Howmet Aerospace Inc (HWM) — Q4 2025 Earnings Call Transcript

Thank you, Gary. Good morning, and welcome to the Howmet Aerospace Fourth Quarter and Full Year 2025 Results Conference Call. I'm joined by John Plant, Executive Chairman and Chief Executive Officer; and Patrick Winterlich, Executive Vice President and Chief Financial Officer. After comments by John and Patrick, we will have a question-and-answer session. I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation and earnings press release and in our most recent SEC filings. In today's presentation, references to EBITDA, operating income and EPS mean adjusted EBITDA, excluding special items, adjusted operating income, excluding special items, and adjusted EPS, excluding special items. These measures are among the non-GAAP financial measures that we've included in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix in today's presentation. In addition, unless otherwise stated, all comparisons are on a year-over-year basis. With that, I'd like to turn the call over to John.

Thank you, PT. Good morning, and welcome to Howmet's Q4 and Full Year 2025 Earnings Call. Let's start with the highlights on Slide #4. Q4 was an extremely solid quarter. Revenue of $2.17 billion was up 15%. Full year revenue was up 11%, and hence, the final quarter saw an acceleration of growth. EBITDA was $653 million, up 29%. Our operating income was $580 million, an increase of 34%. Full year EBITDA of $2.42 billion was an increase of 26%. Free cash flow after record capital spend of $453 million was $1.43 billion, which is more than $100 million above the guidance and a 93% conversion of net income. Over the last 6 years, aggregate net income conversion to free cash flow has been 95%. Earnings per share were $1.05, an increase of 42% in the quarter over 2024, resulting in a 40% increase for the year. Capital deployment in the quarter included $200 million of share buybacks, $50 million of dividends, $55 million for preferred share redemption, and a further $125 million for debt reduction. The closing cash balance was $743 million, allowing for further share buybacks in January and February with $150 million completed quarter-to-date. I'll stop at this point and let Patrick provide commentary by end markets and by segment.

