Woodward Capitalizes on OEM Sales Growth to Beat Q1 Expectations, Raises Full-Year Guidance

Woodward, Inc. (WWD) delivered an impressive first quarter for fiscal 2026, with strong OEM sales momentum across both its core business segments propelling the company to significantly outperform Wall Street expectations. The aerospace and industrial equipment manufacturer reported adjusted earnings per share of $2.17, representing a 60.7% year-over-year surge that exceeded the Zacks Consensus Estimate by 31.5%. This exceptional bottom-line performance was complemented by robust top-line results, as quarterly net sales reached $996 million, marking a 29% year-over-year increase and surpassing the consensus estimate by 10.1%. Management attributed this strong execution to broad-based demand across both segments, with particular strength in OEM channels driving incremental revenue and margin expansion.

The company’s operational excellence and disciplined execution across global teams enabled it to capitalize on favorable market conditions. In response to this strong quarter, Woodward raised its full-year fiscal 2026 guidance for both sales and earnings, signaling management confidence in sustained momentum. Post-announcement, the stock surged 15% in after-hours trading. Over the past 12 months, Woodward shares have appreciated 78.3%, substantially outpacing the Zacks Aerospace - Defense Equipment industry’s 39.9% gain.

Aerospace Segment: OEM Sales and Commercial Services Lead Growth

The Aerospace division generated net sales of $635 million, reflecting a 29% year-over-year increase fueled by balanced growth across commercial services, commercial OEM and defense OEM channels. Within this segment, defense OEM and defense services sales climbed 23% and 1%, respectively, compared with the year-ago period. Commercial OEM sales surged 22% year-over-year, while commercial services activity jumped an impressive 50%, underscoring strong demand from both original equipment manufacturers and aftermarket service providers.

Segmental earnings reached $148 million, compared with $95 million in the prior-year quarter, representing a substantial 56% increase. This earnings expansion was supported by multiple drivers: effective price realization across OEM contracts, favorable product mix favorable to higher-margin business, and robust sales volume growth. These gains were partially offset by planned capital investments in Aerospace manufacturing expansion and ongoing inflationary cost pressures. Notably, aerospace margins expanded 420 basis points to 23.4%, demonstrating the company’s ability to convert revenue growth into bottom-line leverage.

Industrial Segment: Diversified Market Strength Supports Sales Expansion

The Industrial segment posted net sales of $362 million, representing 30% year-over-year growth across multiple end markets. Transportation sales jumped 55%, while oil and gas sales advanced 28%, reflecting broad-based demand. Power generation grew 7%, a modest pace that primarily reflected the prior-year sale of the combustion business. Excluding this divestiture impact, power generation would have grown in the mid-20s percentage range. On a core basis excluding China on-highway operations, industrial sales expanded 22%, highlighting underlying demand strength.

Segmental earnings surged to $67 million from $40 million a year ago, a 67.5% increase. Core industrial margins expanded 410 basis points to 18.5% of sales, driven by favorable pricing dynamics, higher volumes, and advantageous product mix, though partially constrained by inflationary pressures. This margin expansion mirrors the Aerospace segment’s operational leverage and management’s effective execution.

Financial Strength: Improving Cash Generation and Returns to Shareholders

Gross margin expanded 480 basis points year-over-year to 29.3%, reflecting the positive operating leverage embedded in Woodward’s cost structure. Total operating costs and expenses reached $827.3 million, rising 23.3% compared with the prior year, while adjusted EBITDA surged to $207.8 million from $134.9 million, a 54% increase.

Cash flow generation accelerated substantially in the quarter. Woodward generated $114.4 million from operating activities, compared with just $34.5 million a year ago, representing 232% growth. Free cash flow reached $70 million versus $1 million in the prior-year period, a remarkable turnaround driven by strong aerospace commercial services activity and higher China on-highway revenue within the Industrial segment. Notably, the company did not experience the typical seasonal revenue decline and maintained steady production levels despite fewer working days during the quarter.

Capital expenditures totaled $44 million in Q1, up from $34 million, with management signaling that capital spending will increase meaningfully over the remaining three quarters. This investment wave is primarily driven by the Spartanburg facility expansion and ongoing automation initiatives that will support future productivity and capacity.

From a shareholder perspective, Woodward returned $146 million to shareholders through $17 million in dividends and $129 million in share repurchases, demonstrating management’s confidence in long-term value creation.

As of December 31, 2025, the company maintained a healthy balance sheet with $454.3 million in cash and cash equivalents against $457 million in long-term debt, providing financial flexibility for ongoing investments and capital returns.

Full-Year Guidance Reflects Sustained Momentum

Buoyed by the strong first-quarter performance and continued robust demand environment, Woodward raised its fiscal 2026 guidance substantially. The company now expects consolidated net sales to increase 14% to 18% compared with the previous expectation of 7% to 12%, representing a meaningful upward revision.

By segment, Aerospace is projected to grow 15% to 20% (previously 9% to 15%), while Industrial is anticipated to increase 11% to 14% (prior expectation of 5% to 9%). These elevated growth projections underscore management’s conviction regarding sustained market demand and the company’s ability to capitalize on OEM and commercial opportunities throughout the aerospace and industrial sectors.

Regarding profitability, Aerospace segment earnings are still expected to represent 22% to 23% of segment sales, while Industrial segment earnings margins are estimated to be 16% to 17%, an improvement from the prior guidance of 14.5% to 15.5%, signaling continued margin expansion potential. Adjusted and free cash flow is anticipated to remain between $300 million and $350 million, supporting ongoing capital investments and shareholder returns.

Additionally, management raised adjusted EPS guidance to the $8.2-$8.6 range from the previous $7.5-$8.0 expectation. The company intends to complete the wind-down of its China on-highway business by the end of fiscal 2026, a strategic move to optimize the portfolio.

Woodward currently carries a Zacks Rank #2 (Buy) rating, reflecting analyst confidence in the company’s trajectory.

Industry Peers Show Mixed Performance

The broader aerospace and defense equipment sector displayed varied performance momentum. Teledyne Technologies Inc. (TDY) reported fourth-quarter 2025 adjusted earnings of $6.30 per share, surpassing the Zacks Consensus Estimate of $5.83 by 8.1%. Total sales reached $1.61 billion, exceeding the estimate by 2.7% and growing 7.3% year-over-year.

Textron Inc. (TXT) reported fourth-quarter adjusted earnings of $1.73 per share, narrowly missing the estimate of $1.74 but demonstrating 29.1% year-over-year improvement. Revenues of $4.18 billion outpaced expectations by 0.8% and grew 15.7% year-over-year.

Hexcel Corporation (HXL) posted fourth-quarter adjusted earnings of 52 cents per share, in line with the year-ago quarter but beating the estimate of 50 cents by 4%. Net sales totaled $491.3 million, exceeding expectations and growing 3.7% year-over-year, though at a more moderate pace than peers.