WWD - NASDAQ

Ladies and gentlemen, thank you for standing by. Welcome to the Woodward Incorporated First Quarter Fiscal Year 2025 Earnings Call. At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. Following the presentation, you are invited to participate in a question-and-answer session. Joining us today from the company are Chip Blankenship, Chairman and Chief Executive Officer; Bill Lacey, Chief Financial Officer; and Dan Provaznik, Director of Investor Relations. I would now like to turn the call over to Dan Provaznik.

Thank you, operator. We'd like to welcome all of you to Woodward's first quarter fiscal year 2025 earnings call. In today's call, Chip will comment on our strategies and related markets. Bill will then discuss our financial results as outlined in our earnings release. At the end of our presentation, we will take questions. For those who have not seen today's earnings release, you can find it on our website at woodward.com. We've included some presentation materials to go along with today's call that are also accessible on our website. A webcast of this call will be available on our website for one year and all references in this call -- all references to years in this call are references to the company's fiscal year unless otherwise stated. I would like to highlight our cautionary statement as shown on Slide 2 of the presentation materials. As always, elements of this presentation are forward-looking, including our guidance and are based on our current outlook and assumptions for the global economy and our businesses more specifically. Those elements can and do frequently change. Our forward-looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify in our filings with the SEC. These statements are made as of today, and we do not intend to update them except as required by law. In addition, we're providing certain non-U.S. GAAP financial measures. We direct your attention to the reconciliation of non-U.S. GAAP financial measures, which are included in today's slide presentation and our earnings release. We believe this additional financial information will help in understanding our results. Now, I'll turn the call over to Chip.