Thank you, John. Good morning, everyone. Please move to Slide 5. Another solid quarter for Howmet with end markets continuing to be healthy. We are well positioned for the future and continue to invest for growth. Revenue was up 15% in the fourth quarter and up 11% for the full year. Commercial aerospace growth remained strong throughout 2025, with revenue up 13% in the fourth quarter and up 12% for the full year. Commercial aerospace growth is driven by accelerating demand for engine spares and a record backlog for new, more fuel-efficient aircraft with reduced carbon emissions. Commercial aerospace engine spares were up 44% for the full year, driven by both legacy and next-generation engines. Defense aerospace growth continued to be robust at 20% in the fourth quarter. For the full year, Defense aerospace was up 21%, driven by engine spares, which increased 32% as well as new F-35 aircraft builds. Commercial transportation revenue was up 4% in the fourth quarter. However, it was down 5% for the full year, including the pass-through of higher aluminum costs and tariffs. On a volume basis, wheels were down 10% in the fourth quarter and down 13% for the full year. We continue to outperform the market with Howmet's premium products. As mentioned on the Q3 earnings call, we have combined the oil and gas and IGT markets into a single market we are calling gas turbines. The definition of oil and gas versus mid- to small IGT has become blurred since many turbines now have an increasing end use for data centers. We have provided historical gas turbine revenue in the appendix on Page 19. Gas turbine growth has been very strong with revenue up 32% in the fourth quarter and up 25% for the full year. Gas turbine growth is driven by the increased demand for electricity generation, especially from natural gas for data centers. Within Howmet's markets, we had robust spares growth. The combination of commercial aerospace, defense aerospace, and gas turbine spares was up 33% for the full year to $1.7 billion. Spares revenue accelerated throughout 2025 and now represents 21% of total revenue versus 17% in 2024 and 11% before and 11% in 2019. In summary, 2025 saw continued strong performance in commercial aerospace, defense aerospace, and gas turbines. Moving to Slide 6 and starting with the P&L. I will focus my comments on full-year performance. Full year 2025 revenue, EBITDA, EBITDA margin, and earnings per share were all records. On a year-over-year basis, revenue was up 11% and EBITDA outpaced revenue growth, being up 26%, while absorbing approximately 1,500 net new employees predominantly in the Engine segment. EBITDA margin increased by 350 basis points to 29.3% with a fourth quarter exit rate of 30.1%. Incremental flow-through of revenue to EBITDA was excellent at approximately 60% year-over-year. Earnings per share was $3.77, which was up a healthy 40% year-over-year. Now let's cover the balance sheet and cash flow. The balance sheet continues to strengthen. Free cash flow for the year was a record at $1.43 billion. Free cash flow conversion of net income was 93% as we continue to deliver on our long-term target of 90%. The year-end cash balance was a healthy $743 million. Debt was reduced by $265 million in 2025. We paid off the remaining $140 million of our U.S. dollar long-term due in November 2026 at par. We also paid off our $625 million 2027 notes with newly issued $500 million notes due 2032 and $125 million of cash on hand. The interest rate for the 2032 notes is 4.55%. The combined debt actions for the year will reduce the annualized interest expense by approximately $22 million. In the fourth quarter of 2025, we redeemed all of the outstanding shares of our preferred stock for $55 million, simplifying Howmet's capital structure. Net debt to trailing EBITDA continued to improve, ending the year at a record low of 1x. All long-term debt is unsecured and at fixed rates. Howmet is rated three notches into investment grade by all of our rating agencies, reflecting our strong balance sheet, improved financial leverage, and robust cash generation. Liquidity remains strong with a healthy cash balance, plus a $1 billion revolver complemented by the flexibility of a $1 billion commercial paper program, neither of which were utilized in 2025. Turning to capital deployment. CapEx was a record $453 million, up approximately $130 million year-over-year as we continue to invest for growth. About 70% of CapEx was in our Engines business as we continue to invest for market expansions in commercial aerospace and gas turbines. Investments are backed by customer contracts. In 2025, we deployed approximately $1.2 billion of cash to common stock repurchases, redemption of preferred stock, debt paydown, and quarterly dividends. For the year, we repurchased $700 million of common stock at an average price of approximately $161 per share, retiring approximately 4.4 million shares. Q4 was the 19th consecutive quarter of common stock repurchases. The