Loar Holdings (LOAR) Q3 2025: Margin Expands to 38.7% as Aftermarket Drives Cash Flow Upside
Loar Holdings delivered record profitability in Q3 2025, with margin expansion fueled by strong aftermarket and defense demand. The company’s disciplined guidance approach, robust backlog, and product diversification underpin forward visibility, while operational leverage and value-based pricing continue to drive incremental gains. Management’s conservative 2026 outlook signals confidence in sustained growth, despite normalizing defense and ongoing integration of recent acquisitions.
Summary
- Aftermarket Momentum: Volume-driven commercial aftermarket demand remains resilient across all product lines.
- Margin Expansion: Operating leverage and value-based pricing offset integration and public company cost headwinds.
- Guidance Discipline: Conservative 2026 forecast reflects strong backlog and risk-adjusted production assumptions.
Performance Analysis
Loar Holdings posted record sales and profitability in Q3 2025, with total sales rising 15% year-over-year to $127 million. This growth was broad-based, led by a 19% surge in commercial aftermarket sales, reflecting robust air travel demand and an aging global fleet. Commercial OEM, original equipment manufacturer, sales increased 11% as production stabilized at key aerospace customers, while defense revenue jumped 70% on new product launches and share gains, though management cautioned that defense growth will remain lumpy due to order timing.
Gross margin improved by 380 basis points year-over-year, driven by operational leverage, favorable product mix, and the execution of productivity initiatives. Adjusted EBITDA margin reached a record 38.7%, despite incremental costs from public company compliance and the dilutive impact of the Beadlight acquisition. Management highlighted that these costs are now fully reflected in the run rate. Notably, Loar has expanded EBITDA margin by 710 basis points since 2020, underscoring the structural improvements achieved through pricing, cost discipline, and portfolio optimization.
- Aftermarket Volume Strength: Growth in commercial aftermarket was volume-led, not price-driven, and spanned the full product portfolio.
- Defense Outperformance: New product launches and market share gains propelled defense sales, though future growth is expected to normalize.
- Acquisition Integration: Margin dilution from Beadlight was offset by synergy opportunities, especially in top-line cross-selling.
Overall, Loar’s ability to consistently improve profitability, even while absorbing the costs of scale and integration, reflects a business model built for durable cash generation.
Executive Commentary
"We're about to tell you that we beat, we're raising up guidance, but more importantly, we generated strong cash flows. In addition to telling you, we continue to improve our margins while achieving record sales, adjusted EBITDA, and adjusted EBITDA margins during the quarter."
Dirksen, Founder, Chief Executive Officer and Executive Co-Chairman
"Adjusted EBITDA margins were a record 38.7% due to our operating leverage, the execution of our strategic value drivers, and a favorable sales mix. This was partially offset by additional costs with being a public company including Sarbanes-Oxley compliance and additional organizational costs to support our reporting, governance, and control needs."
Glenn D'Alessandro, Treasurer and Chief Financial Officer
Strategic Positioning
1. Diversified Product Portfolio and Platform Breadth
Loar’s portfolio spans over 20,000 unique, highly engineered products, with no single product accounting for more than 3% of annual revenue. This diversification across aerospace and defense platforms insulates the business from platform-specific volatility and enables cross-selling synergies, as demonstrated by the integration of Beadlight with Short’s customer base.
2. Value-Based Pricing and Operational Excellence
Margin expansion is rooted in value-based pricing, which consistently outpaces inflation, and in ongoing productivity initiatives. Management’s annual focus on one or two major operational improvements—such as enhanced data utilization and ERP upgrades—has delivered sustained gains in cash flow and margin structure.
3. Conservative Forecasting Anchored in Backlog Visibility
Guidance philosophy is intentionally conservative, with 2026 forecasts reflecting risk-adjusted assumptions for OEM production rates. Management assumes 15% to 20% lower production than OEM public projections, prioritizing credibility and beatable targets over aggressive top-line promises. This approach leverages Loar’s proprietary content and record backlog to provide above-average visibility compared to peers.
