Howmet Aerospace Inc. (HWM) September 2026 Conference Transcript

My name is Sheila Kayalu with the Jeffreys Aerospace Defense and Airlines Equity Research Team, in case you're on the webcast. And we have John Plant, who's chairman and CEO of Helmet. John, do you like what I have in my hand here for the first question?

Is that something you stole?

I did. I stole it from Whitehall, Michigan. It's a piece of a core at a very impressive facility. And I keep it in my bag, actually, all the time. It's like a little bit of a lucky charm. And I thought, what better way to start off than say, I stole a piece of the core, and it seems like lots of people are trying to steal a piece of your core, whether it's SpaceX or GE.

I still think you should hand that back to us.

No, no. I actually have a spare one in case you did try to take this away from me that I have secretly locked up in my jewelry box.

So how do we think about your next move from here? um are you talking about me personally or the company or um or what i mean i don't know i don't know you know you you know you just like i want to tantalize you with the all the you know the opportunity you you have to consider but notice i'm inviting you to get more specific so how do you think about my interest in war games from here and how the scenarios play out you know you said on your office I was rather shocked at one of your suggestions uh so I decided that you really had lost it um in in in your positioning that's that's but then that's that's me in the way I think about you Sheila um uh you know she who steals parts uh from us um so my assumption is So you're referring to some recent announcement, SpaceX, and that was a topic du jour like a week or so ago.

And then you had another topic.

Yeah, and I never want to avoid anything. I think to myself, yeah, let's talk about it because it's far better that I do because you'll just be relentless in following up questions if I don't. And so my first thought about it is, let me try to put the whole issue of power provision into the demand seen by turbine manufacturers for whether it's provision for oil and gas pipeline or whether it's into data centers. and what is all that about and where are we in that journey. And I think the most important and acute aspect of it is the demand evolution in the data center market because that clearly is a data center without power is useless. and availability of turbines has never been less against a greater need. And so where are we? And so I think I've got to start off with trying to make sure that we're all level set on the nature of today's data center demand. so historically if you go back let's say the storage of your images on your iPhone or your email and a data center that was more let's call it plain vanilla demand and that was using I'll say standard merchant available chips very different to the data center demand which is really emanating today from the likes of uh the the software being written by open ai or by anthropic and now i say data centers that are building being built out with a very advanced gpu chips let's say using the video or custom silicon so you've got very much you know yesterday's it's a more standard silicon and tomorrow it's custom silicon you've got air cooled versus air and liquid cooled you've got stable you know power demands for yesterday's data center to highly variable power demands for the more exacting and they're certainly topic of the day of where data centers are and that also influences the turbine selection and also the technologies that go into that because when you've got variable power requirements it puts very different loads on the turbine compared to uh let's say the more stable plane vanilla vanilla demand and so not only is more power required but it's the type of power that's there so you you get very different answers to what's the preferred turbines that service this market beyond the electricity from the grid but what are you're putting in there so it's also driving the nature of let's say not just for the use of natural gas but also the robustness of the set of turbine blades so the evolution from equiax through direction solidified to single crystal all of that is going on and the same time all of the movements towards air cooled turbine blades is also going on and and the one thing about how Matt is that we provide not you know that pathway of technological evolution which is rather unique in in what we do and it's it's it's a world away from the plain old solid equiax turbine blade of yesterday and and and these things get exponentially more difficult to manufacture as you go through that technological journey towards the future and so you know what do we see first of all going back is that very much the offering that we have goes very much the more advanced it's a custom silicon variable power requirements of these i mean modern you know variable according to how many searches are going on at one particular the time of time so it's important to talk about that the technology drift for the future and it's something i haven't really talked about much in the past and so uh you know i think that's an important thing to get out there and i wanted to say it in a more public forum so i'm not advantaging anybody else in that knowledge as we go through second point that probably should be made is that as you know from what i've said in the past our market share is significant and that market share has been growing and indeed is growing. We have, according to the last earnings call I gave, that we have now concluded agreements with all of the, I use the word seven, but one of the seven being, let's say, an aggregation of various aero derivatives, but all of the big turbine manufacturers, so think Jiva Nova, think Siemens, think Mitsubishi Heavy, And then you've got the smaller and mid-sized turbine manufacturers. So you think about Caterpillar, Solar, Baker Hughes, Doosan, and so on. So you've got all of those laid out. And these contracts, first of all, are multi-year. They go through the end of the decade and beyond, and in some of the cases to the middle of the next decade. That's an important aspect as well. And also, you know, it defines price and also supply position and share within it. And in one case, we actually have an exclusive arrangement, an exclusive means 100%. So, you know, that is really a good position for us to be in. And the biggest issue that we have today now is really not only facilitising for the capital that we have been deploying, but what we're going to continue to deploy over the next two or three years. But also our next decision is, do we need to have more building footprint for the capacity expansion? So this part of the market is exciting for us. And I'm going to say probably sometime in the next two or three earnings call, maybe the one in February, I'll probably update everybody about, you know, my statement was that we would, from the 2025, we would see a doubling of our revenues somewhere in the three to five year time period. I think I'm going to update that, not today, but, you know, it will be coming at some point.

