Howmet Q3 Beat with Guidance Raised; 2026 Outlook Confirms Aerospace Momentum

Executive Summary#

Earnings Beat Validates Aerospace Thesis, Guidance Acceleration Signals Confidence#

HWM Aerospace reported third-quarter 2025 results that exceeded Wall Street expectations across all metrics, with adjusted earnings per share of $0.95 beating consensus of $0.90 to $0.91 by approximately 5%, whilst revenue of $2.089 billion accelerated to 14% year-over-year growth from first-half pace of 8%. Management capitalised on the strong results to raise full-year 2025 guidance on all key metrics—revenue increased by $55 million, adjusted EBITDA by $55 million, earnings per share by $0.07, and free cash flow guidance lifted by $75 million. Beyond fiscal 2025, HWM provided explicit 2026 revenue guidance of approximately $9 billion, representing 10% year-over-year growth, a signal that management remains confident in the durability of commercial aerospace demand momentum through the medium term, even as quarterly growth moderates from the exceptional pace of the past 18 months.

The results and forward guidance represent a material inflection for institutional investors, shifting the narrative from "positioned for earnings inflection" (the preview thesis of October 29) to "delivered inflection with raised guidance and multi-year visibility." Critically, management's decision to raise guidance across the board, coupled with continued capital discipline—including a $63 million debt paydown, $600 million in year-to-date share repurchases, and a maintained quarterly dividend of $0.12 per share—suggests that the earnings expansion is durable and underpinned by structural demand rather than transitory operational leverage. The S&P credit rating upgrade to BBB+ from BBB announced on September 8, 2025 further validates the investment thesis, positioning HWM as an investment-grade beneficiary of the structural deficit in global commercial aircraft supply.

Guidance Raise and Forward Visibility#

The decision to raise guidance across all metrics signals material confidence in both the near-term execution environment and the medium-term demand trajectory. Full-year 2025 guidance now stands at approximately $8.175 billion to $8.195 billion in revenue (baseline $8.185 billion, up $55 million from prior guidance), with adjusted EBITDA expected to reach approximately $2.370 billion to $2.380 billion (baseline $2.375 billion, up $55 million), adjusted earnings per share of $3.66 to $3.68 (baseline $3.67, up $0.07), and free cash flow guidance of $1.275 billion to $1.325 billion (baseline $1.300 billion, up $75 million). These raises, whilst appearing modest in percentage terms, are significant in context: management has now increased guidance twice in the calendar year 2025 (prior raise at mid-year), indicating that the underlying demand environment is tracking ahead of original expectations rather than meeting them. The acceleration in quarterly revenue growth from 8% in the first half to 14% in the third quarter provides the quantitative foundation for the raise, whilst management's commentary emphasises that "air traffic continues to grow and the backlog of commercial aircraft extends through the decade," a phrase that appears specifically calibrated to address investor concerns about cycle peak-out or demand moderation.

Looking forward to 2026, HWM guided approximately $9 billion in revenue, representing 10% year-over-year growth from the raised 2025 baseline. Whilst this 10% growth rate is materially lower than the 2025 implied growth rate of approximately 10% to 11%, management's willingness to provide explicit 2026 guidance—a step not taken at most industrial companies—speaks to confidence in the sustainment of demand across the commercial aerospace cycle. The company articulated that the defence aerospace market "remains strong across F-35 demand in addition to legacy fighters" and that "growing power demand to support data center builds bolsters the industrial gas turbine and aeroderivative market," signalling that the revenue growth is not concentrated in commercial aircraft alone but distributed across multiple end-markets. The singular weakness noted in management commentary—the commercial transportation market remains weak—is acknowledged and contemplated, suggesting that the 2026 guidance is not divorced from risk acknowledgement.

Earnings Acceleration and Operating Performance#

Quarterly Revenue Acceleration Validates Demand Thesis#

Third-quarter revenue of $2.089 billion represents a 14% year-over-year increase, a material acceleration from the first-half growth rate of 8% and a signal that the commercial aerospace supply shortage is intensifying rather than moderating. Management explicitly highlighted that "revenue growth accelerated to 14% year over year, versus 8% growth in the first half, driven by healthy demand across the commercial aerospace, defense aerospace, and industrial and other markets." Breaking down the quarterly performance by end-market: commercial aerospace revenue grew 15% year-over-year, defence aerospace revenue grew 24% year-over-year, and industrial and other markets grew 18% year-over-year, partially offset by a 3% decline in the commercial transportation segment. The strength across multiple end-markets, particularly the 24% defence aerospace growth, underscores that HWM's performance is not dependent on a single customer or programme, and that the company is benefiting from structural demand inflection across its portfolio rather than from cyclical inventory build.

