new, fuel-efficient aircraft and engine spares.

Defense Aerospace: Revenue up 20% in Q4 and 21% for the full year, driven by engine spares and new F-35 aircraft builds.

EBITDA Margin: Increased 350 basis points to 29.3% for the full year, with a Q4 exit rate of 30.1%.

Free Cash Flow: Record $1.43 billion for the year, with a 93% conversion of net income.

Debt Reduction: Reduced debt by $265 million in 2025, improving net debt to trailing EBITDA to a record low of 1x.

Portfolio Enhancements: Acquired Brunner Inc. and an aerospace fasteners and fittings business for $1.8 billion to strengthen product offerings and market position.

Dividend Policy: Increased dividends by 69% year-over-year, with plans for further increases in 2026.

Commercial Transportation Revenue: Revenue was down 5% for the full year, including the pass-through of higher aluminum costs and tariffs. On a volume basis, Wheels was down 10% in the fourth quarter and down 13% for the full year.

Wide-Body Aircraft Builds: Sluggish recovery of wide-body aircraft builds along with weakness in commercial transportation impacted the Fastening Systems segment.

Commercial Truck Wheels: The market experienced a volume downturn in 2025, especially in the second half. Revenue was down 5% despite material and tariff recovery covering part of the volume downdraft.

Engine Products Segment: The addition of approximately 1,440 net new employees has a near-term margin drag, though it positions the company for future growth.

Debt Management: The company paid off $625 million 2027 notes with newly issued $500 million notes due 2032 and $125 million of cash on hand. While this reduces annualized interest expense, it reflects ongoing financial restructuring.

Gas Turbine Business: The business is entering a growth phase, but its expansion depends on the successful negotiation of contracts with key customers, with three out of seven still under negotiation.

Commercial Aerospace Engine Spares: Durability issues in modern engines due to higher operating pressures and temperatures required for increased fuel efficiency could lead to elevated spares demand.

Regulatory Processes for Acquisitions: The acquisition of a $1.8 billion aerospace fasteners and fittings business is subject to regulatory processes, which could delay its closure and impact on earnings.

Commercial Aerospace Growth: The commercial aerospace market is expected to grow due to increased air travel, particularly in Asia Pacific, North America, and Europe. Passenger demand and a multiyear underbuild of commercial aircraft have led to a record OEM backlog stretching into the next decade. New aircraft builds, including narrow-body, wide-body, and freighters, are planned to grow at all manufacturers. Spares demand is elevated due to the expanding size and aging fleet of aircraft, as well as durability issues in modern engines.

Defense Aerospace Growth: The defense aerospace market is buoyant, with steady F-35 OE builds and a large new build backlog. Spares demand for the F-35 exceeded OE demand in 2025. Other defense platforms, such as the F-15 and F-16, are also seeing new builds. Additional demand is expected from tank turbines, missiles, rocket motors, howitzers, and spare rocket parts.

Gas Turbine Market Growth: The gas turbine business is entering a significant growth phase, driven by high demand for electricity generation, especially from natural gas for data centers. The base business of approximately $1 billion is expected to double to $2 billion in revenue over the next 3 to 5 years, with further growth anticipated beyond that. The build-out of the turbine fleet ensures a growing spares market for years to come.

Commercial Truck Wheels: The commercial truck wheel segment is stabilizing at a low level and is expected to show growth in the latter half of 2026, driven by new 2027 emissions regulations.

2026 Financial Guidance: Revenue is projected at $9.1 billion (±$100 million), EBITDA at $2.76 billion (±$50 million), earnings per share at $4.45 (±$0.01), and free cash flow at $1.6 billion (±$50 million). Q1 2026 revenue is guided at $2.235 billion (±$10 million), EBITDA at $685 million (±$5 million), and EPS at $1.10 (±$0.01).

Portfolio Enhancements: Recent acquisitions, including Brunner Inc. and an aerospace fasteners and fittings business, are expected to enhance product offerings and open new markets. These actions strengthen the portfolio for future growth, particularly in commercial aerospace and gas turbines.

Dividends Paid in 2025: $181 million in dividends were paid, representing an increase of 69% year-over-year. The dividend rate was set at 15% ± 5% of adjusted net income. The dividend per share increased from $0.26 in 2024 to $0.44 in 2025.

Future Dividend Outlook: The company expects the dollar value of dividend distributions in 2026 to be higher than in 2025.

Share Buybacks in 2025: $700 million worth of common stock was repurchased at an average price of $161 per share, retiring approximately 4.4 million shares. Q4 marked the 19th consecutive quarter of share repurchases.

Share Buybacks in Early 2026: An additional $150 million worth of common stock was repurchased at an average price of $215 per share. The remaining authorization for share repurchases is approximately $1.35 billion.