Woodward Plans to Exit China OH to Improve Industrial Segment Returns

Woodward, Inc. WWD has announced plans to wind down its on-highway natural gas truck business in China (China OH) as part of a broader effort to sharpen the focus of its Industrial segment and optimize its product portfolio.

Woodward has assessed strategic alternatives for the China OH business over an extended period, including potential full or partial divestitures. In light of ongoing challenging market conditions in China, the company has decided to wind down China OH operations by the end of the fiscal year. However, despite multiple attempts to sell the business, no viable offers emerged.

The wind-down will include the closure of a small manufacturing facility in China dedicated to the China OH business, as well as reductions in a limited number of sales, engineering and product support roles. These actions are confined solely to the China OH business.

Management highlighted that exiting the China OH business is a strategic move to better align its Industrial portfolio with priority end markets and long-term growth opportunities. This action enables the company to reallocate resources more effectively and strengthen its focus on delivering advanced control solutions across Transportation, Power Generation and Oil & Gas markets, ultimately driving long-term shareholder value.

Woodward, Inc. Price and Consensus

Woodward, Inc. price-consensus-chart | Woodward, Inc. Quote

Woodward delivered record sales and earnings in fiscal 2025, driven by strong, sustained performance across both its Industrial and Aerospace segments. The company’s Industrial business segment has been gaining from solid demand for power generation and continued requirement for primary and backup power for data centers. Higher investment in gas-powered generation to support grid stability is another tailwind. Increasing demand for alternative fuels across the marine industry, as well as momentum in the global marine market brought on by higher utilization, bodes well. Within oil and gas, an encouraging investment outlook in the Middle East and India’s refining and petrochemical activities are other growth drivers.

In the fourth quarter of fiscal 2025, Woodward’s Industrial segment delivered strong results, led by robust performance across power generation and oil & gas markets. The Industrial segment’s net sales totaled $334 million, up 10.6% year over year. Core industrial sales, excluding the China on-highway impact, rose 15%. Transportation sales jumped 15% and oil and gas sales increased 13%, while power generation grew a modest 6%.

However, the China OH business has not been a material or consistent contributor to Woodward’s overall financial performance. In fact, China OH has been a persistent drag on the company’s performance. In fiscal 2025, the Industrial segment’s earnings were $183 million, down from $230 million in the prior year. The decline was primarily due to lower volumes and an unfavorable sales mix stemming from reduced China on-highway demand. In the last earnings call, management stated that revenues from China OH would be $60 million for fiscal 2026, on par with fiscal 2025.

Woodward’s exit from the China on-highway business is a prudent strategic move, allowing the company to shed a consistently underperforming operation and refocus resources on higher-growth, higher-margin Industrial and Aerospace markets. For fiscal 2026, Woodward expects consolidated net sales to rise 7% to 12%, with Aerospace projected to grow 9% to 15% and Industrial anticipated to increase 5% to 9%. The Aerospace segment’s earnings are expected to be 22% to 23% of segment sales, while the Industrial segment’s earnings are projected at 14.5%-15.5%.

WWD’s Zacks Rank & Stock Price Performance

Woodward currently sports a Zacks Rank #1 (Strong Buy). Shares of the company have gained 30.8% in the past six months compared with the Aerospace - Defense Equipment industry's growth of 19.5%.

Other Key Picks

Some other top-ranked stocks from the Aerospace Defense Equipment space are AAR Corp. AIR, ATI Inc. ATI and Astronics Corporation ATRO. While AIR presently sports a Zacks Rank #1, ATI and ATRO carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

AIR’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 11.26%. In the last reported quarter, AAR Corp. delivered an earnings surprise of 15.69%. Its shares have rallied 50.6% in the past year.

ATI’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 17.98%. In the last reported quarter, ATI delivered an earnings surprise of 13.33%. Its shares have jumped 119.3% in the past year.

ATRO’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 59.1%. In the last reported quarter, Astronics delivered an earnings surprise of 16.67%. Its shares have surged 107.2% in the past six months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research