Woodward Soars on Strong Aerospace Demand, Announces China On-Highway Exit

Aerospace Giant Woodward Posts Strong Q1, Navigates Supply Chain and Strategic Shifts

FORT COLLINS, Colo. – Aerospace and industrial control systems leader Woodward, Inc. (NASDAQ: WWD) reported first-quarter earnings that handily beat expectations, signaling a powerful start to its 2026 fiscal year. The results were fueled by resilient demand in commercial aviation services and broad-based industrial growth, even as the company grapples with persistent supply chain inefficiencies.

Net sales for the quarter surged 29% year-over-year to $996 million, with earnings per share climbing to $2.17 from $1.42 a year ago. Free cash flow generation of $70 million also marked a historical high for a first quarter.

"Our teams are executing well in a dynamic environment," said Chairman and CEO Chip Blankenship. "While we see strong order books, particularly in aerospace aftermarket, we remain focused on ramping output and navigating the supply chain challenges that continue to pressure inventory levels."

Segment Performance: Aerospace Leads, Industrial Broadens

The Aerospace segment, Woodward's largest, saw sales jump 29% to $635 million. The standout driver was a 50% increase in commercial services, supported by high utilization of legacy aircraft fleets and increased activity for LEAP and GTF engine platforms. Segment earnings margin expanded significantly to 23.4%, aided by pricing actions and favorable sales mix.

However, CFO Bill Lacey tempered expectations, noting that the exceptional pace of commercial services growth and elevated spare parts sales—partially driven by customer inventory rebuilding in China—are not expected to persist at the same rate throughout the year.

The Industrial segment grew 30% to $362 million, with strength across marine, oil & gas, and power generation markets. A notable, yet volatile, contributor was the China On-Highway business, which posted $32 million in revenue, above internal plans.

Strategic Exit and Ongoing Challenges

In a significant strategic pivot, Woodward announced it will wind down its China On-Highway product lines by the end of fiscal 2026. Blankenship cited "inconsistent revenue, profitability, and limited order visibility" as reasons for the exit, which is expected to incur $20-$25 million in restructuring costs.

Supply chain constraints remain a headwind. Blankenship noted approximately 30 suppliers are still on a "risk watch" list, and delays of single components can bottleneck final deliveries. Consequently, inventory turns are not expected to normalize until late 2026 or early 2027.

Raised Guidance with Caveats

Buoyed by the strong start, Woodward raised its full-year sales and EPS guidance. The outlook assumes the exceptional Q1 drivers will not repeat, with growth expected to moderate. The company also increased its full-year pricing contribution expectation to around 7%, up from 5%.

"We're investing in capacity and automation, like our Spartanburg facility build-out, to meet demand and improve efficiency long-term," Lacey stated, explaining steady free cash flow guidance despite higher earnings due to planned working capital investments.

Market Voices: Analyst and Investor Reactions

Eleanor Vance, Aerospace Analyst at Horizon Capital: "Woodward's aftermarket strength is a clear indicator of the enduring health in commercial aviation. The margin expansion is impressive, but the guide suggests management is prudently baking in normalization. The China exit, while a near-term cost, sharpens their focus on more predictable, core industrial markets."

Marcus Thorne, Portfolio Manager at Steadfast Funds: "The cash flow number is the real story here—it shows operational discipline is improving. Their leverage is minimal, giving them ample firepower for M&A or buybacks. This quarter validates their transition towards higher-margin services."

Rebecca Choi, Editor at 'The Critical Investor' Newsletter: "Let's not get carried away. They're beating on the back of one-time parts sales in China and still can't fix their bloated inventory. Announcing a wind-down of an entire business line after one 'better-than-planned' quarter? That smells of strategic confusion, not clarity. The supply chain 'challenges' they keep mentioning are now years old—when does it become an execution failure?"

David Park, Former Industry Executive: "The partnership model with third-party MROs is smart. It allows Woodward to scale service capacity without all the capital intensity. In this environment, that asset-light approach to capturing aftermarket growth could be a key differentiator."

Woodward, founded in 1870, is a global leader in control systems for aerospace and industrial equipment.