Executive Summary / Key Takeaways

• Record Performance & Raised Guidance: Howmet Aerospace delivered a strong Q2 2025, with revenue up 9% year-over-year to $2.05 billion and EBITDA margin expanding to 28.7%. Full-year 2025 guidance has been raised across all key metrics, including revenue to $8.13 billion and free cash flow to $1.225 billion.
• Strategic Aftermarket Expansion: The company's growing exposure to higher-margin aftermarket spares, now representing 20% of total revenue and projected to exceed this, significantly enhances revenue stability and reduces cyclical volatility.
• Differentiated Technology & Competitive Moat: Howmet's proprietary materials science in nickel, titanium, aluminum, and cobalt, coupled with unique heavy forging presses, creates substantial barriers to entry and underpins its market leadership in mission-critical aerospace and industrial components.
• Targeted Capacity Investments: Significant capital expenditures are underway in Engine Products to expand capacity for both aerospace turbine airfoils and the burgeoning Industrial Gas Turbine (IGT) market, backed by long-term customer contracts.
• Disciplined Capital Allocation: Robust free cash flow generation supports a shareholder-friendly capital deployment strategy, including increased common stock dividends and substantial share repurchases, alongside strategic debt reduction.

A Foundation Forged in Precision

Howmet Aerospace Inc. (NYSE: HWM) stands as a global leader in lightweight metals engineering and manufacturing, providing advanced engineered solutions that are critical to the aerospace and transportation industries. The company's current strategic focus and pure-play identity were shaped by its strategic spin-offs from Alcoa Corporation (AA) in 2016 and Arconic Corporation (ARNC) in 2020. This transformation allowed Howmet to sharpen its emphasis on high-growth markets, operational efficiency, and the expansion of its aftermarket presence.

The broader industry landscape provides a compelling backdrop for Howmet's specialized offerings. The aerospace sector is experiencing record aircraft backlogs, driven by a persistent underbuild of new aircraft in recent years and an accelerating demand for more fuel-efficient, lower-emission models to replace aging fleets. Simultaneously, rising global defense budgets and an extraordinary surge in electricity demand from data centers and artificial intelligence applications are creating robust, multi-year growth vectors for Howmet's specialized components.

Technological Edge: The Unseen Moat

Howmet's competitive advantage is deeply rooted in its proprietary materials science and advanced manufacturing capabilities. The company specializes in innovative, multi-material products utilizing nickel, titanium, aluminum, and cobalt. This expertise translates into tangible benefits for its customers, enabling the production of lighter, more fuel-efficient aircraft and commercial trucks with reduced carbon footprints. A prime example of this differentiation is Howmet's ownership of two of the four heavy forging presses over 35,000 tons in the U.S., assets that are unique and critical for supplying components for advanced defense programs like the F-47 and F-55 fighter jets.

The company's commitment to innovation is evident in its ongoing research and development initiatives, particularly concerning new engine blade technologies. The LEAP-1A turbine blade, for instance, has been certified and transitioned into production as of January 2025. The GTF Advantage engine, also certified, awaits final tooling approvals from Pratt & Whitney, with a mid-2025 changeover anticipated to bring durability improvements and increased content for Howmet. Furthermore, certification for the LEAP-1B is expected by the end of 2025, with a cutover planned for 2026, promising enhanced engine robustness. These technological advancements create significant barriers to entry, strengthen customer relationships, and underpin Howmet's ability to command premium pricing and expand market share in mission-critical components.

Competitive Landscape: Dominance in Niche, Resilience in Adversity

Howmet maintains a strong competitive position as a specialized provider within the aerospace and transportation sectors, consistently outgrowing its respective markets. While larger, more diversified competitors like RTX Corporation (RTX) and GE Aerospace (GE) offer broader systems and integrated engine solutions, Howmet differentiates itself through its deep materials expertise and manufacturing efficiency. Howmet's focus on advanced materials like titanium and aluminum often provides superior performance in lightweight structures, enhancing fuel efficiency for its customers. This specialized approach allows Howmet to achieve potentially higher returns on invested capital in its niche areas compared to the broader, more capital-intensive strategies of its rivals.

Against Honeywell International Inc. (HON), which excels in technological integration and smart systems, Howmet's strength lies in its high-strength material components and cost leadership in specific forged products. Similarly, when compared to Safran SA (SAF), a leader in propulsion technologies, Howmet's emphasis on materials and its U.S.-based production network provide a distinct value proposition, particularly in North American markets. While precise market share figures for all niche competitors are not publicly detailed, Howmet's consistent outperformance and its leading market share (above 50%) in global Industrial Gas Turbine (IGT) turbine blades underscore its strong competitive standing.

The company's strategic agility is also evident in its response to competitive disruptions. Following a facility accident at Precision Castparts (PCC) in Q1 2025, a major competitor in fastening systems, Howmet has secured new orders, which are now approaching $40 million, and continues to bid on hundreds of additional part numbers. This demonstrates Howmet's ability to capitalize on market shifts and reinforce its position as a reliable, high-quality supplier. Despite its strengths, Howmet faces vulnerabilities tied to broader aerospace cycles and potential technological gaps in areas like digital integration, which it addresses through continuous operational improvements and strategic investments.