Thank you, Dan, and thanks to everyone for joining us today. I'm pleased to report that the first quarter of 2025 was a strong start to our year, with robust market demand from most corners and results that highlight the strength of our strategy, continued improvement in execution and our members' commitment to serving our customers. While our first quarter reported results are down slightly compared to last year, we delivered strong growth in both our Aerospace segment and core industrial business. While our aerospace team managed through a pause in deliveries of some product lines to Boeing, we were able to balance the labor across other product lines in both aerospace and industrial. We made the most out-of-the situation with additional Kaizen events and workstation rearrangement for improved flow-in the facility prior to Boeing's restart of 737 MAX production. Woodward now has clear demand signals from airframe and engine OEMs that represent growth and we will be ready to meet that demand. We have some direct labor hiring to do ourselves and we have a lot of work to do with suppliers to support the increased demand signal. As other companies have acknowledged, there are still some suppliers struggling with output and quality. We remain forward deployed, working with our suppliers on problem solving to ensure we are able to serve customers. Core industrial performance was strong in the quarter with sustained robust demand across power generation, oil and gas, and marine transportation markets. The $65 million year-over-year decline in China on-highway sales overshadowed the 7% core industrial growth. Across industrial and aerospace, I'm pleased to see tangible results of our operational improvements and the acceleration of our lean transformation. This progress is enabling us to achieve stable operations and disciplined rate increase planning to keep pace with customer demand. As I visit our sites, I see a shift in mindset as our members build lean muscle and apply their problem solving skills to improve in areas such as safety, quality, delivery and cost. I'm also pleased with the progress we're making on our automation journey. The team at Rock Cut Campus commissioned an industry leading bank of automated deburring stations last quarter with multiple cobots and a myriad of end effect tools to accomplish tasks that we earlier dismissed as likely impossible. I'm extremely proud of our Rockford team and all our members contributing to automation across our Woodward production sites. I'd like to take a moment to highlight some strategic decisions that we made in the first quarter. These will contribute to shareholder value creation, strengthen our competitive position, and expand our technology offerings for the next single aisle aircraft. In December, we signed a definitive agreement to acquire Safran Electronics & Defense electromechanical actuation business. This includes technology, operational assets and long-term customer agreements for the horizontal stabilizer trim actuation or HSTA system. The acquisition also includes electromechanical components for braking, steering, de-icing and auxiliary power and importantly increases our shipset content on the Airbus A350. While this acquisition significantly bolsters our existing electromechanical flight controls capabilities, we're also investing organically in hydraulic flight control actuation. These investments enhance our ability to participate in single aisle aircraft trade studies and development programs with airframe OEMs and provide valuable insight with design experience and product pedigree on both sides of the trade study. Woodward can remain technology agnostic regarding the winning architecture as we offer electromechanical, hydraulic or a hybrid system approach, whichever is best for the aircraft. In the quarter, we also announced that we were selling our build-to-print industrial fuel nozzle product business in Greenville to GE Vernova. The Greenville plant serves one customer which owns all service revenues. The divestiture allows us to concentrate on industrial products that create the most shareholder value while supporting our customers' goals. We remain focused on our gas and liquid fuel control systems for aero derivative and heavy frame gas turbine genset applications. These are industry-leading product lines critical to our customers' ability to deliver gas turbine power generation growth. We've made additional progress on industrial product rationalization by selling certain small product lines, primarily legacy small engine diesel products. We're also strengthening our product management discipline by inserting it directly into our Woodward operating system. This will enable us to allocate resources more directly to the highest return opportunities throughout the life cycle of our products and actively manage our product offerings in a timely fashion. These actions support our strategy of building a stronger, more focused Woodward that's both well equipped to compete in the near-term and well-positioned to drive future growth. Moving to our markets. In aerospace, commercial passenger traffic continues to grow. While market demand remains robust, industry supply challenges continue to affect OEM build rates. As I stated earlier, we see a stronger OEM demand signal starting in our second quarter and we will respond accordingly. Our plan is designed to be flexible and responsive to actual product dynamics. Commercial aftermarket activity remains healthy, driven by high utilization rates of legacy aircraft and engines. This has resulted in high shop visit rates for extended periods. Low delivery rates of newer aircraft and early engine durability issues contributed to extending the legacy fleet high shop visit rate and in some cases, increase the level of investment that airlines have been willing to make in engine and LRU work scopes. In Defense, geopolitical developments continue to drive demand for defense products. For 2025, we continue to anticipate robust growth in smart Defense, driven by substantial increase in order activity and production, which will fulfil the remaining open lots. We expect margin expansion from improved pricing in late 2025 or early 2026 depending on delivery rates. Turning to industrial. Global demand for power generation capacity remains robust. Investment in gas-fired power generation equipment is increasing for both primary and backup power to enhance grid stability and support the expansion of renewable energy. Additionally, demand for data center power generation is expected to increase significantly. In transportation, the global marine market remains healthy. Elevated ship build rates support strong OEM engine demand and future aftermarket opportunity, and high utilization rates continue to drive current aftermarket revenue. Demand for alternative fuels across marine transportation continues to increase as an industry-wide strategy to support emissions reduction goals. As expected, demand for heavy duty trucks in China remains subdued due to local economic challenges. In oil and gas, while production remains at record levels in the U.S., this is not translating into upstream service growth due to efficiency improvements and low commodity prices. Optimism is being fueled by sustained investment in refining and petrochemical activities in China, the Middle East and India. In summary, we continue to see robust demand across most of our end markets, providing significant opportunities that we are effectively leveraging and will continue to capitalize on. As we seize these opportunities, we remain diligently focused on pursuing profitable growth, operational excellence and innovating for the future to deliver on our purpose. We are on-track to deliver our 2025 guidance and create long-term shareholder value. And now, I'll turn it over to Bill, who will share our financial results.

