Conference Transcript - HWM 2026-05-27

Doug Harned, Analyst — Bernstein

I'm Doug Harned, Bernstein's Global Aerospace and Defense Analyst, and I'm thrilled to have back with us today John Plant, the Chairman and CEO of HowMet, and with that, we're going to get started here. So, John, I think to start off here, maybe you can just give us a little bit of overview of where HowMet stands right now and what some of the opportunities and challenges you're facing are.

John Plant, Chairman

Okay, so first of all, good morning, everybody. I look forward to chatting with Doug today and giving you some insights to have that. We seem to be at, I would say, a point where the opportunities do outweigh the challenges at the moment. And having said that, I mean, sometimes the opportunities themselves bring challenge in being able to step up to them. We're at this moment in time where in a commercial aerospace side of the business, the backlogs for commercial aircraft are extraordinary highs. And that gives us some feeling of security, of improved volumes for the future. and with aircraft manufacturers predicting increase in rates. So that's good and helpful to us in terms of the growth vector for the company. Also in aerospace, the defense budget seemed to be solid. And given the use of aircraft, especially recently, then there appears to be the opportunity for additional spares coming up in the next two or three years. And then at the same time, given also the use of missiles and the potential for investment in the Golden Dome, then that also is producing another, say, growth opportunity for us. So the aerospace part of our business seems to be well set. and it then turns to the gas turbine part of the business where it appears to be a particularly hot topic these days given the build-out of data centres and the required improvements in electricity supply to power them. And I think, as everybody knows, is that our position in supplying the turbine blades for the gas turbines as part of the electricity supply is very significant. In fact, our market share is well over 50% globally. And therefore, again, another significant opportunity for growth for us. So those are the, I'll say, the longer-run opportunities facing the company. And we probably have the more, I'd say, tactical, short-run opportunity of some improvements or maybe bouncing off the bottom this year in terms of our commercial wheel business for commercial trucks, both in North America and, to some degree, Europe. So in terms of challenge, the growth of the company presents its challenge in terms of our ability to deploy all of the capital required to step up to these challenges. And at the same time, making sure that we not only deploy the capital, we do it in a very efficient way, introduce the products on time and achieve the volume increases. and at the same time produce a very healthy cash flow. And there's always a little bit of strain between, I'm going to say, the commitment we have to deliver the cash flow conversion of the company with a long-term metric of 90% of net income while meeting these growth challenges.

Doug Harned, Analyst — Bernstein

Well, I'd like to continue a little bit on that hot topic of IGT and power. Your revenues were up 39% in Q1, and if I go back two years ago, we weren't even talking about this topic, and we've got GE Renova down the hall here, and I'm trying to get a picture of how you see this growth rate going forward for Haumat, because you've talked about going from $1 billion in revenues up to, say, $2 billion in three to five years. But if I start to look at what some of the companies involved in gas turbines are talking about, the growth rate looks higher than that. And if you add on pricing, you add on I think maybe more market share you know this the two billion seems like a low number how should how should I think about that well I think

John Plant, Chairman

you have to break the current revenue down between that's required for a we build and that's required for spares and just at the moment both are I'll say firing on all cylinders in the fact that the existing fleet of turbines is working much harder than expected and therefore driving a very significant spares market for us. At the same time, you say everybody wants more in terms of gas turbine production. And so I think it's fair to assume there's a little bit of caution in the way we're thinking about things because there is much more required than just our turbine blades to produce the whole power generation set up and so beyond the turbine you have to have the power gen side of the I say the equipment the generation side of it so I want to be cautious that to some degree we ultimately move at the weakest link in that whole supply chain and at the same time remaining hopeful that maybe the growth could be

Doug Harned, Analyst — Bernstein

I remember when we were here last year at that point in time you were talking about basically negotiations underway with four companies. And now you've talked about now you're up to, I think, six and maybe a seventh. So it seems like you're – I'm trying to understand you're sort of all of those individual companies are expecting a lot of growth, and you seem to be expanding your presence across them as well.

