Yahoo Finance

Kenneth Giacobbe

So thank you, John. Good morning, everyone. Let's move to slide 5.
So another solid quarter for Howmet. End markets continue to be healthy. We are well positioned for the future and continue to invest for growth. Revenue was up 9% in the fourth quarter and up 12% for the full year. Commercial aerospace growth remained strong throughout 2024 with revenue up 13% in the fourth quarter and up 20% for the full year, driven by all three aerospace segments.
Defense aerospace growth accelerated in the fourth quarter and was up 22%. For the full year, defense aerospace was up 15% and driven by fighter programs and fighter engine spares demand.
Commercial transportation was expected to be challenging, as revenues were down 12% in the fourth quarter and down 7% for the full year. Although down, we continued to outperform the market with Howmet's premium products.
I would also note that despite the challenging market, Howmet's wheels segment delivered a healthy 27.2% EBITDA margin for both the fourth quarter and the full year.
Finally, the industrial and other markets were up 11% in the fourth quarter, driven by oil and gas, up 22%; general industrial, up 12%; and IGT, up 5%. For the full year, the industrial and other markets were up 9%, driven by oil and gas, up 19%; IGT, up 7%; and general industrial, up 5%.
Within our markets, we had robust spares growth. The combination of commercial aerospace, defense aerospace, and IGT spares, was up approximately 25% for the full year to $1.28 billion. Spares revenue in 2024 represented 17% of total revenue and accelerated in the second half of the year. As a compare, spares revenue in 2019 was 11% of total revenue.
In summary, continued strong performance in commercial aerospace, defense aerospace, and industrial, partially offset by commercial transportation.
Now let's move to slide 6, starting with the P&L. The focus of my comments will be on full-year performance, full-year revenue, EBITDA, EBITDA margin, and earnings per share were all records.
On a year-over-year basis, revenue was up 12% and EBITDA outpaced revenue growth of 27%, while absorbing approximately 700 net new employees. The engines segment added approximately 1,205 employees while we reduced employees in fasteners, structures, and wheels, as we improved labor productivity and are seeing the benefits of our CapEx investments.
Full year EBITDA margin increased 310 basis points to 25.8% with a fourth quarter exit rate of 26.8%. For the full year, incremental flow-through of revenue to EBITDA was excellent at approximately 50% year-over-year. Earnings per share was $2.69 per share, which was up a healthy 46% 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 $977 million, which exceeded the high end of guidance. Free cash flow conversion of net income was 88%, as we continued to deliver on our long-term target of 90%. CapEx investments in the year were a record $321 million, up approximately $100 million year-over-year as we continue to invest for growth. The year-end cash balance was a healthy $565 million.
Net debt to trailing EBITDA continues to improve and was at a record low of 1.4 times. All long-term debt is unsecured and at fixed rates.
Howmet's improved financial leverage and strong cash generation were reflected in S&P's Q4 rating upgrade from BBB- to BBB. As you will also recall in Q3, Moody's upgraded Howmet two additional notches in investment grade up to Baa1.
Liquidity remains strong, with a healthy cash balance and a $1 billion undrawn revolver, complemented by the flexibility of a $1 billion commercial paper program.
Regarding capital deployment, we deployed approximately $975 million of cash to common stock repurchases, debt paydown, and quarterly dividends. For the year, we repurchased $500 million of common stock at an average price of $87 per share. Q4 was the 15th consecutive quarter of common stock repurchases. The average diluted share count improved to a record low exit rate of 408 million shares.
Additionally, in January 2025, we repurchased an additional $50 million of common stock at an average price of approximately 16 per share. Remaining authorization from the Board of Directors for share repurchases is approximately $2.15 billion as of the end of January.