average diluted share count improved to a fourth quarter exit rate of 404 million shares. Moreover, so far in 2026, we have repurchased an additional $150 million of common stock at an average price of approximately $215 per share. As of today, the remaining authorization from the Board of Directors for share repurchases is approximately $1.35 billion. Finally, we continue to be confident in the strong future free cash flow. For the year, we paid $181 million in dividends, which was an increase of 69% year-over-year from $0.26 per share in 2024 to $0.44 per share in 2025. Now let's move to Slide 7 to cover the segment results from the fourth quarter. The Engine Products team delivered another record quarter for revenue, EBITDA, and EBITDA margin. Quarterly revenue increased 20% to $1.16 billion, commercial aerospace was up 17%, and defense aerospace was up 18%. The gas turbine market was up 32%. Demand continues to be strong across all our engine markets with strong engine spares volume. EBITDA outpaced revenue growth with an increase of 31% to $396 million. EBITDA margin increased 290 basis points to 34%, while absorbing approximately 320 net new employees in the quarter. For the full year, revenue was up 16% to $4.3 billion. EBITDA was up 25% to $1.44 billion, and EBITDA margin was 33.3%, which was up approximately 250 basis points. All of these were records for the Engine Products segment. Moreover, the Engine Products segment added approximately 1,440 net new employees which has a near-term margin drag, but it positions us well for the future. Please move to Slide 8. Fastening Systems had another strong quarter. Quarterly revenue increased 13% to $454 million. Commercial aerospace was up 20%. Other markets were up 14% on renewables demand. Defense Aerospace was up 7% and commercial transportation, which represents approximately 10% of fasteners revenue, was down 16%. EBITDA continues to outpace revenue growth with an increase of 25% to $139 million despite the sluggish recovery of wide-body aircraft builds along with weaknesses in commercial transportation. EBITDA margin increased a healthy 290 basis points to 30.6% as the team has continued to expand margins through commercial and operational performance. For the full year, revenue was up 11% to $1.75 billion. EBITDA was up 31% to $530 million and EBITDA margin was 30.4%, which was up approximately 460 basis points. The fasteners team delivered solid year-over-year revenue and EBITDA growth, while maintaining a relatively flat headcount. Moving to Slide 9. Engineered Structures performance continues to improve. Quarterly revenue increased 4% to $287 million. Commercial aerospace was down 6% due to product rationalization and was essentially flat with the previous 3 quarters of 2025. Defense aerospace was up 37%, primarily driven by the end of destocking on the F-35 program. Segment EBITDA outpaced revenue growth with an increase of 24% to $63 million. EBITDA margin increased 350 basis points to 22% as we continue to optimize the structures manufacturing footprint and rationalize the product mix to maximize profitability. For the full year, revenue was up 8% to $1.15 billion. EBITDA was up 46% to $243 million, and EBITDA margin was 21.2%. EBITDA margin was up approximately 560 basis points as the team continues to make significant progress. Finally, Slide 10. Forged Wheels quarterly revenue was up 9% as a 10% decrease in volumes was largely offset by higher aluminum costs, tariff pass-through, and favorable foreign currency impacts. EBITDA was strong at $79 million, an increase of 20% despite the challenging market. EBITDA margin increased 270 basis points to 29.9%. The unfavorable margin impact of lower volumes and higher pass-through was more than offset by flexing costs, a strong product mix driven by premium products, and favorable foreign currency. For the full year, revenue was down 1% to $1.04 billion. EBITDA was up 3% to $296 million. EBITDA margin was a strong 28.5% and in a challenging market and was up 130 basis points year-over-year. The wheels team has continued to expand margins despite market metal costs and tariff uncertainty. Lastly, before turning it back to John, I want to highlight a couple of items. Firstly, in mid-2024, we established a 2025 dividend policy to pay cash dividends on the company's common stock at a rate of 15% plus or minus 5% of adjusted net income. Cash dividends were approximately $181 million or 12% of adjusted net income in 2025. Looking forward, we envisage that the dollar value of dividend distributions in 2026 will be higher than in 2025. Secondly, in the fourth quarter of 2025, we completed the annuitization of the U.K. pension plan, resulting in a $128 million reduction to Howmet's gross pension obligations. No new pension contributions were required in 2025 to complete the transaction. A third-party carrier will now pay and administer future annuity payments for this plan. Now let me turn the call back to John.

