supply chain and our commercial team, and it introduced the level of risk that with the demand growth we were seeing, we just weren't willing to take. So while we're not getting efficiencies, we're also not getting worse. So that added the investment inventory beyond what we had in our original investment, in our original guidance. And so that's eaten up sort of the EPS growth in the guidance that you're seeing is being eaten up by that, if that makes sense.

Got it. Okay. Thank you very much. You're welcome.

Your next question comes from Louis Raffetto with Wolf Research. Please state your question.

Hey, good afternoon, guys. Hello, Lou. Bill, I know you talked about, or Chip maybe even talked about, the fixed cost absorption in industrial, but obviously backing out the China on highway, that 21% margin in industrials is impressive. So there's nothing one-time nature in there, just trying to sort of balance that versus the sort of 14%, 15% we saw last year, 17% in the first half of this year. So anything to note?

Yeah, so, Lou, it is operational, but it had to do with one of our growing product lines, business lines here, not have as much growth this quarter and seeing some of the other business lines come through that had higher margin rates. And so the mix of sort of business unit, the mix of products played favorably for us this quarter. Now, I expect that the business you and I spoke that has a little more negative mix will come back next quarter, and I would expect that we see the core industrial earnings back to what you saw in the first half.

Yeah, so I'd just add that the industrial team has shown themselves to be very good at executing on volume leverage. And so as they continue to work Kaizans and respond to the customer demand in the gas turbine side, in the Recip engine side associated with PowerGen, and the steady increase in marine and other applications, that they're well positioned. But as Bill said, we had some mixed tailwind this quarter. But I still like the direction that they're going and how they're performing.

18% is not missing.

Yeah, it certainly shows the potential of at least a large portion of the business, which is good to see. And maybe, Bill, just one more. I know you mentioned you expect CapEx to step up a lot here in the fourth quarter. But, I mean, are we really going to double CapEx again in the fourth quarter to hit the – more than double, I guess, to hit the guy?

Yeah. I've asked that question a few times myself, Lou, and the team has come back. They have the – there's some big chunks, as you can imagine, that's associated with what we have to get done in Q4. It's primarily around finishing the Spartan Bird facility, around purchasing production machinery for A350 spoiler, and again, those are pretty chunky. So we've got a line of sight to it, you know, 5 to 10 is in the mix there, but I think we will consume most of that and get to the 290 that we guided towards on capital expenditures. Thank you very much. You're welcome.

Your next question comes from Gautam Khanna with TD Cowan. Please state your question.

I thought I was on mute. But just to follow up on that industrial question on profitability, what is kind of possible over time in the industrial business? You know, you guys have talked about 16 to 18 percent trending better than that. But I'm just curious, like, with all the initiatives you guys have implemented on SKU rationalization and pricing actions and just efficiencies, you know, over a longer period of time, what do you think is actually a possible level for the industrial segment to level out at?

Yeah, Gautam, we'll describe that in more detail at our investor day. But I'd leave you with these thoughts, which is like as we stand today in a growing demand environment where both we and our customers are able to get price and we are able to accelerate our lean transformation on the floors of our factories and get efficient in our supply chain, we can improve further. from this point. We said mid-teens at the last investor day, and we've been demonstrating better than that fairly consistently. But as far as getting better from where we are today, we're obviously investing and challenging our teams and driving to continuously improve. However, don't know what the environment's going to be in the future yet, and there are other factors that come into play. But we like the investments we're making in automation. We like the investments we're making in our lean transformation. And like you referenced, the product portfolio, we've really made some efficiency moves there to optimize the portfolio and how we serve customers and are able to run our factories. So I believe we're on a continuous improvement journey. There's quite a bit more productivity in play, but there are other factors to deal with as well, and we'll give you a fulsome explanation of what we see at our Investor Day.

Thank you.

Welcome.

Your next question comes from Sheila Kayaolu with Jefferies. Please state your question.

Hi, guys. This is Kyle on for Sheila. Thanks for taking the question. I guess just to circle up on the aerospace margins, I think you just said 31% core incrementals and that's despite the oe gross kind of leading the pack in commercial so maybe if you can talk about the puts intakes there and then secondly was that price already assumed in the full year guide and if you're feeling generous can you tell us what end market and maybe even what customer that's related to thanks okay so um i always feel generous but i i'm not that generous to give up the the customer uh but as it relates to um the the price overall we're uh we're guiding

for the full year for that to be close to uh eight eight percent uh for the company uh and in in third quarter uh price was uh ten percent and aero uh contributed more than a ten percent uh and then industrial less and brought it down to the the 10 uh so so that's kind of where those items came from uh kyle and um i can't remember the first part of your question i guess you referenced kyle a core flow through which i would encourage us not to use that number um bill was just cleaning up the the flow through number for uh one of the earlier questions in

terms of removing that one-time price reconciliation from the financials.