John Plant, Chairman

It's been an extraordinary time in the gas turbine business. So maybe sometimes in life, you get a little bit lucky. And to some degree, this feels a little bit of good fortune. Because while we had expected an increase in our gas turbine business, if you went back maybe 18 months, two years ago, we were thinking more like going from a fairly cyclical business to maybe something growing in the mid single digits to high single digits area at the best for the for the power side at the power side and and obviously that's not the case today we're thinking much more boldly about the the increases that are coming and then as we began to think through where we were in terms of the customer set that we have our anticipation was that we'd see a significant increase in requirements from the large gas turbine manufacturer so think of that as G for Nova think of Siemens think of Mitsubishi heavy and and that's where we see the most fundamental part of the demand as it turns out it we now see that it's also the smaller mid-sized gas turbine manufacturers as well that are requiring a very significant increases in capacity some of it driven because they can't get the large gas turbines as a supply shortage and and that's generating opportunity for banks of the the smaller mid-sized turbines but also parts of the the build-out of the liquid natural gas is also producing a significant demand there for let's say gas compression and liquidification and driving of gas towards the LNG terminals and so we're actually having again demand not just from data centers but across the board and because of that lack of capacity being brought to the market by the larger gas turbine manufacturers it's given the opportunity for us to supply to the likes of the solar sub of Caterpillar or was it Baker Hughes or is it even Doosan in Korea and so on. So there's a lot more opportunity which we hadn't originally thought about when we were conceiving of the demand pattern for the next two or three years. So it's a long way of saying because, again, we are probably the most significant supplier to each of these customers, then it's giving us a level of further opportunity we hadn't planned on well

Doug Harned, Analyst — Bernstein

and and you're talking about the signal demand signal for the next two to three years but when you look at the investments that you need to make to do this I imagine you have to think about what are we looking at in five years is this something that will plateau or is this something where we could you see headlines that almost imply infinite growth here which I would always be skeptical of how do you think about structuring deals so that you don't end

John Plant, Chairman

up over investing in capacity that's been the I'll say item which has been most forefront of mind for me in terms of determining to what degree should we be capacitized for this opportunity? And first of all, what's the duration of the growth part of the cycle? And so what do we see by way of requirements for, say, utilities, standalone data centers, data center clusters, and also into the oil and gas sector going forward? Or even the derivatives for provision of turbines for ships, example, in the defense industry. And you've seen some of those announcements recently where, again, we supply the parts for turbines for that. So there's a lot going on. And then the question is, to what degree should we invest? And we also have to, as you know, be very cognizant of protecting shareholders' returns and therefore not over-investing. So we've also tried to think of it in terms of how do we structure the commercial arrangements with our customers such that we are confident in making those investments? Then also, what will be the demand pattern as we get to 2030 and beyond? And what's the growth rate looking like both for data center clusters or is it now the provision of electricity to industrial complexes and therefore the requirements for microgrids, et cetera, et cetera? So there's a lot of thought which has gone into how much we should invest how should we protect ourselves and indeed since the part that we supply is the wearing part of the turbine so there's a replacement requirement so I always think of turbine blades is like the brake pads of the of the turbine industry so assume that in the next five years that the fleet of turbines that are out there in the market let's assume it's going to be a very significant increase in quantity maybe almost doubling the existing fleet and therefore all of those turbines were producing the requirements for spare parts at the turn of the decade into the 2030s and so in this in the scenario where maybe a wee growth slows or maybe we don't have any growth at all then my thought is that that Hammett should be able to continue to see growth because all of the fleet of turbines the existing fleet and all the build-out over the next few years are all going to require replacement parts which will give us another vector of growth which will either compound what we have or substitute and therefore we should see continued growth and therefore giving some comfort to the level of investment that we're we're considering

Doug Harned, Analyst — Bernstein

I want to jump over to the aero part of engine products. But just in thinking about this, when you look at the growth, can you give us a sense of how large you expect the power portion of engine products to be as a percentage of your engine business in five years? I know that's hard because the aero side is growing rapidly as well.

