Albany International (AIN) Q3 2026 Earnings Call: Record Revenue and Composites Growth

Key Takeaways

• Albany International reported record quarterly revenue of $349.5 million, up 34% year over year, driven by Engineered Composites program ramps and an approximately $12 million benefit from the renegotiated CH-53K contract.
• Adjusted EBITDA was $100.1 million, or 28.6% of sales, including an approximately $44 million reversal of the CH-53K reach-forward loss. Adjusted diluted EPS was $1.68.
• Engineered Composites revenue reached a record $179.7 million. Excluding CH-53K adjustments and other discrete items, management estimated the segment’s underlying adjusted EBITDA margin at approximately 12.5%.
• Machine Clothing generated $169.8 million in revenue and $46.3 million in adjusted EBITDA, with a margin of approximately 27%. Stable European and Chinese demand was offset by weakness in the Americas.
• For Q4 2026, management maintained consolidated revenue guidance of $325 million to $335 million and adjusted diluted EPS guidance of $0.65 to $0.75.
• Management expects missile and hypersonics opportunities to begin contributing in 2027, with a more significant impact in 2028 as programs and capacity ramp.

Key Financial Results

Business and Operating Performance

Engineered Composites

Engineered Composites revenue rose to a quarterly record of $179.7 million. Growth was broad-based across LEAP, Boeing 787 and one-piece frame platforms, CH-53K, missile programs and engine applications. Revenue also benefited from tooling pulled forward for a next-generation contract with a defense prime.

Reported adjusted EBITDA was $65.6 million, or 36.5% of sales, compared with a $134.6 million loss a year earlier. The Q3 2026 result included approximately $44 million from the CH-53K renegotiation. Management estimated the underlying margin at about 12.5% after excluding the identified adjustments and discrete items.

The amended CH-53K agreement contributed approximately $12 million to revenue and improved the program’s long-term economics. Management said the settlement reduced uncertainty surrounding the program and provided a more stable foundation for the Salt Lake City manufacturing operation.

Albany also received a $21.2 million Industrial Base Analysis and Sustainment award to expand its ceramic matrix composite capabilities. The funding will add in-house machining, quality inspection and densification capacity. The company expects to combine limited internal investment with customer or government funding when additional capacity is required.

Machine Clothing

Machine Clothing revenue was $169.8 million, modestly below the prior year, while adjusted EBITDA was $46.3 million and the margin was approximately 27%.

Europe remained stable, while China recorded a fourth consecutive quarter of stability, although management said visibility remained limited. North American order rates improved, but customer consolidation and capacity rationalization continued to weigh on volumes. South American demand remained soft.

Tissue and packaging demand was favorable, particularly in Asia. These trends were partly offset by the long-term decline in publication grades and weaker South American demand.

Management expects to recover delayed Machine Clothing volumes by year-end. The existing equipment continued to operate, while a replacement machine was being assembled and was expected to enter service by the end of 2026.

Management Guidance

For Q4 2026, Albany International maintained the following outlook:

• Consolidated revenue of $325 million to $335 million.
• Adjusted diluted EPS of $0.65 to $0.75.
• An effective tax rate of approximately 29.5%.

Management continues to expect full-year Machine Clothing revenue to be slightly below 2025 due to mixed geographic demand, customer consolidation and paper-industry capacity rationalization.

Engineered Composites is expected to continue growing year over year as commercial aerospace and defense programs ramp. Management described a 12.5% underlying adjusted EBITDA margin as a reasonable base for Q4 2026 and early 2027, followed by gradual improvement. The company’s goal is to exit 2027 with a mid-teens segment margin.

Management expects additional margin expansion beginning in the second half of 2027 as CH-53K contract modifications take effect and new contracts enter the portfolio.

Risks and Watchpoints

• Machine Clothing demand remains mixed by geography, with limited visibility in China and continued softness in South America.
• Customer consolidation and capacity rationalization among papermakers have reduced volumes in parts of the Americas.
• Publication-grade paper continues to face long-term structural decline.
• Engineered Composites growth depends on continued production ramps across major aerospace, defense and missile programs.
• Missile qualification and production schedules remain uncertain. Management said typical ramps can take 12 to 36 months, although current programs may progress faster.
• Reported Q3 profitability included significant CH-53K-related benefits and other discrete items, making the underlying Engineered Composites margin a key measure to monitor.