Thank you, Patrick. Let's move to Slide 11. I will discuss the company's outlook and provide a summary before diving into details for each market segment. Most of the markets we serve, such as commercial aerospace, defense, and land-based gas turbines, are experiencing growth. The commercial truck wheel segment is stable at a low level and should start showing growth in the latter half of 2026. Commercial aerospace is being driven by an increase in air travel, both domestically and internationally. The highest growth is observed in the Asia Pacific region, particularly in China, along with growth in North America and Europe. Freight traffic is also on the rise. The combination of passenger demand and the recent multiyear underbuilding of commercial aircraft has created a record OEM backlog that extends into the next decade. Manufacturer plans for new aircraft, including narrow-body, wide-body, and freighters, indicate growth across all aircraft makers. I will provide expected build rates later in this call. Additionally, demand for spare parts remains high due to the expanding size and aging of the current aircraft fleet, further exacerbated by durability issues in some modern engines, largely stemming from higher operating pressures and temperatures necessary for improved fuel efficiency. Air pollution in certain regions of the world also adds to these challenges. In the defense sector, particularly for fixed-wing aircraft, there is notable demand. The F-35, which is the largest platform, continues to see steady OE builds, with a significant new build backlog, and spare parts demand is also increasing due to the fleet's size. In fact, for our Engine Products segment in 2025, demand for F-35 spares surpassed that for OE components. The F-15 and F-16 programs are also experiencing new builds at reasonable quantities. Howmet anticipates strong demand from other segments of the defense and space industry, including tank turbines, missiles, rocket motors, and spare rocket parts. The gas turbine business is entering a substantial growth phase, while demand in the oil and gas sector remains steady. Demand for electricity generation, particularly from natural gas for data centers, is extraordinarily high. When we look at both large gas turbines and small to medium-sized gas turbines, we project that our base business, currently around $1 billion, could double to $2 billion over the next 3 to 5 years, with even more growth expected beyond that, particularly for mini grids. Howmet is well positioned in this area, being the largest manufacturer of gas turbine blades globally, serving key customers like GE Vernova, Siemens Power, Mitsubishi Heavy, and Baker Hughes, along with parts for aero-derivative engines made by GE Aviation. Recently, we secured new contracts with four of these seven customers, while negotiations with the remaining three are ongoing. Furthermore, the expansion of the turbine fleet over the next five years promises a robust and expanding spares market for years ahead. Now, regarding commercial truck wheels, we managed through a volume decline in 2025, particularly in the second half, but growth in market share and penetration against steel wheels helped mitigate the impact. For the year, commercial transportation revenue decreased by 5%, yet recovery in materials and tariffs offset part of the volume drop. The market appears to be stabilizing, and we believe Q1 will represent the low point for quarterly performance. With the implementation of new emissions regulations in 2027, we expect demand to begin improving in the latter half of 2026, along with an anticipated inventory multiplier effect as truck builds rise. I want to highlight the commercial aircraft build rate assumptions that form the basis of our guidance. We will align with whichever aircraft build rates ultimately materialize. For Boeing, we are assuming a 737 production rate of 40 aircraft per month based on a daily average of 42 and a 787 rate of 7 per month, increasing to 8 by Q4. For Airbus, we are assuming an A320 rate of 60 per month and an A350 rate of 6 per month. Our guidance for Q1 2026 includes expected revenue of $2.235 billion, plus or minus $10 million; EBITDA of $685 million, plus or minus $5 million; and EPS of $1.10, plus or minus $0.01. Notably, our Q1 revenue reflects a 15% increase year-on-year over the average for 2025, and we remain optimistic about growth in 2026, although we recognize its dependency on aircraft builds. For 2026, excluding the acquisition of CAM, we project revenue of $9.1 billion, plus or minus $100 million; EBITDA of $2.76 billion, plus or minus $50 million; earnings per share of $4.45, plus or minus $0.01; and free cash flow of $1.6 billion, plus or minus $50 million. We expect EBITDA growth for the year to be in the early 40% range. Now, let's discuss our recent portfolio activities. In recent months, we have been very active. We completed the acquisition of our fastener business in Wisconsin, which we believe enhances our product offerings and opens new market opportunities for Howmet, especially in the longer lengths and wider diameters of fasteners. This acquisition's impact on earnings is not significant, but it lays the groundwork for future growth. A more substantial acquisition was made in the aerospace fastener and fittings sector, where we have agreed to a purchase price of $1.8 billion. Once the deal is finalized, the effect on earnings per share for the remainder of 2025 will not be significant, so we are keeping our guidance clear until we know the timeline for closing after regulatory approvals. These actions bolster Howmet's business portfolio as we head into 2027, focusing on our strengths and making capital allocations to growing businesses with the best returns on investment and cash flow generation. We are optimistic about the future, bolstered by these portfolio enhancements and the growth in commercial aerospace and gas turbine segments. Updates on growth in the gas turbine business will be shared as we progress through the year. I will now turn the meeting over to questions. Thank you.