John Plant, Chairman

Yeah, it's a bit like predicting how big our spares business will be relative to OE. Because in recent times, you've actually seen the percentage increase in spares revenues increase at a higher rate than the OE production. And the question is, how will that continue? And the answer is it really depends upon the OE growth as well as the build of aircraft for engines, the natural recycler for replacement parts, plus also what I call the bubble, which is the fitment of the fleet of engines which have been seeing early life failure for some of those parts. And then you compare and contrast that to the growth in gas turbines, the large gas turbines, which again is going to be dictated by the weakest link in the chain, but then the requirement for spares parts. So it's really difficult to handicap each of these individual segments to say, you know, what's the percentage increase in spares in gas turbines versus OE versus spares in commercial aero, defense aero, and also the OE build. And so it may not sound the most sophisticated responses to you, but the answer is maybe I don't sweat it too much because the only thing I know is it's more. And do I really care where the growth comes from? I feel as though it's passing out. Am I going to go 20% in this or 25% of that? I don't need to work it out just now.

Doug Harned, Analyst — Bernstein

Well, on the OE aero side, I mean, if I go back a couple years, and we've talked about this a number of times, but, you know, this helmet used to be viewed primarily as an OE supplier on engines, but obviously the aftermarket became much more important. But now, you know, Boeing is now looking at going up to 47 a month on the max this summer. We'll hear from Kelly later. Where do you stand relative to Boeing in terms of, say, a burndown in inventory and ultimately aligning with their rate of growth? Obviously, that funnels through GE as well.

John Plant, Chairman

Yes. So right now there's not a lot of inventory that's just lying around either in completed engines nor in parts availability. So pretty much our customers will take everything that we can make in the support of their ramp. and if not then there's the sufficient backlog through the MRO shops for spares requirements at the moment again that the thing which is not forefront of mind at all is is there a demand issue so with the assumption there's a little inventory in the spares chains little inventory in the OE chain then there's nothing to worry about on engine parts for that fun on that side and that's

Doug Harned, Analyst — Bernstein

true for both Boeing and Airbus for like leap 1a and leap 1b yeah I mean you know

John Plant, Chairman

where we are at the moment is wide body we expect to to show signs of growth coming up hopefully this year which has been a long time coming and and maybe into next year. But again, as you see, narrowbodies also requiring inputs of parts because Boeing want to produce more, and that would be great. Airbus also want to produce more, but have struggled a little bit recently. And there's a well-publicized information regarding the supply of one of the engine manufacturers into Airbus. Again, parts apply, and we all know that we're in this changeover period so last year we changed over on the the leap range of engines to the it's the improved I'll say generational improvement on the leap 1a we have yet to make that change and to see that change is coming through on the leap 1b and of course to date on the GTF advantage again we're producing parts now but none of yet made it to the to the outside market and so again a lot of change and a lot of throughput is required as we bring those changes to into being in 26 and 27 now on on the on

Doug Harned, Analyst — Bernstein

these new blade designs so how do you how do you manage the timing of the ramp as you said sort of the next one that's right in play now is on the GTF advantage and so that ramp I mean they just got certification for the engine on on the aircraft and so like when when do you ramp up and how do you manage the changeover from the prior blades to the new ones yeah it's difficult to for us

John Plant, Chairman

to give precise dates about when changeovers will occur you know we we saw on the 1a that we were prepared use I think you saw me quote in at the end of 24 we had put in place 500 engine sets of parts on the the 1a changeover and so if I start with 1b we're in that build phase we're producing tools for capacity we're looking at the changeover dates for production while also knowing that we're going to continue to provide and manufacture the existing technology and just for your information we're also still manufacturing the existing technology on the on the 1a as well and as i think you know that when a an engine comes in for overhaul if if all the blades are changed then you can go to the a new generation but if only certain of them are then you can't mix and match on the same disk and therefore we supply both new generation and old generation and the older generation is into the into the service market we're going to go through that on the 1b this year and then for the for the advantage we're gonna be increasing production every quarter during the course of this year when it actually makes its way to the market and you know Where will the market seat first in the OE area or the aftermarket area? That's not for us to determine. There won't be enough, I will say, provision of parts to do both at the same time, is our view. And so I think we're actually going to see a far higher production in 2027 of the advantage level of parts. and reaching much higher volumes in the second half of 27 while still providing all of the existing current GTF advantage parts all the way through.

Doug Harned, Analyst — Bernstein

Because this would also involve, I mean, they have this whole hot section plus program too to do upgrades, so you've sort of got normal MRO, that program, and OE.

