Note 22. Commitments and contingencies
Woodward is currently involved in claims, pending or threatened litigation or other legal proceedings, investigations and/or regulatory proceedings arising in the normal course of business, including, among others, those relating to product liability claims, employment matters, worker’s compensation claims, contractual disputes, product warranty claims, and alleged violations of various laws and regulations. Woodward accrues for known individual matters using estimates of the most likely amount of loss where it believes that it is probable the matter will result in a loss when ultimately resolved and such loss is reasonably estimable. Legal costs are expensed as incurred and are classified in “Selling, general and administrative expenses” on the Condensed Consolidated Statements of Earnings.
Woodward is partially self-insured in the United States for healthcare and worker’s compensation up to predetermined amounts, above which third-party insurance applies. Management regularly reviews the probable outcome of related claims and proceedings, the expenses expected to be incurred, the availability and limits of the insurance coverage, and the established accruals for liabilities.
While the outcome of pending claims, legal and regulatory proceedings, and investigations cannot be predicted with certainty, management believes that any liabilities that may result from these claims, proceedings, and investigations will not have a material effect on Woodward’s liquidity, financial condition, or results of operations.
Under the Company’s severance and change in control agreements with its current corporate officers, Woodward would be required to pay termination benefits to any such officer if such officer’s employment is terminated without Cause or for Good Reason (as each term is defined therein). The amount of such benefits would vary depending on whether such termination occurs during a specified period within a change of control.
Note 23. Segment information
Woodward’s segments are composed of similar product groupings that serve the same or similar end markets. Based on this approach, Woodward has two reportable segments that are also its operating segments: Aerospace and Industrial, as described below in further detail. Woodward uses segment information internally to manage its business, including the assessment of segment performance and decisions for the allocation of resources between segments.
Our Aerospace segment designs, manufactures, and services systems and products for the management of fuel, air, combustion, and motion control. These products include fuel pumps, metering units, actuators, air valves, specialty valves, fuel nozzles, and thrust reverser actuation systems for turbine engines and nacelles, as well as flight deck controls, actuators, servocontrols, motors, and sensors for aircraft. These products are used on commercial and private aircraft and rotorcraft, as well as on military fixed-wing aircraft and rotorcraft, guided weapons, and other defense systems.
Our Industrial segment designs, produces, and services systems and products for the management of energy in the form of fuel, air, fluids, gases, motion, combustion, and electricity. These products include actuators, valves, pumps, fuel injection systems, solenoids, ignition systems, control systems, electronics and software, and sensors. Our products are used on industrial gas turbines (including heavy frame, aeroderivative, and small industrial gas turbines), steam turbines, compressors, and reciprocating engines (including low speed, medium speed, and high-speed engines that operate on various fuels, including natural gas, diesel, heavy fuel oil, and new lower carbon alternative fuels in both single and dual-fuel applications). The equipment on which our products are found is used to: generate power; to extract, distribute, and refine energy sources; to mine other commodities; and to convert fuel to work in transportation and freight (both marine and locomotives), mobile, and industrial equipment applications.
Nonsegment expenses consist of corporate office expenses, including compensation, benefits, depreciation, restructuring charges, and other administrative costs.
The accounting policies of the reportable segments are the same as those of the Company. The Aerospace and Industrial segments maintain separate financial information that is reviewed by the Chief Operating Decision Maker (“CODM”), who is the Company’s Chief Executive Officer. The CODM uses forecast-to-actual variances and year-over-year variances on a monthly basis when assessing segment performance and forecasts in deciding how to allocate resources among the segments. The CODM evaluates the performance of the Company’s segments based on reportable segment operating profit. In connection with that assessment, Woodward generally excludes matters such as certain charges for restructuring, interest income and expense, certain gains and losses from asset dispositions, or other unusual and/or non-operationally related expenses.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Form 10-Q"), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are statements that are deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of management. Words such as “anticipate,” “believe,” “estimate,” “seek,” “goal,” “expect,” “forecast,” “intend,” “continue,” “outlook,” “plan,” “project,” “target,” “strive,” “can,” “could,” “may,” “should,” “will,” “would,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characteristics of future events or circumstances are forward-looking statements. Forward-looking statements may include, among others, statements relating to:
•future sales, earnings, cash flow, uses of cash, and other measures of financial performance, including our assumptions underlying our expectations;
•trends in our business and the markets in which we operate, including expectations for those markets, our customers and their business and products;
•our ability to manage risks from operating internationally, including the impacts of tariffs on our markets in which we operate as well as our supply chain;
•expectations regarding demand for our products;
•our expected expenses in future periods and trends in such expenses over time;
•our expectations regarding margins and the impact of specific products, product mix, and our strategic actions on margins;
•descriptions of our plans and expectations for future operations, including our strategic initiatives and impact of such initiatives;
•plans and expectations relating to the performance of our joint venture with GE Aerospace;
•the expected levels of activity in particular industries or markets and the effects of changes in those levels;
•the scope, nature, or impact of acquisition activity and integration of such acquisition into our business;
•the impact of restructuring activities;
•the research, development, production, and support of new products and services;
•our plans, objectives, expectations, and intentions with respect to business opportunities that may be available to us;
•our liquidity, including our ability to meet capital spending requirements and operations;
•future dividends and repurchases of common stock;
•future levels of indebtedness and capital spending;
•the stability of financial institutions, including those lending to us;
•pension and other postretirement plan assumptions and future contributions;
•our tax rate and other effects of the changes in U.S. federal tax law and other tax law;
•availability of raw materials and components used in our products;
•expectations relating to environmental and emissions regulations;
•effects of data privacy, data protection, and cybersecurity regulations;
•our ability to develop competitive technologies or products and to compete effectively in our markets;
•our consolidated customer base and ability to enhance customer experience;
•our ability to manage risks related to U.S. Government contracting, including defense activity and spending patterns;
•our ability to attract, retain, and develop qualified personnel;
•our continued access to a stable workforce and our ability to maintain favorable labor relations;
•our ability to structure our operations in light of evolving market conditions;
•our ability to mitigate the ongoing impacts of inflation and tariffs;
•the impact of legal proceedings, investigations, claims and other regulatory proceedings;
•the impact of future prices for fossil fuels and commodity prices for oil, natural gas, and other minerals;
•the impact of our ability to protect our intellectual property and technological know-how on our business, financial condition, results of operations, and cash flows; and
•the impact of any potential physical or cybersecurity attacks and other information technology system or network interruptions or intrusions on our operations, business, including our financial condition, operating results, and reputation.
All these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause actual results and the timing of certain events to differ materially from the forward-looking statements include, but are not limited to, risk factors described in Woodward's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended September 30, 2025, which was filed on November 25, 2025, and other risks described in Woodward’s filings with the Securities and Exchange Commission.
We undertake no obligation to revise or update any forward-looking statements for any reason, except as required by applicable law. Unless we have indicated otherwise or the context otherwise requires, references in this Form 10-Q to “Woodward,” “the Company,” “we,” “us,” and “our” refer to Woodward, Inc. and its consolidated subsidiaries.
Except where we have otherwise indicated or the context otherwise requires, amounts presented in this Form 10-Q are in thousands, except per share amounts.
OVERVIEW
Global Business Conditions
As global trade dynamics continue to evolve, the impact of increased trade tensions and related tariffs with U.S. trading partners remains a key factor in shaping global economic activity, supply chains, and market stability. Future tariff adjustments may emerge as countries negotiate trade agreements, respond to geopolitical shifts, and address the challenges of inflation and global competition. We expect increased cost pressure resulting from the already announced tariffs, and there are uncertainties surrounding future tariff policy changes and enforcement. However, the Company’s production and supply bases are largely in the same regions where our products are sold, which we believe will mitigate our exposure. Woodward is closely tracking costs from our supply base and customer forecasts regarding the potential impact of currently announced tariff levels, changes to such levels, and actual and potential retaliatory trade actions. We have experienced and are expecting cost pressure as a result of the implemented tariffs. We are proactively working to mitigate this cost pressure, potential sales risks, and potential supply chain disruptions.