4. New Product Pipeline as a Growth Engine
The company’s pipeline of new product opportunities expanded by $100 million this quarter, now totaling over $600 million in potential sales over five years. Recent certifications in PMA brakes and cockpit door barriers are expected to push new product growth closer to 3% of annual sales, up from the historical 1–3% range, with aftermarket and OEM content both contributing.
Key Considerations
Loar’s Q3 2025 results highlight a highly resilient business model, but investors should weigh both the structural strengths and the evolving risk landscape as the company enters 2026.
Key Considerations:
- Backlog Visibility: Record backlog and proprietary product content provide unusual forecasting confidence for 2026 and beyond.
- Acquisition Integration Discipline: The company’s playbook emphasizes listening and leveraging top-line synergies, with recent deals integrated into existing business units for customer reach expansion.
- Aftermarket Tailwind: An aging global fleet and persistent air travel demand underpin aftermarket strength, with little sign of near-term slowdown.
- Defense Normalization: After outsized growth in 2025, defense is expected to revert to mid-single digit growth, reflecting order lumpiness and a prudent budgeting approach.
- Cost Structure Management: Public company compliance costs are now embedded in the run rate, reducing the risk of further margin dilution from scale-related overheads.
Risks
Loar faces potential headwinds from OEM production volatility, customer inventory management, and defense order timing, all of which can create quarter-to-quarter lumpiness. Integration of acquisitions, while well managed historically, could introduce operational complexity. Although tariff risk is currently muted, any shift in trade policy or supply chain disruption could impact input costs and delivery schedules. Management’s conservative guidance approach limits downside, but investors should monitor for any signs of demand softening or margin pressure as the company continues to scale.
Forward Outlook
For Q4 2025, Loar guided to:
- Continued low double-digit growth in commercial aftermarket and OEM segments
- Mid-single digit growth in defense, reflecting normalization after a strong 2025
For full-year 2026, management provided initial guidance:
- Net sales of $540–550 million
- Adjusted EBITDA of $209–214 million
- Adjusted EBITDA margin of approximately 39%
- Net income of $80–85 million
- Adjusted EPS of $0.98–$1.03
Management highlighted several factors that shape this outlook:
- Risk-adjusted OEM production assumptions, discounting OEM skyline by 15–20%
- Strong backlog and proprietary content supporting above-average visibility
Takeaways
Loar’s Q3 2025 demonstrates that its “boring” approach delivers outsized results in aerospace and defense.
- Margin Expansion Endures: Operational leverage, pricing power, and productivity initiatives continue to drive record profitability, even as the company absorbs new costs and integrates acquisitions.
- Aftermarket and New Product Pipeline Power Growth: Resilient aftermarket demand and a growing pipeline of new certifications underpin multi-year organic growth visibility.
- Watch for Acquisition Execution and Defense Volatility: Investors should monitor integration progress and defense order cadence as the main variables for near-term performance.
Conclusion
Loar Holdings’ Q3 2025 results reinforce its reputation for reliable execution, margin discipline, and conservative forecasting. As the company leans on a robust backlog and proprietary product portfolio, the focus for investors shifts to continued integration success and the sustainability of aftermarket tailwinds into 2026.
Industry Read-Through
Loar’s results signal ongoing strength in commercial aerospace aftermarket, with demand driven by fleet aging and air travel recovery—a positive read-through for suppliers with similar exposure. The company’s value-based pricing and productivity gains highlight the importance of operational discipline as public company costs rise and integration complexity increases. Defense order lumpiness remains an industry-wide challenge, but Loar’s conservative outlook framework offers a template for risk management. For peers, Loar’s diversified product mix and disciplined M&A approach provide a roadmap for margin resilience and cash flow generation in a volatile macro environment.