Financial Performance: Records and Robustness

Howmet's financial performance reflects its strategic execution and operational effectiveness. In the second quarter of 2025, the company reported record revenue of $2.05 billion, a 9% increase year-over-year, surpassing the high end of its guidance. Adjusted EBITDA reached $589 million, up 22% year-over-year, driving a healthy EBITDA margin of 28.7%, a 300 basis point expansion. Diluted earnings per share (EPS) climbed 36% to $0.91. For the first six months of 2025, revenue totaled $3.995 billion, an 8% increase from the prior year, with net income surging 47.5% to $751 million, resulting in an EPS of $1.84.

These strong results were primarily driven by higher volumes, favorable product pricing, and significant productivity gains, which collectively led to a decrease in the cost of goods sold as a percentage of sales. Reduced interest expense, stemming from strategic debt redemptions and prepayments, further bolstered profitability.

Segment-wise, Engine Products delivered a record quarter with sales of $1.056 billion (+13% YoY) and an EBITDA margin of 33.0% (+170 bps YoY), fueled by robust demand in commercial aerospace, defense, IGT, and oil & gas. This segment absorbed approximately 360 net new employees in Q2 2025 (860 year-to-date) to support future capacity, a near-term margin drag offset by volume leverage. Fastening Systems saw sales of $431 million (+9% YoY) and an EBITDA margin of 29.2% (+360 bps YoY), driven by aerospace growth despite weakness in commercial transportation. Engineered Structures continued its impressive turnaround, with sales of $290 million (+5% YoY) and an EBITDA margin of 21.4% (+690 bps YoY), benefiting from defense aerospace growth, footprint optimization, and product mix rationalization. Forged Wheels, despite a 1% revenue decline to $276 million due to lower commercial transportation volumes, maintained a strong EBITDA margin of 27.5% by effectively flexing costs.

Howmet's liquidity remains robust, with a healthy cash balance of $545 million at the end of Q2 2025. The company maintains a $1 billion undrawn revolving credit facility and a $1 billion commercial paper program, providing ample financial flexibility. Its debt is rated investment-grade by all three major credit rating agencies, with recent upgrades reflecting strong free cash flow generation and disciplined capital allocation. This financial strength enables a balanced capital deployment strategy. Free cash flow for the first half of 2025 was $699 million, with a full-year guidance of $1.225 billion. The company repurchased $175 million of common stock in Q2 2025 and an additional $100 million in July, with approximately $1.8 billion remaining under board authorization. The common stock dividend was also increased by 20% to $0.12 per quarter, starting August 2025. Capital expenditures have increased significantly, up 64% in H1 2025, primarily for capacity expansion in Engine Products, backed by customer contracts.

Outlook and Guidance: Fueling Future Growth

Howmet's outlook for the remainder of 2025 and beyond is characterized by continued strength across its key markets. For Q3 2025, the company projects revenue of $2.03 billion (+/- $10 million), EBITDA of $580 million (+/- $5 million), and EPS of $0.90 (+/- $0.01), reflecting normal seasonal patterns. The full-year 2025 guidance has been raised, with revenue now expected to be $8.13 billion (+/- $50 million), EBITDA $2.32 billion (+/- $20 million), EPS $3.60 (+/- $0.04), and free cash flow $1.225 billion (+/- $50 million).

This optimistic guidance is underpinned by several key assumptions. Commercial aerospace is expected to continue its growth trajectory, driven by accelerating engine spares demand and a higher Boeing (BA) 737 MAX production rate assumption, now at an average of 33 aircraft per month for the year. Defense aerospace is projected to maintain robust growth, with increasing contributions from the F-35 spares business, which is anticipated to exceed OE production in 2025. The Industrial Gas Turbine (IGT) market is a significant long-term growth driver, with demand surging due to global data center build-outs and the associated need for massive, uninterruptible electricity supply. Howmet is strategically investing in new IGT capacity in Japan and Europe, with these facilities expected to come online from late 2025 through 2027, backed by solid customer agreements. The commercial truck market is expected to stabilize in 2026 after a period of softness in 2025.

While the outlook is positive, management remains vigilant regarding potential risks. These include uncertainties in OEM production rates, particularly concerning FAA oversight for Boeing and engine supply constraints for Airbus (EADSY). The commercial transportation market's softness and potential delays in tariff cost recovery (estimated net impact less than $15 million in 2025) also present challenges. Furthermore, the company monitors its supply of rare earth minerals, noting that while two critical elements have ample inventory, one has less than a year's supply, though workarounds are possible. Despite these factors, Howmet's management expresses confidence, stating that "the overall picture for Howmet currently appears to be healthy."

Conclusion

Howmet Aerospace is executing a compelling transformation, evolving into a more resilient, high-margin leader in the critical aerospace and industrial components sectors. This strategic evolution is powered by its deeply differentiated materials technology, a growing and stabilizing aftermarket presence, and disciplined, targeted investments in future capacity. The company's ability to consistently outgrow its markets and deliver record financial performance, even amidst industry-specific headwinds, underscores the strength of its competitive moat and operational excellence.

Looking ahead, Howmet is exceptionally well-positioned to capitalize on multi-year growth cycles in both the recovering aerospace industry and the burgeoning Industrial Gas Turbine market, driven by global electricity demand. Its robust balance sheet and shareholder-friendly capital allocation strategy further enhance its appeal. For discerning investors, Howmet Aerospace represents a compelling opportunity to gain exposure to a company with a unique technological edge, strong competitive standing, and a clear roadmap for sustained value creation.