I would now like to turn the conference over to Paul Luther, Vice President of Investor Relations. Please go ahead.
Thank you, Chris. Good morning and welcome to the Howmet Aerospace first quarter 2026 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 the factors that could cause 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, adjusted operating income, and adjusted EPS.
As noted in today's materials, we have removed the term "excluding special items" from the titles of non-GAAP financial measures, as well as simplified the definitions of adjusted EBITDA and adjusted EBIT. While the titles and definitions have been simplified, current and prior period calculations have not changed.
These measures are among the non-GAAP financial measures that we've included in our discussion. Reconciliations to the most directly comparable GAAP 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.
Thanks, PT. Good morning, everyone. Welcome to the Howmet first quarter earnings call. Let's move to the highlights on slide 4. Howmet had a very strong start to 2026. We delivered in many ways. Sales were $2.31 billion, EBITDA $740 million, and earnings per share of $1.22. The EBITDA margin rate was 32%.
This margin was an increase of 320 basis points over the equivalent quarter last year. Cash generation was $359 million, reflecting strong earnings and continued improvement in working capital efficiency. This enables share buyback of $300 million during the quarter and a further $150 million in April. Capital expenditure continued at a high rate, supporting the future organic growth rate of the company.
Brunner acquisition was completed in February from cash on-hand. The CAM acquisition closed on the 6th of April, using $1.65 billion of new debt and part of the proceeds of the disposal of the Savannah U.S. Disc business at the end of March. The sale of Savannah tidied up another part of the structures portfolio, which was an isolated U.S. Disc business for which there were no plans of expansion given its market position.
The acquisition of CAM expands our reach and our portfolio of offerings to the non-traditional fasteners such as fluid fittings, couplings, heat shields, and additional latches. This acquisition investment in the fasteners business reflects our strong philosophy of allocating capital to the better performing areas of our business.
Excluding the $1.8 billion used to fund the CAM acquisition, we entered the second quarter with just over $600 million of cash on hand, having completed these portfolio moves and with a resulting net leverage of 1.6 times. This leverage we expect to bring down significantly as we move through the balance of 2026. Patrick will provide further color on markets and the individual business segments in the following, this part of the discussion. Meanwhile, the comment I would make is that margin performance of each business unit showed progress sequentially from the fourth quarter of 2025. On that, pass across to Patrick.
Thank you, John. Good morning, everyone. Please move to slide 5. Another solid quarter for Howmet, with most end markets continuing to be healthy. We are well-positioned for the future and continue to invest for growth. Revenue was up 19% in the first quarter, an acceleration from the 15% growth rate in the fourth quarter.
Commercial aerospace growth was a strong, at 20%, driven by accelerating demand for engine spares and underpinned by the record backlog for new, more fuel-efficient aircraft with reduced carbon emissions. Commercial aerospace engine spares were up 48% in the first quarter, with both legacy and next-generation engine spares contributing. Defense aerospace growth continued at 10%, including healthy spares activity. Commercial transportation revenue was up 13%, driven by the pass-through of higher aluminum costs and tariffs.
On a volume basis, Wheels was down 11% as the market down cycle continued into the quarter. We continue to outperform the market with Howmet's premium products. Gas turbine growth remained very strong, with revenue up 39%. 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 a robust spares growth.
The combination of commercial aerospace, defense aerospace, and gas turbine spares was up 36% to approximately $520 million in the first quarter. Spares revenue continues to grow and represents a larger portion of our overall revenue, now at 23% in the first quarter of 2026 versus 21% in the full year 2025, and 11% in the full year 2019.
In summary, continued strong performance in commercial aerospace, defense aerospace, and gas turbines, with all markets up double digits and the commercial transportation market beginning to improve. Moving to slide 6, starting with the P&L. First quarter revenue, EBITDA margin, and EPS were all above the high end of guidance.
On a year-over-year basis, revenue was up 19%, the strongest quarterly growth rate for the company since the first quarter of 2023. EBITDA continued to outpace revenue growth, up 32%. EBITDA margin increased 320 basis points to a record 32%. Incremental flow-through of revenue to EBITDA was solid at 49% year over year. Earnings per share were $1.22, up a robust 42% compared to the first quarter of 2025. Now let's cover the balance sheet and cash flow.