Yeah, helpful and understood. I guess just as you think about these kind of price negotiations that keep coming up better and better, it seems, like quarter after quarter, whether there's still a sizable kind of opportunity that exists out there. I know you guys have talked in the past that you'd expect price to moderate towards more typical levels, but you guys keep surprising to the upside. So just curious. Thanks for the time.

Sure. I'll start and flip it to Bill real quick. But I'd say we've really made it through all of our LTA agreements for the first round that we closed out sort of post-2022. So from now forward, it should moderate. And I'll let Bill kind of fill in the blanks there.

Yeah, Chip, I think you covered it. I think as we look at going forward that I would expect price between 3% and 5% would be a more normal rate, and price will still play a role in margin expansion along with working some of the other muscles as we talked about.

It's up to us to fill in the rest with productivity, which we're well-deployed to achieve.

Thank you.

Welcome.

Your next question comes from Kevin – excuse me, Ken Herbert with RBC Capital Markets. Please state your question.

Good afternoon, Chip and Bill. Thanks for the question. I wondered if you could dig a little deeper on the defense OE side. Obviously, we can appreciate the one-time item in the quarter, but how do you expect that to step up sequentially into the fourth quarter as you think about, you know, the broader demand and where you're exposed on the munition side in particular?

I guess the way I described it is no real change from prior quarters in terms of defense OE. It's sort of, you know, we're seeing price roll through for some smart defense in 3Q, but I think in 4Q that starts to moderate. So we're not holding out defense OE as a large growth lever in this environment right this minute. Again, the future, we see a lot of potential for defense to have a longer run at these higher levels, especially in smart defense, but we don't have any indication that that's going to happen anytime soon. So I think sort of a moderate performance in defense OE is what we can expect.

Okay. And just to clarify, for the commercial aero OE growth in the quarter, the up 34, was there any, do you get a sense, any sort of restocking or anything unusual beyond just the build rate cadence on that? And maybe what are you seeing with sort of inventory levels of your product at your customers?

It feels like that sort of stocking level at the customers has return to normal to slightly below what their MRP systems would like. So we still feel a strong pull on delivery. A lot of this rating, the growth is due to our ability to get more products through the factory. So the combination of working with our suppliers and inside our four walls, increasing that production is what led to that growth plus some price. So I don't see anything unusual. And we feel like we're pretty much following the airframer rates. In some cases, their demand for our increased rate is ahead of their rate break. So we do sometimes see an earlier break in the demand for us.

Perfect. Thank you very much. Welcome. Thank you.

Your next question comes from Noah Papanak with Goldman Sachs. Please state your question.

Hey, guys. Hey, Noah. Hey, thanks for taking the question.

How would you frame at this point what's possible or likely or realistic in your aerospace aftermarket growth rate of the next four to eight quarters compared to what you've been able to achieve in the last four to eight quarters well it sounds like a trick question um so we we see we we like the long-term story and what we shared in investor day last time was kind of a a a cartoon of graphs that that showed that we believe that the woodward case could likely grow at twice the rate of the overall market based on our product positions in terms of where the installed base is growing. So we still believe in that cartoon and those graphs. We believe we see the proof points along the way with the input we're seeing from leap and gtf and how strong that the newer wide body projects products are performing so we believe that that story is is is playing out in front of us as far as exactly what happens in the next few quarters we're not in a position to reveal that because you know it could be a little bit a little bit noisy up and down but we believe we'll be in a position to update that chart for you at the investor day is obviously again the LRU in those move can also make the quarters a bit a bit lumpy right I guess the other thing I'd add the other thing I'd add Noah is that you know we've embarked upon these elite licensee relationships with really top of the shelf MRO providers, and we'll be working with them on provisioning and support of the agreements and things of that nature that will also provide some growth levers for the next year.

Okay. I appreciate that. Yeah, I think the kind of medium to long-term algorithm is reasonably clear, but in the shorter term just compares and there's a lot to triangulate. I wasn't trying to trick you, although I might, I may end up tricking myself, I guess. Um, you guys have spent a lot of time talking about narrow body contribution to this equation. How does the, how does your wide body, um, exposure and its contribution to your medium to long-term aftermarket growth compare to narrowboding in terms of the multiplier effect?

So I think the, I'm not sure the right way to look at the multiplier effect. Yeah, yeah. The multiplier effect is the hard part to answer because the multiplier for something like the 787 is comparing to something so old it's not really very much into our mro system because you know the large amount of the 767s let's say are on um they're in the freighter class and not not many shop visits so i wouldn't get into the multiplier answer but from a genx and ge90 standpoint i mean these are the major customer platforms that we're on with significant LRUs that require a good amount of service, and those are very good businesses for us, and we work very closely with GE through the Convergence Joint Venture to service those LRUs, and we really like that business. It's going very well and growing. Okay.

And just one last one. You guys have talked about 30% to 35% incrementals in both segments margin over time. Can we use that off of where you're now planning to end 26? or maybe Aero has moving pieces that wash out and that's a yes, maybe industrial that's too high given what you just did in 3Q, but how should I think about that?

