Second Quarter Revenue Up 18% Year Over Year;
Strong Profit and Cash Generation
$100 Million in Share Repurchases; $200 Million
Debt Redemption Launched in July 2023
Full Year 2023 Guidance Increased; Expect to
Increase Common Stock Dividend in Fourth Quarter 2023
Howmet Aerospace (NYSE:HWM):
Second Quarter 2023 Highlights
- Revenue of $1.65 billion, up 18% year over year, driven by
commercial aerospace, up 23% year over year
- Net income of $193 million, or $0.46 per share, versus $147
million, or $0.35 per share, in the second quarter 2022
- Net income excluding special items of $181 million, or $0.44
per share, versus $149 million, or $0.35 per share, in the second
quarter 2022
- Adjusted EBITDA excluding special items of $368 million, up 16%
year over year
- Generated $229 million cash from operations and $188 million of
free cash flow; $189 million of cash used for financing activities;
and $41 million of cash used for investing activities
- Cash balance at end of quarter of $536 million including
impacts of $100M of common stock repurchases and $0.04 per share
dividend on common stock
2023 Guidance
Q3 2023 Guidance
FY 2023 Guidance
Low
Baseline
High
Low
Baseline
High
Revenue
$1.580B
$1.590B
$1.600B
$6.400B
$6.440B
$6.470B
Adj. EBITDA*1
$355M
$360M
$365M
$1.435B
$1.445B
$1.455B
Adj. EBITDA Margin*1
22.5%
22.6%
22.8%
22.4%
22.4%
22.5%
Adj. Earnings per Share*1
$0.41
$0.42
$0.43
$1.69
$1.70
$1.71
Free Cash Flow1
$600M
$635M
$670M
______________________
*
Excluding Special Items
1
Reconciliations of the forward-looking
non-GAAP measures to the most directly comparable GAAP measures, as
well as the directly comparable GAAP measures, are not available
without unreasonable efforts due to the variability and complexity
of the charges and other components excluded from the non-GAAP
measures – for further detail, see “2023 Guidance” below.
Key Announcements
- In the second quarter 2023, Howmet Aerospace repurchased $100
million of common stock at an average price of $44.52 per share,
retiring approximately 2.2 million shares. As of July 31, 2023,
total share repurchase authorization available was $822
million.
- On July 31, 2023, the Company issued a notice to redeem $200
million of the aggregate principal amount of its 5.125% Notes due
2024 (“2024 Notes”). The redemption is expected to be completed on
September 28, 2023 and will reduce the outstanding 2024 Notes to
$705 million. This action will reduce annualized interest expense
by approximately $10 million.
- On July 27, 2023, the Company amended its credit agreement for
its $1 billion revolving credit facility, including changes
relating to a maturity date extension to July 27, 2028, a more
favorable Debt-to-EBITDA financial covenant, and certain lower
fees. Revolver capacity remains at $1 billion and is undrawn.
- The Company expects to increase the quarterly dividend on its
common stock from $0.04 per share to $0.05 per share beginning in
the fourth quarter 2023, subject to the discretion and final
approval of the Board of Directors. On May 25, 2023, the Company
paid a quarterly dividend of $0.04 per share on outstanding common
stock.
- In the second quarter 2023, the Company reached a full and
final settlement of all claims arising out of the Lehman Brothers
International (Europe) (“LBIE”) litigation for $40 million. The
litigation concerned interest rate swap transactions that were
entered into in 2007 and 2008, which were assumed as part of the
Firth Rixson acquisition in 2014.
Howmet Aerospace (NYSE: HWM) today reported second quarter 2023
results. The Company reported second quarter revenues of $1.65
billion, up 18% year over year, primarily driven by growth in the
commercial aerospace market of 23%.
Howmet Aerospace reported net income of $193 million, or $0.46
per share, in the second quarter 2023 versus $147 million, or $0.35
per share, in the second quarter 2022. Net income excluding special
items was $181 million, or $0.44 per share, in the second quarter
2023, versus $149 million, or $0.35 per share, in the second
quarter 2022. Net income included approximately $12 million in net
favorable impacts from special items, primarily due to the reversal
of a pre-tax charge taken in the third quarter 2022 related to the
LBIE legal proceeding as a result of the final settlement of such
proceeding in June 2023. Operating income margin was flat year over
year at 17.3% in the second quarter 2023.