On February 20, 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") were not authorized by the statute, although it did not establish a process for recovery. Subsequent cases were filed after the U.S. Supreme Court ruling, which resulted in an order requiring U.S. Customs and Border Protection (“CBP”) to establish an administrative process through which applicable tariffs could be recovered. The Company is the importer of record for certain merchandise that was previously subject to such tariffs under IEEPA. The CBP has proposed and worked to develop an administrative process, which went live on April 20, 2026. However, significant uncertainty remains as to the effectiveness, timing, and process for tariff recovery. The Company is evaluating the ruling and potential actions available to it, including actions that may be taken to preserve or protect its rights and remedies. In addition, Woodward is not able to accurately estimate the financial effects of any tariff recovery at this time based on a variety of factors, including the unknown amount that can be directly recovered, the percentage of recovery that may be required to be returned to our customers, and the amount that can be recovered from third parties to whom Woodward paid increased costs due to tariffs. The Company is actively evaluating the applicable rulings and administrative actions taken by CBP to determine the best and most efficient course of action to recover such tariffs. Because the process, timing, and amount of any recovery are uncertain, the Company is unable to accurately estimate the financial impacts on the financial statements.
The United States-Iran Conflict
In March 2026, in response to the military conflict between the United States and Iran, the North Atlantic Treaty Organization (“NATO”) members (including the United States) announced targeted economic sanctions on Iran and Iranian enterprises. Fluctuations in oil prices resulting from the conflict have the potential to significantly disrupt global supply chains, increase production costs, and create economic uncertainty. The impact of any additional sanctions, trade restrictions, or limitations on oil supply remain uncertain due to the fluid nature of the military conflict as it is unfolding. Potential impacts could include supply chain and logistics disruptions, volatility in foreign exchange rates and interest rates, inflationary pressures on raw materials and energy, heightened cybersecurity threats, and other restrictions. In addition, we are monitoring uncertainties in the geopolitical environment and the extent to which they could impact airline traffic and/or defense spending levels in the U.S. and other countries; if such impacts occur, we expect the significant impacts to us would likely begin in fiscal year 2027.
China Wind-Down
On January 12, 2026, the Company approved a plan to wind-down its on-highway natural gas truck manufacturing operations in China (the “China OH Business”). This decision follows prior unsuccessful efforts to divest the China OH Business and is a strategic step to align the Industrial segment portfolio with priority end-markets and long-term growth opportunities. The China OH Business has not significantly contributed to the Company's overall financial performance on a consistent basis.
In connection with this action, we have incurred $6,815 in the three months ended March 31, 2026 and expect to incur pre-tax charges of approximately $13,000 for the remainder of fiscal year 2026. The majority of these charges are expected to be recognized in the third quarter of fiscal year 2026, and the wind-down is expected to be substantially completed by the end of fiscal year 2026.
Operational Highlights
Quarter and Year-to-Date Highlights
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|
Three Months Ended
March 31, |
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Six Months Ended
March 31, |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
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|
2025 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace segment |
|
$ |
703,321 |
|
|
$ |
561,729 |
|
|
$ |
1,338,218 |
|
|
$ |
1,055,611 |
|
Industrial segment |
|
|
387,247 |
|
|
|
321,900 |
|
|
|
748,804 |
|
|
|
600,743 |
|
Consolidated net sales |
|
$ |
1,090,568 |
|
|
$ |
883,629 |
|
|
$ |
2,087,022 |
|
|
$ |
1,656,354 |
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Earnings: |
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|
|
|
Aerospace segment |
|
$ |
158,075 |
|
|
$ |
124,616 |
|
|
$ |
306,470 |
|
|
$ |
219,341 |
|
Segment earnings as a percent of segment net sales |
|
|
22.5 |
% |
|
|
22.2 |
% |
|
|
22.9 |
% |
|
|
20.8 |
% |
Industrial segment |
|
$ |
65,721 |
|
|
$ |
45,967 |
|
|
$ |
132,715 |
|
|
$ |
86,164 |
|
Segment earnings as a percent of segment net sales |
|
|
17.0 |
% |
|
|
14.3 |
% |
|
|
17.7 |
% |
|
|
14.3 |
% |
Consolidated net earnings |
|
$ |
134,013 |
|
|
$ |
108,949 |
|
|
$ |
267,732 |
|
|
$ |
196,040 |
|
Adjusted net earnings |
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$ |
139,126 |
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|
$ |
103,390 |
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|
$ |
272,845 |
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|
$ |
185,956 |
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|
|
Effective tax rate |
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|
20.0 |
% |
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|
18.1 |
% |
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|
20.5 |
% |
|
|
16.5 |
% |
Adjusted effective tax rate |
|
|
20.2 |
% |
|
|
17.7 |
% |
|
|
20.5 |
% |
|
|
16.1 |
% |
Consolidated diluted earnings per share |
|
$ |
2.19 |
|
|
$ |
1.78 |
|
|
$ |
4.36 |
|
|
$ |
3.20 |
|
Consolidated adjusted diluted earnings per share |
|
$ |
2.27 |
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|
$ |
1.69 |
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|
$ |
4.44 |
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|
$ |
3.04 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest and taxes ("EBIT") |
|
$ |
178,747 |
|
|
$ |
143,831 |
|
|
$ |
357,541 |
|
|
$ |
256,649 |
|
Adjusted EBIT |
|
$ |
185,562 |
|
|
$ |
136,461 |
|
|
$ |
364,356 |
|
|
$ |
243,435 |
|
Earnings before interest, taxes, depreciation, and amortization ("EBITDA") |
|
$ |
208,653 |
|
|
$ |
171,397 |
|
|
$ |
416,485 |
|
|
$ |
312,091 |
|
Adjusted EBITDA |
|
$ |
215,468 |
|
|
$ |
164,027 |
|
|
$ |
423,300 |
|
|
$ |
298,877 |
|
Adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA are non-U.S. GAAP financial measures. A description of these measures as well as a reconciliation of these non-U.S. GAAP financial measures to the most directly comparable U.S. GAAP financial measures can be found under the caption “Non-U.S. GAAP Financial Measures” in this Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity Highlights
Net cash provided by operating activities for the first half of fiscal year 2026 was $205,264, compared to $112,341 for the first half of fiscal year 2025. The increase in cash provided by operating activities for the first half of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to increased earnings.
For the first half of fiscal year 2026, free cash flow was $108,544, compared to $60,351 for the first half of fiscal year 2025. We define free cash flow as net cash provided by operating activities less payments for property, plant, and equipment. The increase in free cash flow for the first half of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to increased earnings, partially offset by higher capital expenditures. On September 16, 2025, we announced plans to build a precision manufacturing facility in Greer, South Carolina, in Spartanburg County. The new site is a strategic investment for us and will require significant capital investment in fiscal year 2026 and fiscal year 2027. The site is expected to become operational in 2027, and we continue to expect a meaningful increase in capital expenditures over the second half of fiscal year 2026 related to the construction of this facility. Free cash flow is a non-U.S. GAAP financial measure. A description of this measure as well as a reconciliation of this non-U.S. GAAP financial measure to the most directly comparable U.S. GAAP financial measure can be found under the caption “Non-U.S. GAAP Financial Measures” in this Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.