For the year, we reduced debt by $365 million. This included a partial pay down in Q4 of $60 million of the US dollar-denominated term loan that's due in November of 2026. The combined debt actions for the year will reduce annualized interest expense drag by approximately $37 million.
Finally, we continue to be confident in free cash flow. For the year, we paid $109 million in dividends, which was an increase of 53% year-over-year from $0.17 per share to $0.26 per share. We also recently announced a 25% increase in the quarterly common stock dividend from $0.08 a share to $0.10 per share.
Now let's move to slide 7 to cover the segment results for the fourth quarter. Engine products delivered another strong quarter. Revenue increased 14% year-over-year to $972 million. Commercial aerospace was up 13% and defense aerospace was up 19%, driven by engine spares growth. Oil and gas was up 31%. And IGT was up 5%. The demand continues to be strong across all of our engines markets, with record engine spares volume.
EBITDA outpaced revenue growth with an increase of 30% year-over-year to $302 million. EBITDA margin increased 380 basis points year-over-year to 31.1%, while absorbing approximately 220 net new employees in the quarter.
For the full year, revenue was up 14% to $3.7 billion, EBITDA was up 30% to $1.15 billion, and EBITDA margin was 30.8%, which was up approximately 360 basis points year-over-year. All were records for the engines products segment. Moreover, the engines product segment added approximately 1,205 net new employees to support future growth.
Now let's move to slide 8. Fastening systems had another strong quarter. Revenue increased 11% year-over-year to $401 million. Commercial aerospace was up 17% and including the impact of the wide-body recovery and the Boeing strike. General industrial was up 32%. Defense aerospace was up 2% and commercial transportation, which represents approximately 14% of fasteners revenue was down 13%.
Year-over-year, EBITDA outpaced revenue growth with an increase of 39% to $111 million. EBITDA margin increased 550 basis points year-over-year to a healthy 27.7%.
The fasteners team has continued to expand margins through commercial and operational improvements. For the full year, revenue was up 17% to $1.6 billion. EBITDA was up 46% and to $406 million, and EBITDA margin was 25.8%, which was up approximately 520 basis points year-over-year. The fasteners team delivered solid year-over-year revenue and EBITDA growth while reducing headcount by approximately 135 employees.
Now let's go to slide 9. Engineered structures performance continues to improve. Revenue increased 13% year-over-year to $275 million. Commercial aerospace was up 9% and defense aerospace was up 51%, primarily driven by the F-35 program.
Year-over-year, segment EBITDA outpaced revenue growth with an increase of 55% to $51 million. EBITDA margin increased 500 basis points to 18.5% and as we continue to optimize the structures manufacturing footprint and rationalize the product mix to maximize profitability.
For the full year, revenue was up 21% to $1.1 billion. EBITDA was up 47% to $166 million and EBITDA margin was 15.6%. EBITDA margin was up approximately 270 basis points year-over-year, and headcount was reduced by approximately 235 employees year-over-year. The team continues to make progress, and we expect continued improvements in 2025.
Finally, let's move to slide 10. Forged wheels revenue was down 12% year-over-year as the slowdown continues to take hold of the commercial transportation market. EBITDA decreased 8%. However, EBITDA margin continued to be healthy at 27.2%, as the team flexed costs and expanded margins through commercial and operational performance.
For the full year, revenue was down 8% and to $1.1 billion. EBITDA was down 7% to $287 million. EBITDA margin for the full year was a healthy 27.2% in a challenging market, and was up approximately 30 basis points year-over-year.
Lastly, before turning it back over to John, I wanted to highlight a couple of items that are in the Appendix. First, the operational tax rate for 2024 was 20.5%, which represents a 170-basis-point improvement year-over-year. Second, pretax return on net assets improved by 800 basis points from 33% in 2023 to 41% in 2024, and driven by strong profitability and the optimization of working capital and fixed assets.
So with that, let me now turn it back over to John.