Thank you, Chip, and good afternoon, everyone. As a reminder, all references to years are references to the company's fiscal year unless otherwise stated, and all comparisons are year-over-year unless otherwise stated. Net sales for the first quarter of 2025 were $773 million, a decrease of 2%. Earnings per share for the first quarter of 2025 were $1.42 compared to $1.46. Adjusted earnings per share for the first quarter of 2025 were $1.35 compared to $1.45. Aero segment sales for the first quarter of 2025 were $494 million compared to $461 million, an increase of 7%. Commercial OEM sales were down 10%, largely due to the impact from the Boeing work stoppage. This impact was more than offset by higher sales with commercial aftermarket up 19%, defense OEM up 21% and defense aftermarket up 8%. Aerospace segment earnings for the first quarter of 2025 were $95 million or 19.2% of segment sales compared to $79 million or 17.2% of segment sales. The increase in segment earnings was primarily a result of price realization, partially offset by inflation, unfavorable mix and lower volumes. Turning to Industrial. Industrial segment sales for the first quarter of 2025 were $279 million compared to $326 million, a decrease of 15%. Transportation was down 33% due to a decline in China on-highway sales, which we had anticipated because of local economic challenges. China on-highway sales were $10 million in the first quarter. Our core industrial sales, which excludes China on-highway were up 7%, driven by broad-based strength across the business with marine transportation, power generation and oil and gas each up 7%. Industrial segment earnings for the first quarter of 2025 were $40 million or 14.4% of segment sales compared to $67 million or 20.5% of segment sales. Industrial segment earnings decreased primarily due to lower China on-highway volume and unfavorable mix, partially offset by price realization and favorable foreign exchange rates. Margins for our core industrial business were approximately 15% in the first quarter. We continue to expect core industrial margins of 14% to 15% of sales for the year. Non-segment expenses were $22 million for the first quarter of 2025 compared to $26 million, adjusted non-segment expenses were $28 million for the first quarter of 2025 compared to $27 million. At the Woodward level, R&D for the first quarter of 2025 was $30 million or 3.9% of sales compared to $31 million or 3.9% of sales. SG&A for the first quarter of 2025 was $70 million or 9% of sales compared to $75 million or 9.5% of sales. The effective tax rate was 14.5% for the first quarter of 2025 compared to 17.9%. The adjusted effective tax rate for the first quarter of 2025 was 14% compared to 17.7%. Looking at cash flows. Net cash provided by operating activities for fiscal 2025 was $35 million compared to $47 million. Capital expenditures were $34 million for fiscal 2025 compared to $42 million. Free cash flow was $1 million for the first quarter compared to $5 million, which is in-line with our typical first quarter levels. The decrease in free cash flow was primarily due to lower earnings, partially offset by lower capital expenditures. As of December 31, 2024, debt leverage was 1.5 times EBITDA. Our capital allocation strategy remains unchanged. We continue to prioritize investing in organic growth, returning cash to stockholders and pursuing strategic M&A. During the first quarter, we returned $50 million to stockholders comprised of $35 million of share repurchases and $15 million of dividends. In aggregate, we are currently planning to return approximately $215 million in 2025, including approximately $150 million of share repurchases and $65 million in dividends. Turning to our 2025 guidance. We are reaffirming our guidance for 2025 with the exception of adjusted effective tax rate and adjusted earnings per share. Based on the favorable tax rate in the first quarter, we now expect the adjusted effective tax rate for 2025 to be approximately 19%. As a result, we are narrowing our adjusted earnings per share range and now expected to be between $5.85 and $6.25. This concludes our comments on the business and results for the first quarter of fiscal year 2025. Operator, we are now ready to open the call to questions.

Thank you. The question-and-answer session will begin at this time. [Operator Instructions] Our first question comes from the line of Scott Mikus with Melius Research. Your line is open.

Good evening.

Good afternoon, Scott.

Chip, Bill, quick question just on the guidance for the Aerospace segment. The sales growth is kind of wide. And last quarter, I think you mentioned that you expected defense OEM to be the fastest end market within aerospace, followed by commercial OEM aftermarket, and then defense aftermarket. So I'm just wondering, has there been any change in that pecking order given the strong start you've had in the commercial aftermarket and defense aftermarket?

Yeah, Scott. So we're still keeping that wide range because it's still early yet from a Boeing performance standpoint and some of the other supply chain issues to sort of to narrow the upper range yet. Your point is a good one on the strong commercial aftermarket in 1Q. I will remind you that it was a relatively easy compare 1Q to the last year, 1Q '24. So as we look-forward going on for the rest of FY '25, we have more difficult compares. We think that high double-digits we showed this quarter will moderate significantly. Sequentially, the performance should be similar. I think it will be, neck-and-neck between commercial OE and commercial aftermarket for what's second in-line. We still expect defense OE to be the largest driver of growth for this fiscal year.

Okay. That's helpful. And then over the past several years, you've invested quite a bit to alleviate some of the supply chain bottlenecks in your own production system. So just wondering if you could characterize the performance of your supply chain relative to pre-COVID? Is it almost back to normal? And then is there any material difference in the performance of your aerospace supply chain versus the industrial segment supply chain?