Analyst Q&A Highlights

Management said Engineered Composites’ underlying adjusted EBITDA margin was approximately 12.5% in Q3 after removing CH-53K impacts and other identified items. The company views that level as a reasonable starting point for Q4 2026 and early 2027, supported by improved pricing, higher production volumes and the renegotiation or exit of loss-making contracts.

On missile programs, management identified JASSM and LRASM as existing sources of growth. Development activity from additional opportunities is expected to begin affecting results in 2027, with a clearer production contribution in 2028.

Management expects Q4 cash flow to remain strong and potentially near the Q3 level, while noting that the cash benefits of the CH-53K renegotiation should become more visible in Q4 2026 and throughout 2027.

Capital allocation will remain disciplined. The company plans to prioritize organic Engineered Composites growth, maintain its dividend and evaluate potential acquisitions more seriously now that major legacy issues have been addressed.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Hello, everyone. Thank you for joining us, and welcome to the Albany International Third Quarter 2026 Earnings. [Operator Instructions]

I will now hand the conference call over to Karen Blomquist, Director of Investor Relations. Karen, please go ahead.

Karen Blomquist

Welcome to Albany International's Third Quarter 2026 Earnings Conference Call.

As a reminder, for those listening on the call, please refer to our press release issued last night, detailing our quarterly financial results. Contained in the text of the release is a notice regarding our forward-looking statements and the use of certain non-GAAP financial measures and their reconciliation to GAAP. For the purposes of this conference call, those same statements apply to our verbal remarks this morning. Additionally, our remarks today may reference our earnings presentation, which is available on the Investor Relations section of our website, albint.com.

Today, we will make statements that are forward-looking and contain a number of risks and uncertainties, which could cause actual results to differ from those expressed or implied. For a full discussion of these risks and uncertainties, please refer to both our earnings release of October 28, 2026, as well as our SEC filings, including our 10-Q and our 10-K.

Now I will turn the call over to Gunnar Kleveland, our President and CEO, who will provide opening remarks. Gunnar?

Gunnar Kleveland

Thank you, Karen. Good morning, everyone, and thank you for joining our third quarterly earnings call. The past 3 months have been pivotal in our evolution into a more focused and disciplined company, built around our proprietary 3D weaving and material science capabilities and the differentiated value they create across the diverse set of end markets we serve.

Also, as we previously disclosed, we completed our Strategic Review during the quarter. Through that process, we addressed the most significant legacy issue in our portfolio and reached an agreement with Sikorsky that improves the economics of the CH-53K program and provides a more stable foundation for the Salt Lake City manufacturing site and our business going forward.

I'm incredibly proud of the team at our Salt Lake City facility and the broader Engineered Composites organization. Through a period of uncertainty for the team, they stay focused on what Albany does best: delivering high-quality products, supporting our customers and executing with discipline. Our improved performance at the Amelia Earhart Drive facility and the engagement and relationship with Sikorsky were essential to this successful conclusion. We are very pleased to put this behind us.

Since concluding the review, our focus is shifting decisively from addressing legacy challenges to building for growth. We're seeing stronger execution, improved program visibility and a growing pipeline of opportunities across commercial aerospace, defense, missiles, hypersonics and next-generation aircraft applications. We're also continuing to engage with customers and government partners, evidenced by new wins in the quarter as well as the Industrial Base Analysis and Sustainment, or IBAS, award of $21.2 million to complement our investments in ceramic matrix composites. We will now have a fully vertically integrated facility that can serve all high-temperature needs faster and at a lower cost than our competition. This is exemplified through the teaming agreement with Lockheed Martin on hypersonic missile development.

At the same time, Machine Clothing continues to focus on its market and product leadership positions, emerging from the past several years of integration activities with a more optimized and resilient global business. Our integration and footprint actions position the segment to generate strong cash flow while supporting customers across paper, tissue, packaging and other industrial applications.

