Howmet's Q3 2025 Earnings Call: Contradictions in IGT Demand, Growth vs. Margins, and Capacity Expansion

Date of Call: October 30, 2025

Financials Results

• Revenue: Up 14% YOY (company described Q3 as a record quarter; Commercial Aerospace > $1.1B)
• EPS: $0.95 per diluted share, up ~34% YOY

Guidance:

• Q4 2025: Revenue $2.1B ± $10M; EBITDA $610M ± $5M; EPS $0.95 ± $0.01.
• FY2025: Revenue $8.15B ± $10M; EBITDA $2.375B ± $5M; EPS $3.67 ± $0.01; Free cash flow $1.3B ± $25M.
• 2026: Revenues ~ $9B (about +10% year-on-year); detailed guidance to be refined in Feb 2026.
• CapEx expected to remain elevated into 2026–2027 to support engines and IGT capacity expansion.

Business Commentary:

• Revenue and Earnings Growth:
• Howmet Aerospace reported revenue growth of 14% in Q3, with the Commercial Aerospace segment up 15% and Defense Aerospace up 24%.

• This growth was driven by increased demand for engine spares and a record backlog for new, more fuel-efficient aircraft.

• Strong Cash Flow and Debt Reduction:

• The company generated a healthy free cash flow of $423 million, after capital expenditures of $108 million.

• Howmet reduced debt by $140 million and paid off the U.S. term loan early, resulting in a net leverage ratio of 1.1x.

• Share Buybacks and Dividend Increases:

• Howmet deployed $200 million in share buybacks during Q3 and an additional $100 million in October, totaling $600 million year-to-date.

• Dividend payments were increased by 20% in August, enhancing shareholder value.

• Investment in Gas Turbines and IGT:

• Investment in the industrial gas turbines and IGT market is expected to increase, driven by the demand for electricity to support data center growth.
• The company is expanding its manufacturing capabilities to address the requirement for sophisticated turbine technology in both aerospace and IGT sectors.

Sentiment Analysis:

Overall Tone: Positive

• Management called Q3 "a very strong quarter" with revenue up 14%, EBITDA up 26% to >$600M and EBITDA margin +290 bps to 29.4%; free cash flow of $423M; net leverage improved to 1.1x and S&P upgraded rating to BBB+.

Q&A:

• Question from Kristine Liwag (Morgan Stanley): Can you provide more color on the competitive landscape for turbines and IGT, how differentiated is your technology, the pricing environment, and expected returns in this sector compared with aerospace?
  Response: Data‑center demand is driving strong midsized/large turbine demand; Howmet is expanding capacity and advanced core/cooled‑blade technology (new plants, casting machines) to serve OEMs (Mitsubishi, Siemens, GE), with economics comparable to aerospace and attractive returns while maintaining high free‑cash‑flow conversion targets.

• Question from Myles Walton (Wolfe Research): The $9B 2026 target implies end‑market growth — will 2026 be another year of very high incrementals after the strong recent quarters?
  Response: Management deferred detailed incremental/margin guidance to February, noted Q3 incrementals near ~50%, and expects 2026 demand drivers: stronger commercial aero (higher narrowbody/widebody builds), mid‑single‑digit defense growth and low‑double‑digit industrial growth supporting the $9B view.

• Question from Mariana Perez Mora (BofA Securities): On commercial aero, how should we think about destocking trends and aftermarket/spare engine trends despite expected OE ramp? And on IGT, how sensitive is guidance to timing of incremental capacity coming online?
  Response: Destocking appears essentially complete; engine spares demand (CFM56, GTF/B2500) should remain very strong into 2026; IGT sees both OE and spares strengthening in 2026, with some sensitivity to timing of new capacity but overall positive demand trajectory.

• Question from Mariana Perez Mora (BofA Securities): How are tariffs/raw‑material pass‑throughs today and what is the risk heading into next year?
  Response: Pass‑through capability is strong under contracts; recent tariff movements have been volatile but net drag remains small (sub ~$5M for the year) and is expected to be immaterial going into 2026.

• Question from Sheila Kahyaoglu (Jefferies): Given record margins, low leverage and expansion opportunities, what is Howmet's end state over the next few years?
  Response: Priority is growth driven by technology and scale — expand automation, digital‑thread and AI to improve yields and enable next‑gen products; growth (via capacity and tech) will be a larger value driver over the next five years while margins continue to improve.

• Question from Noah Poponak (Goldman Sachs): Are current high incrementals driven more by price or productivity, and can you sustain above‑historical incremental margins into 2026?
  Response: Incrementals are a mix of volume leverage, automation, yield, content and price; labor/hiring is a near‑term drag; management expects continued healthy incrementals but is reserving specific 2026 guidance until February.