So I'd echo the comments of many of my colleagues on earnings calls recently saying that we really haven't solved the post-COVID supply chain issues yet. I don't know that we do get back to a pre-COVID normal that we wish for. There's still plenty of labor challenges out there and the less experienced labor, we're having challenges across the supply chain with some supplier quality issues that are due to the things people that knew how to do before they retired or left. As people come up the learning curves, we're solving those problems and we're getting more involved. As you noted, we have invested over $10 million in flexible manufacturing equipment to temporarily or permanently in-source where our suppliers are having trouble, that is still ongoing. Those machines are pretty much loaded five days a week, two shifts and we're continuing to add capacity, soft capacity to those as the supply chain challenges would dictate. I'd say, we have similar challenges in industrial to aerospace supply chain. We're looking at 15 to 20 suppliers overall on the highly escalated challenged list on performance and it's about half-and-half.

Got it. Thank you.

Welcome.

And your next question comes from the line of Scott Deuschle with Deutsche Bank. Your line is open.

Hey, good evening.

Good evening.

Good evening, Scott.

Chip, is Boeing restarting purchase orders at a very low rate or are they coming out-of-the gates relatively strong in terms of the rates they're asking you to ship to?

The Boeing demand signal is pretty strong. So it's pretty strong out-of-the gate. And as you know, there's some inventory in the system. So we're responding in a disciplined way to bring our line rates up to meet that demand.

Okay. So should we expect commercial OE revenue to return to growth in the second quarter or could it still be down given the tougher comp that you see that in the second quarter?

While we don't give quarterly guidance, I do -- I have more confidence the second half of this year will be in a growth mode from an OE standpoint.

Okay. That's fair. And then have the retrofits for the LEAP engines new reverse fleet valve system contributed very materially to the company's aftermarket growth over the last few quarters? And then does that normalize at some point if that has been a driver of the aftermarket growth? Thank you.

The reverse bleed valve fleet program has not contributed significantly to our aftermarket growth.

All right. Thank you.

You're welcome.

And your next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is open.

Hey. Good afternoon, guys, and thank you. But maybe just one last question. Hey, I think last quarter you guys indicated aftermarket would level-off, but obviously, first quarter off to a great start at 20%. Can you maybe talk about what drove that just given you said, you would level-off given shop visits. When we think about the 9,000 engine LEAP fleet, how do we think about those shop visits coming in, your percentage of those shop visits, any sort of guide you could provide?

So I think the guidance that we sent was about the full year from a commercial aftermarket standpoint. So just pointing back to that it was a relatively easier compare in the first quarter than it is 2%, 3% and 4% for the year. So just want to draw your attention to that. And it was sort of across the board, where our lean transformation is allowing us to show better turn times and get more product out back to the customers in the aftermarket, supply chain alleviating some of the issues as well. So those contributed to our ability to serve the market a little bit better in first quarter '25 than we did in first quarter '24. Of course, there's some price in there as well, which shows up on the top line. And what was the rest of your question, Sheila, I'm sorry.

Just like what's the shop visit revenue we could think about with Woodward? Is it like 10% of your overall content and like, how do we think about when that cadence really picks up, just given the current LEAP fleet.

So I'd like to remind you also that much of our aftermarket content is line replaceable units. So while shop visit rate is interesting and some customers do route the LRUs for a component repair during a shop visit. We also see about, I'd say, just largely a 50-50 split from LRUs, whether it's shop visit or line removal. And it's really -- we are better correlated with overall engine hours than we are event driven shop visits. So I want to make sure everyone still understands that that's the case for Woodward content. We are seeing LEAP and GTF inputs grow year-over-year. We're on-track for that growth like we've modeled it. So we're very pleased at how that's developing.

Okay. And then maybe if I could ask one on industrial, switching gears a little bit, profitability has come in better, core margins of 15% plus. Can you walk us through how that improved, what drives the deceleration? And I think in your prepared remarks, you mentioned certain like licensing sales, but I didn't catch up it was industrial and/or aero, if you could clarify that.

I'll clarify that point and then I'll turn it over to Bill. So we did divest of some small product lines in industrial and that's adjusted out of our earnings. You'll see that in the GAAP results. But it's relatively small amount and not a big driver, not included in that margin number. Over to Bill on the makeup of the 15%.