Adjusted earnings per share of $0.95 exceeded the high-end of consensus guidance ($0.90 to $0.91) by approximately 5%, driven by both top-line acceleration and continued margin expansion. Net income reached $385 million in the third quarter versus $332 million in the prior year, a 16% increase, whilst adjusted EBITDA reached $614 million versus $488 million in the prior year, a 26% increase. This operating leverage—where earnings growth (16% to 26% depending on metric) exceeded revenue growth (14%), demonstrating positive operational gearing—validates the thesis that HWM is converting incremental sales into proportionally higher profit due to fixed-cost deleverage and manufacturing mix benefits. The absence of special items in the third quarter 2025, combined with a 22.2% effective tax rate, suggests that the earnings quality is high and the results are operationally representative rather than driven by one-time gains or unusual items.

Margin Expansion Across Segments Signals Pricing Power and Operating Leverage#

Adjusted EBITDA margin excluding special items reached 29.4% in the third quarter, up 290 basis points year-over-year, a feat that would be extraordinary for most industrial manufacturers but which is materially consistent with HWM's trajectory throughout 2025. The breadth of margin expansion across segments provides critical evidence that the margin improvement is not isolated to a single business line but is instead a reflection of company-wide operating leverage and product-mix benefits. Engine Products (the crown jewel, representing approximately 53% of revenue) posted revenue of $1.105 billion, up 17% year-over-year, with adjusted EBITDA of $368 million at a 33.3% margin, up 80 basis points year-over-year—a performance that reflects sustained high-pressure turbine blade demand and strong engine spares aftermarket traction. Fastening Systems, which supplies aerospace fastening solutions, reported revenue of $448 million, up 14% year-over-year, with adjusted EBITDA margin expanding dramatically to 30.8% from 26.0% in the prior year, a 480 basis point improvement that reflects the leverage of converting strong commercial aerospace volume growth into fixed-cost absorption and mix improvement. Engineered Structures reported revenue of $289 million, up 14% year-over-year, with adjusted EBITDA margin of 20.1%, up 510 basis points year-over-year, the most dramatic improvement on a percentage basis, though from a lower absolute margin base reflecting the diversified nature of the business.

The Forged Wheels segment, which supplies wheels to commercial transportation and is subject to structural cyclical decline, reported revenue of $247 million, flat year-over-year with 16% volume declines offset by cost reductions and aluminium cost pass-through. Adjusted EBITDA margin for Forged Wheels expanded to 29.6% from 26.1% in the prior year, a 350 basis point improvement that demonstrates management's ability to manage down-cycles with discipline and cost flexibility. Collectively, the segment data reveals that HWM is not dependent on a single performance driver; rather, the company is benefiting from broad-based strength in aerospace and defence applications, with commercial transportation weakness being effectively hedged by the outperformance of other segments. This portfolio diversification, combined with the magnitude of margin expansion across multiple segments, provides institutional investors with substantial conviction that the current profitability levels are sustainable even if one end-market experiences transitory softness.

Capital Strength and Strategic Capital Allocation#

Free Cash Flow Generation Underpins Shareholder Returns and Debt Reduction#

Third-quarter free cash flow reached $423 million, with year-to-date free cash flow of $901 million tracking toward the raised full-year guidance of $1.275 billion to $1.325 billion (baseline $1.300 billion). The quality of cash conversion is evident in the year-to-date net income of approximately $1.136 billion and year-to-date free cash flow of $901 million, representing a 79% conversion rate, which is healthy and suggests that HWM is not experiencing working capital strain or capital intensity spikes that would impair cash flow generation. Management's decision to raise free cash flow guidance by $75 million reflects confidence that capital expenditures will remain disciplined relative to the revenue base (approximately 4% of revenue on a free cash flow basis), with the company continuing to invest in the Michigan and Kentucky facility ramp-up announced in the October 29 preview, whilst simultaneously generating sufficient free cash flow to support shareholder returns and balance sheet strengthening. The third-quarter capex of $108 million (approximately 5% of revenue) is consistent with a company in growth mode but not excessively capital-intensive relative to peers in aerospace and industrial sectors.

