Woodward, Inc. (WWD) | The Buildout — AI Infrastructure
The Verdict
Woodward designs and manufactures control solutions for aerospace and industrial markets, spanning fuel, air, combustion, motion, and energy management. Its AI-infrastructure role is indirect and sits in industrial power generation: L'Orange high-speed diesel fuel injection systems for large reciprocating engines used in data-center backup power, plus gas-turbine fuel controls and actuation for base and backup power.
| Market Cap | — |
| Revenue (TTM) | $4.2B |
| Revenue Growth | +22.4% |
| EBITDA Margin (TTM) | 18.9% |
| Net Debt | $867M |
| Earnings Beats | 7 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Remaining performance obligations were $3,777,552 thousand at March 31, 2026, up 18.2% in six months, with almost all expected to convert within two years.
- Quarterly net sales reached $1.1 billion in Q2 FY2026 for the first time and held at $1.1 billion in Q3 FY2026, up 21% year over year.
- Q3 Aerospace sales of $709 million grew 19%, and Industrial sales of $401 million grew 26%.
- Power Generation sales rose 19% in Q3 FY2026, and customers are raising forecasts for 2027, 2028, and beyond into the early 2030s.
- The Glatten high-speed fuel-injection expansion completed on schedule and on budget, already supporting Rolls-Royce's mtu Solutions power-generation demand.
What We’re Watching
- One-time items flattered Q3 segment margins: about 100 bps of Aerospace retroactive pricing, about 90 bps of China on-highway contribution, and favorable Industrial mix management says reverses in Q4.
- An undisclosed product performance claim reserve depressed Q2 Industrial margin; management declined to quantify it, citing legal process.
- Company-wide price realization was 10% in Q3; management expects a more normal forward rate of 3%–5% after the long-term agreement repricing cycle.
- Free cash flow guidance stayed at $300–350 million despite two EPS raises because inventory is deliberately funded; management expects improvement in 2027.
Thesis is strengthening: both segments are growing double digits, firm orders are building, and the power-generation capacity stance has shifted from 'enough capacity' to evaluating expansion. But the latest quarter's margin strength is partly one-time, and a product-claim overhang remains unresolved. The open question is whether customer forecast increases convert into formal capacity decisions and orders at the March 4, 2027 Investor Day.
Earnings Beat
Woodward reported Q3 FY2026 net sales of $1.1 billion, up 21% year over year, with gross margin of 31.5%. Adjusted EPS was $2.52, up 43% from $1.76 a year earlier; free cash flow was $87 million for the quarter.
| Metric | Q3 FY2026 | Q2 FY2026 | Q3 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $1.1B | $1.1B | $915M | +21.2% |
| Gross margin | 31.5% | 29.0% | 27.2% | +430bps |
| EBITDA | $226M | $197M | $149M | +52.1% |
| EPS | $2.39 | $2.18 | $1.77 | +35.6% |
| Power Generation sales growth | +19% y/y | +7% reported y/y | n/a | Accelerated from Q2 |
In the many years I’ve attended the show, I can’t remember another time when the industry remained so calm and collected during a period of such significant growth for current generation products and services.— Chip Blankenship, July 29, 2026
Management tone: Management tone was constructive, calm, and confident. Executives volunteered one-time items and mix effects rather than waiting to be cornered, were direct on demand and pricing, and deflected only on the product performance claim reserve by citing a legal process.
Management Guidance
Management raised FY2026 adjusted EPS guidance to $9.30–$9.50 from $9.15–$9.45, lowered the Aerospace sales growth top end to +23% while guiding margin to approximately 23.5%, and raised Industrial sales growth to +19%–+21% with segment margin at approximately 19%. Free cash flow was held at $300–350 million and capex at approximately $290 million. The company expects an adjusted effective tax rate of approximately 22.5% and full-year shareholder returns of approximately $700 million.
Trajectory
Trailing twelve-month revenue reached $4,192.1 million, up 22.4% year over year, with EBITDA of $792.1 million at an 18.9% margin. Q3 FY2026 gross margin rose to 31.5%, and EBITDA margin reached 20.4%, but management flagged one-time items: roughly 100 bps of Aerospace retroactive pricing, China on-highway contribution, and favorable mix that is expected to reverse in Q4. Cash conversion is the lagging piece, with trailing free cash flow at 68% of net income as inventory and receivables absorb cash.
The Model
The model projects FY+1 revenue of $4,370M and EBITDA of $913M, a 20.9% margin, rising to FY+2 revenue of $4,820M and EBITDA of $1,027M, a 21.3% margin. Near-term revenue is anchored by the $3.78B remaining performance obligation balance and double-digit segment growth; FY+2 depends on power-generation capacity decisions and aerospace aftermarket conversion.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $3.6B | $4.4B | $4.8B |
| YoY Growth | — | +22.5% | +10.3% |
| EBITDA | $602M | $913M | $1.0B |
| EBITDA Margin | 16.9% | 20.9% | 21.3% |
Projections are the median of 5 independent model runs. The model’s revenue sits 2.8% above analyst consensus.
Management raised FY2026 adjusted EPS guidance to $9.30–$9.50 from $9.15–$9.45, lowered the Aerospace sales growth top end to +23% while guiding margin to approximately 23.5%, and raised Industrial sales growth to +19%–+21% with segment margin at approximately 19%. Free cash flow was held at $300–350 million and capex at approximately $290 million. The company expects an adjusted effective tax rate of approximately 22.5% and full-year shareholder returns of approximately $700 million.
