Aerospace and defense company Howmet (NYSE: HWM) announced better-than-expected revenue in Q2 CY2025, with sales up 9.2% year on year to $2.05 billion. The company expects next quarter’s revenue to be around $2.03 billion, close to analysts’ estimates. Its non-GAAP profit of $0.91 per share was 4.2% above analysts’ consensus estimates.

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StockStory’s Take

Howmet’s second quarter results were driven by strong gains in both commercial and defense aerospace, as well as robust performance in the industrial gas turbine and oil and gas markets. Management attributed year-over-year revenue growth to increased demand for engine spares and new engine builds, with CEO John Plant noting, “Demand continues to be strong across all of our engines markets with record engine spares volume.” However, softness in commercial transportation and ongoing destocking in certain aerospace segments tempered overall results. The negative reaction from the market suggests investors remain concerned about the sustainability of these growth trends, especially given the mixed signals in end-market demand and inventory shifts.

Looking ahead, Howmet’s raised full-year outlook is anchored by expectations for continued strength in aerospace spares, higher production rates on key aircraft programs, and ongoing investments in capacity expansion. Management emphasized long-term visibility supported by commercial aircraft backlogs and new engine plant build-outs, with Plant stating, “The higher revenue expectation is supported by both an increased spares expectation and the higher Boeing 737 MAX rate assumption.” Nevertheless, the company acknowledged risks tied to commercial transportation weakness and supply chain bottlenecks in the broader industry, which could impact delivery rates and margin expansion.

Key Insights from Management’s Remarks

Management credited the quarter’s performance to strong momentum in aerospace and industrial markets, effective cost control, and targeted capacity investments, while acknowledging persistent challenges in commercial transportation.

• Aerospace engine spares surge: Engine Products saw record demand for commercial and defense aerospace spares, a shift management views as structural given aging fleets and increased flying hours. This contributed to double-digit segment revenue growth and margin expansion despite higher headcount.
• Defense remains resilient: Defense aerospace delivered record revenue, fueled by ongoing F-35 program strength and increased spare part requirements. Management expects this trend to persist as global defense spending remains elevated and the F-35 fleet expands.
• Industrial gas turbine (IGT) momentum: The IGT and oil and gas segments posted significant growth, supported by long-term agreements with major turbine manufacturers. Plant confirmed that IGT margins are comparable to aerospace, alleviating concerns of segment dilution as this business scales.
• Commercial transportation softness: The Forged Wheels and Fastening Systems units faced continued volume declines and tariff-related headwinds. Management responded by flexing costs and preserving margins, but signaled that weakness will likely persist into next year until market conditions stabilize.
• Capacity and productivity investments: Ongoing capital spending is targeting new engine and IGT plant construction, with management prioritizing automation for future productivity gains. Although new hires have caused near-term margin drag, these investments are expected to support growth as additional capacity ramps in 2026 and beyond.

Drivers of Future Performance

Howmet’s outlook is shaped by robust aerospace demand, continued capacity expansion, and persistent headwinds in commercial transportation and supply chains.

• Aerospace demand and backlog: Management’s guidance is underpinned by high aircraft backlogs and solid passenger demand, with major OEMs like Boeing and Airbus increasing production rates. Plant highlighted that higher output from the 737 MAX program and continued strength in spares should drive mid-single-digit growth in aerospace-related revenue.
• Capacity expansion and CapEx: Investments in new engine and IGT facilities are expected to come online starting late 2025 into 2027, supporting future revenue and margin growth. Management believes that recent capital expenditures will yield productivity gains and allow Howmet to capture greater content per aircraft and turbine.
• Industry risks and supply chain: The company cited potential bottlenecks in engine and component supply, as well as ongoing commercial transportation weakness, as risks to execution. Management remains alert to further inventory corrections and noted that tariff impacts have lessened but could fluctuate with shifting trade policy.

Catalysts in Upcoming Quarters

In upcoming quarters, our team will focus on (1) the pace at which new engine and IGT capacity becomes operational and contributes to sales, (2) the sustainability of aerospace spares and defense momentum amid shifting production rates and supply chain constraints, and (3) any stabilization or further deterioration in commercial transportation volumes. Progress in automating production and realization of productivity gains from capital investments will also be key indicators for future profitability.

Howmet currently trades at $181, down from $192.31 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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