John Plant, Chairman

Yes.

Doug Harned, Analyst — Bernstein

Right, all coming.

John Plant, Chairman

That is going to be a very significant increase in requirements for us as we go through this next, let's say, 18 months.

Doug Harned, Analyst — Bernstein

Is it fair to say that on each of these, when you go to the new generation blade, that you would have higher pricing, better margins, and more share? I never really comment on...

John Plant, Chairman

I know you don't want to comment on that, right? On those things. I just loosely refer to it as a higher content because of increased sophistication. So if we're going to produce turbine blades that can exist at fundamentally higher temperatures, so think these are not extra 100 or 200 degrees Fahrenheit. We're talking about hundreds of degrees of improvement in thermal capabilities. And so to produce that level of part, it's another generation of sophistication. And the way I like to think of it in the advantage area is that some aspects of the technologies that we developed for the engines for the F-35, as an example, some of those technologies are being deployed for the advantage level of turbine. so again to make sure that there is a significant buffer between we know what the the temperatures the engine may see because again it's a lot of testing has

Doug Harned, Analyst — Bernstein

been done but then as the real-world application now I have I have heard you know some frustration from your customer universe that it may be maybe because you guys are too good, but that you're sort of the main source here, and that they would love to have more options. And we've seen Pratt, they have this whole effort in Asheville where they're working on doing some of their own blades. How do you view the potential threat of new entrants in this market or people in sourcing like Pratt's trying to do? What impact, if any, does that have on your thinking?

John Plant, Chairman

Well, obviously, we need to always think of what the competitor or is it a competitor might do. We do keep a fairly close eye on what the capabilities might be in those new areas, a potential source. And with that displaying the full level of knowledge about the situation is these things are not easy to make. Because if they were, then I guess that we'd have a lot of people doing them. So I suspect that we could be sitting here a decade from now and still finding that people might be struggling to produce. And the economics of the turbine blade essentially go to the question of yield. And the difference between, let's say, getting a 70% yield and a 40% yield is all of the pricing and all of the profit that exists in a turbine blade application.

Doug Harned, Analyst — Bernstein

Now, you know, you've had very strong margin growth. I mean, your EBITDA margins, you've been taking them up close to 300 basis points each year for the past couple years in engine products. What's enabling those increases? I think you were at 36% in Q1. Where can you go from here? Because it does seem like you have opportunities you've described that you're very well positioned for.

John Plant, Chairman

It's always difficult to talk about where you're going to go because it would be a forecast of the future. And as you know, I've always been very reluctant to comment on what the future might behold by way of markets because to some degree, to a large degree, things are outside of your direct control. You know, we don't know what inflation rates will be even in the second half of this year yet. And therefore, the degree of recovery and therefore dampening effect that might have on margins, etc., or margin growth. So I never want to assume a level of knowledge or prescience that could predict the future that accurately. And so, and you could say, well, some of it because I don't feel like I need to do it. And secondly, I think it's a little bit foolish to do that. But I think the most important part of it is, as we continue to strive for the improvements in our manufacturing space and improve our yields and drive through these improvements in technology, which are very significant in either improving the robustness of engines or if not producing the opportunity for further fuel efficiency, then those are very valuable to the industry. And we just want to play our part in that and gain the appropriate value for that.

Doug Harned, Analyst — Bernstein

Well, you know, also still with an engine product, so defense has also been quite good for you. And, you know, our assumption is F-35 is probably the biggest single driver there. If we look at F-35, the aftermarkets, I mean, the cycles on the F-35 drive a pretty strong aftermarket. Is it fair to think of growth there in some sense proportional to the fleet size in F-35 if we're trying to predict that?