Yeah. So yeah, we are real pleased with the core industrial coming out-of-the gate at 15%. As you know, Sheila, our guide on core industrial margins is between 14% and 15%. This quarter, we did -- in Q1, we did see some favorability related to foreign exchange rates. And so backing that out, core industrial margins were closer to 14% and we expect through the quarter that will -- through the year, we'll see their margin rates go between 14% and 15% with us finishing strong in Q4 depending on sort of the volume and the mix that comes through any given quarter. So we feel really good about all the work that we've done. I remember when I started here, core industrial margins were in the single -- high-single digits, 9%. And so, all the work that we've done in operational excellence, working on price, driving lean, we are seeing that improvement and we really feel good about our guide on core industrial of 14%, 15% for the year.

Awesome. Thank you.

You're welcome.

And your next question comes from the line of Matthew Akers with Wells Fargo. Your line is open.

Yeah. Hey, guys. Good afternoon. Thanks for the question. I wanted to ask about the Safran acquisition. Any more color you can give there and maybe what the new A350 content is? I think you said that we boosted that, I think it was like $40,000 to $50,000 previously. And just curious, should we think of this as sort of a one-off opportunity that came up or do you still see M&A as kind of a decent part of the capital allocation strategy here.

So taking the last part first, I mean, I think we still see M&A strategy as a good opportunity to bolt-on when we're looking for technology adds, market for customer adds to the Woodward portfolio. So we're very excited about this one. It brings us some unique additions to our electromechanical actuation business from a technology standpoint. And we do look forward to having the horizontal stabilizer trim actuation system for the A350 and that's the content add for the A350 that I was referring to. We didn't quantify what that means from a shipset standpoint though.

Yeah. Got it. Okay. And then I guess as a follow-up, I think you called out $215 million of cash you plan to return this year. Maybe just curious your free cash flow is above that. Are you -- is the remainder kind of earmarked for something or should we think of that as maybe potential upside to deployment kind of depending on-market opportunity.

Yeah, Matt. Again, we do think that we have capacity. There's a possibility for us to do more and we don't have it earmarked right now. We're going to see how things progress. We feel good about our -- where we are from on our shares. And if there's opportunity to buy some more, we will take a look at it if there are the other areas of organic growth investment, we will look at potentially doing some more. So $215 right now represents about $150 million of share repurchases that deal with offsetting our dilution and then we'll see how things develop over the rest of the year.

Great. Thank you.

You're welcome.

Welcome.

And your next question comes from the line of Pete Skibitski with Alembic Global Partner Advisors. Your line is open.

Hey. Good afternoon, guys.

Good afternoon, Pete.

Yeah. Hey, Chip. Just wondering the ongoing CR in defense, has that impacted your bookings at all or are the OEMs being pretty forward-leading in order flow?

We haven't seen any impact on that Pete?

Okay. And just a follow-up. I get the sense that maybe your multi-year visibility in guided weapons that maybe that's improving. I mean, the current outlook for defense spending is sort of low double or low-single digits. Should we expect guided weapons on a multiyear basis to kind of meaningfully exceed that? Is that kind of the target that you put out there or is the visibility just not there yet?

I don't think we have much visibility past early 2026, and that's kind of what we've limited our public comments on.

Okay. Fair enough. Thanks, guys.

Yeah. You're welcome.

Your next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open.

Thanks. Good evening -- afternoon. So power gen markets have had a pretty steady consistent drumbeat. Curious, if you could just go into some of the long-term demand signals a little bit. I think Caterpillar announced the substantial capacity plans for SIPS and gas turbines. Is that pretty telling of how you're looking at-the-market over the next handful of years.

Yeah, it is. I mean, our customers are all pushing us to demonstrate what our capacity actions would be to meet the investments that they're making. And we're aligned pretty darn well with both our reciprocating engine and gas turbine customers. We're very bullish on that market. Just the math alone tells us that there should be a gas renaissance in terms of the power demands, both for grid stability due to renewables, but also just for base gigawatts per year growth required to support industry, but also the data center and AI demand. I mean, all of the DeepSeek turmoil aside, we still see big demand and growth for gas power generation and we're poised to take part in that.