John Plant

Thanks, Ken, and let's move to slide 11. I'm going to provide some commentary by each market segment, and also then move to specific guidance. But before I do that, maybe it's worthwhile, just making sure that everybody understands, that we did again outgrow each of our respective markets in 2024, and that's been a theme of recent years, and we expect to do so again in 2025.
Let's start with the commercial aerospace segment. Air travel and freight transportation have continued to grow, especially in Asia Pacific. Backlogs for Airbus, Boeing, and COMAC have never been higher, principally due to the underbuild of aircraft schedules by all of the aircraft manufacturers, but most notably by Boeing, given the strike, which commenced in late quarter 3 and which lasted for almost two months, and was then followed by a further month of employee retraining with no aircraft build. Hence, backlog increased again.
Given the continued production of many parts by suppliers, starting with Spirit Aerosystems during this production gap, the runway is wide open for builds to now increase. Airbus came close to their revised 770 aircraft build and show promise going into 2025. CORMAC delivered 10 C919 aircraft principally to Chinese airlines, and we can expect higher production volume in 2025.
While we have an estimated OEM build volume for each aircraft, perhaps the most interesting build assumption is the Boeing 737 MAX, which we see as about 25 aircraft per month on average for the year, was skewed towards the second half. This assumption enables investors to adjust their models up or down according to their own assumptions. Of course, should Boeing build at rate 38 or indeed rate 42, we will match this.
I'll now touch on spares before moving to defense. Our total revenue from spares was $1.28 billion, representing 17% of Howmet revenue. Spares revenue increased approximately 25% in the year, and with acceleration in the second half of 2024. We envision spares to continue to be healthy again in 2025 and growing towards our previously stated projection of 20% of Howmet revenue.
Defense was also a source of strength last year, and we see this continuing into 2025 for both legacy aircraft and the F-35. In 2025 or early 2026 at the latest, we should see the crossover occur where spares volumes for F-35 will exceed the F-35 OE engine there for revenues. Then it will continue to grow as the fleet of aircraft expands worldwide.
Industrial is expected to be up mid-single digits, led by demand from IGT and oil and gas. I provided extensive commentary regarding the future IGT demand during the November earnings call. Since then, the overall picture has become even brighter for electricity demand from data centers due to the incoming US administration's focus, which is less on renewable subsidies and more on fossil fuels. We see demand increasing from running the existing fleet of turbine [tader] and hence, more spares being required.
Moreover, we expect increases in new turbine builds to increase globally in 2025, 2026, and '27 and beyond. The growth requirements for increased megawatts of demand was set out in November, while the change is currently towards natural gas and hence favors Howmet.
The expected growth in IGT drives an increase in IGT CapEx investment for 2025 compared to 2024. As in 2024, CapEx investments are linked to customer contracts. As the global leader in IGT turbine blades, we'll continue to focus on additional global capacity demand for Siemens, Mitsubishi Heavy, GE Vernova, and Ansaldo. We're optimistic about the next few years of IGT growth, and Howmet is well positioned for both future OE build and for spares growth.
Moving to commercial truck, demand continues to be muted as expected. We were pleased with our ability to increase wheels margin despite the severity of the downturn in Q3 and Q4, and printing a very respectable 27.2% EBITDA margin for the quarter. The outlook is unchanged, with some return to growth expected in the second half of 2025.
In summary, we see demand increasing in 2025 with the profit being back-end loaded, principally due to the Boeing build and likely increase in build moving into 2026, with the increased second half truck builds as well. The overall midpoint of the revenue guide has moved upwards from 7.5% to 8% plus or minus, compared with the November estimate. And this extra growth is on top of closing out a very strong fourth quarter of 2024.
Moreover, we expect -- in 2025 first quarter, we expect revenues to be $1.935 billion, plus or minus $10 million; EBITDA of $520 million, plus or minus $5 million; and earnings per share of $0.76, plus or minus $0.01. The guided Q1 incrementals are healthy at over 70%.
And for the year, revenue to be $8.03 billion, plus or minus $100 million; EBITDA at $2.13 billion, plus or minus $25 million; and earnings per share of $3.17, plus or minus $0.04. Finally, free cash flow is expected to be above $1 billion at $1.075 billion, plus or minus $50 million. The full year incrementals are healthy at approximately 36% in the guide while we await more clarity on the second half and in particular, the commercial aerospace narrow-body builds.
Before moving to capital allocation, a couple of comments on tariffs. We're closely monitoring the situation. And the situation, as everybody knows, remains fluid, but we expect to be well positioned due to our strong commercial agreements and the mission-critical nature of our products. We'll pass on additional costs through to our customers. We've demonstrated our ability to do so and quickly pass on costs following the steep inflation that we saw in 2022.
I'll make a few closing comments on capital allocation for 2025 before moving to Q&A. I invite you to view the 2025 -- 2024-'25 summary slide for commentary. The Howmet balance sheet is strong, we are rating well into investment grade, and net leverage closed at 1.4 times net debt to EBITDA. 2025 sets up well, but with a back-end load.
The dividend payout has been increased to 25% starting -- by 25% starting in Q1, and hence, the dividend payout for the year will repatriate further funds to shareholders. The share buyback program will continue, with plenty of availability under the current Board authorization. We expect that the total buyback in 2025 will exceed the buyback of 2024. Debt paydown will be muted compared to 2024. This provides the company with both good shareholder return profile and also great optionality.
And with that said, let's move to questions. Thank you.