John Plant, Chairman

I actually think it's more than proportional to the fleet size. I hate to use the word exponential but to some degree it does apply so if you went back and looked at the size of the fleet let's say in 2021 and then looked at the spares level at that I don't mean spares packages provided with the OE sets to let's say to foreign governments which which that's a feature of it but spares driven by usage then our I'll say loose prediction had been by 2025 that we would see the production of spares for the turbine to exceed the OE production which is actually what did occur during 2025 and then when we look forward to let's say 2030 so you put another five years of production of 150, 160 F-35s into the market. And so you're looking at, let's say, another 800-plus aircraft. And then all of those, obviously, are going to require spares. And the existing fleet, which has been built from, let's say, the last five years, are going to require spares. and so my thought at the moment is the you know without going through what exactly what our models predict because there's also numbers of flying hours which is something which we don't control since it's been a lot of flying hours recently given the the conflicts that are there then you know the the thought is maybe the spares demand will double again by 2030 and assuming this aircraft, is it still in production through the 2030s? I think at the moment through, is it 2038 or 39? Yeah, pretty much through that. Then another 10 years of 150, if it's flat production, or who knows exactly what it'll be by 2035. Because we'll be hopefully doing the F-47 and whatever the Navy plane requirements are. So all of that will be feeding in as well. So my thought is the spares demand and is going to continue to grow and be very significant as we go through the 2030s, 2040s, 2050s, 2060s.

Doug Harned, Analyst — Bernstein

Yeah, we don't model the 2060s.

John Plant, Chairman

Yeah, I thought you might, but things that might be beyond you and I talking on this stage together.

Doug Harned, Analyst — Bernstein

You don't plan to be here on the 2060 conference?

John Plant, Chairman

I hadn't thought about it recently, let's say, but it's possible that it might not be the case.

Doug Harned, Analyst — Bernstein

Okay. Well, me too. So we'll see. So switching over to fastening systems. So you've had some really strong revenue growth, but we've sort of been waiting for this wide body ramp to occur, and it seems like you've had this growth even before we've seen the 787 and 8350 growth really move up. What's driving your fastener's growth?

John Plant, Chairman

There's been multiple strands to that growth. I mean, first of all, we've probably incremented our share in various areas. It's been a little bit because of the SPS fire, which occurred when I compared it as. There's been a little bit, because when we renewed our contract with Airbus this year, again, we took a little bit of share. And we're also trying to develop, I will say, new products that we bring through and look to put those on, additional things on the aircraft. So when we put a level of technology, which may surprise you if you took us, let's say, without naming the platform exactly where we've put a new range of fasteners on, let's say the front part, let's call it the nose area of the aircraft, and then we're marching down each part of the fuselage, then that again is content and value increase to us. So we've been trying to do that a lot in our FASNA business and seeking to do more of it. And we've actually got many things in development right now.

Doug Harned, Analyst — Bernstein

So has that expansion you're talking about, has that been primarily on narrow bodies?

John Plant, Chairman

I would say more narrow body than wide body. You know, we have some developments for new things in the composite area where we're looking at wide bodies today, but in particular for the next generation aircraft as well so we're trying to position ourselves and you know doing this year in the next couple of years such that to be the you know i'll say selections on anything that might occur in any form of narrow body uh i'll say you know changes

Doug Harned, Analyst — Bernstein

to come yeah or new aircraft to come now um we we should see wide body production rates go we're thing that at Boeing right now, those production rates are starting to go up. A350, it's been a little slow recently, but that should go up rapidly if you look at what Airbus is projecting. That seems like, given that those are more, you know, those are higher value fasteners for you, and the volumes are high. I mean, should we expect to see a kind of break upward as we see the ramps take off?

John Plant, Chairman

I've been thinking for like two or three years that we might see, I'll say, the wide body... It's taken a long time. ...begin to start, and therefore there might be a mixed effect. But here we are in 26, and it hasn't happened to date. and I'm not thinking particularly great things for 26 either. We've seen a recent announcement that maybe the A350 might not increase so much as was thought because of some additional production problems. So it's best not to get ahead of yourself, but come the day where Airbus is producing 12 A350s a month or maybe come the day where Boeing is making in the teens again for the 787, then that will be positive for us. Now, how that growth is going to compare to narrow body ultimately? Who knows? But should they get there? And so, you know, whenever you decide what the narrow body production is, is 100, 120, 140 aircraft a month or whatever numbers you choose, the percentage increase theoretically on wide body should be higher. But it's a long time coming.

Doug Harned, Analyst — Bernstein

Yeah, but Boeing, I mean, they intend to be at 10 a month by the end of this year on the 787. So that one seems, that growth path seems pretty real right now.