Taken together, we are entering this next phase as a stronger company with an optimized portfolio, reduced risk profile and a sharper focus on the areas where our core capabilities create long-term customer value.

Turning to results for the quarter. We generated consolidated revenue up 34% to $349.5 million, a record high quarterly revenue for the company. These strong sales were primarily driven by continued strength in Engineered Composites and production rate increases across several key aerospace and defense programs, plus a benefit of approximately $12 million related to the renegotiated CH-53K contract. We also delivered adjusted EBITDA of $100.1 million and adjusted diluted EPS of $1.68, above the high end of the revised outlook range we provided at the conclusion of the Strategic Review.

Our major programs are continuing to ramp. Our execution continues to improve. The portfolio contains materially less program risk, and we are winning new business. This is translating to stronger, healthier and more reliable growth.

Next, I'd like to discuss our results by segment, beginning with Machine Clothing. Machine Clothing revenue was $169.8 million, modestly below the prior year due to anticipated weakness in the Americas during the quarter related to customer consolidations. By region, China remained stable for the fourth consecutive quarter, although visibility remains limited. In the Americas, end market conditions and order rates materially improved in North America, while South America continued to see softer demand similar to the second quarter. In Europe, conditions remain favorable, although our quarterly volume was muted as a result of summer shutdown schedules in the region.

By grade, tissue and packaging demand remains favorable, particularly in Asia due to the stabilization of demand compared to prior year. These areas of strength are partially offset by the long-term secular decline in publication grades and softer demand in South America. The segment delivered adjusted EBITDA of $46.3 million and an EBITDA margin of approximately 27%.

Turning to Engineered Composites, the segment delivered another record quarter with revenue of $179.7 million. Growth was driven by higher production rates across multiple programs, including LEAP, Boeing platforms, CH-53K and missile programs. As has been the case throughout 2026, we're seeing stronger and more consistent EBITDA margins as we work to optimize our portfolio and improve efficiency. Looking forward, we expect additional margin expansion beginning in the second half of 2027 as contract modifications on the CH-53K begin having an impact, and we add new contracts to the portfolio.

Demand across our core commercial aerospace and defense programs remain strong, and we continue to see production rates build across multiple platforms. In defense, we continue to engage in constructive dialogue with the Department of War to support the rebuilding of the U.S. missile supply chain and provide innovative solutions that address critical defense needs with faster production rates and lighter weight solutions. Beyond defense, we're continuing to expand the application of our technology across next generation of commercial platforms. Our inclusion in the Wing of Tomorrow program demonstrates the potential for Albany 3D Woven, braiding, automation and resin transfer molding solutions to support meaningful advances to lighter weight, more durable and more efficient composite aerostructures for future aircraft.

Taken together, Engineered Composites is entering its next phase from a much stronger position. We are executing at a higher production rate, have expanded our pipeline of new opportunities and increased our focus on higher-value applications where our technology can deliver industry-leading solutions.

As we stand here today, we reflect about how, with more than 130 years of material science expertise and innovation, we are now beginning to accelerate the potential of our technology. We continue to evolve and find new ways to provide solutions using our technologies, and we look forward to sharing more about the advances and new applications for our technology at our upcoming Investor Day in New York City in December, where we will update you on our outlook for 2030 and beyond.

With that, I will turn the call over to Sean Valashinas, our acting CFO, to review the financial results in more detail.

Sean Valashinas

Thank you, Gunnar, and good morning. Before turning to the financials, I would like to remind you that a reconciliation of GAAP to non-GAAP measures discussed today can be found in last night's press release.

Third quarter revenue was $349.5 million, representing growth of 34% year-over-year. This increase was driven primarily by higher activity levels in Engineered Composites as key programs continue to ramp, moderated by a modest decline in Machine Clothing. Adjusted EBITDA for the quarter was $100.1 million or 28.6% of sales, which benefited from approximately $44 million reversal of the reach-forward loss. We also benefited in the quarter from a tariff refund and other discrete items. This compared to a loss in the prior year of $91.1 million, which included a $147.3 million charge related to the CH-53K program.

