ATI (ATI) Q2 2025: Jet Engine Sales Up 27%, Margin Expansion Anchors Multi-Year Growth Path
ATI’s Q2 showcased an inflection in commercial jet engine sales, surging 27% and fueling a step-change in margin structure, as the company’s aerospace exposure and strategic contract wins set the stage for multi-year profitable growth. With new long-term agreements at Boeing and Airbus, ATI is locking in share gains and margin resilience, while operational investments in nickel and titanium capacity are poised to capture accelerating demand through 2027. Guidance was raised across all major metrics, underlining management’s confidence in the aerospace-driven upcycle.
Summary
- Jet Engine Demand Surges: Commercial jet engine sales grew 27%, driving outsized margin expansion.
- Strategic Contracts Secure Growth: New Boeing and Airbus LTAs lock in share, pricing, and volume upside.
- Capacity Investments De-risk Ramp: Targeted nickel and titanium projects position ATI for sustained aerospace growth through 2027.
Performance Analysis
ATI delivered a Q2 marked by robust execution, with revenue rising 4% year over year to $1.14 billion, and adjusted EBITDA up 14% to $208 million. The standout driver was commercial jet engine sales, up 27% for the quarter and 31% year-to-date, representing the core of ATI’s growth engine. This mix shift powered adjusted EBITDA margins to 18.2%, a long-sought performance milestone, and lifted High Performance Materials & Components (HPMC) segment margins by 350 basis points to 23.7%. HPMC’s contribution margin approached 50%, reflecting both pricing power and favorable mix toward next-generation aerospace programs.
ATI’s operational leverage was further evidenced by a 94% year-over-year increase in adjusted free cash flow to $93 million, underpinned by disciplined working capital management and improved cash conversion. The company returned $250 million to shareholders via buybacks, with $270 million remaining under the current authorization. Notably, management raised the midpoint of full-year guidance for adjusted EBITDA, EPS, and free cash flow, citing visibility from multi-year aerospace contracts and a steadily improving defense business.
- Jet Engine Mix Drives Margin Upside: The 27% jet engine sales growth is accretive to both top-line and segment margin structure.
- HPMC Outperformance: HPMC margins expanded to 23.7%, benefiting from advanced alloy content and next-gen engine exposure.
- Cash Flow Acceleration: Free cash flow nearly doubled, reflecting tighter inventory and receivables management.
ATI’s results confirm a business model increasingly levered to high-value aerospace content, with commercial engine and defense demand offsetting flat airframe and industrial softness.
Executive Commentary
"Commercial jet engine sales grew 27%. Year to date, we're up 31% year over year through the first half of 2025. We expect full year jet engines grow to exceed 20%. And we believe there's more upside ahead. Customers continue to report expanding backlogs and are raising production forecasts to double-digit Kagers through the end of the decade."
Kim Fields, President and CEO
"Our adjusted EBITDA was nearly $208 million, delivering a 14% increase year-over-year and a 7% increase over a strong first quarter. Contribution margins in the second quarter were almost 50%. We expect this performance and momentum to continue, building into the coming year."
Don Newman, Executive Vice President and CFO
Strategic Positioning
1. Aerospace Contract Wins Cement Long-Term Visibility
ATI’s new long-term agreements (LTAs) with Boeing and Airbus represent a strategic breakthrough, expanding ATI’s role as a key supplier of titanium and advanced alloy products. The Boeing deal covers both long and flat rolled products, including material from the new titanium alloy sheet facility in South Carolina, while the Airbus agreement more than doubles ATI’s revenue base with the OEM and positions it as Airbus’ top supplier for titanium flat rolled and long products. These contracts feature volume minimums, price escalators, and margin-protective mechanisms, de-risking ATI’s exposure to cost inflation and market volatility.
2. Capacity Investments Target Bottlenecks and Growth
ATI’s capital allocation is tightly focused on unlocking incremental capacity in nickel and titanium, two bottleneck materials for aerospace and energy markets. A $50 million nickel melt project, set to come online in 2026, will boost HPMC nickel capacity by 8–10%, while recent brownfield investments have increased titanium melt capacity by 80% since 2022. These moves are designed to meet surging jet engine and energy demand without large-scale greenfield risk, leveraging ATI’s existing footprint and operator expertise.
3. Margin Resilience Through Mix and Contract Structure
ATI’s margin profile is structurally improving due to a shift toward higher-value content (next-gen engines, exclusive alloys) and contract terms that enable cost recovery and volume upside. HPMC incremental margins are now expected to sustain in the 40%+ range, with segment margins targeted above 24%. The company’s LTA mix is now 60–65% of total revenue (and 70–75% for HPMC), balancing long-term stability with the flexibility to capture transactional pricing as capacity expands.