What Could Go Right — and Wrong
- Power-generation customer forecast increases convert into signed contracts and a formal capacity-expansion decision at the March 4, 2027 Investor Day.
- LEAP/GTF repair-only revenue crosses legacy narrow-body by end-2026 or sometime in 2027, extending aftermarket mix.
- Licensed MRO partnerships with Lufthansa Technik, Air France KLM, HAECO, and AAR begin contributing in 2027 once test stands are installed and calibrated.
- Automation and lean initiatives offset price normalization; the target is about 1,000 fewer incremental hires by 2029.
- Defense accelerates beyond management's near-term expectations, adding demand that the current plan does not require.
- Castings, forgings, and rare earth metal constraints bite within the next few quarters, delaying conversion of the $3.78B RPO.
- Management expects spare LRU volume to ease slightly in Q4 from Q3, which could signal aftermarket normalization.
- The product performance claim reserve expands in size or scope; its substance and recurrence risk remain undisclosed.
- Power-generation forecasts are walked back after Woodward commits capital, leaving underutilized capacity and higher fixed costs.
- Price normalizes from 10% to 3%–5% faster than productivity and volume can offset.
Looking Ahead
The next twelve months center on whether the power-generation demand wave converts into committed capacity and whether aerospace aftermarket remains resilient. Q4 FY2026 will show whether core Industrial margin returns toward first-half levels and whether inventory initiatives begin to improve free cash flow. By fiscal year-end, the Ontic divestiture is expected to close and the China on-highway wind-down is expected to be substantially complete. The March 4, 2027 Investor Day is the key event for capacity strategy, Industrial margin potential, aftermarket growth, and next-generation positioning.
- Q4 FY2026Q4 FY2026 results — Tests core Industrial margin reversion and free cash flow against unchanged guidance.
- End FY2026Ontic divestiture close — Expected close by fiscal year-end; $180M proceeds subject to adjustment.
- End FY2026China on-highway wind-down — Minimal/no Q4 sales; restructuring substantially complete by end FY2026.
- March 4, 2027Investor Day in New York City — Capacity strategy, Industrial margin potential, aftermarket growth, next-gen positioning.
- 2027Spartanburg facility operational — A350 spoiler deliveries start 2028; Niles JDAM line relocated.
- 2027Licensed MRO network scales — Test stands installed; Lufthansa Technik, Air France KLM, HAECO begin repair.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $3.3B | $3.6B | $4.2B | +7.3% |
| Gross Margin | 26.4% | 26.7% | 29.5% | +32bps |
| EBITDA | $559M | $602M | $4.7B | +7.6% |
| EBITDA Margin | 16.8% | 16.9% | 18.9% | +5bps |
| Net Income | $373M | $442M | $552M | +18.5% |
| Free Cash Flow | $343M | $340M | $2.7B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)29.5%
- EBITDA Margin (TTM)18.9%
- Net Margin (TTM)13.2%
- ROIC15.9%
- FCF Conversion47.5%
- SBC / Revenue0.8%
The Company
Woodward is an independent designer, manufacturer, and services provider of control solutions for aerospace and industrial markets. Its aerospace products govern fuel, air, combustion, and motion control through fuel pumps, metering units, actuators, air valves, fuel nozzles, thrust reverser actuation systems, flight deck controls, servocontrols, motors, and sensors. Its industrial products manage fuel, air, fluids, gases, motion, combustion, and electricity through actuators, valves, pumps, fuel injection systems, solenoids, ignition systems, control systems, electronics and software, and sensors. These controls sit inside jet engines, gas turbines, and large reciprocating engines, tying Woodward to airframer build rates and power generation demand.
The company operates a global footprint across owned and leased facilities in Fort Collins, CO; Greer, SC; Niles, IL; Rockford, IL; Santa Clarita, CA; Windsor, CO; Zeeland, MI; Aken, Glatten, Stuttgart, and Wolfratshausen, Germany; Krakow, Poland; Suzhou and Tianjin, China; Prestwick, UK; and Sofia, Bulgaria. It is actively reshaping that footprint: the Valve Research & Manufacturing acquisition closed April 1, 2026 for $120,972 thousand cash, the pilot controls product line is being sold to Ontic for $180,000 thousand, and the recently acquired Canada electronic products facility is being closed with production transferred to Poland and Bulgaria. Expansion projects include Spartanburg, SC for A350 spoiler actuation and the completed Glatten, Germany high-speed fuel-injection expansion.
Business Segments
Competitive Landscape
The FY2025 10-K names Emerson, EControls, Heinzmann GmbH & Co., Hoerbiger, Meggitt, Robert Bosch AG, and Triconix as competitors in the industrial product space. Woodward's position is product-line-specific: it owns meaningful positions in fuel controls, thrust reverser actuation, servocontrols, and large-engine fuel injection, but competes against much larger controls companies and engine OEMs' in-house capabilities.
- EmersonNamed in FY2025 10-K industrial competitor list; not discussed.
- EControlsNamed in FY2025 10-K industrial competitor list; not discussed.
- Heinzmann GmbH & Co.Named in FY2025 10-K industrial competitor list; not discussed.
- MeggittNamed in FY2025 10-K industrial competitor list; not discussed.
Supply Chain
Woodward sits between engine OEMs and large power-generation equipment makers, supplying fuel controls, injectors, and actuators. The FY2025 10-K discloses customer concentration with Rolls-Royce PLC and Caterpillar Inc. at 10%+ of Industrial segment net sales, but the provided source material does not include separate supplier or neighbor-transcript detail.
More on WWD: Earnings recap