John, I'd like to understand sort of how your thinking has evolved when you look ahead over the next 5 years with engine products. Clearly, things have changed. And can you contrast your expectations for the relative growth across commercial, aero, defense, gas turbines as you think about planning, investments, and so forth. And then related to this, you just reached a record EBITDA margin of 34% in the engine products. Are you near a ceiling with this? And what's enabling you to get to these higher margins?

Okay. So as you say, my thinking has evolved. I guess thinking always evolves with the passage of time and as circumstances change. I mean, I think the constant throughout this starts off with commercial aerospace, where I've been convinced that growth will be robust and continuing. As you know, sometimes over the last 2 or 3 years, or maybe 4 years, it hasn't been quite as good as we had envisaged, and that's principally due to the difficulties in the final assembly of aircraft and also engines. But the trajectory has been positive and the future continues to look really good. And so when I consider the backlog of commercial aircraft that are there. I think it is quite extraordinary. And I think the word extraordinary is appropriate. And that applies to both narrow-body aircraft and wide-body aircraft. Since if you were to order a new aircraft today, you're really looking at delivery beyond 2030. If build rates were not to increase it, it would be possibly almost towards the end of the 2030 decade. And so there's a very strong requirement for builds to increase. And so I think that backlog number gives great comfort in the investments that we've made. And you've seen our capital expenditure develop very notably over the last few years. And we've talked previously about building out another complete manufacturing plant and extending 1.5 manufacturing plants in it for our commercial aerospace business. So that's been very significant, and that's on top of the new engine plant that we built in 2020 coming on stream at that time. We've seen tremendous investment for the commercial aerospace market. At the same time, we've seen very solid demand for defense, and I think the surprise there has not been the solidity of the F-35, more so the fact that the other legacy aircraft have also seen significant new orders. But the F-35 is the flagship program that we have. But now when we look out, there's a significant emerging segment of missiles for us, where we are seeing very significant demand increases, and just at the moment, we're also spending a lot of engineering efforts to try and ensure that we have a position on engines for drones and for the larger cruise missiles. And so again, we see defense as a continuing good sector for us and which we're backing with investment dollars in a significant way. I think the biggest change to my thinking has been for the gas turbine market. And historically, if you go back by 7 years, I said this was a more cyclical business. It has shown periods of rapid growth and rapid decline, and it was one where I was quite leery about making investments in that segment. And then I think things began to change with, I'll say, more consistency of product management by our customers so far less new product introductions and therefore, more buildable repeatable product. And then the emergence of demand, which seems to be a long ongoing need to support the renewable industries where the base level of capability and fast response. But you didn't really stop there and now I'll say, the emphasis is probably a little bit less on renewables and more on fossil fuels. And certainly, when you look at it, if coal-fired power stations are not being retired, then the tremendous demand that's there can only realistically be filled by the natural gas market. And so when you look at it with the demand projections for data centers and that was without the advent of AI, it caused me to think about willingness to invest. And so we did tick up capital deployments in new equipment in 2024 and then more again in 2025. You saw the capital expenditure for the year very significantly above that, which we envisaged at the beginning of the year; you could go back to our guide a year before. And now we're looking at 2026, where it's going to be a higher number again. We've picked the midpoint of about $470 million, but I could envisage it rising above that. But at the same time, we're really trying to ensure that we have that consistency of free cash flow conversion of the 90%. And so 2025 was a year where there was not a lot of new output from the capital expenditures that we had put into the ground. I think it's more a question of yield improvement to allow for the average of a 25% growth in that area. We had been, I'll say, quite successful and probably exceeded our expectations of the improvements we could make. And as you know, in previous calls, I've talked about building a new plant in Japan, which has been done, building a new plant in Europe, which has been done, and then placing new capital into those 2 new manufacturing plants plus the existing one in the U.S. A lot of that capital will come on stream towards the back end of 2026 and into 2027. It hasn't really stopped there. In dialogue with our customers more recently, we are seeing again, further demand patterns evolve where additional investments are required. So right now, if I were to call it, I envisage that in 2027 we'll see an even higher capital number if all of our discussions come home. I quoted in my prepared remarks about 4 out of 7 customers that was across both a very large gas to mid-size customers. If I just confine it to the large gas turbines for the utilities, but now some of them being sold directly to data centers where gigawatts of energy output are required. We've now completed 3 out of 4 discussions with those customers and have reached agreements whereby we would seek to invest more for the future while ensuring, again, that we have healthy returns for Howmet shareholders. So I think that really covers how our thinking has evolved in our outlook for both commercial aerospace, defense, supplementary areas, and further market opportunity in defense may be collaborative combat aircraft as well and their engine requirements and now in the gas turbine market. It's a particularly exciting time. As you know, we always back the areas of investment in the company, which earn higher returns. I hope that covers it, Doug.