At March 31, 2026, we held $501,169 in cash and cash equivalents and had total outstanding debt of $1,123,278. We have additional borrowing availability of $369,125, net of outstanding letters of credit, under our revolving credit agreement. At March 31, 2026, we also had additional borrowing capacity of $25,526 under various foreign lines of credit and foreign overdraft facilities.
RESULTS OF OPERATIONS
The following table sets forth condensed consolidated statements of earnings data as a percentage of net sales for each period indicated:
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
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|
|
March 31, 2026 |
|
|
% of Net Sales |
|
|
March 31, 2025 |
|
|
% of Net Sales |
|
|
March 31, 2026 |
|
|
% of Net Sales |
|
|
March 31, 2025 |
|
|
% of Net Sales |
|
Net sales |
|
$ |
1,090,568 |
|
|
|
100 |
% |
|
$ |
883,629 |
|
|
|
100 |
% |
|
$ |
2,087,022 |
|
|
|
100 |
% |
|
$ |
1,656,354 |
|
|
|
100 |
% |
Costs and expenses: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
774,660 |
|
|
|
71.0 |
% |
|
|
643,530 |
|
|
|
72.8 |
% |
|
|
1,478,953 |
|
|
|
70.9 |
% |
|
|
1,226,621 |
|
|
|
74.1 |
% |
Selling, general, and administrative expenses |
|
|
102,285 |
|
|
|
9.4 |
% |
|
|
83,842 |
|
|
|
9.5 |
% |
|
|
197,270 |
|
|
|
9.5 |
% |
|
|
153,538 |
|
|
|
9.3 |
% |
Research and development costs |
|
|
46,119 |
|
|
|
4.2 |
% |
|
|
37,230 |
|
|
|
4.2 |
% |
|
|
83,875 |
|
|
|
4.0 |
% |
|
|
67,437 |
|
|
|
4.1 |
% |
Restructuring charges |
|
|
6,815 |
|
|
|
0.6 |
% |
|
|
— |
|
|
|
0.0 |
% |
|
|
6,815 |
|
|
|
0.3 |
% |
|
|
— |
|
|
|
0.0 |
% |
Interest expense |
|
|
12,035 |
|
|
|
1.1 |
% |
|
|
11,889 |
|
|
|
1.3 |
% |
|
|
22,379 |
|
|
|
1.1 |
% |
|
|
24,230 |
|
|
|
1.5 |
% |
Interest income |
|
|
(715 |
) |
|
|
(0.1 |
)% |
|
|
(1,021 |
) |
|
|
(0.1 |
)% |
|
|
(1,416 |
) |
|
|
(0.1 |
)% |
|
|
(2,398 |
) |
|
|
(0.2 |
)% |
Other income, net |
|
|
(18,058 |
) |
|
|
(1.7 |
)% |
|
|
(24,804 |
) |
|
|
(2.8 |
)% |
|
|
(37,432 |
) |
|
|
(1.8 |
)% |
|
|
(47,891 |
) |
|
|
(2.9 |
)% |
Total costs and expenses |
|
|
923,141 |
|
|
|
84.6 |
% |
|
|
750,666 |
|
|
|
85.0 |
% |
|
|
1,750,444 |
|
|
|
83.9 |
% |
|
|
1,421,537 |
|
|
|
85.8 |
% |
Earnings before income taxes |
|
|
167,427 |
|
|
|
15.4 |
% |
|
|
132,963 |
|
|
|
15.0 |
% |
|
|
336,578 |
|
|
|
16.1 |
% |
|
|
234,817 |
|
|
|
14.2 |
% |
Income tax expense |
|
|
33,414 |
|
|
|
3.1 |
% |
|
|
24,014 |
|
|
|
2.7 |
% |
|
|
68,846 |
|
|
|
3.3 |
% |
|
|
38,777 |
|
|
|
2.3 |
% |
Net earnings |
|
$ |
134,013 |
|
|
|
12.3 |
% |
|
$ |
108,949 |
|
|
|
12.3 |
% |
|
$ |
267,732 |
|
|
|
12.8 |
% |
|
$ |
196,040 |
|
|
|
11.8 |
% |
Other select financial data:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2026 |
|
|
September 30, 2025 |
|
Net working capital |
|
$ |
960,167 |
|
|
$ |
977,025 |
|
Total debt |
|
|
1,123,278 |
|
|
|
702,202 |
|
Total stockholders' equity |
|
|
2,525,460 |
|
|
|
2,566,390 |
|
Net Sales
Consolidated net sales for the second quarter of fiscal year 2026 increased by $206,939, or 23.4%, compared to the same period of fiscal year 2025. Consolidated net sales for the first half of fiscal year 2026 increased by $430,668, or 26.0%, compared to the same period of fiscal year 2025.
Details of the changes in consolidated net sales were as follows:
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|
|
|
|
|
|
|
|
|
|
Three-Month Period |
|
|
Six-Month Period |
|
Consolidated net sales for the period ended March 31, 2025 |
|
$ |
883,629 |
|
|
$ |
1,656,354 |
|
Aerospace volume |
|
|
97,771 |
|
|
|
185,021 |
|
Industrial volume |
|
|
33,276 |
|
|
|
85,865 |
|
Effects of changes in price |
|
|
57,243 |
|
|
|
126,907 |
|
Effects of changes in foreign currency rates |
|
|
18,649 |
|
|
|
32,875 |
|
Consolidated net sales for the period ended March 31, 2026 |
|
$ |
1,090,568 |
|
|
$ |
2,087,022 |
|
The increases in Aerospace segment net sales in the second quarter and first half of fiscal year 2026 as compared to the same periods of fiscal year 2025 were primarily attributable to higher sales volumes and price realization.
The increases in Industrial segment net sales in the second quarter and first half of fiscal year 2026 as compared to the same periods of fiscal year 2025 were primarily attributable to higher sales volumes, price realization, and favorable foreign currency impacts.
Costs and Expenses
Cost of goods sold increased by $131,130 to $774,660 for the second quarter of fiscal year 2026, from $643,530 for the second quarter of fiscal year 2025. Cost of goods sold decreased to 71.0% of net sales for the second quarter of fiscal year 2026, compared to 72.8% of net sales for the second quarter of fiscal year 2025.
Cost of goods sold increased by $252,332 to $1,478,953 for the first half of fiscal year 2026, from $1,226,621 for the first half of fiscal year 2025. Cost of goods sold decreased to 70.9% of net sales for the first half of fiscal year 2026, compared to 74.1% of net sales for the first half of fiscal year 2025.
The increases in cost of goods sold on an absolute basis in the second quarter and first half of fiscal year 2026 compared to the same periods of fiscal year 2025 were primarily due to higher sales volumes and net inflationary impacts on material and labor costs.
Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 29.0% for the second quarter of fiscal year 2026, compared to 27.2% for the second quarter of fiscal year 2025. Gross margin was 29.1% for the first half of fiscal year 2026, compared to 25.9% for the first half of fiscal year 2025. The increases in gross margin for the second quarter and first half of fiscal year 2026 as compared to the same periods of fiscal year 2025 were primarily attributable to higher sales volumes and price realization.
Selling, general, and administrative expenses increased by $18,443, or 22.0%, to $102,285 for the second quarter of fiscal year 2026, compared to $83,842 for the second quarter of fiscal year 2025. Selling, general, and administrative expenses as a percentage of net sales decreased to 9.4% for the second quarter of fiscal year 2026, compared to 9.5% for the second quarter of fiscal year 2025. The increase in selling, general, and administrative expenses on an absolute basis for the second quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily due to a reserve for a product performance claim in our Industrial segment, increased expenses relating to headcount, and increased variable annual incentive compensation costs.
