Howmet Aerospace (HWM) Q4 2025 earnings review
Firing on All Cylinders: Margins Break 30% Barrier
Howmet delivered a flawless Q4, accelerating revenue growth to 15% YoY while expanding Adjusted EBITDA margins to a record 30.1%. The growth story has broadened: while Commercial Aerospace (+13%) and Defense (+20%) remain pillars, the Gas Turbine segment surged 32% driven by data center power demand. Crucially, the lagging Commercial Transportation segment flipped to robust growth (+9%). Management guided FY26 revenue to ~$9.1B (10% growth), signaling that the momentum is structural, not transient.
🐂 Bull Case
IGT is no longer a niche; it grew 32% in Q4 (combined with Oil & Gas). The build-out of data centers requires massive power generation, driving demand for Howmet's specialized turbine components. This provides a long-tail growth vector independent of aerospace cycles.
The Forged Wheels segment has completed its U-turn. After shrinking 13% in Q1, it returned to 9% growth in Q4. With North American freight markets stabilizing, this former drag is now a contributor.
🐻 Bear Case
Howmet announced a $1.8B acquisition of Consolidated Aerospace Manufacturing (CAM). While strategic, this introduces integration risk and temporarily diverts capital allocation focus from pure buybacks/dividends to M&A execution.
The company is priced for perfection, trading on record margins (30%+) and peak cycle execution. With Commercial Aero up 12-13% and IGT up 25-30%, any deceleration or supply chain hiccup could trigger a multiple compression.
⚖️ Verdict: 🟢🟢
Strong Buy. Howmet is a rare industrial compounder delivering accelerating top-line growth and expanding margins simultaneously. The pivot in Commercial Transportation and the emergence of Data Center/IGT demand diversify the risk profile, validating the FY26 double-digit growth outlook.
Key Themes
The Turnaround in Forged Wheels
Commercial Transportation (Forged Wheels) has been the only weak link in FY25. That narrative broke in Q4. Revenue swung to +9% YoY, driven by aluminum cost pass-throughs and stabilizing volumes. EBITDA margins held firm at ~29.9%, proving the business can maintain profitability even before a full volume recovery.
Aerospace Super-Cycle Continues
Engine Products revenue grew 20% in Q4 with a stunning 34% EBITDA margin. Defense Aerospace grew 20% and Commercial Aero grew 13%. The demand for engine spares remains robust due to aging fleets and new engine durability issues, a trend that shows no sign of slowing in FY26 guidance.
Data Center Power Demand
The Gas Turbines market (formerly IGT + Oil & Gas) accelerated to 32% growth in Q4. Management explicitly linked this to 'accelerating data center build-out' requiring heavy-duty gas turbines. This connects Howmet directly to the AI infrastructure theme, providing a non-aero growth leg.
Capital Allocation Shift: M&A Focus
After quarters of aggressive buybacks ($700M in FY25), Howmet is pivoting to M&A with the $1.8B acquisition of CAM (fasteners) and the smaller Brunner acquisition. While CAM fits the portfolio, large deals carry integration risks and debt load implications, temporarily altering the 'cash machine' narrative.
Workforce Absorption Costs
Engine Products absorbed ~1,445 net headcount in FY25 to support growth. While margins expanded, the sheer scale of hiring introduces training and efficiency risks. If revenue growth decelerates, this added fixed cost base could pressure margins.
Other KPIs
Accelerating. Up 330 bps YoY. Margins have consistently stepped up throughout FY25 (Q1: 28.8% -> Q4: 30.1%), driven by volume leverage and pricing power in Engine Products (34.0% margin).
Stable/Strong. Represents 93% conversion of Net Income. Despite record CapEx of $453M (investing for growth), the company generated ample cash to fund $700M in buybacks and $181M in dividends.
Accelerating. Defense growth has remained in the roughly 20% range all year (Q2: +21%, Q4: +20%), providing a recession-resistant baseload to the Engine and Structures segments.
Guidance
Stable High Growth. The midpoint ($9.1B) implies ~10% YoY growth, consistent with the 11% growth delivered in FY25. This suggests the cycle has legs and is not peaking yet.
Accelerating Profitability. Implies ~15% YoY growth at the midpoint, outpacing revenue growth (10%). This indicates continued margin expansion to ~30.3% (from 29.3% in FY25).
Accelerating. Midpoint ($4.45) implies +18% growth vs FY25 ($3.77). Driven by operating leverage and reduced interest expense ($22M savings realized in FY25 actions).
Accelerating. Midpoint represents a ~12% increase vs FY25 ($1.43B), despite presumably higher cash taxes and continued CapEx.
Key Questions
CAM Acquisition Synergy
With the $1.8B CAM acquisition closing in H1 2026, what are the specific synergy targets and margin accretion timelines? Does this deal alter the buyback cadence for 2026?
IGT vs. Aero Capacity
Gas Turbines growth (+32%) is outpacing Aero. Are you shifting CapEx priority toward IGT/Data Center capacity, and are the margins in this segment accretive to the corporate average of 30%?
Tariff Exposure Mitigation
With rising geopolitical trade tensions, specifically regarding titanium and aerospace supply chains, what percentage of the FY26 guidance is insulated by long-term agreements with pass-through clauses?