Question and Answer Session

Operator

(Operator Instructions) Doug Harned, Bernstein.

Doug Harned

On fastening systems, you came up -- you've got EBITDA margins of 28%, roughly. I mean this is -- has kind of been a big step up. Now you've got, I think, a mix improvement working here with more A350, 787 fasteners. But can you talk about, is there anything unusual that happened in the quarter? Or are you really on a path here to get materially higher margins going forward, either from mix, performance improvement, or operating leverage?

John Plant

I think I look back at a fastener business, the track we're on is really very good, Doug. The focus in the business from all aspects, suppose operational productivity improvements, has been even better than I had expected. And combine that with, I will say commercial discipline, has enabled us to move a long way along the pathway to restoring previous margin highs, and so I'm pleased with that.
I don't think that the wide-body mix has changed fundamentally yet for the positive. I mean there's a small positive mix change relative to narrow body that's gone on during 2024, but I do expect that the builds for 2025 to be better than 2024. And so I think there's still some positive mix that's there for us, especially as we look forward to hopefully a rate 10 and maybe more for the Boeing 787.
And also, I think you'll recognize the Airbus future monthly build has been stated to move to 12 aircraft a month by 2027, and that compares to probably last year is about 5 a month. So I think the rate of increase for wide-body is going to pick up over the next two to three years, and that should be for a further benefit for the business. Naturally, the rate of increase in margin, I would expect to be, I would say less aggressive in the future, but I don't think that we're finished yet.

Operator

Myles Walton, Wolfe Research.

Myles Walton

John, just looking at your implied guidance, after the first quarter, it implies margins start to step down and certainly incrementals are half of what you're implying for the first quarter. Can you rationalize some of that for us? What's growing? What's with the headwind? And -- or is it more conservatism, given your lack of visibility beyond the first quarter?

John Plant

It probably would have been fairly easy for us to be a little bit more optimistic. But at the same time, there's a lot of things going on during 2025. The rate of growth could be materially changed by the additional narrow-body builds, as an example. And we've chosen to be fairly conservative in that view for our financial guide.
And also, there's always a possibility of some cutbacks, given the statements of the CFO at Boeing regarding excess inventory, albeit I don't think that's going to be a problem, but you never know. And therefore, with the lack of visibility that we, and I suspect other suppliers have, we wanted to be a little bit cautious in that regard. And so we don't want to get ahead of ourselves. And so that's the way I think about the narrow-body side.
Again, on wide-body, it could be better, but let's wait and see to be clear that some of the supply chain challenges that have been quoted publicly, whether it's been seats or fuselage sections or say, heat exchange, all these sort of things, which have been mentioned. Are those now clear? And so we want to be a little bit cautious there as well.
And also, as you know, we're building out a couple of new manufacturing plants this year, facilitizing them. And so I want to be a little bit cautious in that regard until we've got our feet well under the -- and firmly placed under the table on those two things. And it's also, as you know, always a little bit uncomfortable having a back-end load to these things.
And so at this stage, I think we've given best visibility that we have, which is another strong step forward in Q1, and choose to be a little bit more muted in the balance of the year until we know a bit more about the profile of the year and how it all pans out.
And as you know, we also said the second half of the year for commercial truck is also expected to improve. But again, it's an expectation, not knowledge. And so again, we mean there's no need for us to get ahead of ourselves until we've got better visibility of all of the things to play out in this year, which is the demand increases from what customers say they may achieve and what markets might do and while we are, as you know, building out a substantial amount of infrastructure to enable us to match the demand as we go into the second half and into 2026.