Selling, general, and administrative expenses increased by $43,732, or 28.5%, to $197,270 for the first half of fiscal year 2026, compared to $153,538 for the first half of fiscal year 2025. Selling, general, and administrative expenses as a percentage of net sales increased to 9.5% for the first half of fiscal year 2026, compared to 9.3% for the first half of fiscal year 2025. The increase in selling, general, and administrative expenses for the first half of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily due to a reserve for a product performance claim in our Industrial segment, higher project-related costs, higher labor costs, and increased variable annual incentive compensation costs.
Research and development ("R&D") costs were $46,119, or 4.2% of net sales, for the second quarter of fiscal year 2026, as compared to $37,230, or 4.2% of net sales, for the second quarter of fiscal year 2025. R&D costs were $83,875, or 4.0% of net sales, for the first half of fiscal year 2026, as compared to $67,437, or 4.1% of net sales, for the first half of fiscal year 2025. R&D costs increased in the second quarter and first half of fiscal year 2026, primarily due to early-stage efforts to compete for the next single-aisle aircraft platform. We expect R&D costs to increase in fiscal year 2026 as compared to fiscal year 2025, and we anticipate additional increases in future years as next-generation aircraft program timelines become more defined. Our R&D activities extend across almost all of our customer base, and we anticipate ongoing variability in R&D costs due to the timing of customer business needs on current and future programs.
Interest expense increased by $146, or 1.2%, to $12,035 for the second quarter of fiscal year 2026, compared to $11,889 for the second quarter of fiscal year 2025. Interest expense as a percentage of net sales was 1.1% for the second quarter of fiscal year 2026, compared to 1.3% for the second quarter of fiscal year 2025. The increase in interest expense on an absolute basis was primarily attributable to increased daily borrowings on the revolving credit facility during the second quarter of fiscal year 2026.
Interest expense decreased by $1,851, or 7.6%, to $22,379 for the first half of fiscal year 2026, compared to $24,230 for the first half of fiscal year 2025. Interest expense as a percentage of net sales was 1.1% for the first half of fiscal year 2026, compared to 1.5% for the first half of fiscal year 2025. The decrease was primarily attributable to a lower long-term debt balance, as on November 17, 2025, we paid the entire principal balance of $75,000 on the Series I and L Notes.
Other income, net decreased by $6,746 to $18,058 for the second quarter of fiscal year 2026, compared to $24,804 for the second quarter of fiscal year 2025. Other income decreased by $10,459 to $37,432 for the first half of fiscal year 2026, compared to $47,891 for the first half of fiscal year 2025. The decreases in other income for the second quarter and first half of fiscal year 2026 as compared to the same periods of fiscal 2025 were primarily attributable to a one-time gain related to product rationalization activities that was recognized in the prior year second quarter that did not occur in the current year second quarter, partially offset by an increase in earnings of the JV.
Income taxes were provided at an effective rate of 20.0% on earnings before income taxes for the second quarter of fiscal year 2026, compared to 18.1% for the second quarter of fiscal year 2025. Income taxes were provided at an effective rate of 20.5% on earnings before income taxes for the first half of fiscal year 2026, compared to 16.5% for the first half of fiscal year 2025. The increases in the effective tax rates for the second quarter and first half of fiscal year 2026, compared to the same periods of fiscal year 2025 were primarily attributable to remeasurement to tax reserves, the current year elimination of the U.S. intangible income tax benefit due to the one-time reversal of research costs previously capitalized, a reduction in the U.S. Federal Research and Development Credit, and unfavorable state tax law changes. These increases were partially offset by increases in the tax benefit from stock-based compensation.
Segment Results
The following table presents sales by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
703,321 |
|
|
|
64.5 |
% |
|
$ |
561,729 |
|
|
|
63.6 |
% |
|
$ |
1,338,218 |
|
|
|
64.1 |
% |
|
$ |
1,055,611 |
|
|
|
63.7 |
% |
Industrial |
|
|
387,247 |
|
|
|
35.5 |
% |
|
|
321,900 |
|
|
|
36.4 |
% |
|
|
748,804 |
|
|
|
35.9 |
% |
|
|
600,743 |
|
|
|
36.3 |
% |
Consolidated net sales |
|
$ |
1,090,568 |
|
|
|
100 |
% |
|
$ |
883,629 |
|
|
|
100 |
% |
|
$ |
2,087,022 |
|
|
|
100 |
% |
|
$ |
1,656,354 |
|
|
|
100 |
% |
The following table presents earnings by segment and reconciles segment earnings to consolidated net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
Aerospace |
|
$ |
158,075 |
|
|
$ |
124,616 |
|
|
$ |
306,470 |
|
|
$ |
219,341 |
|
Industrial |
|
|
65,721 |
|
|
|
45,967 |
|
|
|
132,715 |
|
|
|
86,164 |
|
Nonsegment expenses |
|
|
(45,049 |
) |
|
|
(26,752 |
) |
|
|
(81,644 |
) |
|
|
(48,856 |
) |
Interest expense, net |
|
|
(11,320 |
) |
|
|
(10,868 |
) |
|
|
(20,963 |
) |
|
|
(21,832 |
) |
Consolidated earnings before income taxes |
|
|
167,427 |
|
|
|
132,963 |
|
|
|
336,578 |
|
|
|
234,817 |
|
Income tax expense |
|
|
(33,414 |
) |
|
|
(24,014 |
) |
|
|
(68,846 |
) |
|
|
(38,777 |
) |
Consolidated net earnings |
|
$ |
134,013 |
|
|
$ |
108,949 |
|
|
$ |
267,732 |
|
|
$ |
196,040 |
|
The following table presents segment earnings as a percent of segment net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
Aerospace |
|
|
22.5 |
% |
|
|
22.2 |
% |
|
|
22.9 |
% |
|
|
20.8 |
% |
Industrial |
|
|
17.0 |
% |
|
|
14.3 |
% |
|
|
17.7 |
% |
|
|
14.3 |
% |
Aerospace
Aerospace segment net sales increased by $141,592, or 25.2%, to $703,321 for the second quarter of fiscal year 2026, compared to $561,729 for the second quarter of fiscal year 2025. Aerospace segment net sales increased by $282,607, or 26.8%, to $1,338,218 for the first half of fiscal year 2026, compared to $1,055,611 for the first half of fiscal year 2025.
The increases in Aerospace segment net sales in the second quarter and first half of fiscal year 2026 as compared to the same periods of the prior fiscal year 2025 were primarily attributable to increased sales volumes and price realization.
Commercial OEM sales increased in the second quarter as compared to the same period of fiscal year 2025, primarily due to increased airframer production rates. Commercial OEM sales increased in the first half of fiscal year 2026 as compared to the same period of fiscal year 2025, primarily due to increased airframer production rates and a tapering of destocking efforts by airframers. For the remainder of fiscal year 2026, we do not expect destocking efforts to have a large impact, as we believe our output is currently well-aligned with current airframer build rates.
Commercial services sales increased in the second quarter and first half of fiscal year 2026 as compared to the same periods of fiscal year 2025, primarily due to higher repair volume supported by sustained high aircraft utilization of legacy aircraft, as well as increased Leading Edge Aviation Propulsion ("LEAP") and Pratt & Whitney’s Geared Turbo Fan ("GTF") activity. We also experienced strong spare line replacement unit (“LRU”) sales in the second quarter and first half of fiscal year 2026 as compared to the same periods of fiscal year 2025. Spare LRU sales were generally consistent with what we experienced during the fourth quarter of fiscal year 2025 and the first quarter of fiscal year 2026.