Second quarter 2023 Adjusted EBITDA excluding special items was
$368 million, up 16% year over year. The year-over-year increase
was driven by growth in the commercial aerospace market. Adjusted
EBITDA margin excluding special items was down approximately 50
basis points year over year at 22.3%, including approximately $25
million of inflationary cost pass through year over year. Excluding
year over year inflationary cost pass through, adjusted EBITDA
margin excluding special items was 22.7%.
Howmet Aerospace Executive Chairman and Chief Executive Officer
John Plant said, “In the second quarter 2023, Howmet Aerospace
delivered another strong set of results. Revenue grew year over
year in every major end market, led by commercial aerospace up 23%,
and exceeded the high end of our guidance range. Adjusted EBITDA*
and Adjusted Earnings Per Share* also exceeded the high end of
guidance and grew 16% and 26%, respectively, with Adjusted EBITDA
Margin* a healthy 22.3%.”
Mr. Plant continued, “The outlook for Howmet Aerospace continues
to be strong and supported by the extraordinary backlog of
commercial aircraft orders at Airbus and Boeing. Our key defense
aerospace and industrial end markets continue to be solid, while
the commercial transportation end market remains healthy, albeit
the third quarter tends to be seasonally weaker. With the robust
demand backdrop and continued strong operational execution, we are
increasing full year 2023 guidance for revenue, Adjusted EBITDA*,
and Adjusted Earnings Per Share*.”
“Howmet Aerospace’s balance sheet remains solid and cash
generation was strong, supporting $100 million in common stock
repurchases in the second quarter 2023. In July 2023, the Company
launched a redemption of $200 million of its 2024 Notes, which will
reduce annualized interest expense by approximately $10 million. We
also expect to increase the quarterly dividend on common stock from
$0.04 to $0.05 per share in the fourth quarter 2023, demonstrating
confidence in Howmet’s free cash flow profile.”
______________________
*
Excluding Special Items
Second Quarter 2023 Segment Performance
Engine Products
Engine Products reported revenue of $821 million, an increase of
26% year over year, due to growth in the commercial aerospace,
defense aerospace, industrial gas turbine, and oil and gas markets.
Segment Adjusted EBITDA was $223 million, up 25% year over year,
driven by commercial aerospace, defense aerospace, industrial gas
turbine, and oil and gas volumes. The segment added approximately
90 net headcount in the quarter and approximately 350 net headcount
in the first half 2023 in anticipation of future revenue increases,
resulting in unfavorable near-term costs. Segment Adjusted EBITDA
margin decreased approximately 30 basis points year over year to
27.2%.
Fastening Systems
Fastening Systems reported revenue of $329 million, an increase
of 19% year over year due to growth in the commercial aerospace,
defense aerospace, industrial, and commercial transportation
markets. Segment Adjusted EBITDA was $64 million, up 14% year over
year, driven by commercial aerospace, defense aerospace,
industrial, and commercial transportation volumes. The segment
added approximately 215 net headcount in the quarter and
approximately 430 net headcount in the first half 2023 in
anticipation of future revenue increases, resulting in unfavorable
near-term costs. Segment Adjusted EBITDA margin decreased
approximately 70 basis points year over year to 19.5%.
Engineered Structures
Engineered Structures reported revenue of $200 million, an
increase of 8% year over year due to growth in the commercial
aerospace market driven by Russian titanium share gains, partially
offset by declines in the defense aerospace market. Segment
Adjusted EBITDA was $20 million, down 23% year over year, driven by
unfavorable volume in the defense aerospace market and production
rate increases not realized, partially offset by favorable volume
in the commercial aerospace market. Operational costs such as
additional headcount to support the planned production rate
increases were unrecovered due to production bottlenecks at one
plant. The Company expects to achieve targeted production levels in
the second half 2023. The segment added approximately 50 net
headcount in the quarter in anticipation of future revenue
increases, resulting in unfavorable near-term costs. Segment
Adjusted EBITDA margin decreased approximately 410 basis points
year over year to 10.0%.
Forged Wheels
Forged Wheels reported revenue of $298 million, an increase of
7% year over year due to a 6% increase in volume. Segment Adjusted
EBITDA was $81 million, up 8% year over year, driven by favorable
volume partially offset by supply chain disruptions. Segment
Adjusted EBITDA margin increased approximately 30 basis points year
over year to 27.2% as the impact of lower aluminum prices was
partially offset by inflationary cost pass through.
Repurchased $100 Million of Common Stock in Second Quarter
2023
In the second quarter 2023, Howmet Aerospace repurchased $100
million of common stock at an average price of $44.52 per share,
retiring approximately 2.2 million shares. In the first half 2023,
the Company repurchased $125 million of common stock at an average
price of $44.28 per share, retiring approximately 2.8 million
shares. As of July 31, 2023, total share repurchase authorization
available was $822 million.