Well, and just on margins, the 34%, which was unusually high.

Well, I think it's a good margin. As you know, I'm never willing to consider what margins are for the future because I find it always a very difficult topic to cover. As you know, we don't seek to take them down, at the same time, predicting increases is not something that I've ever been willing to do because so many factors come into play regarding that. I mean, at the moment, I see, for example, I have to take on additional cost, not only of the new manufacturing plants but also I think that we're going to sort of recruit another net 1,500 people plus in 2026 into our Engine segment. So all of those people would require training, etc. etc. So there's a lot going on, and I'm also very clear that if we were to hit all those marks, then again, the output that we need to achieve won't come from just the new capital load. We've got to try to attain further yield improvements, which then require us to have effective labor and also bringing together all the flow that we have and trying to get more repeatable product through our manufacturing facilities. I think the opportunity, which I see in the midterm, is that we will be able to move for more batch production in the gas turbine area, it's more of a flow-style production which, again, towards the end of the decade should begin to, say, further give us impetus on yields and therefore, margin. But it's way too early to predict that, Doug.

This is Alex on for Seth today. Maybe one kind of more specific to the guide for this year. Based on the guide for Q1, the midpoint of the rest of the guide for 2026 kind of implies minimal improvement in revenue, adjusted EBITDA, and adjusted EPS. Now wondering if you could kind of walk us through the puts and takes there and why that is? And also on the margin, the full year guide kind of implies that the margin is going to decline 30 bps for the full year from the 30.6% in Q1. Wondering how much of that might be related to maybe some start-up friction related to the engine capacity additions you're expecting to come online this year? Or if there's maybe some other things we should account for there?

The most important thing to note is that we have a significant amount happening in the company. We are rapidly deploying capital for new equipment and extending five new manufacturing plants. Additionally, we purchased another manufacturing plant in February aimed at the gas turbine market because we ran out of space. We are also taking on two acquisitions, one of which is closed, and we expect to close the other during the year. Between building new capital equipment, expanding sites, recruiting labor, and the ongoing acquisitions, there's a lot going on. It's always a challenge to believe we will succeed at everything. For me, a 30 basis point margin isn't particularly significant. I'm looking at the incrementals, which I believe are around 43% in Q1 and about 41% for the year. We need to ensure that all the new manufacturing facilities start operating and build products while also hiring labor. There's always a chance we might not hit everything as planned. Therefore, I think being cautious is wise. As mentioned before, we take guidance seriously. Predicting 30.3% EBITDA margins for the year seems reasonable at this point. If we manage everything well, it could be even better. But at this moment, I believe we've provided the best perspective on everything happening.

John, I just wanted to follow up on your comments on the ITT investment. Do you think the ROIC on all this spending is going to be similar to what you've achieved in commercial and aerospace in the past?