John Plant, Chairman

That's not our underlying assumption that we've given for our embedded revenues for this year. So should Boeing produce 10 a month, that'll be absolutely great. Look forward to it. But I think when we gave our guide for the end of this year, we were thinking maybe we get to, or they get to more like eight a month by the end of the year. But again, that's not something which we have anything. We're just able to respond and support them as they need. So they won't be a problem in terms of rate of production coming from Hamlet for those fasteners.

Doug Harned, Analyst — Bernstein

but that's but should they be successful in getting there you're you're able to support those higher rates yes and I would like to okay yes that's good and again I'm you know your margins in fasting systems you were there were 31.8 percent in Q1 again these have gone steadily up I know we don't want to predict inflation or anything like that but what's been helping you take the margins up and in fastening systems and you know what are the things you're looking at that potentially could add to that I think that one of the things I

John Plant, Chairman

was most pleased with over the last year so if you looked at 2025 was if you look at the revenue increase and the volume increase that underpin that then we were able to essentially do all of that without adding any people whatsoever to the business. And so the level of throughput that we've been able to achieve has been extraordinary. And some of it's down to automation, some of it's down to introducing newer equipment that can, let's say, collapse the numbers of stages of production into, let's say, going from maybe eight stages down to four stages, as an example, and therefore making that whole production system more efficient. So between, again, some content, some production efficiency, and some price, it's been beneficial. Now, in terms of how the margin develops in the future, of course, as you know, we're bringing on an acquisition, which we closed on the 6th of April and so when we blend those two together then obviously we taking some an entity which is more like in that it's a 20% margin range so add that together so that will obviously dampen you know those margins but then our plan is obviously to to bring that up and hopefully continue the improvement so that that's what we're seeking to do over the next let's say 18 months two

Doug Harned, Analyst — Bernstein

years so on the on the cam acquisition can you talk a little bit about what attracted you to that and how you expect to integrate it and improve it so we've

John Plant, Chairman

had the opportunity of looking at two or three fastener acquisitions in in the last year and one we looked at and decided not to proceed one we decided it was not of great interest to us, but CAM felt to us as though it was a better property altogether. It gave us the opportunity of not only further increasing and improving our fastener business, but also the adjacencies of fittings and couplings and things which we wanted to to increase our revenues significantly in so part of it we also thought on a when we looked at looked at inside their manufacturing operations that compared to what else we'd seen it seemed to be of a better order and so a base that we could further improve from with some of the the manufacturing techniques and investments that Hamlet does and so that was an opportunity secondly we wanted to also see what I believe to be the holy grail of doing an acquisition which is to gain some revenue synergy and so we thought that given the scale of the Hamlet sales force and contact points in the industry, which is way beyond commercial aerospace, that would give us the opportunity of pulling through some of the CAM products to the customers for more than they were able to. And so we're optimistic about doing that. we're also optimistic that some of the the cam product that we'll be able to take through our distribution network that we've built so if you go back to something that we did in 2021 which was to create a separate distribution arm for for hamat is that we've taken that from like 50 million to 350 over that period of time and the thought is that we'll be able to feed some of those can products through that distribution capability whereby we know we have the most the manufacturing and also the distribution side of it so that's what we think of that we can gain the opportunity of selling more through our network and also through our distribution capabilities plus obviously again can we make further improvements in productivity in the in the cam

Doug Harned, Analyst — Bernstein

operations. Now, switching over to engineered structures, this is one where I remember a couple years ago was one where you talked about that wasn't really your main focus of investment. The returns looked better on the other engine products, fastening systems, but the performance there has steadily improved over the last couple years. Can you take us through the most important and growth drivers for that business?