Myles Walton

Just one follow-up. What is the headcount growth you're thinking about to match that expansion of capacity?

John Plant

I'm guessing about 1,000 net heads for the year at this point. We'll have a higher gross number than that to net down to 1,000, but a little bit less than in 2024, commensurate with us also improving our productivity. But again, it's something which is yet to be determined. But that's directionally how we're thinking about it.

Operator

Robert Stallard, Vertical Research.

Robert Stallard

John, I just wanted to follow up on your 737 production forecast. I was wondering what sort of purchase orders your various businesses are seeing at the moment, whether you've got any more clarity on how much inventory is in the system at this point.

John Plant

So clearly, the fourth quarter wasn't stellar in terms of requirements of Boeing. And we have seen and have fully taken account of the suffocating in a couple of product lines, the cutbacks that have occurred due to inventory. And so that's already baked into our first quarter guide. And so there's nothing for us to be concerned about there.
The thing that I do worry about is if we are unable to, let's say smooth some of those user demands on our scratch heap, accelerate it to an even much higher rate in the balance of the year going into 2026. And so it's that potential for some instability in the demand profile that we've taken account of. And -- but the most important thing is that which we see at the moment is pretty baked into our first quarter, which I think is pretty healthy anyway. So nothing to worry about that.
Again, as you know, we are -- I'd say just to go a bit further, we're not yet changing over the turbine air foils for the LEAP-1B, and so we expect that to continue with the existing product as we go through 2025 and looking towards a later implementation compared to the LEAP-1A. Just worth mentioning that in the context of the dynamic of the year.

Operator

Scott Deuschle, Deutsche Bank.

Scott Deuschle

John, you referenced engineered structures benefiting from product rationalization this quarter. Maybe you can just explain in a bit more detail what that product rationalization point is referring to and if there's opportunity for further benefit from beyond this quarter going forward?

John Plant

You may remember, Scott, that we did close down a couple of facilities in Europe earlier in 2024 and also sold one of our, I'll say less profitable structures business. So that's some of the sort of effect on margin, albeit probably even bigger than that has been the step-up in productivity and performance of the business. And so when I think about it for 2025, I was really pleased with our exit rate and do not think there's anything to worry about in terms of going backwards in that regard.
So I think the combination of having shifted out a, say, three underperforming operations while still having revenue grow, which is always a great time to do it, improves in productivity. And also, again, commercial focus has paid dividends for us, and for us to be able to step up to -- from a 14% level to an 18% EBITDA margin was really good, and that's why I chose to call out in my opening comments and hope to be as good as that we'll build on it during 2025.

Scott Deuschle

And just to clarify, can you say what the guidance is assuming on the GTF Advantage certification timing?

John Plant

So let me just step through the overall picture on the changeover on both the GTF -- and also, it's worthwhile mentioning the changeover on the LEAP engine. So GTF certification has not occurred. We still await final approvals from our customer, Pratt & Whitney, regarding sign-off for tooling to be able to make at a high rate. We have done some early production. And so we're optimistic that changeover because during the, say, the 2025 year.
It's unclear to us yet exactly when the changeover will occur and substantial volumes will do so, but let's assume, at this point, a mid-2025 change, albeit with everybody wanting that change to occur as soon as possible, both for the durability improvements in the engine. And for Howmet, additional, I'll say, content and overall mix within the business. So we see that as a good change, but still struggling to put a pin on exactly which month will change over.
In the case of GE, the changeover for the LEAP-1A has finally occurred, and so that's good. And if you think about Q4, I mean, we were, during that quarter, uncertain about change. In fact, we prepared to change, and didn't change, and then changed over again. So there's a little bit of disturbance in our fourth quarter engine margin performance due to that changeover, which I think everybody can understand. But the most important thing is as of now in, say, January into February, we've changed over to the new improved version. And we believe that will be a net good for both GE and for Howmet.
So the LEAP-1B, my expectation is that won't change over at all during 2025, and that will be sometime, more like mid-2026. But again, the timing, to be determined, and the changeovers need to be approved by both GE, Boeing, and also the FAA, so that timing is less clear.
So in summary, GTF by hopefully midyear this year, and we look forward to that change. The LEAP-1A has now changed as of January, and that preservation in our margin is behind us, with all what's required in a major changeover like that, and so all good on that front for increased robustness of those narrow-body engines.