Defense OEM sales increased in the second quarter and first half of fiscal year 2026 as compared to the same periods of fiscal year 2025, primarily driven by increased Joint Direct Attack Munition ("JDAM") pricing, which took effect during the fourth quarter of fiscal year 2025. Defense services sales increased in the second quarter and first half of fiscal year 2026 as compared to the same periods of fiscal year 2025, primarily due to price realization. We expect variability in Defense services sales, which is generally attributable to the cycling of various maintenance and upgrade programs, as well as actual usage.
Aerospace segment earnings increased by $33,459, or 26.8%, to $158,075 for the second quarter of fiscal year 2026, compared to $124,616 for the second quarter of fiscal year 2025. Aerospace segment earnings increased by $87,129, or 39.7%, to $306,470 for the first half of fiscal year 2026, compared to $219,341 for the first half of fiscal year 2025.
The increases in Aerospace segment earnings were due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended December 31, 2025 |
|
|
Three months Ended March 31, 2026 |
|
|
Fiscal Year-to-Date |
|
Earnings for the period ended fiscal year 2025 |
|
$ |
94,725 |
|
|
$ |
124,616 |
|
|
$ |
219,341 |
|
Sales volume and mix |
|
|
26,065 |
|
|
|
40,690 |
|
|
|
66,755 |
|
Price, inflation, and productivity |
|
|
43,314 |
|
|
|
23,574 |
|
|
|
66,888 |
|
Manufacturing expenses |
|
|
(13,241 |
) |
|
|
(6,359 |
) |
|
|
(19,600 |
) |
Annual variable incentive compensation expenses |
|
|
(6,700 |
) |
|
|
(6,765 |
) |
|
|
(13,465 |
) |
Research and development expenses |
|
|
(3,995 |
) |
|
|
(5,580 |
) |
|
|
(9,575 |
) |
Other, net |
|
|
8,227 |
|
|
|
(12,101 |
) |
|
|
(3,874 |
) |
Earnings for the period ended fiscal year 2026 |
|
$ |
148,395 |
|
|
$ |
158,075 |
|
|
$ |
306,470 |
|
Following a change in management's data analysis methodology for acquisition results, the Company has refined its Aerospace earnings reconciliation to classify acquisition results under "sales volume and mix", rather than including them in "other, net". Accordingly, the earnings reconciliation for the first quarter of fiscal year 2026 has been reclassified for comparability. The reclassification had no impact on total Aerospace segment net earnings or the Company's financial results.
Aerospace segment earnings as a percentage of segment net sales were 22.5% for the second quarter of fiscal year 2026, compared to 22.2% for the second quarter of fiscal year 2025. Aerospace segment earnings as a percentage of segment net sales were 22.9% for the first half of fiscal year 2026, compared to 20.8% for the first half of fiscal year 2025. The increases in Aerospace segment earnings as a percentage of segment sales for the second quarter and first half of fiscal year 2026 were primarily attributable strength in commercial services, higher commercial OEM volumes, and solid price realization, partially offset by ongoing inflationary pressures and planned strategic investments to support future growth. The strategic investments include enhancements to our manufacturing capabilities to deliver the content on current platforms, incremental R&D tied to early-stage efforts to compete for the next single-aisle aircraft platform, and an enterprise resource planning system upgrade. While these initiatives are impacting margins, they are critical to position the company for sustained long-term growth, and we expect these investments to continue in fiscal year 2026 and fiscal year 2027.
Industrial
Industrial segment net sales increased by $65,347, or 20.3%, to $387,247 for the second quarter of fiscal year 2026, compared to $321,900 for the second quarter of fiscal year 2025. Industrial segment net sales increased by $148,061, or 24.6%, to $748,804 for the first half of fiscal year 2026, compared to $600,743 for the first half of fiscal year 2025.
The increases in Industrial segment net sales in the second quarter and first half of fiscal year 2026 as compared to the same periods of fiscal year 2025 were primarily attributable to higher sales volumes, price realization, and favorable foreign currency impacts.
Industrial segment earnings increased by $19,754, or 43.0%, to $65,721 for the second quarter of fiscal year 2026, compared to $45,967 for the second quarter of fiscal year 2025. Industrial segment earnings increased by $46,551, or 54.0%, to $132,715 for the first half of fiscal year 2026, compared to $86,164 for the first half of fiscal year 2025.
The increase in Industrial segment earnings was due to the following:
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period |
|
|
Six-Month Period |
|
Earnings for the period ended March 31, 2025 |
|
$ |
45,967 |
|
|
$ |
86,164 |
|
Sales volume and mix |
|
|
21,666 |
|
|
|
48,709 |
|
Price, inflation, and productivity |
|
|
9,285 |
|
|
|
23,305 |
|
Annual variable incentive compensation expenses |
|
|
(3,540 |
) |
|
|
(7,320 |
) |
Other, net |
|
|
(7,657 |
) |
|
|
(18,143 |
) |
Earnings for the period ended March 31, 2026 |
|
$ |
65,721 |
|
|
$ |
132,715 |
|
Industrial segment earnings as a percentage of segment net sales were 17.0% for the second quarter of fiscal year 2026, compared to 14.3% for the second quarter of fiscal year 2025. Industrial segment earnings as a percentage of segment net sales were 17.7% for the first half of fiscal year 2026, compared to 14.3% for the first half of fiscal year 2025.
Nonsegment
Nonsegment expenses increased by $18,297 to $45,049 for the second quarter of fiscal year 2026, compared to $26,752 for the second quarter of fiscal year 2025. Nonsegment expenses increased by $32,788 to $81,644 for the first half of fiscal year 2026, compared to $48,856 for the first half of fiscal year 2025.
The significant items that impacted nonsegment expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
Nonsegment expenses |
|
$ |
(45,049 |
) |
|
$ |
(26,752 |
) |
|
$ |
(81,644 |
) |
|
$ |
(48,856 |
) |
Restructuring charges |
|
|
6,815 |
|
|
|
— |
|
|
|
6,815 |
|
|
|
— |
|
Product rationalization |
|
|
— |
|
|
|
(11,163 |
) |
|
|
— |
|
|
|
(20,524 |
) |
Business development activities |
|
|
— |
|
|
|
3,793 |
|
|
|
— |
|
|
|
7,310 |
|
Nonsegment expenses excluding infrequent significant items |
|
$ |
(38,234 |
) |
|
$ |
(34,122 |
) |
|
$ |
(74,829 |
) |
|
$ |
(62,070 |
) |
Excluding these items, nonsegment expenses increased $4,112 in the second quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 and increased $12,759 in the first half of fiscal year 2026 as compared to the same period of fiscal year 2025. The increases in nonsegment expenses for the second quarter and first half of fiscal year 2026 were primarily attributable to higher project-related costs and increased labor costs.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have satisfied our working capital needs, as well as capital expenditures, product development, and other liquidity requirements associated with our operations, with net cash provided by operating activities and borrowings under our credit facilities. From time to time, we have also issued debt to supplement our cash needs, repay our other indebtedness, or finance our acquisitions. We continue to expect that cash generated from our operating activities, together with borrowings under our revolving credit facility and other borrowing capacity, will be sufficient to fund our continuing operating needs for the next 12 months and the foreseeable future.
In addition to our revolving credit facility, we have various foreign credit facilities, some of which are tied to net amounts on deposit at certain foreign financial institutions. These foreign credit facilities are reviewed annually for renewal. We use borrowings under these foreign credit facilities to finance certain local operations on a periodic basis. For further discussion of our revolving credit facility and our other credit facilities, see Note 15, Credit facilities, short-term borrowings, and long-term debt in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
At March 31, 2026, we had total outstanding debt of $1,123,278, consisting of outstanding balances on our revolving credit facility, various series of unsecured notes due between 2026 and 2033, and obligations under our finance leases.