John Plant, Chairman

Yeah, I think first of all, I'd like to comment on the margin before I go to growth. So let's call it from 2019, where there'd been an oversupply situation for some of the structural parts into the Lockheed F-35 program, plus post-COVID some of the declining in wide-bodied international travel, then it was a tough scenario for that business. And I felt that we were doing reasonably well in that scenario of demand destruction to hold on to 14% margins. I was quite bold in that I normally don't talk about, as you know, future margin, but I said, I think this is conceptually a high-teens business. And as you saw, we broke through and achieved a two at the front of the margin profile for that business in 2025. And I said, our mission was to try to hold that, hold on to it. And you've seen we've been able to do that in 26. And in fact, even better than slightly. So we're just holding on to it and feel in a good situation. So thematically, I've been more interested in driving the margin and at the expense of revenue. And so there's been thrifting of product, withdrawal from certain segments, sale of a couple of entities. You've seen sale of a company we did in the UK called Wellin, one in the US in March, which was Savannah, and also we've chosen selectively to move out of certainty. So in the growing industry, my thought was we can still grow and you have seen growth but not at a pace that you would have thought but it's been a margin focus. And so now I feel as though we've done a lot of the heavy lifting towards that and so we have a business which has a better underlying situation in that I think the growth rate has the opportunity to increase the margin rate hold or further improve. And so we've taken this, let's say, two or three years to reprofile where that business sits in the grand scheme of things. And so having a business now in a 20% margin profile and a better future growth pattern to it is one that I increasingly begin to like. But it's been heavy lifting and taking some tough choices along the way.

Doug Harned, Analyst — Bernstein

We don't have a lot of time left here, but I wanted to touch on something you mentioned earlier and also on the earnings call. And that is opportunities in the missiles area, which is clearly an area of high growth. And where do those fit into your thinking?

John Plant, Chairman

Previously, missiles had not been the highest focus area for us. We were probably more interested in, I'll say, the structural fastener part of drones. But more recently, we've seen, I'll say, the long-run opportunity where some of the larger missile systems are requiring small turbines now. And certainly for the, I'll say, collaborative combat aircraft, the unmanned aircraft that would fly alongside an F-35 or an F-47, And clearly, those are turbine-based, and so we've spent time developing the parts for many of these small turbines that you've heard some engine manufacturers refer to, and trying to make sure that we have the ability to support the ones we choose to support. And so far, of the three base engines that we understand which have been selected by the Department of Defense or Department of War, then I think those are all future Hamet parts on them. And so it's not revenue for 2026 per se, I mean, some development prototypes, but positioning the company to support that segment. And I think it will show significant growth in the next... It's a three, five, ten years, and so I think it's an important thing that we do. More immediately in the missile area, of course, a lot of missiles have been used recently. And so whether it's now that we see an increased demand to replenish some of those, or whether it's for Golden Dome applications. So if you think about missiles like the PAC-3 or the Patriot missile or whether it's the THAAD system, then each of those are, you know, we are looking at significantly increased volume requirements and working that through at the moment. And so that's going to also produce a level of revenue improvement in, you know, not necessarily that much this year, but 27, 28, 29 to produce, say, replenish stocks and also, you know, say, for Golden Dome.

Doug Harned, Analyst — Bernstein

Well, kind of to wrap up here, when you put all this together and you think of your guiding as the cash, free cash flow of $1.75 billion this year, how should we think about what could take that higher, what might be a risk on that, and how you plan to deploy it?

John Plant, Chairman

Well, I think the first order and first priority for us has been to make sure that we can invest for the future growth opportunities. And you've seen us take CapEx up from the 300 million level through 400, 500 we're talking about this year. And I think 27 is going to be a higher number still. And so that really has been the most important thing we've been thinking about in terms of supporting that future organic growth of the company. And then beyond that, we've looked at how much we should use by way for share buyback, how much for acquisition, and how do those interplay with each other, what's the relative returns for shareholders of them. And at the moment, we feel as though we're able to take the opportunity because when an acquisition comes up, you don't get to choose when they come up. It's what the sellers are willing to sell. And we've made, too, as you know, the CAM acquisition, the Brunner acquisition, said we'll do those. At the same time, at this point of the year, we're still buying shares back at a higher rate than we did the previous year. So we're able to do that as well. So it's so far we've not had to face any binary choices of one or the other. We were able to do both, and both to an increasing extent. So we're kicking up CapEx. We've been able to complete acquisitions. We're kicking up the share buyback opportunities and still supporting a dividend. and so all of those things are being done. So at the moment, we're not trading one off against the other. You could have some at the margin, but it's all good.

Doug Harned, Analyst — Bernstein

It's all good. Okay, well, John, thank you very much. We'll end it here, but really great to see you.

John Plant, Chairman

Nice to see you too. Thank you.