That's a great question, Noah, and the one that we're working through right now as we develop our annual operating plan for our fiscal 27, so it's a little premature for us to guide that because that is the guidance for next year, really, in terms of earnings growth. So we've been saying that for a while, you know, those are the incrementals we believe in long term. We've got to do the work to make sure that we're putting a robust plan out there for next year and we'll guide accordingly.

Okay, thanks very much. Welcome.

Your next question comes from Alexandra Mandary with Truist. Please state your question.

Hey, nice results, and thanks for taking my question. In terms of automation, is there a particular segment or end market you see benefiting the most from increasing automation?

So, I think, you know, from our standpoint, automation is a pretty generic way of approaching machining, assembly, test, material flow, transport, and logistics, and that really serves all end markets equally from a sort of an inside out standpoint. It's not really market driven. It's more manufacturing driven. And so I feel like it's spread equally amongst the end market that we serve.

For sure. And then earlier you mentioned the supply chain. I guess what are the weak points you might be seeing and what efforts, I guess maybe more specifically, have you taken with customers to kind of circumvent any supply chain issues in the future?

So the ones that we're struggling with the most are the ones that like the entire industry has on the forefront of their work list. So castings and forgings, as well as rare earth metals as we look forward. We haven't had a big problem yet with those, but that's one that we all forecast coming to be a big challenge within the next few quarters. So we and our customers and suppliers are all working together to try to allocate the right capacity to keep everybody building what they need to build a few cores away from now on the rare earth. That's sort of an industry level work. As far as on the castings and forgings, we've been working very hard to transition from castings and forgings to billet that's hogged out on a CNC machine. It's not a very efficient use of material, but it sure is a better way to ensure continuity of the supply chain. So we've taken a lot of design for manufacturability approaches to control our own destiny on the supply chain. That all being said, we're still carrying five to 10 problematic suppliers that sort of pop up as problems in either the aero or industrial segment. And so we just have to stay tuned to companies that run into trouble. We have, For anything that has to do with machining, we have rapid response centers set up at three different sites. We've processed over 15,000 machined pieces through that network of ours in order to bail out suppliers. So we're very active on that front. Hopefully one day it doesn't require quite as much effort, but for now that's what we're doing.

Perfect. Thank you.

Welcome.

Your next question comes from Scott Deuschla with Deutsche Bank. Please state your question.

Hi, good afternoon. Bill, why was commercial aftermarket revenue down sequentially?

Yeah, so, you know, first of all, just the, we feel good about that business and its continued strength. A part of what happened in Q3 was some good strength in Q2. We saw some shipments not get out of Q1, and in Q2 we were able to get out when we needed for Q2 as well as clear out some of the shipments for several reasons that got hung up, and we were able to get all of those out. And so then that impacted Q3 from a sequential, but as you saw, the year-over-year was pretty strong. So, again, we feel good about it, and I wouldn't read too much into it.

Okay. And then just to make an attempt to follow up on Noah's question, do you think the aerospace business, Chip, do you think it will be able to drive at least some level of margin expansion in 2027, or is there doubt as to whether it can expand margins at all in 2027?

Our plans are to expand margins. We're measuring each of our product managers and each of our business unit VPGMs on a margin expansion target. We rolled all that up and wrestled around and played catch ball with it through our strategic planning process. Now we've just got to get it orchestrated into an annual operating plan that we all like. But really, the target is margin expansion. I believe we can do it. We've got – it's not just like saying do better. We have investments in automation and lean transformation and productivity that need to bear fruit, and we're focused on doing that for FY27 without giving you a number.

Okay. Okay, so even with all these potential headwinds of Sparrow or U-normalization, Spartanburg hiring, ERP costs, OEMix, all that, you think the business operationally still has the potential to expand margin?

Yeah, all that plus the moves we're doing to improve the long-term performance of the business that require resource and investments to accomplish. We think even with all those things going on, we have enough horsepower and capability to deliver margin expansion.

Okay. And then, Chip, can you update us on where the business is at in terms of the size of LEAP and GTF revenue base relative to CFM56 and V2500?

We're still marching towards that crossover from a repair standpoint. I think, as I said last time, we've already crossed it if you include repair plus spare LRUs. So I think right on track. But, you know, the one thing we didn't model was the legacy business hanging on this well in terms of both price, work scope and volume. So we're excited about the race that we're in.

OK, thank you.

You're welcome.

Mr. Blankenship, there are no further questions at this time. I will now turn the conference back to you.

Thank you very much, operator. Before we end the call, I want to let everyone know that we finalized the date of our Investor Day. It will be held on Thursday, March 4th, 2027 in New York City. I look forward to seeing everyone there. Thanks everyone for joining today's call.

Ladies and gentlemen, that concludes our conference call today. A rebroadcast will be available at the company's website www.woodward.com for one year. We thank you for your participation in today's conference call.