4. Diversification and Flexibility in Non-Aerospace Segments
While aerospace and defense anchor growth, ATI is seeing momentum in specialty energy (nuclear and gas turbines) and is repurposing capacity from weaker medical and industrial end-markets into higher-margin opportunities. Nuclear demand rose 24% year-over-year, and recent investments have increased output capacity by up to 20% in this niche, high-barrier market. Management remains vigilant on trade and tariff headwinds, leveraging a diversified supply chain and contract pass-throughs to defend margin.
Key Considerations
ATI’s Q2 underscores the company’s transformation from a cyclical metals supplier to a margin-focused, aerospace-driven advanced materials leader. The following strategic considerations frame the quarter:
- Commercial Engine Momentum: Next-gen engine content and MRO (maintenance, repair, and overhaul) activity are accelerating, with ATI’s exposure more than double that of legacy platforms, supporting multi-year growth.
- Contractual De-risking: New LTAs feature volume minimums, cost pass-throughs, and upside triggers, reducing risk from inflation and market swings.
- Capacity Readiness: Discrete investments in bottleneck areas (nickel melt, titanium) are expected to deliver 8–10% incremental capacity, supporting both contracted and transactional opportunities.
- Industrial and Medical Weakness: Non-aerospace segments remain soft, impacted by tariffs, macro uncertainty, and China pricing pressure, but ATI is flexing assets toward higher-return markets.
- Cash Flow and Capital Return: Improved working capital discipline is driving stronger cash conversion, enabling continued buybacks and optionality for future investment.
Risks
ATI’s growth trajectory is heavily levered to the aerospace cycle, exposing it to OEM production volatility, inventory destocking, and geopolitical risks. Near-term airframe demand remains flat due to customer destocking, and industrial and medical markets are facing macro and trade headwinds. Tariff uncertainty and competitive pricing from China could pressure non-aerospace segments, though contract structures and supply chain diversification provide partial mitigation. Execution risk around capacity ramp and qualification for new facilities remains a watchpoint for 2026–2027 targets.
Forward Outlook
For Q3 2025, ATI guided to:
- Adjusted EBITDA of $200–210 million
- Adjusted EPS of $0.75 per share
For full-year 2025, management raised the midpoint of guidance:
- Adjusted EBITDA range narrowed and increased to $820–$840 million
- Adjusted EPS of $2.90–$3.07
- Adjusted free cash flow of $270–$350 million
Management cited continued jet engine and defense growth, flat airframe demand due to destocking, and a cautious outlook for industrial and medical. Segment margin targets remain above 18% for the year, with HPMC expected to exceed 24% and A&S at 15–16%. Capacity projects and new contracts are not fully reflected in 2027 targets, providing potential upside as ramp accelerates.
Takeaways
ATI’s Q2 results reinforce the company’s strategic pivot to high-value aerospace content and margin-accretive growth.
- Jet Engine and Defense Anchor Multi-Year Growth: Commercial engine and defense programs are delivering both volume and margin expansion, offsetting cyclical softness elsewhere.
- Contract Wins and Capacity Investments De-risk Ramp: New long-term agreements and targeted capital projects provide visibility, flexibility, and margin protection through the cycle.
- Watch for Execution on Ramp and Mix: Investors should monitor the pace of capacity qualification, the balance of LTA vs. transactional business, and the company’s ability to flex into emerging demand as aerospace build rates accelerate into 2026–2027.
Conclusion
ATI’s Q2 2025 marked a pivotal quarter, with margin expansion and aerospace-driven growth confirming the company’s transformation into a high-value advanced materials supplier. Strategic contract wins, disciplined capital deployment, and capacity investments position ATI for durable outperformance, though execution and end-market volatility warrant continued vigilance.
Industry Read-Through
ATI’s strong aerospace and defense momentum signals sustained demand tailwinds for advanced materials and specialty alloys across the sector, especially for suppliers with next-gen engine and MRO exposure. The company’s ability to secure long-term contracts with both Boeing and Airbus highlights the ongoing supply chain consolidation and the premium placed on reliability and capacity in aerospace. Tariff-driven order volatility and macro softness in industrial and medical end-markets are likely to persist, reinforcing the need for suppliers to maintain contract flexibility and operational agility. Capacity investments in bottleneck materials will be a critical differentiator for industry players seeking to capitalize on the aerospace upcycle through the decade.