Safran SA: Strong Earnings Call, Guidance Stepped Up

Safran Sa Unsponsored Adr ((SAFRY)) has held its Q4 earnings call. Read on for the main highlights of the call.

Safran’s latest earnings call struck an upbeat tone, underscoring a year of strong growth, margin expansion and cash generation despite currency, tax and supply-chain headwinds. Management highlighted record LEAP engine deliveries, upgraded multi‑year guidance and rising defense momentum, arguing that structural demand and market share gains outweigh near‑term pressures on net income.

Strong Group Revenue Growth

Safran reported 2025 revenue of EUR 31.3 billion, an increase of EUR 4.0 billion or 14.7% year on year, with organic growth essentially matching headline figures at 14.8%. Original equipment sales rose 11.3% while services revenue jumped 18%, underlining the strength of aftermarket demand across the portfolio.

LEAP Production Ramp and Deliveries

The LEAP engine program remains the main growth engine, with a record 1,802 units delivered in 2025, up 28% versus 2024 and 562 shipped in the fourth quarter alone, a 49% increase year on year. Safran plans another roughly 15% delivery increase in 2026 and is targeting about 2,600 LEAP engines by 2028, cementing its position on new‑generation narrow‑bodies.

Improved Profitability and Margins

Recurring operating income climbed to EUR 5.2 billion, over EUR 1 billion higher than last year, reflecting operating leverage on the revenue ramp. Group operating margin improved by 150 basis points to 16.6% of sales, even with headwinds from tariffs, FX and one‑off charges.

Propulsion Outperformance

Propulsion continued to outperform, with revenue up 17.6% organically to EUR 15.7 billion on strong LEAP volumes and robust aftermarket for CFM56. Recurring operating income in the segment grew 28% organically to EUR 3.6 billion, lifting the operating margin to 23%, a 240 basis‑point improvement.

Equipment & Defense Momentum

Equipment & Defense delivered EUR 12.3 billion of sales, growing 11% organically and 16% including consolidation effects, despite the dilutive impact of the Collins acquisition. Recurring operating income reached EUR 1.6 billion and margins expanded by 50 basis points, or 90 basis points excluding Collins, keeping the group on track toward its 15% margin target by 2028.

Aircraft Interiors Turnaround

Aircraft Interiors continued its recovery, with revenue rising 14% to EUR 3.3 billion, returning the business to 2019 levels. Recurring operating income exceeded EUR 100 million and margins improved by 230 basis points, while the division reached cash breakeven and delivered a EUR 140 million year‑on‑year cash improvement.

Free Cash Flow and Conversion

Free cash flow surged 23% to EUR 3.9 billion, supported by stronger profitability and better working‑capital management despite a dollar‑denominated inventory build to support ramp‑up. The EBIT‑to‑cash conversion ratio reached 75% and inventory days sales outstanding fell by nine days, signaling improved cash discipline.

Balance Sheet Strength & Capital Returns

Safran ended 2025 with a net cash positive position around 0.3 times EBITDA, providing ample financial flexibility for investment and shareholder returns. The board proposed a EUR 3.35 per share dividend, up 16% year on year with a 40% payout on adjusted net income, and the company executed EUR 1.3 billion of share buybacks, canceling 5.1 million shares.

Defense Order Momentum & Strategic Wins

Defense activity gained traction, with order intake producing a 1.6 book‑to‑bill ratio in defense electronics and underpinning future revenue visibility. New business included a Rafale export win with the Indian Navy, a ramp in M88 engine production and maintenance capacity in Hyderabad, a joint venture for guided bombs, and accelerated industrial investments in defense.

Aftermarket & MRO Upside

Safran upgraded its assumptions for CFM56 shop visits to a plateau of roughly 2,300–2,400 per year through 2025–2028, adding more than 750 shop visits versus previous plans and supporting high‑margin services growth. The LEAP aftermarket is also strengthening, with 1,450 high‑pressure turbine blade kits produced and reverse‑bleed technology now adopted on about half of the LEAP‑1A fleet.