I want to clarify that there is essentially no difference between the margins we achieve on gas turbines and those in our commercial aerospace or defense sectors. The order of magnitude is similar. The embedded return on capital also reflects this similarity. However, deploying brand-new capital can slightly affect those returns. Currently, it’s challenging to predict the various blends of capital deployment in the gas turbine sector, as we are still determining the final figures. We've completed assessments for three out of four major gas turbine customers, accounting for four out of seven in the entire gas turbine segment. There are numerous factors to consider, as each customer is evaluating their potential output increases along with other component suppliers. Therefore, the ultimate capital deployment and its timing are still uncertain. That said, we've estimated a spend of approximately $340 to $350 million in 2024 and around $450 million in 2025, with a midpoint of $470 million plus or minus 20%. If I had to give a rough estimate for 2027, it would likely match or exceed the 2026 figures as we finalize these plans. I want to ensure we manage our cash generation as we organize everything. In terms of ROIC, it is currently on a similar level, but the mix of new capital versus existing assets may fluctuate over the next two to three years.

Cash generation has been strong, financial leverage at record lows, as you mentioned. I just wanted to talk about capital deployment a bit. How you're thinking about M&A versus buybacks. And with M&A, we saw the consolidated aerospace manufacturing deal, which was a bit larger. I'm just kind of curious how you're thinking about the landscape for larger M&A and growth opportunities that could unlock.

First of all, we've been focused on providing returns to our shareholders, essentially passing back all of the cash flow that we have achieved whether it's been share repurchase, dividend, or debt reduction, while ensuring that we have always invested enough to be able to drive the organic growth of the company forward. You've seen consistent growth in the double-digit area for several years and also indicating another double-digit growth for this year. If we're successful on all of the capital expenditure this year, then I envision '27 as also going to be healthy. So, my first priority, John is always the deployment of capital to enable the growth opportunities that we have, say, come to fruition. Then clearly, measure the share buyback and also, while taking into account the opportunity for M&A and where the leverage of the balance sheet is. If you think about CAM, $1.8 billion is significant. At the same time, where we think about leverage, we are below our long-run target average, let's call it 1.5% or less than that. CAM doesn't really stretch us, and we envision being able to continue to buy back shares as well. So, it's not a choice one or the other. We're able to, at this point, do it all. We're investing in the business at record levels, so $450 million, trending to $500 million. We're deploying share buybacks in a significant way and probably going to end up with a larger buyback in 2026 than we had in 2025. We are deploying capital into CAM of about $1.8 billion. If I give you dimensions for the Bruno acquisition, it's in that $120 million to $150 million range of capital, let's say, about $60 million of revenue. So, at the moment, if you think about it and also be kicking up dividends as well, even though the dividend yield is not the highest because we're growing so rapidly. I mean, we are managing at this point to do it all. I don't see why we have to fundamentally say we're going to do one or the other. We shall keep doing whether other M&A opportunities come up, but again, be very disciplined. You've seen in the 2 we've done very much down in the middle of the fairway. It's in segments that we know well, segments that have earned the right to grow, segments that are producing very healthy absolute margins. An increased CapEx for fasteners? Absolutely. Willingness to deploy for an acquisition? Absolutely. And it's not stopping us also buying back shares at an elevated rate above the previous years.

John, given the demand for gas turbines and the unique value that Howmet creates in that market, do you see a future scenario where your gas turbine revenue at interim products could ultimately be larger than the commercial jet engine revenue?

That takes me too far out there. I don't think so because I think our commercial aerospace and our defense aerospace business is also growing rapidly, has grown. I don't see that at this point in time. The most notable thing, though, that is going on, is not just for us, the growth in absolute volume. There's also a product mix change going on at the same time, whereby some of the technologies that were previously deployed in aerospace are also now being deployed in the gas turbine business, probably even more so in the small to mid-range gas turbines, but also now in the large gas turbine area, when that is providing airflow passages through the turbine blades and therefore, requiring us to call the core tools to be able to provide those air passageways. That again produces for us a content increase. We're looking at both the absolute requirement to build more turbines plus also the evolving landscape over the next few years, more complex types of turbine blades, which again plays to our strengths and capabilities. It's all good, but I'm not yet ready for the premise that it could exceed. I don't know where we're going to be, say in 2030 or beyond; there's a lot of things going to happen yet to get this current obviously, requirements built out. You do see the need for electricity increasing at a rapid pace, really for not just the next 3 years but well beyond, maybe for the next decade and beyond.