Our strong balance sheet provided the foundation for the CAM and Brunner acquisitions that we closed during the first part of the year. The quarter end cash balance was $2.4 billion. This included $1.65 billion added through debt issuance to fund the CAM acquisition, as well as proceeds from the $230 million sale of the Savannah disk forging facility.
I will speak more about these transactions momentarily. Free cash flow was $359 million, a record for a first quarter. Net debt to trailing EBITDA continued to improve to 0.9 times prior to the CAM acquisition that we closed on April 6th. Howmet's improved leverage and strong free cash flow profile were reflected in Fitch's Q1 upgrade from BBB+ to A-, now 4 notches into investment grade.
Liquidity remains strong with an undrawn $1 billion revolver complemented by a $1 billion commercial paper program. The commercial paper program was utilized for the first time in the first quarter of 2026 to support the CAM acquisition, with $450 million being drawn as of March 31st. Turning to capital deployment, CapEx was $94 million.
The majority of CapEx was in the Engine Products segment as we continue to invest for growth in the aerospace and gas turbine markets. Investments are backed by customer contracts. In the quarter, we repurchased $300 million of common stock at an average price of $230 per share. We repurchased an additional $150 million in April at an average price of $246 per share.
Q1 was the 20th consecutive quarter of common stock repurchases. As of today, the remaining authorization from the board of directors for share repurchases is approximately $1.05 billion. We continue to be confident in strong future free cash flow. We paid a first quarter dividend of $0.12 per share. We expect the dollar value of dividend distributions in 2026 will be higher than 2025.
Finally, turning to M&A. We completed 2 transactions in the first quarter and 1 early in the second quarter. First, we acquired Brunner, a fastener business based in Wisconsin, for approximately $120 million in cash on February 6. The integration process is on track. Second, we sold our disc forging operation in Savannah, Georgia, for $230 million in cash on March 31.
We expect this divestiture to be margin accretive to the Structures segment. 3rd, we closed the previously announced CAM Fastener acquisition on April 6th for approximately $1.8 billion. To finance the CAM acquisition on March 3rd, we issued $1.2 billion of new notes, in addition to $450 million in borrowings from our commercial paper program. The proceeds from the Savannah divestiture also supported the CAM purchase.
The weighted average cost of debt for the CAM transaction is approximately 4.2%. Now let's move to slide 7 to cover the segment results for the 1st quarter. The Engine Products team delivered another excellent quarter for revenue, EBITDA and EBITDA margin. Revenue increased 29% to $1.25 billion. Commercial aerospace was up 31%, and defense aerospace was up 13%.
The gas turbines market was up 39%. Demand continues to be strong across all our engines markets with very healthy engine spares volume. EBITDA outpaced revenue growth with an increase of 44% to $458 million. EBITDA margin increased 400 basis points to 36.6% while absorbing approximately 235 net new employees in the quarter, positioning us well for continued growth.
Please move to slide 8. Fastening Systems had another strong quarter. Revenue increased 14% to $471 million. Commercial aerospace was up 17% and defense aerospace up 21%. Commercial transport, which represents approximately 11% of Fasten's revenue, was down 4%. EBITDA continues to outpace revenue growth with an increase of 18% to $150 million, despite the modest recovery of wide-body aircraft bills, along with the weakness in commercial transportation.
EBITDA margin increased 100 basis points to 31.8% as the team has continued to drive commercial and operational performance. Moving to slide 9. Engineered Structures operational performance continues to improve. Revenue decreased 3% to $294 million as we continue to rationalize products and focus on higher margin and stronger return opportunities. Segment EBITDA was flat at $66 million. EBITDA margin increased 40 basis points to 22.4% as we continue to optimize the Structures manufacturing footprint and product mix to maximize profitability. Finally, slide 10. Forged Wheels delivered another solid quarter.
Revenue was up 17% as an 11% decrease in volume was more than offset by higher aluminum cost and tariff pass-through and favorable foreign currency impacts. EBITDA was strong at $90 million, an increase of 13% despite the challenging market. EBITDA margin increased 350 basis points to 30.5%. The unfavorable margin impact of lower volumes and dilutive higher pass-through was more than offset by flexing costs, a strong product mix driven by premium products and favorable foreign currency.