Operator

Ron Epstein, Bank of America.

Ron Epstein

Can you speak a little more to the opportunity in industrial gas-driven? Because it does seem like over the past several quarters, you've gotten, I don't know, we'd say more bulled up on it, right? So is there any more color you can give around it? And I mean, ultimately, how big could it be for you guys?

John Plant

Just -- it is tough to get me bulled up on something. I'd like to believe I'm fairly level-headed, Ron, but I do think that the picture for IGT is exceptional and has got even better since our November earnings call, which as you recall was the day after of the election.
And the big picture is data centers are being built out throughout the world, but I'll just stick with the US because it's easy then, you could just extrapolate it. But the data centers require a massive amount of electricity, both for both the build-out of them, the functioning of these new chips in the server, and also electricity for cooling them down as well. So the demands are extraordinary. And it will be interesting to see how both the electricity is provided, and also the grid is able to cope with.
And also, I think that certain data center clusters are going to have their own source of electricity because of the security they need for it, which will require gas turbines to the on-site. And so the overall blend or electricity provision between that, which will come from wind and solar and from natural gas, I think, has changed with the new administration.
And I think that everybody is seeing an even brighter prospect for natural gas and industrial gas turbines going forward. And we have been in deep discussions with some of our customers to create the capacity. And in fact, we're actually -- in that CapEx guide I gave, we're actually going to build out additions to two of our sites to enable additional plant equipment to be installed over the back end of '25 and '26 and also into '27. So we're pretty optimistic about it.
Of course, it doesn't -- none of these things happen without some disturbance. And we're all especially familiar with DeepSeek. And was that a revolution? And the best that I can explain it is that it was using the benefits of the open language models developed by other hyperscalers. But fundamentally, in terms of the hyperscalers that we think about, which is the Microsoft and Meta and Google and Oracle, then I think the requirements for building out these servers and data centers, it's all intact. And I expect it to be really good for that segment going forward.
In the short term, it's going to have to be provided by running the existing turbines harder, which means spares demand. And at the same time, everybody of all of the major gas turbine providers in the world are gearing up to add capacity. And for them to do that, they need most crude component, which is the turbine blades, which leads back to Howmet. And we do have the leading market share of above 50% of that global market, so we're pretty optimistic about it.
Consciously, we don't want to get ahead of ourselves. And so I expect that we're going to be constrained in our ability to supply over the next couple of years as we build out this compared to what's there, but are very pleased to be investing in it and what we think is going to be a bright future both for sales revenue and for margin going forward. And I think on the last call, I did state clearly that our margins in IGT are similar to our aerospace turbines.

Operator

David Strauss, Barclays.

David Strauss

Maybe a question for Ken. Ken, what is assumed in the cash guide for working capital? It looks like maybe somewhere between $100 million and $200 million usage, similar to 2024.
And then John, in terms of -- it sounds like we should expect to less in the way of kind of gross debt reduction this year, and you talked about a higher buyback. Is it fair to think about that you could look to return pretty close to 100% of free cash flow in terms of buyback and dividend?

John Plant

Maybe I'll go first, Ken, and then you clear out the working capital assumption. So what we're very clear on, David, is that if you look at '22, '23, '24, is that our cash flow has essentially been, I'll say repatriated to shareholders, either by share buyback, dividend, or I also think of debt reduction, and its improvement in future free cash flow is also as part of that.
Given our net leverage is that, when I look at it, is that we've increased the dividend, but that's not going to fundamentally change the contours of our cash flow and its usage. But this year, in 2025, I just don't see us doing anything like what we've done in the last couple of years in terms of putting our debt stacks into a really great order and also putting out an average interest cost of our long-term debt in a really good condition below the average of the 10-year treasury, so again, good work there.
And so that leaves us with share buyback. And the commentary I've given so far is that it will be above 2025. I've not put a pin in the exact number. But you can assume that if you look at the combination of all of that, is that the benefits of our cash flow will be largely, if not wholly, repatriated to shareholders because everything else is in such great shape.
Ken, over to you on the working capital?