Yeah, I'm not 100% exclusive with you, so I wouldn't get that right.

Yeah, I was going to get to the second point now because, I mean, you'll want to ask a second question at some point during the meeting, but let's get the two big things out there and talk about it. and of course the topic yesterday was the announcement that G were buying and hopefully closing a year from now the acquisition of CPP which is a turbine sorry I didn't address SpaceX for you did I so you wanted me to let me just go back and just cover that because you know the question i think has been is is the intention to become a supplier of third party parts as a merchant supplier or just because today whether it's maybe it's colossus one or two they you know they're requiring a lot more power and you know i think a smaller turbine company was purchased people who you know run turbines for a living not manufacture them um or even the provision of uh you know buying old engines from aero you know aero engines and repurposing them for that so there's a lot going on and you know and the question is how can they get replacement parts for some of those things so i think you need to look at more that part of the market than the more advanced part of the market that we've been talking about in the last five minutes so i think i'd missed because you know that before i went to the um to the ge announcement so i think i've covered that but if anybody else i mean if you if you want to follow up on spacex you know be my guest um and then you know the the more in one was the uh ge and cpp which we we knew is coming up for for a sale uh we had reddish but essentially you know we we also knew that for us it was an impossibility in terms of uh you know antitrust etc and uh and it does of course beg the question well what's the intent and you saw the intent you know yesterday was to look at developing it over the years and and i think we should be fine with that you know that i know and the question is if if if there is additional investment and capacitization of CPP in the future is that the detriment of everybody else or is it one of our competitors or is it more aimed at the turbine side or the structural casting side but I think we're pretty confident in our own abilities in fact the biggest issue we have now is is actually provisioning for additional capacities in the aerospace market and without getting very specific because i don't think i should talk specifically about any you know one or two customers but it is multiple customers within in the aero engine market including the name i just talked about are asking us can we provision for increased capacities going through the end of decade and beyond and of course you know we're unlikely to do that if we're not clear on you know that capacitisation and durability of that provision so we're fairly confident in that and and that's born of in fact being asked for a special doubling of demand for one of the engine customers because of extraordinary quality and and what's probably more important is our 100 on-time delivery and so that's the biggest i'll say challenge that we're you know facing is that what you know it's like that's like an additional one and a half manufacturing plants worth of capacity build out on top of what we're already doing and as you know we're expanding an extraordinary amount of capital today and building footprint and uh you know and i'm unlikely to do that without be sure that capacity is being to be fully utilized during the 2030s and uh you know and beyond so you know i feel as though we have extraordinary technology extraordinary capabilities and uh and we'll be showcasing that increasingly in the future that's great to hear um i think you've mentioned in the past you You have 50% share of the turbine and blade market across both aerospace and IGT combined.

And Merrick slept in March at the Analyst Day in Whitehall and said this year, 2026, would be the year of highest, the record number of new product introductions. I guess, how do you protect your IP from people like myself, SpaceX and GE to dig into the boats of your business as new entrants try to come in?