Lastly, before turning it back to John, I want to highlight a couple of items. 1, in the 1st quarter, we moved a titanium alloy production operation from the Engine Products segment to the Engineered Structures segment for better operational alignment. The comparable periods for Engine Products and Engineered Structures have been recast to reflect the new alignment.
You can find these figures on slides 20 and 21. 2. In April, we issued our annual environmental, social and governance report, highlighting the meaningful progress we made in 2025 sustainability. The full report is available in the investor section on our website. Let me turn the call back to John.
Thanks, Patrick. Let me turn to the outlook for the company and firstly note that we have ongoing uncertainty in relation to the situation in Iran. The outcome and consequences have yet to be fully determined. Having said that, the oil price shock is rippling around the world, along with other fossil fuel impacts.
Clearly, the case for higher inflation is set, although its rise and forward trajectory is yet to be determined, along with the effects on global interest rates and currency exchange rates. While acknowledging all of this, we do see a clear path to an improved economic outcome in 2026 for Howmet and future growth of revenues into 2027. The details of our updated 2026 guide will be set out momentarily. First, let's discuss commercial aerospace.
Both narrow body and wide-body aircraft build rates are planned to increase. This is expected to be the case throughout the year, although the trajectory going into 2027 is yet to be determined. Airline traffic has held up well through April, although some airlines have drawn up lower volume contingency plans.
The large aircraft backlog should help to underpin current build rates. The outlook for spares continues to be strong as MRO slots are also backlogged, although again, there may be an effect to be felt from the Iranian conflict. Aircraft retirements on used serviceable material and the longer term effects are being considered. The outlook remains for continued strong growth and that persists into the future.
Defense sales continue to be healthy for both new aircraft and spares, especially given the recent escalation of aerial operations in the Middle East, as well as the parts supplied to missiles. At the same time, we're expanding efforts on new programs, most notably in the drone and collaborative combat aircraft programs.
Naturally, this does not really affect much by way of revenue in 2026, but it's very important for the future years. The gas turbines market is also very active. Sales are expected to grow both in 2026 and into the future. We provided a sales demand outlook during the last earnings call for a doubling of demand in the three to five-year period. We are not updating this currently, although the picture continues to look very bright.
The update today relates to customer contract positions, where the negotiations regarding demand and capital investment have now been finalized for six out of seven customers, which is an increase from the four I commented on in the last earnings call. At the same time, further new orders and increased projected volumes are possible, dependent upon all of the other componentry that's required for a full IGT installation.
This is for both small, medium, and indeed large IGT builds. Starting in the second quarter, the commercial truck market has begun to strengthen despite the diesel's price increases, albeit our outlook remains cautious until we see an improved and more stable macroeconomic outlook. Moving to specific numbers, commercial aircraft build rates are seen to be increasing, we remain slightly behind projected rates.
We have the rate for the 737 at an average of 42 per month for the year. On the 787, currently 7 per month, rising to 8 per month by the 4th quarter. On the Airbus A320, 62 per month. On the Airbus A350 at 6 per month. The past few months were very active regarding the Howmet portfolio, and the guide we provided reflects these changes.
We closed two transactions in the fastener segment, namely CAM Brunner, and we also divested the US Disc business in Savannah, which is part of the structure segments. These transactions followed our stated strategy of allocating capital to the businesses that demonstrate high growth potential and higher margin potential.
The net effect of these transactions will add approximately $275 million of revenue to the remainder of 2026 and about $60 million of EBITDA. The EPS effect in 2026 is insignificant due to the increased interest expense. There is expected to be a positive earnings per share effect starting in 2027. Our Q2 guide numbers are revenue of $2.4 billion ±$10 million, EBITDA of $765 million ±$5 million, earnings per share of $1.23 ±$0.01, and these are at incrementals of just about 51%.
Our full-year guide numbers are revenue of $9.65 billion ±$75 million, EBITDA of $3.06 billion ±$35 million, earnings per share of $4.94 ±$0.06, and free cash flow of $1.75 billion ±$50 million. That's after increasing our capital expenditure once again. It's noteworthy that our full-year revenue growth guide, excluding the impact of M&A, rises from 10% to 14%.