At March 31, 2026, we had $623,000 outstanding on our revolving credit facility, all of which is classified as short-term borrowings based on our intent and ability to repay this amount in the next 12 months. Revolving credit facility and short-term borrowing activity during the six months ended March 31, 2026 were as follows:
|
|
|
|
|
Maximum daily balance during the period |
|
$ |
685,153 |
|
Average daily balance during the period |
|
$ |
353,468 |
|
Weighted average interest rate on average daily balance |
|
|
4.8 |
% |
At March 31, 2026, we had additional borrowing availability of $369,125 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $25,526 under various foreign credit facilities.
We were compliant with all our debt covenants as of March 31, 2026. See Note 15, Credit facilities, short-term borrowings, and long-term debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our Annual Report on Form 10-K for fiscal year 2025, for more information about our covenants.
In addition to utilizing our cash resources to fund the working capital needs of our business, we evaluate, and from time to time, use cash for additional strategic uses, including the repurchase of our common stock under our authorized stock repurchase program, payment of dividends, significant capital expenditures, strategic acquisitions, and other potential uses of cash.
Our ability to service our long-term debt, to remain compliant with the various restrictions and covenants contained in our debt agreements, and to fund working capital, capital expenditures and product development efforts will depend on
our ability to generate cash from operating activities, which in turn is subject to, among other things, future operating performance as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control.
We believe that cash flows from operations, along with our contractually committed borrowings and other borrowing capability, will continue to be sufficient to fund anticipated capital spending requirements and our operations for the foreseeable future. However, we could be adversely affected if the financial institutions providing our capital requirements refuse to honor their contractual commitments, cease lending, or declare bankruptcy. We believe the lending institutions participating in our credit arrangements are financially stable and do not currently foresee adverse impacts to financial institutions supporting our capital requirements.
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
2026 |
|
|
2025 |
|
Net cash provided by operating activities |
|
$ |
205,264 |
|
|
$ |
112,341 |
|
Net cash used in investing activities |
|
|
(99,463 |
) |
|
|
(4,138 |
) |
Net cash provided by (used in) financing activities |
|
|
74,431 |
|
|
|
(17,602 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(6,494 |
) |
|
|
(8,730 |
) |
Net change in cash and cash equivalents |
|
|
173,738 |
|
|
|
81,871 |
|
Cash and cash equivalents, including restricted cash, at beginning of year |
|
|
327,431 |
|
|
|
282,270 |
|
Cash and cash equivalents, including restricted cash, at end of period |
|
$ |
501,169 |
|
|
$ |
364,141 |
|
Net cash provided by operating activities for the first half of fiscal year 2026 was $205,264, compared to $112,341 for the same period of fiscal year 2025. The increase in net cash provided by operating activities in the first half of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to increased earnings.
Net cash used in investing activities for the first half of fiscal year 2026 was $99,463, compared to $4,138 for the same period of fiscal year 2025. The increase in net cash used in investing activities in the first half of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily due to higher capital expenditures in the current fiscal year and proceeds received from certain business divestitures as part of product rationalization efforts in the prior fiscal year.
Net cash provided by financing activities for the first half of fiscal year 2026 was $74,431, compared to net cash used in financing activities of $17,602 for the same period of fiscal year 2025. The increase in net cash provided by financing activities for the first half of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to an increase in net debt borrowings, partially offset by increased repurchases of common stock. During the first half of fiscal year 2026, we had net debt borrowings in the amount of $425,193, compared to net debt borrowings of $43,627 in the first half of fiscal year 2025. During the first half of fiscal year 2026, we repurchased $354,890 of our common stock, whereas in the first half of fiscal year 2025, we repurchased $79,493.
Non-U.S. GAAP Financial Measures
Adjusted net earnings, adjusted earnings per share, adjusted income tax expense, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, adjusted EBITDA, and free cash flow are financial measures not prepared and presented in accordance with U.S. GAAP. However, we believe these non-U.S. GAAP financial measures provide additional information that enables readers to evaluate our business from the perspective of management.
Earnings based non‐U.S. GAAP financial measures
Adjusted net earnings is defined by the Company as net earnings excluding, as applicable, (i) product rationalization, (ii) costs related to business development activities, and (iii) restructuring charges. The product rationalization adjustment pertains to the elimination and divestiture of certain product lines. The Company believes that these excluded items are short‐term in nature, not directly related to the ongoing operations of the business, and therefore, their exclusion illustrates more clearly how the underlying business of Woodward is performing. Management uses adjusted net earnings to evaluate the Company’s performance excluding these infrequent or unusual period expenses that are not necessarily indicative of the Company’s operating performance for the period. Management defines adjusted earnings per share as adjusted net earnings, as defined above, divided by the weighted‐average number of diluted shares of common stock outstanding for the period. Adjusted income tax expense is defined by the Company as income tax expense excluding, as applicable, (i) product rationalization, (ii) costs related to business development activities, and (iii) restructuring charges. The product rationalization adjustment pertains to the elimination and divestiture of certain product lines.
Management uses adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, and adjusted income tax expense when comparing operating performance to other periods.
The reconciliation of net earnings and earnings per share to adjusted net earnings and adjusted earnings per share, respectively, is shown in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2026 |
|
|
2025 |
|
|
|
Net Earnings |
|
|
Earnings Per Share |
|
|
Net Earnings |
|
|
Earnings Per Share |
|
Net earnings (U.S. GAAP) |
|
$ |
134,013 |
|
|
$ |
2.19 |
|
|
$ |
108,949 |
|
|
$ |
1.78 |
|
Non-U.S. GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges |
|
|
6,815 |
|
|
|
0.11 |
|
|
|
— |
|
|
|
— |
|
Product rationalization1 |
|
|
— |
|
|
|
— |
|
|
|
(11,163 |
) |
|
|
(0.18 |
) |
Business development activities2 |
|
|
— |
|
|
|
— |
|
|
|
3,793 |
|
|
|
0.06 |
|
Tax effect of Non-U.S. GAAP net earnings adjustments |
|
|
(1,702 |
) |
|
|
(0.03 |
) |
|
|
1,811 |
|
|
|
0.03 |
|
Non-U.S. GAAP adjustments |
|
|
5,113 |
|
|
|
0.08 |
|
|
|
(5,559 |
) |
|
|
(0.09 |
) |
Adjusted net earnings (Non-U.S. GAAP) |
|
$ |
139,126 |
|
|
$ |
2.27 |
|
|
$ |
103,390 |
|
|
$ |
1.69 |
|
(1)Presented in the line item "Other income, net" in Woodward's Condensed Consolidated Statement of Earnings.
(2)Presented in the line item "Selling, general and administrative expenses" in Woodward's Condensed Consolidated Statement of Earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
2026 |
|
|
2025 |
|
|
|
Net Earnings |
|
|
Earnings Per Share |
|
|
Net Earnings |
|
|
Earnings Per Share |
|
Earnings per share (U.S. GAAP) |
|
$ |
267,732 |
|
|
$ |
4.36 |
|
|
$ |
196,040 |
|
|
$ |
3.20 |
|
Non-U.S. GAAP adjustments, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges |
|
|
6,815 |
|
|
|
0.11 |
|
|
|
— |
|
|
|
— |
|
Product rationalization1 |
|
|
— |
|
|
|
— |
|
|
|
(20,524 |
) |
|
|
(0.33 |
) |
Business development activities2 |
|
|
— |
|
|
|
— |
|
|
|
7,310 |
|
|
|
0.12 |
|
Tax effect of Non-U.S. GAAP net earnings adjustments |
|
|
(1,702 |
) |
|
|
(0.03 |
) |
|
|
3,130 |
|
|
|
0.05 |
|
Total non-U.S. GAAP adjustments |
|
|
5,113 |
|
|
|
0.08 |
|
|
|
(10,084 |
) |
|
|
(0.16 |
) |
Adjusted earnings per share (Non-U.S. GAAP) |
|
$ |
272,845 |
|
|
$ |
4.44 |
|
|
$ |
185,956 |
|
|
$ |
3.04 |
|
(1)Presented in the line item "Other income, net" in Woodward's Condensed Consolidated Statement of Earnings.