The deployment of free cash flow demonstrates management's confidence in the sustainability of the earnings profile. Year-to-date share repurchases totalled $600 million (with an additional $100 million repurchased in early October at $191.86 per share, demonstrating buyback opportunism above the average price of $155.67 for the year). The company retired approximately 3.9 million shares, representing approximately 0.9% of the outstanding share base, with remaining repurchase authorization of $1.597 billion, providing ample capacity for continued buyback activity through 2026. The maintained quarterly dividend of $0.12 per share, which was increased by 20% in July 2025, represents a sustainable 2.5% yield on the current stock price and signals that management does not intend to materially reduce the dividend even in a moderation scenario for 2026. Critically, the combination of $600 million in repurchases, $131 million in dividends paid year-to-date (approximately $0.32 per share), and $63 million in debt paydown totals $794 million returned to shareholders and applied to balance sheet strengthening, a deployment that is fully supported by the $901 million in free cash flow generated and evidences disciplined capital allocation that prioritises shareholder value creation without overextending the balance sheet.

Credit Upgrade Validates Investment-Grade Quality and Balance Sheet Strength#

The S&P upgrade of HWM's long-term issuer credit rating from BBB to BBB+ on September 8, 2025, represents a vote of confidence in the company's balance sheet quality and cash flow trajectory. The upgrade was driven by S&P's assessment that HWM's financial profile has strengthened materially following the earnings inflection in 2024 and continued strong execution in 2025, with the company now positioned as a mid-tier investment-grade credit rather than a borderline investment-grade name. The company's gross leverage, measured as debt divided by EBITDA, is estimated at approximately 1.5x based on public disclosures (long-term debt of $3.188 billion as of September 30, 2025, and annualised adjusted EBITDA of approximately $2.375 billion), which is conservative relative to peers in aerospace and defence supply and below the 2.0x to 2.5x leverage multiples that are common among industrials. Interest coverage, measured as adjusted EBITDA divided by interest expense, is estimated at approximately 17x to 18x, which is exceptionally strong and reflects the credit profile of a company in excellent financial health. Management's continued debt paydown—$63 million in the third quarter and approximately $140 million year-to-date—demonstrates an intention to incrementally reduce leverage toward a 1.3x to 1.4x target range, a capital deployment prioritisation that prioritises balance sheet strength alongside shareholder returns.

The combination of the S&P upgrade, strong credit metrics, and management's capital discipline collectively position HWM as an investment-grade credit on a sustainable foundation, creating a virtuous cycle where improved credit ratings reduce the company's cost of capital, further strengthening the competitive advantage relative to leveraged peers and enabling HWM to fund organic growth and shareholder returns without balance sheet stress. The rating upgrade also signals that credit investors perceive the earnings inflection as durable, not transitory, reducing refinancing risk and providing financial flexibility to navigate cyclical volatility or opportunistic M&A if attractive targets emerge. The financial flexibility provides HWM with strategic optionality that competitors facing tighter balance sheets or lower credit ratings cannot match, a factor that will become increasingly important if the aerospace cycle experiences unexpected disruption in 2026 or 2027.

Market Positioning and Competitive Dynamics#

Commercial Aerospace Supply Deficit Provides Structural Runway for Volume Growth#

The global commercial aerospace market is experiencing a structural supply-demand imbalance that favours component suppliers such as HWM with established manufacturing scale and customer certifications. Boeing and Airbus are operating at maximum production rates constrained by supplier capacity, with Boeing targeting 42 737 Max units per month and Airbus targeting approximately 82 commercial jet deliveries per month for 2025, whilst the global fleet continues to operate at high utilisation rates and generate strong aftermarket spares demand. The HWM Engine Products segment is particularly well-positioned within this supply ecosystem, as high-pressure turbine components and engine-related parts have extended qualification cycles (12 to 24 months) that create high switching costs and recurring revenue streams once qualified. Management highlighted that "engine spares growth" is a material driver of current revenue, a comment that implicitly signals that aftermarket revenue is accelerating alongside OEM production rates, providing HWM with a multi-lever revenue growth story: OEM production growth, flight-hour driven spares demand from the expanding in-service fleet, and mix improvement from higher-margin aftermarket applications.

The competitive positioning of HWM is further strengthened by the company's geographic footprint and capacity investments. The company announced in the October 29 preview that new manufacturing facilities in Michigan and Kentucky are scheduled to commence operations in Q4 2025 and throughout 2026, specifically targeted at high-pressure turbine component and aerospace structure production. These facilities are backed by customer contracts (as management explicitly stated "investments which are backed by customer contracts"), reducing the risk of overcapacity or margin compression from volume shortfalls. The willingness of HWM to deploy capital on a fixed-asset basis into aerospace production, combined with management's statement that the company intends to "prioritise serving demand over automation in the near term," signals that management views the current supply shortage as durable rather than transitory and believes that the return on incremental capacity will justify the capital deployment through at least 2027.