We protect ourselves in many ways, not only just in, let's say, the IT environment of their various vaults for information because we are attacked every day from certain jurisdictions in the world in trying to obtain information. We also pay extraordinary attention to CMMC compliance because of our defense industry I would say requirements and I've I think try to make sure we're at the forefront of that level of cyber security but we also have physical security of petitioning production into very different parts of the process so there's only a few people in the companies can ever see across the whole range of the processes that we do and And, you know, we're always making sure that you can't just go and hire someone from Hamat and let's say it's an extreme jump from Hamat and go be enticed to go to Texas to somewhere because you only know like a fraction of the information. So we're trying to protect it, you know, in all of that way as well. And it's true we have a lot of new product introductions. You know some of them because they're very public in terms of some of the upgrades of narrow body engines. But there's a lot of others going on as well, both in commercial but also in the defence aerospace markets. And now I'll say collaborative combat aircraft and missiles and large cruise missiles we're doing work for. And not just the institutional componentry of the structural parts, but I'm talking about smaller turbines. And the one thing I hadn't mentioned is that on every single one of our major aerospace customers, we have long-term contracts, which again define share and also go beyond to the end of the decade and beyond. And also, you know, we will be wanting to, you know, we always consider duration of where we are. In fact, there's only one customer in the aerospace world, which is mainly in the business jet turbine market, where we haven't got a lockdown, where that's due for renewal on 1-1-27. So they're already well past date of, you know, supply.

Got it.

So what I've been trying to do is to give you a picture of our sustained business, both technologically and by way of contract, but more importantly, of the way we protect information as well, to try to keep stuff inside Hamlet and knowledge. And we also choose in most areas not to patent things. So you're not even aware of what we're doing, because if we patent it, then you become aware of what we're trying to protect.

That makes sense. And maybe the third element could be perhaps CapEx and the ability to build out Greenfield facilities, which you're no stranger to, I guess. Is it feasible that in a few years we wake up and there's a fifth supplier of blades and veins out there, whether whatever spectrum that that has?

Well, because in this life, you never say never, because, you know, that's for a future event that we know nothing, nothing about. I'm going to say it's probably very unlikely, but I'm not going to say never. Somebody with unlimited funds and maybe unlimited time could, but highly unlikely, and it would not be an economic decision.

Got it. On that front, if we could talk about the industrial gas market. It's moved at roughly a high single-digit growth rate. And you're clearly seeing the business double now to $2 billion in annual sales. How do you – or you've talked about the business doubling. How do you think about the timeline for that and just milestones in achieving that along the way?

I think I said earlier I'd probably be updating everybody.

I'm trying to get a little bit of a glimpse into what that looks like.

I know. I recognize that. But I'm going to stay strong. and uh and and not you know as enticing and as nice as you are i i'm not going to weaken it and a little bit of crazy based on and with sheila you always get a bit of crazy yes um i think you all know that as well um but you know i if i say to you when i update the market as soon as i carry through with what I just said, I'm probably not thinking I'm going to take it down. How's that? I mean, is that a lot for you? Isn't that a lot just for you?

That's quite unhelpful, actually. When you think about the IGT market, you know, you started off the discussion with the evolution of how data and additional data centers have evolved, and that puts more pressure on blades. You've also talked about scaling your single crystal into IGT over the medium term. How do you think about the technology moving within IGT blades specifically?

There's clearly this move that's been going on, as the aerospace market has done over the last 50 years, going from the Equiax type of blade construction to directionally solidified towards single crystal. It may surprise you that the single crystal aspect of the market is actually quite small today. it's only in the most exacting environments where you have that it also can depend upon what position in the turbine you are with more likely that it will be towards the front end of the turbine and the and the gas path and yet at the most extreme that the most particularly in the mid-sized turbine at most extreme the modern the modern blade is now every bit as sophisticated if not even more so than the latest aero engine blade i'm not talking about i'm talking about in compared to the commercial arena i'm not talking about into the military arena but um the what we've developed for one customer and now it's you know it's it's not just the first blade but you also we're talking about air call very you know microns of control in in multiple parts of that blade on the inside across at least the first stage or two or so I mean again I want to be careful you know I don't know you give too much information for on behalf of our customers but they are truly at the most I will say sophisticated level and so and we're doing that not only in those mid-sized turbines but we're also provisioning and also now supplying at both a direction solidified and single crystal level in the very large turbine blades and now you're talking things which are you know three feet plus long and getting bigger and so hitherto we'd had the singular biggest casting furnace in the world and we're just building we're actually commissioning building of several more and we're almost turning that into our industry at the moment um but uh you know going to be