(2)Presented in the line item "Selling, general and administrative expenses" in Woodward's Condensed Consolidated Statement of Earnings.
The reconciliation of income tax expense to adjusted income tax expense and the adjusted effective tax rate, is shown in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
Income tax expense (U.S. GAAP) |
|
$ |
33,414 |
|
|
$ |
24,014 |
|
|
$ |
68,846 |
|
|
$ |
38,777 |
|
Tax effect of Non-U.S. GAAP net income adjustments |
|
|
1,702 |
|
|
|
(1,811 |
) |
|
|
1,702 |
|
|
|
(3,130 |
) |
Adjusted income tax expense (Non-U.S. GAAP) |
|
$ |
35,116 |
|
|
$ |
22,203 |
|
|
$ |
70,548 |
|
|
$ |
35,647 |
|
Adjusted effective tax rate (Non-U.S. GAAP) |
|
|
20.2 |
% |
|
|
17.7 |
% |
|
|
20.5 |
% |
|
|
16.1 |
% |
Management uses EBIT to evaluate Woodward’s performance without financing and tax related considerations, as these elements do not fluctuate with operating results. Management uses EBITDA in evaluating Woodward’s operating performance, making business decisions, including developing budgets, managing expenditures, forecasting future periods, and evaluating capital structure impacts of various strategic scenarios. Securities analysts, investors, and others frequently use EBIT and EBITDA in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets subject to amortization. The Company believes that EBIT and EBITDA are useful measures to the investor when measuring operating performance as they eliminate the impact of financing and tax expenses, which are non-operating expenses and may be driven by factors outside of the Company’s operations, such as changes in tax laws or regulations, and, in the case of EBITDA, the noncash charges associated with depreciation and amortization. Further, as interest from financing, income taxes, depreciation, and amortization can vary dramatically between companies and between periods, management believes that the removal of these items can improve comparability.
Adjusted EBIT and adjusted EBITDA represent further non-U.S. GAAP adjustments to EBIT and EBITDA, in each case adjusted to exclude, as applicable, (i) product rationalization, (ii) costs related to business development activities, and (iii) restructuring charges. The product rationalization adjustment pertains to the elimination and divestiture of certain product lines. As these charges are infrequent or unusual items that can be variable from period to period and do not fluctuate with operating results, management believes removing these gains and costs from EBIT and EBITDA improves comparability of past, present, and future operating results and provides consistency when comparing EBIT and EBITDA between periods.
EBIT and adjusted EBIT reconciled to net earnings were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
Net earnings (U.S. GAAP) |
|
$ |
134,013 |
|
|
$ |
108,949 |
|
|
$ |
267,732 |
|
|
$ |
196,040 |
|
Income tax expense |
|
|
33,414 |
|
|
|
24,014 |
|
|
|
68,846 |
|
|
|
38,777 |
|
Interest expense |
|
|
12,035 |
|
|
|
11,889 |
|
|
|
22,379 |
|
|
|
24,230 |
|
Interest income |
|
|
(715 |
) |
|
|
(1,021 |
) |
|
|
(1,416 |
) |
|
|
(2,398 |
) |
EBIT (Non-U.S. GAAP) |
|
|
178,747 |
|
|
|
143,831 |
|
|
|
357,541 |
|
|
|
256,649 |
|
Non-U.S. GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges |
|
|
6,815 |
|
|
|
— |
|
|
|
6,815 |
|
|
|
— |
|
Product rationalization1 |
|
|
— |
|
|
|
(11,163 |
) |
|
|
— |
|
|
|
(20,524 |
) |
Business development activities2 |
|
|
— |
|
|
|
3,793 |
|
|
|
— |
|
|
|
7,310 |
|
Total non-U.S. GAAP adjustments |
|
|
6,815 |
|
|
|
(7,370 |
) |
|
|
6,815 |
|
|
|
(13,214 |
) |
Adjusted EBIT (Non-U.S. GAAP) |
|
$ |
185,562 |
|
|
$ |
136,461 |
|
|
$ |
364,356 |
|
|
$ |
243,435 |
|
(1)Presented in the line item "Other income, net" in Woodward's Condensed Consolidated Statement of Earnings.
(2)Presented in the line item "Selling, general and administrative expenses" in Woodward's Condensed Consolidated Statement of Earnings.
EBITDA and adjusted EBITDA reconciled to net earnings were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
Net earnings (U.S. GAAP) |
|
$ |
134,013 |
|
|
$ |
108,949 |
|
|
$ |
267,732 |
|
|
$ |
196,040 |
|
Income tax expense |
|
|
33,414 |
|
|
|
24,014 |
|
|
|
68,846 |
|
|
|
38,777 |
|
Interest expense |
|
|
12,035 |
|
|
|
11,889 |
|
|
|
22,379 |
|
|
|
24,230 |
|
Interest income |
|
|
(715 |
) |
|
|
(1,021 |
) |
|
|
(1,416 |
) |
|
|
(2,398 |
) |
Amortization of intangible assets |
|
|
7,424 |
|
|
|
6,772 |
|
|
|
14,766 |
|
|
|
13,686 |
|
Depreciation expense |
|
|
22,482 |
|
|
|
20,794 |
|
|
|
44,178 |
|
|
|
41,756 |
|
EBITDA (Non-U.S. GAAP) |
|
|
208,653 |
|
|
|
171,397 |
|
|
|
416,485 |
|
|
|
312,091 |
|
Non-U.S. GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges |
|
|
6,815 |
|
|
|
— |
|
|
|
6,815 |
|
|
|
— |
|
Product rationalization1 |
|
|
— |
|
|
|
(11,163 |
) |
|
|
— |
|
|
|
(20,524 |
) |
Business development activities2 |
|
|
— |
|
|
|
3,793 |
|
|
|
— |
|
|
|
7,310 |
|
Total non-U.S. GAAP adjustments |
|
|
6,815 |
|
|
|
(7,370 |
) |
|
|
6,815 |
|
|
|
(13,214 |
) |
Adjusted EBITDA (Non-U.S. GAAP) |
|
$ |
215,468 |
|
|
$ |
164,027 |
|
|
$ |
423,300 |
|
|
$ |
298,877 |
|
(1)Presented in the line item "Other income, net" in Woodward's Condensed Consolidated Statement of Earnings.
(2)Presented in the line item "Selling, general and administrative expenses" in Woodward's Condensed Consolidated Statement of Earnings.
The use of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. As adjusted net earnings, adjusted net earnings per share, adjusted income tax expense, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA exclude certain financial information compared with net earnings and income tax expense, the most directly comparable U.S. GAAP financial measures, users of this financial information should consider the information that is excluded. Our calculations of adjusted net earnings, adjusted net earnings per share, adjusted income tax expense, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures.