Great. I also wanted to ask about the guided weapons JDAM area. Is that expected a pretty steady cadence through the year? Well, it looks like maybe you had some load-in the fourth quarter and I don't know, how the seasonality comes to bear on a program that's ramping-up, but is that a consistent ramp through the year or kind of level loaded?

Yeah. Go ahead.

I'll start and then turn it to Bill. We plan it pretty level, but there's a lot of supply chain issues in that part of the world too. It's not limited just to commercial aircraft or industrial. So there can be some puts and takes from a production rate standpoint based on supplier performance. And also other suppliers of our customers can cause them to not pull as a high of a demand as they initially transmit for that month or that quarter.

Okay. Thank you.

Welcome.

And your next question comes from the line of David Strauss with Barclays. Your line is open.

Thanks. Good evening.

Good evening, Dave.

Chip, has there been any change in your thinking around tyring on highway and how that develops this year?

Unfortunately, I report no change to my thinking. It's just a volatile product line that we're in. Our team is working hard to control fixed costs when volumes are down and ready to respond, should there be an uptick. I think we'll also be mindful in terms of how we respond to demand signals from customers. We don't want to get in a position where we load up a lot of inventory like we did last year. So we're going to be very mindful of that. I think you know, the other thing is, we'll try to level load so we can better amortize our fixed costs when volume comes back. So I guess those are refinements to the thinking, but not changes.

Okay. So you're still thinking minimal sales in the second quarter and then $10 million to $15 million a quarter in Q3 and Q4.

Right. We still feel best about the $40 million estimate that we've put out there for China and highway.

Okay. And Chip, tariffs, I don't think you have any manufacturing in Canada and Mexico other than maybe it looks like the Safron business has some any exposure if these tariffs that may happen?

Well, as it turns out, we're largely in regions for regions. We've got some things that go back and forth globally, but mostly, we're -- our manufacturing footprint and supply chain is in the region that it serves. So we don't see any substantial tariff risk at this moment on this day at this time. But as you know, it's a fairly fluid environment.

Yeah, exactly. All right. Thanks very much.

Welcome.

Thanks, Dave.

And your next question comes from the line of Gavin Parsons with UBS. Your line is open.

Hey, guys. Good afternoon.

Hey, Gavin.

Hey, Gavin.

I appreciate the color on the Aero guide, but just wanted to kind of ask what pieces might take you to the high versus low end and it sounds like you have some destocking considered in there and is that just airframe or is that also on the engine side? Thanks

I think the things that take us towards the high side is the supply chain performance, quite frankly on the commercial and the defense OE side of the business that could take us to the high side, the things that would take us to the low side are non-performance or additional headwinds from a supply chain standpoint.

Great. And then on Aero revenue, I guess you guys called out price with volume down, do you still have good visibility into price for the rest of the year, does that start to start to lap?

Yeah. Gavin, as we talked about last quarter, we're expecting price at the total Woodward level to be around 5% and we expect Aero to be -- to deliver stronger price than industrial. So we've got pretty good visibility. As you remember, we were dealing with a number of fixed contracts that came due last year that got renegotiated. So we'll see some of that continue to come through the year and we're mostly through those contracts, but we still have a few to deal with this year.

Thanks.

Welcome.

And your next question comes from the line of Noah Poponak with Goldman Sachs. Your line is open.

Hello, everyone.

Hey, Noah.

Hey, Noah.

What was the LEAP in GTF aftermarket revenue contribution in the quarter?

Yeah, Noah. It continues to grow real nice -- very nicely and we're seeing very strong growth there. Again, Noah, is still off of a lower base. But obviously, as we continue to see these very strong growth rates, as we get into '26, '27, we won't be talking about a low base. And as we see in these early quarters, it continuing to grow. So it's performing as we have expected it to perform and we're really pleased with what we're seeing.

Is it correct to assume that the full year guidance doesn't actually assume a ton of growth contribution from that because even though you have very specific 2027 guidance or a framework, that's because you'll have reached critical mass by then, whereas right now you're kind of waiting to see when you flip to critical mass. So you're just not sure what it contributes to '25 or do you have a very specific assumption in the '25? Got it.

Yeah. I'll jump-in. I'll speak on that, Noah, and then turn it over to Chip. I -- the team has a good feel for -- from a range standpoint of what we expect LEAP and GTF to contribute to the aftermarket. So far, the team who have -- are very experienced with this have been pretty accurate with their estimates so far. So again, I feel comfortable that we have a good range of what we expect that piece of the business to deliver in '25. Chip?