FX Headwinds and Volatility

Currency movements weighed on headline results, as U.S. dollar weakness versus the euro cut reported revenue by about 3.2% in 2025 despite strong underlying growth. Management also disclosed that a late‑January event reduced hedging volume by under USD 1 billion, highlighting sensitivity to EUR/USD moves above knock‑out barriers in the 1.21–1.30 range.

French Corporate Surtax and Net Income Pressure

Net income growth lagged the top line, with profit attributable to the parent rising only 3% to EUR 3.2 billion as tax and one‑offs bit into the bottom line. The apparent tax rate rose to 32.3% due to a French corporate surtax of roughly EUR 370–377 million, which cut earnings per share and is expected to add about EUR 850 million of extra tax over two years, weighing on free cash flow.

Significant One‑Off Charges

One‑off items totaled EUR 479 million, about half of which were cash outflows, further distorting the gap between operating momentum and reported net income. These included a EUR 244 million pre‑tax capital loss on the Safran Passenger Innovations divestment, EUR 178 million of impairments, and restructuring and M&A costs tied to the Collins acquisition.

Tariffs and Trade Headwinds

Tariffs remained a recurring headwind, eroding margins and complicating pricing in certain markets even as operational performance improved. Management stressed that while they can offset part of the burden through efficiency and mix, tariffs continue to pressure competitiveness and remain an external risk factor.

Dilutive Impact of Collins Acquisition

The consolidation of Collins’ actuation and flight control business for five months in 2025 contributed approximately EUR 618 million in additional revenue to Equipment & Defense. However, the acquired operations were margin‑dilutive in the near term, meaning investors will need to be patient before expected synergies show up clearly in profitability metrics.

Supply Chain and Raw‑Material Constraints

Upstream bottlenecks in forgings, castings and raw materials continue to constrain the production ramp despite operational improvements, including exposure to rare‑earth supply risk. Safran is investing in additional internal capacity and diversifying supply, but management acknowledged that supply‑chain tightness remains a key execution risk.

M88 Deliveries and Timing Issues

Even with a ramp in capacity to address backlog and exports, M88 fighter engine deliveries were down year on year in 2025, reflecting timing and recognition issues rather than demand weakness. This highlights the uneven quarterly pattern that can affect reported figures in defense even as longer‑term trends remain favorable.

Inventory Build and Hedging Risks

To support the ramp‑up, Safran increased inventories in dollars, which temporarily used cash and added to working‑capital needs despite better DSO metrics. The sizeable hedging program, while protecting against currency swings, carries knock‑out risks if the euro appreciates sharply, potentially reducing hedge cover and increasing earnings volatility.

Timing of LEAP RPFH Profit Recognition

Margins on the LEAP rate per flight hour contract portfolio have improved by about seven points cumulatively since 2021, improving the long‑term economic value of the installed base. However, Safran expects most of these contract profits to be recognized after 2030, limiting near‑term earnings contribution and introducing mid‑term timing risk for investors focused on current margins.

Wide‑Body Seat Certification and Capacity Risks

Demand for business‑class seats on wide‑body aircraft is strong, offering another lever for revenue and mix. Yet the company warned that complex certification processes and tighter regulatory interpretations could make seats a pacing factor for wide‑body production, potentially constraining how fast this high‑value segment can grow.

Upgraded 2028 Targets and 2026 Outlook

Safran lifted its 2024–2028 revenue compound growth target to around 10% and increased 2028 EBIT guidance by EUR 1 billion, reflecting confidence in LEAP, services and defense. For 2026, the company guides to low‑ to mid‑teens revenue growth, recurring operating income of EUR 6.1–6.2 billion and free cash flow of EUR 4.4–4.6 billion, including the French surtax, while targeting higher propulsion, Equipment & Defense and Interiors margins and a robust CFM56 and LEAP services cycle.

Safran’s earnings call painted the picture of a business firing on most cylinders, with record engine deliveries, expanding margins and powerful cash generation supporting higher shareholder returns. While FX, surtaxes, tariffs and supply‑chain constraints continue to cloud reported net income, management’s upgraded long‑term targets and defense and services momentum suggest the growth story has further to run.