Cash flow‐based non‐U.S. GAAP financial measures
Management uses free cash flow, which is defined by the Company as net cash provided by operating activities less payments for property, plant, and equipment, in reviewing the financial performance of and cash generation by Woodward’s various business groups and evaluating cash levels. We believe free cash flow is a useful measure for investors because it portrays our ability to grow organically and generate cash from our businesses for purposes such as paying interest on our indebtedness, repaying maturing debt, funding business acquisitions, repurchasing our common stock, paying dividends, and investing in additional research and development. In addition, securities analysts, investors, and others frequently use free cash flow in their evaluation of companies.
The use of this non‐U.S. GAAP financial measure is not intended to be considered in isolation of, or as substitutes for, the financial information prepared and presented in accordance with U.S. GAAP. Free cash flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Our calculation of free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures.
Free cash flow reconciled to net cash provided by operating activities was as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
2026 |
|
|
2025 |
|
Net cash provided by operating activities (U.S. GAAP) |
|
$ |
205,264 |
|
|
$ |
112,341 |
|
Payments for property, plant and equipment |
|
|
(96,720 |
) |
|
|
(51,990 |
) |
Free cash flow (Non-U.S. GAAP) |
|
$ |
108,544 |
|
|
$ |
60,351 |
|
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Note 1, Operations and summary of significant accounting policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our most recently filed Annual Report on Form 10-K, describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recently filed Form 10-K, include the discussion of estimates used for revenue recognition, inventory valuation, reviews for impairment of goodwill and other indefinitely lived intangible assets, and our provision for income taxes. Such accounting estimates require significant judgments and assumptions to be used in the preparation of the Condensed Consolidated Financial Statements included in this Form 10-Q, and actual results could differ materially from the amounts reported.
New Accounting Standards
From time to time, the FASB or other standards-setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update.
To understand the impact of recently issued standards, whether adopted or to be adopted, please review the information provided in Note 2, New accounting standards in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Unless otherwise discussed, we believe that the impact of recently issued standards, whether adopted or to be adopted in the future, is not expected to have a material impact on our Condensed Consolidated Financial Statements upon adoption.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we have exposures to interest rate risk from our long-term and short-term debt and our postretirement benefit plans, and foreign currency exchange rate risk related to our foreign operations and foreign currency transactions. We are also exposed to various market risks that arise from transactions entered into in the normal course of business related to items such as the cost of raw materials and changes in inflation. Certain contractual relationships with customers and vendors mitigate risks from changes in raw material costs and foreign currency exchange rate changes that arise from normal purchasing and normal sales activities.
These market risks are discussed more fully in “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our most recent Form 10-K. These market risks have not materially changed since the date our most recent Form 10-K was filed with the SEC.
Item 4. Controls and Procedures
We have established disclosure controls and procedures, which are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer (Charles Blankenship, Jr., Chairman of the Board and Chief Executive Officer) and Principal Financial and Accounting Officer (William Lacey, Chief Financial Officer), as appropriate, to allow timely decisions regarding required disclosures.
Charles Blankenship, Jr. and William Lacey evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on their evaluations, they concluded that our disclosure controls and procedures were effective as of March 31, 2026.
There have not been any changes in our internal control over financial reporting during the quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Woodward is currently involved in claims, pending or threatened litigation or other legal proceedings, investigations, and/or regulatory proceedings arising in the normal course of business, including, among others, those relating to product liability claims, employment matters, worker’s compensation claims, contractual disputes, product warranty claims, and alleged violations of various laws and regulations. Woodward accrues for known individual matters using estimates of the most likely amount of loss where it believes that it is probable the matter will result in a loss when ultimately resolved and such loss is reasonably estimable.
While the outcome of pending claims, legal and regulatory proceedings, and investigations cannot be predicted with certainty, management believes that any liabilities that may result from these claims, proceedings, and investigations will not have a material effect on Woodward's liquidity, financial condition, or results of operations.
Item 1A. Risk Factors
Investment in our securities involves risk. An investor or potential investor should consider the risks summarized under the caption “Risk Factors” in Part I, Item 1A of our most recent Form 10-K when making investment decisions regarding our securities. The risk factors that were disclosed in our most recent Form 10-K have not materially changed since the date our most recent Form 10-K was filed with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sales of Unregistered Securities
None.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities
(In thousands, except for shares and per share amounts) |
|
Total Number of Shares Purchased |
|
|
Weighted Average Price Paid Per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
|
|
Approximate Dollar Value of Shares that may yet be Purchased under the Plans or Programs at Period End (1) |
|
January 1, 2026 through January 31, 2026 (2) |
|
|
282,110 |
|
|
$ |
319.92 |
|
|
|
282,110 |
|
|
$ |
1,619,504 |
|
February 1, 2026 through February 28, 2026 (2) |
|
|
235,551 |
|
|
|
383.18 |
|
|
|
235,528 |
|
|
|
1,529,254 |
|
March 1, 2026 through March 31, 2026 (2) |
|
|
114,102 |
|
|
|
394.45 |
|
|
|
114,079 |
|
|
|
1,484,255 |
|
(1)In January 2024, the Board authorized a program for the repurchase of up to $600,000 of Woodward’s
outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period. The Company completed its $600,000 authorization in November 2025. In November 2025, the Board authorized a new program for the repurchase of up to $1,800,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period ending in November 2028.
(2)Under a trust established for the purposes of administering the Woodward Executive Benefit Plan, 23 shares of common stock were acquired in March 2026 on the open market related to the deferral of compensation by certain eligible members of Woodward’s management who irrevocably elected to invest some or all of their deferred compensation in Woodward common stock. In addition, 23 shares of common stock were acquired in February 2026 on the open market related to the reinvestment of dividends for shares of treasury stock held for deferred compensation. Shares owned by the trust, which is a separate legal entity, are included in "Treasury stock held for deferred compensation" in the Condensed Consolidated Balance Sheets.
Item 5. Other Information
On February 12, 2026, Karrie Bem, Executive Vice President, General Counsel, Corporate Secretary, and Chief Compliance Officer, entered into a trading plan pursuant to Rule 10b5-1 of the Exchange Act intended to satisfy the affirmative defense of Rule 10b5-1(c) of the Exchange Act. The new trading plan provides for the sale of up to 929 shares of common stock of the Company upon the exercise of non-qualified stock options and terminates on December 7, 2026, for a duration of 298 days.
During the three months ended March 31, 2026, no other directors or officers, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Item 408 of Regulation S-K.
Item 6. Exhibits
Exhibits filed as part of this Report are listed in the Exhibit Index.
WOODWARD, INC.
EXHIBIT INDEX
|
|
|
|
Exhibit Number |
Description |
* |
3.1 |
Certificate of Amendment of Certificate of Incorporation, dated April 21, 2026 |
* |
31.1 |
Rule 13a-14(a)/15d-14(a) certification of Charles Blankenship, Jr. |
* |
31.2 |
Rule 13a-14(a)/15d-14(a) certification of William Lacey |
* |
32.1 |
Section 1350 certifications |
* |
101 |
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Earnings, (iii) Condensed Consolidated Statements of Comprehensive Earnings, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Stockholders’ Equity, and (vi) Notes to Condensed Consolidated Financial Statements. |
* |
104 |
Cover page Interactive Data File (embedded within the Inline XBRL document and are contained in Exhibit 101) |
* Filed as an exhibit to this Report
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
WOODWARD, INC. |
Date: April 30, 2026 |
|
/s/ Charles Blankenship, Jr. |
|
|
Charles Blankenship, Jr. |
|
|
Chairman of the Board and Chief Executive Officer (on behalf of the registrant and as the registrant’s Principal Executive Officer) |
|
|
|
Date: April 30, 2026 |
|
/s/ William Lacey |
|
|
William Lacey |
|
|
Chief Financial Officer (on behalf of the registrant and as the registrant’s Principal Financial and Accounting Officer) |