Yeah. I think it's fair to say that we're pretty good at modeling it and that we're tracking, as Bill said. And what we shared at Investor Day was, it's really more like the 2028 timeframe where we would see LEAP and GTF be equal to legacy fleet in terms of their contributions to our market. Now we think legacy and will come down some by that time also, but that's where we would see maybe a changeover in the 28 plus timeframe. LEAP and GTF is starting to contribute and be less of a footnote and more of a baseload into our shop. So I don't want you to think it's not meaningful yet, but as Bill said, the numbers really aren't moving the needle in a big way from a growth standpoint yet.

Okay. And then I just want to also ask on the aerospace original equipment side. You had provided the guidance with its assumed growth rate while Boeing had you turned-off. So I guess the down 10% isn't a huge surprise. Just curious how the downturn compared to what you were thinking a few months ago. And then just how much -- I guess Boeing sort of is speaking to maybe a faster recovery in the back half than a lot of us thought. So yeah, I guess on the one hand, the down 10%, it needs a lot of growth to get to where your guidance was, but on the other hand, maybe Boeing -- was Boeing -- is Boeing actually talking about a faster ramp than you anticipated?

There's a lot there, Noah, but I'll do my best.

Yeah.

Yeah. I think just to start-off our guidance is sort of a wide range at the top end on purpose because Boeing was lying down when we were developing our guidance. So that's why it's sort of a wider range from a revenue standpoint. First and foremost, not really surprised by first quarter being where it is based on them just being turned on and taking a pause in a period of time to get workers back certified for the jobs that they're on and all these kinds of things before they really started back to work and move-in airplanes on the line. I’m really impressed with the goals they've set for how they want to come back up and running. And what I understand based on my experience really well is their six month stabilization and rate breaks that they talk about in the out years. How they're going to get from where they are right now to the 38 per month is the thing that we're all watching. We're all rooting for them as an industry, as a customer, as U.S. citizens. We're behind them all the way and hope that they can achieve those aggressive goals they've laid out for the second half of 2025.

Okay. Thank you.

You bet. Thanks.

And your next question comes from the line of Michael Ciarmoli with Truist Securities. Your line is open.

Hey. Good evening, guys. Thanks for taking the questions. Chip, just on Aerospace, the margins in the quarter, I mean, you had a 21% sequential decline there in OE, you held the margins flat. Obviously, you got the strong aftermarket mix. You mentioned just flow and Kaizen events, but anything else that helped to drive that margin? And then just thinking about when Boeing and OE really starts to ramp-up, do you kind of have to battle that negative mix shift?

So I guess the -- I'll start and I'll hand it over to Bill for some of the mechanics on the mix because we actually had some mix headwind in there. The commercial aftermarket wasn't as useful as you might think.

Okay.

But from an overall standpoint, our lean transformation, our ability to get product flowing and deliver to a customer where we're making progress on our model lines. We have people coming up to speed. They've been on the job now a couple of years instead of the six months or 12 months we talked about before. So our members are more productive. All these things are flowing through to the bottom line. In addition, some healthy price on the aerospace, especially the aftermarket side. I'll hand it over to Bill…

Yeah. I think just, Mike, you talked about the 19.2% that Aero delivered and we are also excited about it. It's 200 basis points improvement over last year, about flat sequentially. And so in kind of year-over-year good price realization there. We do -- with the defense OE, it does provide us with a little bit of a mix headwind for now. As that volume continues to increase though that will provide us with some good volume leverage, which will drive margin expansion. So really year-over-year, what drove it was price and continued work on the -- our operational excellence initiatives to deliver that margin, which our full year guide of 20% to 21%, we feel good about how this quarter started and allowing us to get to that guide.

Okay. Chip, you mentioned there was actually some negative mix though with aftermarket. Can you maybe just elaborate on that a bit? What kind of…

No, I was just saying that the defense OE was a mix down.

Okay. Got you.

It wasn't all aftermarket up and no other pressure. So that was what I was mentioning.