Kenneth Giacobbe

Yes. So David, so in terms of free cash flow, working capital. So again, starting with '24, that $977 million of free cash flow was a record, as we talked about it, 88% conversion. Very pleased with the performance of the team on that, especially considering, embedded in that was record CapEx investment, right, around $321 million. And as you can see in the reports that we have here, that $100 million increase in CapEx, you can see the year-over-year primarily in the engines business, which has tremendous return on net assets in the business.
So as we move forward into 2025, we tried to give you the assumptions on slide 15 in the deck in terms of some of the building blocks of free cash flow, but north of $1 billion of free cash flow in 2025.
If you look at the working capital, specifically to your question, embedded in there is a burn of around $18 million of working capital burn. And the way I would look at it is revenue year-over-year is up $600 million-ish on the guide. Usually, you have about working capital burn associated with that revenue increase, so you're looking at it -- normally, you would expect $120 million of working capital burn, but we're going to build more inventory, right, as we look at commercial aerospace, specifically in narrow-body, if our assumption is maybe conservative on narrow-body. If that's higher and say, Boeing can go to 38, 42, we will be ready for that. And that's why we're going to put some incremental inventories towards the capital number.

Operator

Sheila Kahyaoglu, Jefferies.

Sheila Kahyaoglu

Maybe can you talk about the step down in engines margins in Q4? They were down about 150 bps Q-over-Q. Just surprised, given the continued volume growth there. And how do we think about margin levels in '25 and '26 for engines, given new capacity coming online and the narrow-body engine kits you talked about?
And maybe a follow-up to Myles' question. What segment decelerates the most from Q1 levels?

John Plant

Okay. So first of all, in my view, Sheila, the small margin change in engine in the fourth quarter is what I call noise, and I wouldn't read too much into that at all. It doesn't bother me. Of course, not as likely to occur, but at the same time, in terms of the long-term thematic in that business, it really, I think, is fairly inconsequential.
The thing I said earlier in the call, which maybe I should amplify a little bit about, as you know, we went through the changeover in terms of preparing for the new LEAP-1A Stage 1 turbine blade, which has been noted. Probably what's not been noted is the change of dates in terms of implementation and the final FAA certification and then the readiness. So we incurred some costs during the fourth quarter in the whole changeover.
And the most important thing is that changeover's behind us. The new blade is, as far as we can see, is performing well. And so we don't see any of those changeover costs reoccurring in 2025 for the LEAP range of engines, because I already said, LEAP-1B will be a '26 item and certainly not in the -- it might be the first half of '26. That's a TBD.
And then, of course, there will be the changeover coming for the GTF, which we see as positive, and possibly even more positive for the LEAP engines, just because it's needed so much and the technology change is considerable. And so we look forward to that, and again, it being data uncertain.
So I think the most important thing is, Q4 was -- I mean, is the normal -- like all quarterly noise. I don't think anybody can be that good in terms of what's a fractional change for a percentage point while undergoing such significant change. So that's how I'd categorize it.
I think the second part of your question was about margin. If I could guess at it in terms of total change year-on-year from an average of 24% to an average of 25%, I'm pretty positive about our structures business and the changes we've been making to that business during 2024. And I see that a lot of those things came right in the fourth quarter. And we hope that there's nothing that's going to occur that will put us into reverse at all. Again, it's always a view and a forecast. But year-on-year, is that I think structures will probably be the biggest percent of improvement for the year. But heck, I'd like all of them to be -- continue to move forward, and we'll see how it goes.

Operator

Seth Seifman, J.P. Morgan.

Seth Seifman

I guess maybe following up on that last question with structures, impressive margin performance, you've kind of exited some areas, so not a place where you've been looking to add incremental capital. Once you've kind of got it performing the way you want it to perform, how do you think about its place in the portfolio?