Again, an increase over and above that which we said in February. In summary, we started 2026 in a very healthy fashion and the guidance numbers reflect that increase in confidence for the year. At the same time, we do recognize the increased uncertainties around the macroeconomic outlook. I'll stop now and turn the meeting over to questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any point your question has been addressed and you would like to withdraw it, please press star then two. As a reminder to questioners, please limit yourself to one question only. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Scott Deuschle with Deutsche Bank. Please proceed.
Hi, good morning. John, can you walk through in a bit more detail as to what factors drove the step function change in commercial aerospace growth at Engine Products in the quarter? Related to that, is Engine Products currently seeing much growth benefit from GTF Advantage, Hot Section+ or LEAP-1B MARICK shipments, or is that all still largely in front of you? Thank you.
Okay. First of all, the engine revenue increase is above aircraft build in the first quarter for sure. Some of it clearly reflects that we need to be ahead of future volume increases. As you know that the aircraft manufacturers want to raise rates during the course of the year, there's some anticipation of that.
I think the second point would be there's been very little by way of available inventory in engine build. I think everything was, you know, was thrown at increasing both LEAP and GTF production in 2025. There was very little. For us then again seeing strong demand to some degree catch up.
In addition to that, I'd point to there is some share increase. I'd point to the fact that there is some price increase. Finally, it shouldn't be underestimated that the spares business was very strong. Whereas the overall spares increase for the company was 35% plus it was actually 45%, more like 48%, in fact, in the first quarter. If you put strong spares along with the aircraft build, the anticipated build, the share, the price, there's a lot of very positive things happening for us in the engine business.
In terms of the question or the part of the question you asked regarding GTF and then the changeover for the LEAP from Turkey to the MARICK, let me deal with, say, the GTF first. In the first quarter, there was a fairly small amount of GTF production. I think during last year I'd commented that we were running at about six engine sets a month in the second half.
That's increased during the first quarter, but it's going to increase again significantly as we go through the balance of this year. My expectation is that we will be providing a full production of the legacy GTF product and then increasing GTF Advantage products as we go through this year.
I think as you know, Scott, those will have a higher content and then, therefore higher value. That production rate increase will actually continue into 2027. 2027 is going to be a much bigger year, I think, for the GTF Advantage than 2026. You are going to see a steady climb throughout this year as we bring further rate building to bear.
As you know, the GTF Advantage has now had both certifications at the customer and from the regulatory agencies. In terms of the MARICK, that production is just starting for the LEAP-1B. It's underway. Again, volumes will be increasing during the second quarter, and then more in Q3 and Q4.
It won't be changed over until the 2nd half of the year with, again, a date to be determined for the exact month of changeover. We do see the LEAP-1B changing in the back end of the year. Certainly we think before the turn of the year into 2027. For the 1st part, we'll be doing the existing turbine blades and then increasingly make that changeover such that by, let's say Q3 and certainly by Q4, we'll be fully changed over is my expectation.
Thank you very much.
Thank you.
The next question is from Ron Epstein with Bank of America. Please proceed.
Hey, good morning, guys. So John, maybe a big picture question for you. How should we think about, you know, you know, how IGT is gonna go for you all over time, kind of given the contracts that you're signing, the CapEx that is being invested, the hyperscaler spend? Ultimately, how does that compete with your aerospace business? 'Cause it seems like the hyperscalers are competing against the engine guys for similar assets and supply chains. How are you thinking about that?
Okay. IGT is a big subject at the moment, big subject for us, for sure. Trying to, I'm gonna say, feel our way through to the right outcome for the company. It's clearly an opportunity to deploy capital for increased organic growth. At the same time, we just wanna make sure that we're not getting ahead of ourselves and, you know, We do see a continuing bright future for it, such that we don't end up with a period of over-investment and over-capacitization, because that would not be a good outcome for us.
What we've been doing is to truly understand as best we can the market dynamics of what the hyperscalers are really needing and paying close attention to build out of data centers and just the underlying growth anyway, excluding AI, which is just a function of just fundamentally a huge increases in data and data storage required around the world. And then on top of that, the increased use and use cases for the application of artificial intelligence, which is, you know, there's a huge amount of money, maybe, I don't know, $700 billion being invested this year.
Trying to assess when all of that is required and what capacities will need to be brought online, and indeed, what are the alternatives for electricity production as we go through the next few years. Our assessment is that natural gas is fundamental to that buildup because of the, I'll say, the ability to have fast-acting and to underpin any form of renewable energy, and also as a base load provision as well. With confidence that for the next three years, five years, that growth is clearly there.