By segment and beginning with Machine Clothing, revenue of $170 million was at the high end of our expectations. We saw continued stability in Europe, signs of stabilization in China and softness in North and South America. As previously mentioned in the Americas, customer consolidation and capacity rationalization actions taken by papermakers over the past year have reduced volume levels in certain markets. Nonetheless, we maintain our strong market share in the Americas. Adjusted EBITDA for the segment was $46.3 million with a margin of 27.2%. The Machine Clothing business continues to deliver strong margins, reflecting disciplined cost management, operational execution and the ongoing benefits from integration and efficiency initiatives. Compared to the prior year, margins contracted slightly as a result of unfavorable regional mix and lower overall volume.

In Engineered Composites, segment revenue was $179.7 million, which marked a quarterly record for the segment. Performance was strong against all of our major programs and was above our estimates due to the pull forward of tooling in the quarter for a next-generation contract with a defense prime. Segment growth year-over-year was widespread across programs, including higher volume of LEAP, Boeing 787 and missile programs. Adjusted EBITDA for the segment was $65.6 million or 36.5% of sales compared to a loss of $134.6 million in the prior year.

As a reminder, in the third quarter of 2025, the initiation of the Strategic Review on the CH-53K program reduced revenue by approximately $46 million and operating profit by approximately $147 million as we recorded charges associated with the program's loss position. Over the past year, we have continued to execute on the program and have substantially consumed that loss reserve through production activity.

The renegotiation of the CH-53K program reached during the third quarter of 2026 resulted in a positive impact of approximately $12 million to revenue and $44 million to adjusted EBITDA. The timing of that benefit relates to the structure of the settlement. Importantly, the settlement removes uncertainty, improves the long-term economics of the program and further validates the progress our team has made in transforming Engineered Composites from a business focused on resolving legacy challenges into one positioned to create value through operational execution and profitable growth.

Gross profit for the quarter was $140.4 million with a margin of 40.2% compared to a loss of $49.9 million in the prior year. Gross profit benefited in the quarter by $33.4 million related to the renegotiated CH-53K contract. The improvement in gross margin year-over-year reflects adjustments of the amended CH-53K contract and stronger margins in Engineered Composites. Operating income was $59.4 million, representing a margin of 17% compared to a loss of $116.5 million last year. The improvement was driven by the CH-53K contract amendment.

Interest expense decreased to $5.3 million compared to $5.9 million last year as we paid down debt and focused on reducing leverage. Other income was a net benefit of $1.7 million compared to a net benefit of $347,000 in the prior year due to foreign currency translation impacts. The effective tax rate for the quarter was 24.9% compared to 20% in the prior year.

Free cash flow was a net gain of $36.5 million compared to a net gain of $25.7 million in the prior period. The year-over-year increase was driven by a number of items, including benefits from the renegotiated contract, tariff refunds and a vendor credit.

Capital expenditures for the quarter totaled $12.2 million compared to $18.3 million in the prior year as our focus on facility optimization lowered expenditures. R&D expense was $12.2 million, reflecting our continued focus on innovation.

We ended the quarter with $79.1 million in cash and $422.1 million in total debt, resulting in net debt of approximately $343 million as the company's improved cash position allowed for debt repayment while improving overall liquidity. Including revolver availability, we have approximately $457 million of available capital, providing flexibility to support ongoing investments and return capital to shareholders.

Turning to our outlook and beginning with Machine Clothing, the demand environment remains fluid and mixed by geography. We continue to see stable demand in Europe, signs of stabilization in China at current levels and softer demand in North and South America. Given these trends and the impact of customer consolidation and capacity rationalization across parts of the paper industry, we continue to expect full year Machine Clothing revenue to be slightly down compared to 2025. In Engineered Composites, we expect continued year-over-year growth, supported by ongoing program ramps across both commercial and defense platforms. For the fourth quarter of 2026, we continue to expect consolidated revenue in the range of $325 million to $335 million. We anticipate adjusted EPS in the range of $0.65 to $0.75 per diluted share and an effective tax rate of approximately 29.5%.

Now we would like to open the call for questions. Operator?

