Woodward Q4 Earnings Preview: FY26 Outlook Signals More Upside Ahead

Woodward's 2024 financial performance underscores a decisive pivot toward resilience and growth in its aerospace and defense segments. The company delivered a record $3.0 billion in revenue, powered significantly by a 15% surge in aerospace sales and a substantial 260 basis point expansion in operating margins. This momentum accelerated sharply in the fourth quarter, where defense original equipment manufacturer (OEM) sales jumped 40%, signaling strong demand within this critical sector.

The aerospace division's record levels were driven by robust commercial and defense programs, including the completion of the Loves Park MRO facility, while the company actively invested in future technologies like hydrogen fuel cell testing for Airbus' ZEROe program and high-pressure dual fuel injectors for renewable energy integration. Operational efficiency gains, fueled by automation and their HOP (High Output Production) initiatives, further bolstered profitability and safety across manufacturing. Looking ahead, Woodward projects continued aerospace strength with sales guidance of 6% to 13% growth for FY2025 and targets for operating margins in the 20-21% range. This optimism is tempered slightly by expectations for industrial sales to decline 7% to 11% due to ongoing volatility in China's on-highway markets. The strong cash generation, with free cash flow increasing $100 million year-over-year, provides a solid foundation to fund these strategic priorities. This defensive and aerospace-led momentum sets the stage for examining the specific tailwinds within the defense sector.

Woodward's trajectory is accelerating at a critical inflection point, leveraging dual structural advantages: deep integration with Pentagon modernization priorities and pioneering momentum in clean energy systems. The $961.6 billion FY2026 defense budget-featuring $205 billion in procurement funding and unprecedented emphasis on propulsion systems-creates immediate tailwinds for a company like Woodward. Its specialized expertise in turbine and fuel systems positions it to capture $3.4 billion allocated for the F-47 fighter jet alone, while reduced F-35 production frees up industrial capacity for next-generation platforms. This isn't just incremental opportunity; it's strategic alignment with the Pentagon's $1 trillion budget target by 2027, designed to revitalize America's industrial base. Simultaneously, Woodward's Stuttgart test center now generates hydrogen onsite via HydroCabs®, slashing external supply dependencies and advancing its clean energy portfolio. This move signals more than operational efficiency-it's a competitive moat in the rapidly scaling hydrogen economy, where early adopters gain both cost and regulatory advantages. The convergence of defense spend and green energy innovation creates a rare "two-engine thrust" scenario, setting the stage for sustained growth beyond fiscal year 2026.

Woodward's shares plunged 17.17% after the company reported a modest revenue miss but exceeded earnings expectations in Q3 2024, yet this reaction likely overstates the company's underlying strength. Analysts maintain a 2.54% upside to a $176.91 price target amid stable revenue projections of $3.28 billion-$3.39 billion through 2025. The resilience stems from record 2024 performance with $3.0 billion in revenue, 15% aerospace growth, and a 260 basis point margin expansion. Defense OEM sales surged 40% in Q4 2024, while operational initiatives like automation and hydrogen R&D are driving efficiency. Free cash flow rose $100 million year-over-year, supported by cost-saving measures including high-pressure fuel injector development for renewable energy integration. For 2025, aerospace sales growth guidance of 6%-13% and margin targets of 20%-21% outweigh industrial sales headwinds, setting the stage to execute on these growth drivers.

The market's near-term trajectory hinges on two pivotal catalysts: the passage of the defense reconciliation bill and the scaling proof points for clean energy infrastructure. Both create asymmetric opportunity for growth-oriented portfolios, demanding strategic positioning rooted in observable momentum rather than speculation. The Pentagon's FY2026 budget request signals massive near-term stimulus, with a critical $113.3 billion contingent on congressional reconciliation legislation. This includes $205 billion for procurement and $1.2 billion for R&D, heavily weighted toward advanced propulsion systems and autonomous platforms – sectors like Woodward, Inc. that supply critical components stand to benefit directly from this industrial base revitalization push. Simultaneously, Woodward's on-site hydrogen production units at its Stuttgart test center demonstrate tangible progress in scaling clean energy solutions, enhancing operational efficiency and sustainability positioning without yet impacting near-term earnings forecasts. Analyst consensus validates the long-term logic remains intact despite quarterly misses, projecting stable revenue growth for Woodward through 2025 and maintaining an 'Outperform' rating with modest upside potential. As defense funding certainty crystallizes and hydrogen scalability transitions from demonstration to deployment, sectors benefiting from both government industrial policy and underlying energy transition fundamentals offer compelling risk/reward. The path forward requires monitoring reconciliation outcomes alongside hydrogen cost curve acceleration, positioning for sustained penetration in both defense and energy markets.