The kick-up of investments by the hyperscalers, I mean, you see numbers, let's say, going from maybe Microsoft saying they're gonna go from $125 billion to $185 billion or, you know, Google matches it, Amazon talks about $200 billion. Clearly the amount of investment is enormous and probably still not yet reflected in the current demand pattern that we're seeing through our IGT customers.
At the same time, for us, we have to consider, like, what happens to 2030 through the balance of this decade into the following decade. Having really detailed meetings with those large IGT customers of what turbines that they expect to make, that which they want to invest in new products compared to just making more of the same, which is a very live topic at the moment.
Indeed what their own capacities are and what the demand pattern looks like through, let's say, 2032, 2034, et cetera. While we're evaluating all that, we're also looking at the smaller and mid-sized turbines, which are also required because sometimes data center installations cannot get electricity sufficiently from utilities or indeed from their own large scale gas turbine availability. Banks of small and mid-sized turbines are required.
Evaluating all of that, and then also the fact that it's probably likely that insufficient electricity production will be provided, in the, let's say, the decade as we see it beyond 2030. For major industrial complexes, we see standalone microgrids being required for, let's say, small and medium-sized turbines. Again, a very healthy demand pattern. Everybody, basically the, the, the word of the, I was gonna say month, quarter, you could call it year is the answer is more.
So we're trying to meet that demand, not necessarily trying to add everybody's demand together and say, 'cause, you know, is everybody expecting all of it to result in those market shares, but also to invest at a rate that makes sense to us and also underpin that with commercial agreements, again, which make sense.
Trying to provide, I'll say, confidence and security for the Howmet investors. There's a lot going on. You've seen the kick-up in capital expenditures. I mean, if we were, I don't know, $450 million ± last year, we've talked about, I think the last earnings call, a midpoint of $470 million, but trending towards the top end. We're seeing more like now this year, $500 million of CapEx.
Those increases really do reflect the increasing investments that we're making in the gas turbine market. My current expectation is that 2027 is going to go higher. At the same time, you know, we're not spending this money and trashing our cash flow at all. Is that, you know, we have already glided to a higher CapEx number and a higher cash flow number and still maintaining our long-term commitment to that 90% conversion of net income.
We're trying to do everything. You know, I think I maybe said something quite bold on the last call, which is, you know, we're trying to do it all. At the moment, we do have the cash flows to largely do it all between maintaining really a great leverage position, increasing our CapEx and also meeting some of the exciting parts of the market demand picture, of which gas turbines is particularly active at the moment.
You heard me say on the call earlier in my remarks that we've now reached agreement with six of seven major customers and with one more to go, which is a very significant customer to so hopefully complete during the balance of the second quarter. It's interesting, exciting, but at the same time, you know, we're not trying to get carried away and do something which would not put us in a good position. You know, we've been very clear on that in the discussions with our customers.
Got it. Thank you very much.
Thank you.
The next question is from Robert Stallard with Vertical Research. Please proceed.
Thanks so much. Good morning.
Morning, Rob.
John, you've given a pretty interesting growth outlook here for several of your end markets, but I'm wondering how you feel about the ability of your supply chain to deliver sufficient material, especially on, say, things like rare earths, and also the outlook for staffing, whether you're getting enough quality people?
Okay. Let me deal with input materials broadly and then rarer specifically before moving on to human capital. For the most part, the metals that we use in our turbine blade business and structural casting business, and in the structure segments, we get the base metal. We're buying from smelters and traders so that we will buy the base nickel or cobalt or whatever. We feel fairly secure of that and have a pretty good view of, you know, country of origin and security stocks around all base metals. Feel quite comfortable there.
During last year, I gave a picture I think I called out three rare earths and tried to describe the fact we had a year supply of two of them, plus inventory held outside of its producing territory, so outside of China. We had inventory both in the U.S. and Europe to provide us with security. I think they called out the third rare earth, which was about a 10-year secure supply. It's something that I've returned to again in the first quarter of 2026 and been really focused and have our procurement operations focused on gaining increased security.
Right now, we have in hand and, despite an improved, you know, inventory efficiency, we actually have increased the inventory of rare earths such that we're fully covered through 26 and I think we're like 90% of 2027, and some products now well through the end of the decade.