again at the forefront of that and building the next biggest one in the world that uh you know again can take the scale and size of these blades to another level anticipating you know there are say further requirements coming towards us i don't blame you for not wanting to give out info every grok tweet about a blade in a vein has a quote from you as a factual comment to follow up so does it oh shoot so i i don't blame you to not focus on the tech not provide as much technology color um you're in the middle of a significant capex cycle and maybe most people don't realize your capex has actually doubled since 23 to support the revenue base that's set to exceed 10 billion in 26. As you look to major expansion plans you have in Japan, Europe, and the U.S., how do you think about how you balance that with the OEM discussions you're also having through the 2030s and what conversations look like to actually deliver on that demand?

Well, I can tell the the sheer scale of the capitalization is certainly testing us so and you actually do interesting reach physical limits on on certain things so when for example when we're building a new casting furnace what you see above the ground is uh is only half of the machine you know the rest of it's sitting and at an equivalent level below ground things that you've never seen because as you visited us you obviously didn't go below into the into the tunnels underneath you know and why should you especially if you've got heels on um but we wouldn't have shown you anyway um but it's interesting so when you when you actually manufacture these things you actually have to have a plant with big open holes in the floor so you can build these things And, you know, we've already, you know, we've just actually, would you believe it, built another one just so we can have lots of holes in the floor so we can build additional machinery to capacitise the future. So it is testing us in many ways because, you know, we hadn't thought we were going to be there building this amount of equipment. And so far, you know, we're on track and we know that our customers want it. But in fact, as recently as this weekend, you know, an email, because we just completed something with one of the large IGT customers and saying, you know, thank you very much. And please understand that we would like you to produce even more in 27 and 28. And it is almost like it doesn't really matter what, just produce something just because the demand requirement is so great. And just now, the emphasis on build, it's just build. And so that's, you know, it's quite exciting. And, you know, we're just up against capacity limits. And that's why I've been emphasising in the last couple of earnings calls what we've been able to try to achieve on yield. Because, you know, while the capacity is beginning to come in, what we've done so far this year in getting out this additional 30% plus has been a function of yield and also moving to more repeatable production using tack time because, you know, we are now having in certain areas of provision being able to go to serial production rather than batch production. And that matters to us.

And to think all these investors thought last week's share price performance was the only thing testing you. It happened to be just physical capacity and being able to deliver to customers that you were worried about.

That was interesting because, you know, on Friday it was all about how am I going to build another two and a half manufacturing plants on top of what we've already talked about. And, you know, everybody else is worrying about something else come Monday morning. You know, it's like, yeah, but that's the way it is.

I guess to quantify that, how do you think about your level of support to the commercial OEMs and IGT OEMs over the next several years as you've built out these facilities and done a ton of hiring?

We try to be really good partners with all of our customers. We try to take the attitude, do what you say you'll do, and meet the commitments that we have agreed on. I mean it isn't to say sometimes that people don't want more because that's also but you know it's more which has come from you know for themselves getting surprised and by just the sheer scale and you know three years ago I don't think any of us were really talking about this levels of demand and build either in the aerospace market or or in the I say the gas turbine market it was not something in aerospace space it was you know we know we're going to build more aircraft but nobody had any concept of just the sheer amount of spares that are going to be required and in the gas turbine market nobody anticipated I don't think what was going to be required and I mean none of us thought we're gonna have chips built by in the video at this level or is it Cerebras or any of the other custom silicon manufacturers and therefore turbine manufacturers as well so on that point i think spares is 22 percent of sales doubling from 2019 levels how do we think about how much higher aerospace igt and defense spares could go from here it's difficult to know who's going to win the race on volume increase uh given that i think we all are expecting additional aircraft build over the next few years um we're also expecting because we've been provisioning and that's what the capacity is all about producing more uh i mean obviously let's say mitsubishi is going to build a lot more turbines or is it even over and therefore we're going to build a lot more oe blades as well but every one of these things is also producing its own revenue stream for the future by way of additional spares requirements and the fleet's working harder try to describe to you the it's not just the volume effect on the fleet which the variability of the power demand which is also driving some of the spares requirements and and it's difficult to handicap it exactly right now I mean you if you look at the I mean if you say 2027 I mean I'm clear that we're going to be in you know during the changeover that's going on in on more likely that not the leap won't be and then I'm thinking of wearing the GTFA and therefore there's going to be some aspect which is going to be you know retrofit some of the fleet in some of those things as well and the gas turbine fleets working harder you know the pipelines are working harder the liquefaction of natural gas for shipping uh to give more energy separation to europe is is providing demand so everything's working harder and then everything that we're going to build will have built from 25 through 2030 that's going to produce a level of aftermarket demand in the 2030s so you know should the oe demand stop going up which i don't i don't think it happens i mean the moment it seems like build rates are going to increase into the 2030s and the equation is how far into you know what how far is your crystal ball is that the spares demand is is also going to uh you know increase by a significant factor for us as well so handicapping like which one is going to have the highest percentage of growth you know you know i i don't think because i'm too worried about it because it one aspect for me thinks does it really matter because if they the boats go up. Life's going to be good.