End-Market Strength Across Commercial Aerospace, Defence, and Industrial Applications#

Third-quarter segment results reveal that HWM's exposure is diversified across multiple end-markets, each experiencing independent drivers of demand growth. Commercial aerospace revenue grew 15% year-over-year, driven by sustained global demand for commercial aircraft, with both Airbus and Boeing increasing production rates and the industry backlog extending through 2030 based on publicly disclosed order books. Defence aerospace revenue grew 24% year-over-year, reflecting both F-35 programme demand (a multi-decade, globally-distributed defence industrial commitment with sustained funding visibility) and "legacy fighter" demand, a comment that implicitly references F-16 upgrades, C-130 sustainment, and other long-tail defence programmes. Industrial and other markets grew 18% year-over-year, driven principally by "growing power demand to support data center builds" and industrial gas turbine and aeroderivative engine applications that are benefiting from the energy transition and artificial intelligence infrastructure buildout. The only weakness noted is in commercial transportation (down 3% year-over-year), which represents a small and declining portion of HWM's revenue but remains a drag on consolidated growth.

Collectively, these data points suggest that HWM is well-positioned across multiple structural growth drivers—aircraft demand, defence spending, data center energy infrastructure—and is not dependent on a single end-market to achieve growth. The breadth of HWM's end-market exposure creates a natural hedge against cyclical weakness in any single vertical, whilst the structural nature of the underlying demand (aircraft replacements driven by fleet utilisation, multi-decade defence spending commitments, energy infrastructure buildout) suggests that the company is benefiting from mega-trends that will sustain growth well beyond the current cycle window. This portfolio resilience is particularly valuable for institutional investors assessing concentration risk and the probability of guidance delivery in 2026, as HWM need not achieve 100% of growth targets in any single segment to deliver on consolidated guidance.

Outlook and Investment Implications#

2026 Guidance Provides Multi-Year Visibility with Acknowledged Risks#

Management's explicit 2026 guidance of approximately $9 billion in revenue, representing 10% year-over-year growth from the raised 2025 baseline of approximately $8.185 billion, provides institutional investors with a concrete roadmap for modelling and risk assessment. The 10% growth rate is materially lower than the 2025 implied growth rate of approximately 10% to 11%, and significantly lower than the third-quarter growth rate of 14%, which signals that management is adopting a conservative posture regarding medium-term growth and is either anticipating some moderation in aerospace demand growth or simply pricing in a normalisation from the exceptional growth rates of the past 18 months. The company's articulation that "the outlook across most of our major end markets remains solid" but specifically noting that "the commercial transportation market remains weak," provides granular risk acknowledgement that differentiates HWM's guidance from generic forward statements. The emphasis on "air traffic continues to grow and the backlog of commercial aircraft extends through the decade" serves as management's anchor narrative for investor confidence, effectively articulating that the supply shortage in commercial aerospace is structural and expected to persist beyond the 2026 forecast window.

The multi-year nature of the 2026 guidance is particularly noteworthy in the context of industrial supply forecasting, where most manufacturers provide single-year forward estimates and resist the temptation to stake reputation on multi-year visibility. HWM's willingness to guide 2026 revenue growth of 10% reflects the company's confidence that the OEM production rate environment will remain benign and that the supply-demand imbalance in commercial aerospace will not reverse materially over the 15-month period from the current quarter through the end of 2026. This confidence extends to the company's capital allocation decisions, where management continues to fund facility expansions in Michigan and Kentucky with incremental hiring, rather than pulling back and adopting a defensive posture. The conviction is reinforced by the fact that existing facilities are running at elevated utilisation rates and that customer contracts underpin the capacity additions, eliminating the binary risk of stranded assets or margin compression from overcapacity.