It's been a major push to increase security around rare earths such that, you know, with, again, some uncertainties around the geopolitical situation, even though we recognize there's a major political summit coming up between America and China. You know, we wanna make sure that we're able to be secure and supply our customers for a very extended period of time with the product we've got, which is essential, particularly for some of our defense applications, to provide that supply security.
If you take the Savannah disposition, that was one of the 2 operations where we buy alloyed metal from somebody else, which is, let's say, was about 5% input of metals into the company. Let's assume now we've that 5% is down to 3.5%, over 3.5%, 40% is supplied from our in-house operations in Europe. We're down to, like, a very tiny percentage of, I'll say, of metals that we rely on, you know, alloyed third-party suppliers and have very solid security stocks around rare earth. I think we've, we try to protect the company in a very significant way. I think the second part of your question was around human capital.
We've continued to recruit, I think, about 230, 250 people net in the first quarter of this year. We're still anticipating well over 1,000 people of adds during the course of this year. Similar, maybe slightly higher number than we had in 2025. I've also spent a lot of time trying to improve all the, I'll say, methods that we have by way of recruitment and training and trying to reduce our employee turnover. We did make major strides during 2025 and the trajectory during the course of the year.
So far in 2026, employee turnover has been pretty stable with the fourth quarter of 2025, but with again plans to again provide additional efforts to provide, I'll say, the training that we provide employees, showing the people the workplace, looking at spans of control within our plants, looking at the basic recruitment practices itself and obviously pay rates, benefit programs and all the rest of it as well. Trying to provide a good working environment, at the same time also automate.
In fact, when I was in Japan last week looking at our new manufacturing plant there, which was, you know, mainly focused on the gas turbine business, again, spent a lot of time talking about the recruitment of people in Japan, which is actually more difficult than, say, the U.S. or Europe. Also the importance of trying to find additional areas of automation.
Such that, you know, we can put it more in our control than it is in something which is difficult to control, which is, you know, can you get sufficiently qualified and good people into your production operation? A lot of efforts going in, Rob, and at the moment, I'm pretty convinced that we'll execute 2026 in a satisfactory way and still show further improvements in our employee retention.
That's great. Thanks, John.
Thank you.
Our next question comes from Kristine Liwag with Morgan Stanley. Please proceed.
Good morning, everyone. You know, John, you know, you've done a few deals lately with buying the fastener businesses and then also divesting the disc forging business. When you look at the portfolio today, where are there additional areas that you want to expand or are there areas that you want to prune, especially as we start seeing more industrial gas turbine demand come through? Thanks.
We pretty much have the same stance today on the portfolios we've had for the last few years. You know, we examine acquisition opportunities as they arise. Obviously takes a willing seller as well as a willing buyer to transact. We've also been very selective on those that we want to proceed with or potentially proceed with.
If you go back to the, say, the CAM acquisition, it wasn't the only one that had come up, but it was the only one that we ever got beyond expressing an interest in to actually showing the willingness to move and move quickly through to execution and sign the share purchase agreement.
We, we want to be very selective in deploying that capital and be convinced that it adds something to us and passes all of the gates that we wanna have with revenue synergy, which is always, possibly the most difficult to get. We're convinced we will have revenue synergy as well as cost synergies and a good solid business where we can improve margins. It, it passed all of those.
I could say, likewise, obviously, a much smaller acquisition in Brunner, but solid operations, which we've got very clear plans, again, through those types of synergy, including the opportunity of improving its top line. I can say we're pretty discerning. At the same time, we always, you know, do look at our leverage and to make sure that we're in a good zone.
Excluding CAM, we got ourselves to below 1 in terms of net leverage. Now it's 1.6, but it's going to decay rapidly back towards the 1 level during the course of this year. We are still very open to considering further acquisitive steps. You know, be positive about it, but again, be very discerning.
If something comes up that doesn't stretch ourselves too far and maintains our, you know, ratings and debt ratings, we'll certainly give it a good look, but without getting what I call deal fever. At the same time, you know, we think that we'll be able to maintain our share buyback program and also relook at the dividend.
You know, we're in a good zone where, you know, we're deploying a lot of cash for capital expenditure for organic growth, which is always the best source of returns for us, both for margin and for return on capital. Obviously, we have the opportunity of buying back our shares. You've seen another, I'd say, great execution, buying in the first quarter at $2.30.