Sounds good. Defense portfolio has been growing double digits, 11% in Q2. It's anchored by the F-35. And I got to think all the usage in the Middle East is going to help some of that blade work. How do you think about your defense portfolio shorter term and also longer term as we think about missiles and drones?

It seems like things are changing there as well. I mean, you have the base level of demand for F-35. I think that just continues given both the build-up for the the US and Air Force and Marine and Navy but also for the export orders. Clearly some of the legacy fighters are seeing some renewed interest so you have now significant increases expected for the the F-15 and the F-15 Super Eagle and the basically these weapons carrying load that it can provide and then the thing which every one of us is grappling with at the moment is is missile demand and what's being asked there and that that's you know the existing designs for missiles and not just talking any any classified program but then there's also you know what is the method delivery missiles in the future for the larger cruise missiles etc is it going to be bigger solid rocket motors or is it going to be smaller turbines and I think the bet is on some of the smaller turbines and then the whole aspect of these collaborative combat aircraft and I mean there's the things we just don't know and except that there's going to be these unmanned aircraft flying alongside manned fighters or manned bombers and we provide into that part of the defense uh network as well into the uh into the strategic bomber area but is it going to be two collaborative combat aircraft per manned or is it going to be 22 or is it more you know what what's a swarm you know i don't know how big a swarm is and so these things are just unknown and so anything we know is we want to be engaged and participative with them um and you know do it as a an act of faith that directionally it's going to turn out to be good two more questions before i let you off the hook um your balance sheet sits at 1.2 times leverage post cam i guess how do you feel about mna from here uh do you have a bigger appetite from M&A just given the two recent deals you've done and the casting's moves in the market?

I'm going to try you one more time.

Yeah. I think that M&A should be part of what we think about by way of capital deployment. Clearly, we still want to have investment in our own capacity for organic growth is the favoured I'll say return that we get on that we've been buying back shares we've been increasing the dividend and you've seen us do a couple of M&A moves and I think that roughly speaking at the end of this year then we're going to be in a position where our leverage ratio is the same as we exited 2025 having bought back a very significant amount of stock having done a let's say almost a couple of billion dollars of acquisitions and increasing so you know we we are generating cash to do all of these things and so i i think that we'll continue to examine is there anything else that is appropriate we could bolt onto the company i'm still you know thinking in in in that vein i'm not anticipating any very significant deals no matter what you write in your reports um so i just went to get that one in there just in case um but i could have a rush of blood to the head but most unlikely um so i don't find it enticing uh to do things which take us out of our out of our lane and um and i don't think i'm going to answer the second party question okay last one um i think the helmet story and as i look at my note there's 60 percent upside to my price target so how much story is about technology differentiation process and more what part of the helmet story excites you most from here and what do you think investors are underappreciating i think that there's so much of what we do which is not necessarily visible you see the outcomes but you don't see what goes into it and and so I think I think I see that and I mean not surprisingly and so you know I think the outcomes really will continue to be good and healthy and and we've taken ourselves a long way we've established I think a technological leadership position a supply leadership position and just want to keep being anal about trying to be the best at what we do.

Great. Well, thank you so much, John, for joining me.

Thank you. Nice to see you.

And we look forward to February.