John Plant

I had been willing to go on record that I did see the structures business moving to the high 10s in terms of the margin performance. And one quarter doesn't make a year, but if you say what would I guess at, I'd say that we will call to repeat that in 2025. And so inevitably, when you begin to do many of the right things in the business, it does earn its way to have some additional capital deployed towards it, whereas we've been really, I'll say starving that business or certainly not reinvesting at a depreciation rate because of its overall, I'd say place in the portfolio in terms of margin performance, et cetera. So I think you earn your right to grow, even though that business, as you've seen, is growing.
I think the good news is that the inventory overhang that was at Lockheed in terms of bulk heads is, I think, behind us, and you can see some of the effect of that. I also see that titanium demand continues to be healthy in 2025. And 2026, it's always unknown because we are the beneficiaries of some geopolitical tensions there versus Russia, and who knows where all of that goes. But at the moment, I think it's certainly a higher 10s-margin business.
And there's no reason why we need to stop there. And so whether we can move it into the 20s, that remains to be seen. But ultimately, I still stand behind the statement. I don't see that as a business which can intrinsically have the rate of margins that we have in our engine business. And that's why we've been really pleased to really capacitize there just because of the growth, the defensive motor, and the business, and the technology, and the technologies which are yet to come. And so I'm very positive about all of that. But structures, so far, so good, and I'm pleased with its performance. But nothing into -- placed in the portfolio, it's a good contributor, it's creating value. And so all good, as I'm concerned.

Operator

Ken Herbert, RBC Capital Markets.

Ken Herbert

You had really strong spares growth in '25. In '24, what's the underlying assumption for spares growth in '25, if you can provide that? And I guess, specifically, in the last few calls, you've talked up in particular demand around the CFM56 and spares activity there. Can you comment within spares on the aerospace outlook in particular, and what you're seeing?

John Plant

Okay. So let me deal with the CFM56 comment first. It's that my view has been is that the statements, which was probably viewed about three or four years ago, that 2025 would be the year of peak demand for CFM56. I said you might get -- that's been pushed out to more like 2027. And I think it all comes back to the existing fleet is being worked harder. You can see that the demand into the MRO shops, or say those legacy engines, is still increasing, and the facilities are being created, and more deeper overhauls are being performed. And so I really do think that my statement holds.
And then if '27 is the peak, and it might be later than that, that's what I stand at the moment, is that any degradation from that would be very marginal and it will take either many years into the next decade. So I don't see a massive change there.
And if you think about it, when we started at 2024, the assumption around lead production was much higher than it turned out. And those new engines are not in the market, and therefore, that in itself creates more demand for CFM56s because airlines are still using those planes as much as they possibly can and trying to accelerate, I'll say their transition through any MRO repairs. So that deals with CFM56.
In terms of demand for LEAP range of engines, I think the spares demand continues to grow. And if anything, the demand for LEAP-1B is -- I think we're going to see that accelerate in 2025, and building on a very strong demand for LEAP-1A blades.
And so I think the important thing to remember is we don't control when our blades leave us and our path to CFM, let's call it. We don't control how many of those are built into new engines and how many goes to spares. And so that will be an interesting dynamic as we go through 2025. But my expectation is that the needs for Boeing will be fulfilled and those LEAP-1B engines will be produced for them, and all of the balance goes to spares.
On the other hand, the spares are prioritized first and OE engines less, then that does have an impact, and so we've provided some caution around that fact. And so that if spares are to be prioritized and at the expense of a rebuild, then we would not be selling our structural castings and also all of the other parts in the low-pressure turbine that's built out by Safran.
And so when you think about it, overall, what does that say? Spares are going to increase again in 2025. And so I think we're going to see a very healthy increase in spares. And I'm hoping that we're going to see both a healthy increase in spares and a healthy increase in OE engine build, and that the numbers for LEAP production will actually be higher than is currently being called out. But that, again, is to be determined.
But I think every one of those engines are going to be necessary to allow Airbus and Boeing to enable them to achieve the builds that they want to achieve, with Airbus rising above the mid-50s, and also Boeing reaching their stated exit rate of, is it 38 or is it 42, that's, again, to be determined. But it's very clear to me that every part of what we produce is going to be necessary to build out those engines to enable the aircraft rebuild, and whilst obviously maintaining and refilling the spares demand, which is going to be very healthy going into '25.

Operator

This concludes our question-and-answer session, as well as the conference. Thank you for attending today's presentation. You may now disconnect.