And John, it does seem like you are doing it all. You are in the process of closing CAM and you just did the Bruno acquisition, marks more M&A than you've done in the past. Maybe if you could just give us greater depth in terms of the market that opens up, the product offering and how you're thinking about maybe the returns as you think about either building or buying in terms of these investments?

Yes. I think the starting with the CAM acquisition, for us, it takes us into the fittings and couplings area of, I'd say, the wider fastener market and that helps us to build out those segments in a more significant way and bring another very powerful force to market with the backing and the ability to deploy capital behind it. That's particularly exciting for us and also, I think it's exciting for our customers because I think they need and they see the opportunity for Howmet to provide further support in those segments of the market. I mean at fasteners, of course, it's good, it's interesting, and we appreciate all of it. But I think the main thrust would be in those other adjacent segments that we can build out. That would give you a bit of a theme on CAM. In terms of Bruno, what we saw so far, if I take just bolts as an example, we've been in the market producing the smaller range of bolts, which are threaded bolts in particular, plus obviously nuts, but I'm really concentrated in this discussion on bolts. We've never really had the ability or the size of capital to manage long lengths of bolts nor diameters in excess of an inch diameter. Bruno offers us a ready-made solution for that. When we think about the markets that we don't serve, both in aerospace and in parts of industrial, if we had that product offering, then we would be more significant in the market, and therefore, again, help our growth rate. That's what Bruno brings to us. If we were to try to build out that capability ourselves, by the time you've engineered it or deployed the capital, you've got the certifications, whereas now we have already made it profitable in the base business which we can now seek certification of into certain aerospace applications and also to the wider market. Again, it's where I think the application of the heft of Howmet and our commercial position and the ability to deploy capital and make further investments is really going to see a benefit for us and for our customers where we're bringing a powerful new product capability to the market.

You have Louis Fed on for Myles.

Good morning.

John, I was hoping you could provide some additional color on how spares performed in the fourth quarter and the full year 2025 between commercial and then defense, I guess IGT. And what are your thoughts for 2026?

Yes. So in aggregate, our spares business grew over 30%, probably getting close to 33% for the year. Again, a very healthy growth rate for us. Against the mark, where I think I said that we saw spares moving towards 20% over '25 and '26 in terms of the total revenue of Howmet. In actual fact, we exceeded that. We were at 21% for the 2025 year. Again, the overall growth rate helped us get to that level and hopefully, we don't stop at 21%. Hopefully, it continues to be a larger portion of the Howmet overall revenue picture.

Patrick. John, regarding engine margins in general, automation has been a big part of kind of a beneficiary for you. Can you maybe give us a little more color on kind of where you are in the automation journey and for engines and are there other opportunities in the business that you seek for automation?

We spent quite a bit of money over, I'd say, '23 and '24 in automation. That's obviously been very beneficial for us and has helped us to alleviate the need for additional employees; you can see we've been hiring at a significant rate. We've made sure that all of the new capital we deployed has a high level of automation. When we showcase our new manufacturing plant in Whitehall next month, you'll see something that I talked about in one of the previous calls about the digital thread and to track manufacturing to an extraordinary degree and also allow us to bring machine learning and AI to a degree across that plant. I'm very hopeful. I also know that first, capital has been so high, and it's not just can we deploy the cash, but it's also the engineering bandwidth, which has been totally absorbed by the new markets that we've been developing for and customer requirements. It's taken a bit of a backseat in '25 and '26. At the moment, our choice has been we will match the market and achieve that. It's far more important for us to maintain and grow our market share and meet customer demand. We have the opportunity in maybe it's '27 or probably more like '28 or '29 to go back and also make some of the processes that we did not do while we're doing all of this, even though all the new stuff we're doing is highly automated.