I think today we're well ahead of that. Again, a very accretive position for shareholders. I think that, you know, beyond that, acquisitions are also something that we should give very active consideration to, where we can see both revenue improvement and margin improvement as we go through. Still able to keep seeing faith with both buyback and improve our dividend payout. I think it's all good at the moment, Kristine.
Sounds great. Well, thank you very much, John.
Thank you.
The next question is from Myles Walton with Wolfe Research. Please proceed.
Hey, good morning. John, could you comment on where you are relative to capacity on the gas side? I think the 1st half of this year, you're pretty capacity constrained. Is the growth we're seeing purely price related? At the whole portfolio level, I know you won't give us a specific sum price anymore, but how would you compare it to last year? Do you see a year when year-on-year price increases don't grow?
Okay. The increase in revenue in the first quarter was, I'm gonna say very good. I mean, maybe, it's more for you to say than me, but I thought 39% was outstanding. As you know, we'd invested at a higher rate in gas turbines in 2024, but it's very modest, like maybe $30 million more than normal.
We kicked that up in 2025 and so saw some modest increase in capacity. Essentially, for the first half of this year, it was going to be more that which we could obtain from yield improvement. Bear in mind, we'd also improved our yields and, also we were able to increase our total revenue from, like, the gas turbine segment in the second half of last year. The outcome for this year, which was a lot of volume but some price in that 39%, was great.
Again, if I just refer to Wada Works in Japan was to see our new manufacturing plant and the first piece of equipment arriving there. Those are now being assembled into working casting furnaces, which will be I say ready by the, I would say July, August timeframe and starting to have their first production by the 4th quarter. You know, capacity is coming on and that will help as we go towards the back end of the year.
Between now and then, it's again, it's gonna come mainly from that yield focus that we have. The other thing which is happening, and it'll happen progressively, and it is already happening, is that as the volumes been increasing, it's also given us the opportunity to consider moving, increasingly move from batch production to flow production and with takt time.
With that increase of repeatability and flow production, that in itself is an opportunity where with the application of a lot of engineering effort, again, our yields are increasing. In our guide, we've just been a little bit cautious about, you know, when exactly the capacity will come on, what yields we can really drive further in the next few months, because the comps get harder given the production increases we achieved in the second half of last year.
We're a bit cautious about it, but at the same time, positive that total gas turbine production will increase progressively during each quarter during 2026. Then again, we'll see increases in 2027. In fact, both we and our customers are highly focused on 2027 and 2028 for further production increases because that capacity is really, I mean, is well, almost desperately needed.
Then with another wave of investment that we're doing now, which will really only begin to affect the back end of 2028 and going into 2029. That's the shape of what we're doing by way of yield, flow production, takt time, capacities that we committed to investment last year flowing into this year, and then what we've been investing in this year and continue to invest in 2027, which will come into to benefit our production in back end of 28 into 2029.
There's a lot going on and that's what is giving me confidence when I think about all those bricks in the wall that we're placing to bring those capacities and therefore future revenue on. That's why I talked about us doubling or even more than doubling our revenue from this particular segment.
Thanks, John.
Thanks, Miles.
The next question is from David Strauss with Wells Fargo. Please proceed.
Morning, everyone.
Hey, David.
John, hey, John. Within the 14% organic growth for this year, could you kind of break that out, what's baked into that, for aero, defense and IGT and I guess, transportation wheels, kind of what builds up to that? As we think about 2027 with, you know, the incremental additional capacity coming online, you know, GTF Advantage, LEAP, you know, full year of LEAP-1B, IGT, is it possible that organic growth accelerates in 2027 relative to the 14% you're now calling for in 2026? Thanks.
That's a big one. You know, I think I'm happier talking about 2026 than 2027 at the moment. And essentially, down to, let's say, the conviction over the aircraft manufacturers, you know, now truly poised to increase their production to the rates they want and also the macroeconomic outlook and probably the effects of inflation on the consumer. There's a lot to be determined before you can be precise about a 2027 growth rate. I'm pretty clear that it's gonna be positive for us.