Got it. And then last one for me. You called out, I think, Chip, in your comments, direct labor and hiring, what are you guys looking at? What do you need to add-in terms of headcount to kind of meet the objectives or not really get squeezed here? And just any color on the hiring efforts?

Yeah. Nothing really out-of-the usual challenges that we have in this environment. So we let attrition kind of walk our number -- our staffing numbers down a little bit during the Boeing strike and some of the other softness in-demand. And so, we saw it coming -- we saw the demand signal coming back and plenty of time to return to the staffing levels we need to serve that. But I just want to call it out because it is part of the challenge we all face right now and we probably have a couple of months’ worth of hiring to make up as we look at this demand signal.

Okay. Perfect. Thanks, guys.

You're welcome.

And your next question comes from the line of Louis Raffetto with Wolfe Research. Your line is open.

Hey, good evening. Thank you.

Good evening, Louis.

Hello, Louis.

Hey, Bill. Maybe just a follow-up on the last question or two questions ago. Just pricing, do you have the pricing amount for the quarter?

Yeah. For the quarter, at the total order level, it came in around 6%. Again, total guide for the year is around 5%. And as we talked about for the total year, Aero contributed heavily to that 6%, but industrial also provide us with a good contribution.

All right. Great. Appreciate that, Bill. And then maybe just -- this is, I think the maybe fifth quarter now that we're excluding some sort of business development expense. I'm just trying to understand exactly what that is, why it's being excluded.

Yeah. This quarter, Louis, the business development expenses was related to the activity around the different deals that we talked about. And as always, we're trying to make sure that we provide you with clear operational performance and so that is what drove that adjustment.

All right. Great. Thanks for the clarity. And then maybe I may have missed this before, but is the acquisition and the divestiture like, cash wise, are they -- do they offset or is one sort of larger than the other? Any way to think about that?

Yeah. Obviously, I don't want to get too far. And as these things close, we'll provide you with a little more insight into the financials.

All right. Thank you very much.

You’re welcome.

And your next question comes from the line of Gautam Khanna with TD Cowen. Your line is open.

Yeah. Thank you, guys. Hey, I was wondering if you could comment on what commercial OE's level of profitability was prior to the strike of Woodward?

We don't really go down at that level of detail, Gautam.

I know, but can you ballpark it, like, relative to be -- is it A profitable, B, is it…?

Our commercial OE business is profitable and it's a good business for sure. And so yes, hopefully that is ballpark enough.

Fair enough. And then with respect to the tariffs, you mentioned kind of being in-country, but is there any kind of demand destruction that could come from this in the industrial business that's factored into your guide?

When you say demand destruction, you mean like customers no longer ordering equipment or cancelling orders?

Yeah. On the margins weaken the demand environment and if that factors in?

That may be a better question for one of our customers, but it doesn't jump out at me as a big risk.

All right. Thank you, guys.

Welcome.

And your next question comes from the line of Tony Bancroft with Gabelli Funds. Your line is open.

Good evening, gentlemen. Great job on the quarter and great job overall. Just with the recent -- you saw the obviously the acquisition today with Triumph and your recent acquisition of Safran's their business. And you mentioned in a little before about customer adds and where you're focused. Maybe you could just sort of like just give us a little lecture on what's the most desirable businesses or customer adds and what that size market, the potential of that market is, very obviously very broad strokes, but just want to get your view like in five years from now, do you see yourselves as sort of on the euro side of pure-play, pure-play fuel control business with actuation and some of the defense weapon system actuation. Just maybe you could just give us a picture of that.

I think the simplest way and it's broader than this, but I think the simplest way to explain it that I think will shed the most light on our strategy there is, we have a stated strategy to increase our shipset content on the next single aisle aircraft. So a lot of the activities that you'll see us talk about from an organic investment standpoint or from a potential bolt-on acquisition standpoint is around making sure we've got a clear path to be very competitive when that competition starts for content on the next single-aisle. We love high technology, challenging precision manufacturing kinds of systems and components. And we like components that have a healthy aftermarket opportunity associated with them. So that's kind of how we think about that.

That's great. Thanks so much. Great job.

Welcome.

Thanks, Tony.

Thank you.

And ladies and gentlemen, that concludes today's question-and-answer session. Mr. Blankenship, I will now turn the conference back over to you.

I'd just like to thank everyone for joining today's call. I hope you have a great day.