Near-Term Catalysts and Risk Factors#

Key catalysts to monitor over the next 12 months include: (1) Q4 2025 execution and the confirmation of full-year results within or above the raised guidance ranges; (2) the ramp-up execution of the Michigan and Kentucky facilities commencing in Q4 2025 and throughout 2026, including cost control and hiring velocity; (3) the confirmation that Airbus and Boeing sustain or exceed current production rate guidance and do not experience further delays; (4) the trajectory of engine spares demand and aftermarket revenue, which management indicated is a material growth driver; and (5) the tenure of the current S&P BBB+ credit rating and the potential for additional rating agency action if the company continues to delever and improve profitability metrics. These catalysts collectively provide a framework for assessing whether HWM can sustain the current earnings trajectory and deliver on the 2026 guidance with margin expansion intact. Institutional investors tracking the company should pay particular attention to management's quarterly commentary on facility utilisation, hiring velocity, and customer order flow, all of which will provide real-time signals of demand durability versus the possibility of cycle normalization.

Risks to the 2026 outlook remain centred on a sharper-than-expected slowdown in global air traffic (either from recession, geopolitical disruption, or demand normalisation), unexpected production delays at Boeing or Airbus stemming from labour disputes or supply chain disruptions, and the volatility of raw material costs (particularly titanium and aluminium) and management's ability to pass through cost inflation to customers under existing contract terms. The previous titanium pricing dispute with Lockheed Martin in 2023–2024, though resolved, demonstrated that HWM does not possess unlimited pricing power against large customers with leverage, and this structural vulnerability warrants continued monitoring. The commercial transportation weakness noted by management remains a minor but non-trivial drag on consolidated results, and any further deterioration in that end-market would compress overall growth rates and margin profiles. For now, however, the trajectory is clear: HWM is executing to the script of a secular aerospace recovery, with raised guidance, multi-year visibility, and continued capital discipline signalling that the current investment thesis remains intact and is supported by both near-term earnings delivery and medium-term growth visibility.

Outlook#

Earnings Inflection Confirmed with Guidance Raise and Medium-Term Visibility#

HWM Aerospace has delivered the earnings inflection that was previewed on October 29, 2025, and has exceeded expectations with material guidance raises across all key metrics. The third-quarter beat, the acceleration in quarterly revenue growth from 8% to 14%, and management's decision to raise full-year guidance and provide explicit 2026 guidance collectively signal that the company is well-positioned to sustain earnings growth through the cycle. The S&P credit upgrade, coupled with continued share repurchases and debt reduction, validates the investment thesis and positions HWM as a secular beneficiary of the structural deficit in global commercial aircraft and defence aerospace supply.

The earnings inflection is not a transitory phenomenon driven by operational leverage alone; rather, it reflects a durable shift in HWM's competitive positioning within the aerospace supply chain, where the company has successfully expanded capacity ahead of demand and captured market share from competitors unable or unwilling to make similar investments. The multi-year guidance to $9 billion in 2026 revenues combined with free cash flow guidance north of $1.3 billion establishes a trajectory that will require sustained execution across manufacturing, supply chain, and customer relations, but the company's track record in Q3 and the progress on Michigan and Kentucky facilities suggests that management has the operational capability to deliver on these commitments. The visibility extends further into 2027 and beyond, with the backlog commentary suggesting that HWM has multi-year customer commitments that provide substantial downside protection even in a demand moderation scenario.

Investment Positioning and Risk-Adjusted Return Profile#

Investors seeking exposure to the sustained aerospace recovery with a high-quality balance sheet and improving capital allocation profile should view HWM as an attractive holding through the 2026 guidance window. The principal risks remain demand normalisation, OEM execution challenges, and raw material cost inflation, but management's commentary and capital discipline suggest that the company is appropriately hedged against these scenarios. The combination of second-consecutive-year guidance raises, explicit 2026 guidance, credit rating upgrade, and continued shareholder returns (share repurchases and dividend increases) collectively position HWM as a higher-conviction opportunity relative to peers facing cyclical demand uncertainty or balance sheet constraints. The risk-adjusted return profile favours accumulation on any near-term weakness, with the 2026 guidance providing a multi-quarter window of visibility and the 10% revenue growth assumption offering room for upside surprises if aerospace demand proves more durable than even management's conservative baseline assumptions.

Valuation has become increasingly attractive relative to the fundamentals, with the company's earnings power expansion and free cash flow generation providing a margin of safety that protects investors from down scenarios. HWM's combination of secular demand tailwinds, improved competitive positioning, strengthened balance sheet, and demonstrated execution capability across multiple production cycles creates a compelling investment opportunity for institutional portfolios with a 12- to 24-month time horizon aligned with the 2026 guidance window. The Q3 beat, guidance raise, and explicit 2026 outlook represent a rare confluence of positive catalysts that validate the original investment thesis and position HWM as a core position for aerospace and industrial exposure in the coming years.