• Question from Scott Deuschle (Deutsche Bank): Should we expect flattish or higher CapEx in 2026/2027 versus 2025, and does the mix shift toward IGT or remain aerospace‑focused?
  Response: CapEx will remain elevated into 2026/2027 and may increase further; majority of absolute dollars will still go to aerospace but IGT (large and midsized) will represent a higher relative mix; both segments have similar economics and investments are customer‑backed.

• Question from Michael Ciarmoli (Truist Securities): Are you overearning on aerospace spares now and will that normalize as scopes revert to normal?
  Response: No evidence of over‑earning in the near term; short‑term spares pricing aligns with OE pricing and management expects spares volume to increase every year through the end of the decade.

Contradiction Point 1

Demand and Production in Industrial Gas Turbines (IGT)

It highlights differing expectations regarding demand and production in the Industrial Gas Turbines segment, which impacts revenue projections and operational planning.

Can you clarify the competitive landscape for turbines and IGT, including technology differentiation, pricing environment, and sector returns compared to aerospace? - Kristine Liwag (Morgan Stanley)

2025Q3: The demand for electricity to power data centers is extraordinary, with both large industrial gas turbines and midsized turbines being installed. - John Plant(CEO)

How does the strong industrial growth in Engine Products rely on long-term agreements, and how do IGT margins compare to commercial aviation margins? - Douglas Stuart Harned (Sanford C. Bernstein & Co., LLC)

2025Q2: We continue to believe the growth in the IGT segment will be the most significant over the next several years, driven by demand from data centers and industrial processes. - John Plant(CEO)

Contradiction Point 2

Future Growth and Investment Strategy

It involves differing expectations regarding future growth and investment strategies, which could impact investor sentiment and strategic decision-making.

What's Howmet's projected end state over the next few years, considering its financial strength and expansion opportunities? - Shelia Kahyaoglu (Jefferies)

2025Q3: Future growth is expected to be more significant than margin improvement. - John Plant(CEO)

What is the expected contribution timeline for the aero and IGT engine expansions? Will these expansions be dilutive to segment profitability? - Sheila Karin Kahyaoglu (Jefferies LLC)

2025Q2: We are very excited about our prospects over the next several years with significant growth opportunities. - John Plant(CEO)

Contradiction Point 3

Demand and Capacity Expansion in Industrial Gas Turbines (IGT)

It involves differing expectations about the demand and capacity expansion in the IGT segment, which could impact investment strategies and resource allocation within the company.

Can you explain the competitive landscape for turbines and IGT, including technology differentiation, pricing environment, and expected returns relative to aerospace? - Kristine Liwag (Morgan Stanley)

2025Q3: The demand for electricity to power data centers is extraordinary, with both large industrial gas turbines and midsized turbines being installed. Technology is evolving from solid to core turbine blades for higher temperature capabilities. The investment profile is similar to aerospace, focusing on sophisticated technology for both turbines. Howmet is expanding manufacturing capabilities in Japan, Europe, and the U.S. to meet demand, with high CapEx expected for 2026 and 2027. - John Plant(CEO)

What assumptions are in the cash guide for working capital, and is a high share buyback expected in 2025? - David Strauss (Barclays)

2024Q4: Demand for natural gas and industrial gas turbines has increased with a focus on data centers. Howmet plans to add capacity over the next few years. There's potential for growth in sales revenue and margins as Howmet is a leading provider of critical components. - John Plant(CEO)

Contradiction Point 4

Margin Expectations and Growth Drivers

It involves differing expectations about margin performance and growth drivers, which are crucial for assessing the company's financial health and growth prospects.

What is the implied end market growth for the $9 billion 2026 revenue target and does this reflect high incremental margins again? - Myles Walton (Wolfe Research)

2025Q3: Incremental margins for 2026 will be satisfactory but underwhelming compared to expectations. Commercial Aerospace will have higher build rates, especially for narrow bodies and wide bodies. Defense sales are expected to increase mid-single digits. The industrial segment, including oil and gas and IGT, should grow into double digits. Overall, margins are expected to be strong. - John Plant(CEO)

Can you explain the expected Q1 2025 margins and incremental trends? Why do they appear to decline? - Myles Walton (Wolfe Research)

2024Q4: We continue to expect 2024 revenue to be approximately $7.6 billion, including the impact of the 737 MAX production rate reductions. We expect 2024 adjusted EBITDA to be approximately $1.8 billion, with adjusted EBITDA margins of approximately 23.5%. Our outlook assumes no additional disruptions beyond those currently included. - John Plant(CEO)