The exact angle of growth yet, you know, I don't think I want to go there until we know more. I guess we'll know more as we go through the balance of this year. As you, I'm sure, but you probably more than most appreciate, you know, we're all subject to that daily news cycle of, you know, global agreements or not, or maybe it's 2 or 3 times a day of us a news cycle currently, rather than a daily news cycle, and that seems to, you know, weigh heavily on our lives.
Dealing with this year, if I look at the guide we've given, I think we're gonna see commercial aero in that 20% range, maybe defense in the 10% range. Gas turbines somewhere 25%-30%. Not that it's a fundamental deceleration, but more just the, you know, the year-over-year comps, I wanna be cautious on how much we can get by way of yield in the next, let's say, 5 to 6 months before that capacity comes on stream.
Then with a very cautious assumption around commercial transportation at the moment, regarding that business because, I mean, freight rates have increased, and that's good. On the other hand, diesel fuel has gone up a lot and we're all subject to, you know, what will happen to GDP and growth rates for the economy and therefore, you know, the amount of transportation required both in North America and Europe in the back end of the year.
You know, while I could believe that commercial customers are scheduling more, and they are, without doubt, and there is evidence of some pre-buy from the 2027 regs change in North America. At this point, we've taken a very modest, you know, below 5%, assumption on the commercial transportation market, even though customer schedules are significantly ahead of that. We just wanna see that play out, David.
All right. Thanks, John. Appreciate it.
Thank you.
The next question is from Seth Seifman with JPMorgan. Please proceed.
Hey. Thanks very much, and morning, everyone. I wanted to ask in terms of the legacy aftermarket and the potential exposure there to, you know, to the macro environment, I think, correct me if I'm wrong, don't wanna put words in your mouth, but I think, John, you've kind of talked before about the expected endurance of the legacy fleet.
I assume that it's early to be making any judgments about that, but wondering if you can comment a bit further and talk about some of the things that you're looking for there. Also what proportion of the spares is that kind of legacy fleet?
Yeah. The essential picture is pretty similar to what I've talked about in the past, where we see if you take the CFM range of engines, so starting off with the CFM56, we expect that production will increase during 2026 and 2027. I have no concerns about that. Should it peak in 2028, or is it 2029? It's all gonna depend upon, you know, new aircraft build.
It seems as though any decay will be very modest, so it's gonna be a really good program going forward for many years. We're clear that that's gonna be a growth program for us. If you can now go to the LEAP range of engines, we also see that the spares business for that is going to grow continuously every year for the next probably 8, 10 years, and, you know, don't wanna call it beyond that.
Initially, it's probably higher level due to durability issues. On the GTF, you know, that is exactly the same, is that, you know, we will be supplying full production level of the existing GTF throughout 2026 and a lot into 2027, while also preparing for the GTF Advantage. We're gonna be you know, raising rate, and a lot of that is going to be destined for the MRO market, well beyond of the total engine sets that I expect that we'll be producing.
For example, in 2027 at full rate, my expectation is that the majority of those are actually gonna go into the MRO network, on a, on a refit, compared to OE build, even though they will be increased OE build as well. It's a pretty healthy picture overall for spares, and my expectation for commercial aero is that we're gonna see growth every year for, you know, for the balance of this decade and then beyond. The only thing we're gonna be debating is what's the angle of growth.
You know, I think we're gonna see more in the first 2 or 3 years or the first couple of years now than we will see in the latter, you know, 2 years of the decade, but still growing every year. It's, it's a positive, pretty positive part of the portfolio. I think, I mean, Patrick already gave you the numbers that as to the total company, it's risen again from 21% of revenues, which was, again, higher than we'd said to you last year.
We said it's getting to about 20%, we're at 21, and 1st quarter was at 23. You know, we don't know yet, but, I mean, it wouldn't surprise me that we sustain 23% through this year. Then, depending on OE build, I suspect it could even go higher next year while also seeing a higher OE build.
You know, and, you know, but again, you gotta bake in, you know, is there any macroeconomic upsets? At this point, it looks okay for us. Certainly, the guide we've given you is, I don't believe, is going to be blown off course by any agreement or lack of agreement with the Iran situation that we have in terms of what spares are going to be required for this year because of the enormous backlogs that we have.
Great. Great. Thanks very much.
Thank you.
This concludes our question and answer session, as well as today's conference. Thank you for attending today's presentation, and you may now disconnect.