Operator

[Operator Instructions] Your first question comes from the line of Chigusa Katoku with JPMorgan.

Question-and-Answer Session

Chigusa Katoku

So my first question is on the AEC margins. So there were adjustments for CH-53K both the top line and the EBITDA line. And also, I think you called out in your prepared remarks some tariff refund and discrete items. So adjusting for all of those, what was the underlying EBITDA margin profile of the segment in the third quarter?

Sean Valashinas

Yes, Chigusa, the tariff refunds were spread across both businesses, so really not as much to AEC. But if you back away the -- all of the impacts that you laid out there, you're looking at about a margin profile of 12.5% EBITDA margin for the quarter in AEC, excluding those charges.

Chigusa Katoku

Okay. That's great. And so is the 12.5-ish percent a reasonable assumption as we kind of model out to at least through the first quarter of 2027. And then from the third quarter, I think you'll have some ramp in margins. If you have any color there, that would be great.

Sean Valashinas

Yes, sure. Thanks. So the 12.5% should -- as we move into the fourth quarter and the beginning of 2027, that's a reasonable approximation. We'll start to see some growth as we move into the future quarters, but start with 12.5% as a base and then some reasonable growth coming out of that. And really, the growth is driven by a number of things that we started to experience this quarter. We landed on increased pricing with some of our existing contracts. We obviously renegotiated the legacy contracts that were in a loss position or exited them, for instance, on Gulfstream. We had increased volume and activity levels on our existing contracts. And again, we renegotiated contracts. So we hit on all cylinders and have really started to execute in that business. And so you'll see us increase margins as we move through the quarter into 2027. And our goal as we exit 2027 is to be in the mid-teens in this business.

Chigusa Katoku

Okay. Great. And if I could squeeze one more in, if I may. On the AEC top line, I think there were adjustments from CH-53K this quarter and also last quarter had some adjustments too. So what was the underlying growth rate of the business this quarter? And I think next quarter, you're assuming development growth. So kind of the right run rate to think about heading into 2027?

Gunnar Kleveland

Chigusa, I think you said Engineered Composites and the growth there. The primary growth for our Engineered Composites segment is our current programs. So there's growth on LEAP. There's growth on the Boeing one-piece frames. There's growth in the missile and there's growth in the engine section of the business. There are some new programs that are starting to take effect, and we will see more of that effect as we go through 2027, which we will also talk more about at the Investor Day here in December.

Operator

Your next question comes from the line of Alexandra Mandery with Truist Securities.

Alexandra Eleni Mandery

What capacity and CapEx do missile hypersonics ramps need? CapEx was down versus last year as a result of facility optimization. So is that lower level sustainable? And you also had that $21.2 million IBAS contract to support hypersonic and solid rocket motor manufacturing. If you could discuss how that plays into the build-out.

Gunnar Kleveland

Alex, you partially answered my question with the IBAS award that we have. We've done significant investment in creating the capability of ceramic matrix composites. And we have the capability. We're doing development there. The additional money from IBAS will act to allow us to do everything in-house. So it adds machining capability as well as quality inspection as well as an addition to the densification process that we currently do not have. And there's some investment from our side there, but limited.

Now this is a capacity that is untapped in a very high demand area right now, as I think everyone knows. Eventually, we will run out of capacity in Rochester. And the investment beyond that, we will try to do in the same manner by some investment on our own and some investment from either our customers or the government. So that is working, and that is the plan.

As far as the capital, we're going to be very constructive in how we use the money that we use for capital. And there is going to be growth capital for both -- for mostly our new programs. But we have pulled back on the capital expenditures, as you saw this year. We expect to continue to invest in the significant growth that we see from Engineered Composites.

Alexandra Eleni Mandery

Great. And then can you update us on the progress of the catch-up in volumes after the equipment failure in Machine Clothing? And I guess, do you still expect those volumes to be caught up by year-end or maybe pushed into 2027?

Gunnar Kleveland

Yes. The equipment continues to run. And so the plan continues to be caught up by year-end. And we see that as absolutely possible, especially since the machine is now being assembled at our site. The new machine is being assembled and will be up and running by the end of the year. So I think we have been able to maintain the current machine and deliver on it through the year without any more downtime, and that risk is significantly lowered as well.

Operator

Your next question comes from the line of Jan Engelbrecht with Baird.

Jan-Frans Engelbrecht

I think I want to just focus a little bit again on the missile programs. You guys called out in the release that it contributed to third quarter AEC growth. And then we saw a nice announcement on the IBAS award for $21 million and then also the expansion of your facility, I think, last week through your press release. But at a high level, how should we think of sort of production content on the missile business versus qualifying new components and sort of the time line that it usually takes since you start talking with a customer to getting qualified and then entering production? Is it sort of similar to the IBAS contract sort of 30 months? Or just how should we think about that?

Gunnar Kleveland

Jan, it's a good question. Some of the growth that we're seeing is primarily in the programs, JASSM, LRASM, where we're already seeing significant demand, and we're ramping up with the new contracts we're getting from our customer.

I would say in a normal environment, once you get on a program, it takes 12, 24, 36 months to ramp up. With the need for -- well, need for speed, in the current market, I expect it to be faster. We're working with several of the OEMs for missiles. I'm not sure which ones we will end up with, but it is going to be on an accelerated schedule.

Some of this is R&D and development on the programs, and you'll start seeing that in '27. I think as I've said before, this used to be a medium to long term, then I said it was a medium. Now I say -- or medium to near term, now it's more near term. I think we'll start seeing impact in '27 and definitely in '28 rather than 30 months out. We have the capability today. What the IBAS contract does is increase and broaden the scope of our capabilities. So 3 years from now, when we're fully deployed on every opportunity is when we have the highest impact. But there's definitely opportunity for us to deliver both in '27 and '28.

Jan-Frans Engelbrecht

And if I can have a follow-up. You guys obviously had very strong cash generation in the third quarter here. There was some pull forward from the CH-53K contract. But I know that's a focus area since you've taken over is cash generation. But just how should we think about steady-state cash dynamics for Albany? I know there's maybe some working capital investments that you need to make given the demand. But how should we think about that? I know you can't talk too much ahead of the Investor Day. But just as we're exiting 2026, what's sort of the steady state? Or are you guys targeting operating cash growth in 2027, if you can comment on that?

Sean Valashinas

Yes, Jan, I'll take that one. I think you hit it well, right? We'll share more as we get into Investor Day in December. But as you think about Q4 and as we move into the beginning of Q1, right? What you saw this quarter, we certainly have started to focus -- there's a high degree of focus on cash flow within the business right now, right? We're generating improvements across the business. I don't know that I would characterize the 53K renegotiation as a driver of cash flow in the quarter. We'll start to see that into the fourth quarter and into 2027, particularly -- well, in all 4 quarters into 2027 as well. So you'll see some of that.

But I think you can -- our historic results in Q4 have typically been very strong cash flow in the quarter. I think you can expect to see strong cash flow maybe consistently -- consistent with what we've seen in Q3 or near that. And then as we move into Q1, that will follow the historic patterns that you've seen typically. But like you said, we'll share more of that at Investor Day as we move into December.

Jan-Frans Engelbrecht

Okay. Great. Sean, if I could squeeze in one more question. Just high-level thoughts that you guys have on capital deployment in terms of potential acquisitions, organic investments. I know you guys have talked about being very adamant about not bidding on structures assembly work in AEC, but high-level thoughts on capital deployment as we sort of exit this year.

Gunnar Kleveland

It's going to continue to be disciplined. But clearly, with some of these structural issues that we have now behind us, I will take more seriously some of the inbounds that we have for potential acquisitions. We have the capability to do that. I know we have the team that can incorporate an acquisition. But we also have a lot of inorganic -- organic, rather, opportunities. So it will be a continued disciplined approach and including our dividends.

Operator

There are no further questions at this time. I will now turn the call back over to Gunnar Kleveland for closing remarks.

Gunnar Kleveland

Thank you. And thank you, everyone, for joining us on the call today. We look forward to sharing more information and long-term targets in December at our Investor Day. If you have any questions about the event, please contact Karen. Thank you, and have a good day.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.