Redeeming $200 Million of 2024 Notes in Third Quarter
2023
On July 31, 2023, Howmet Aerospace issued a notice to redeem
$200 million of the aggregate principal amount of its 5.125% Notes
due 2024 (“2024 Notes”). The redemption is expected to be completed
on September 28, 2023 and will reduce the outstanding 2024 Notes to
$705 million. This redemption will reduce annualized interest
expense by approximately $10 million. In the first quarter 2023,
the Company redeemed $150 million and additionally repurchased
approximately $26 million of the aggregate principal amount of the
2024 Notes. These combined actions will reduce annualized interest
expense by approximately $19 million. All of the Company’s
outstanding debt is unsecured and at fixed interest rates.
Revolver Amended Through 2028 with More Favorable
Terms
On July 27, 2023, the Company amended its credit agreement for
its $1 billion revolving credit facility, including changes
relating to a maturity date extension to July 27, 2028, a more
favorable Debt-to-EBITDA financial covenant, and certain lower
fees. Revolver capacity remains at $1 billion and is undrawn.
Howmet Aerospace Expecting to Increase Common Stock Dividend
in Fourth Quarter 2023
The Company expects to increase the quarterly dividend of its
common stock from $0.04 per share to $0.05 per share, a 25%
increase, beginning in the fourth quarter 2023, subject to the
discretion and final approval of the Board of Directors each
quarter after the Board’s consideration of all factors it deems
relevant and subject to applicable law. On May 25, 2023, the
Company paid a quarterly dividend of $0.04 per share on outstanding
common stock.
Lehman Brothers International (Europe) (“LBIE”) Legal
Proceeding Settled
In the second quarter 2023, the Company reached a full and final
settlement of all claims arising out of the LBIE litigation. The
litigation concerned interest rate swap transactions that were
entered into in 2007 and 2008, which were assumed as part of the
Firth Rixson acquisition in 2014. The settlement provides for a
payment of $40 million to be paid to LBIE in two installments: $15
million paid in July 2023 and $25 million payable in July 2024. As
a result of the settlement, $25 million of the amount previously
recorded for the litigation as a pre-tax charge in Other income,
net was reversed in the Company’s second quarter 2023 results.
2023 Guidance
Q3 2023 Guidance
FY 2023 Guidance
Low
Baseline
High
Low
Baseline
High
Revenue
$1.580B
$1.590B
$1.600B
$6.400B
$6.440B
$6.470B
Adj. EBITDA*1
$355M
$360M
$365M
$1.435B
$1.445B
$1.455B
Adj. EBITDA Margin*1
22.5%
22.6%
22.8%
22.4%
22.4%
22.5%
Adj. Earnings per Share*1
$0.41
$0.42
$0.43
$1.69
$1.70
$1.71
Free Cash Flow1
$600M
$635M
$670M
* Excluding Special Items
1 Reconciliations of the forward-looking
non-GAAP financial measures to the most directly comparable GAAP
financial measures, as well as the directly comparable GAAP
measures, are not available without unreasonable efforts due to the
variability and complexity of the charges and other components
excluded from the non-GAAP measures, such as the effects of foreign
currency movements, gains or losses on sales of assets, taxes, and
any future restructuring or impairment charges. In addition, there
is inherent variability already included in the GAAP measures,
including, but not limited to, price/mix and volume. Howmet
Aerospace believes such reconciliations would imply a degree of
precision that would be confusing or misleading to investors.
Howmet Aerospace will hold its quarterly conference call at
10:00 AM Eastern Time on Tuesday, August 1, 2023. The call will be
webcast via www.howmet.com. The press release and presentation
materials will be available at approximately 7:00 AM ET on August
1, via the “Investors” section of the Howmet Aerospace
website.
About Howmet Aerospace
Howmet Aerospace Inc., headquartered in Pittsburgh,
Pennsylvania, is a leading global provider of advanced engineered
solutions for the aerospace and transportation industries. The
Company’s primary businesses focus on jet engine components,
aerospace fastening systems, and airframe structural components
necessary for mission-critical performance and efficiency in
aerospace and defense applications, as well as forged aluminum
wheels for commercial transportation. With nearly 1,150 granted and
pending patents, the Company’s differentiated technologies enable
lighter, more fuel-efficient aircraft and commercial trucks to
operate with a lower carbon footprint. For more information, visit
www.howmet.com.
Dissemination of Company Information
Howmet Aerospace intends to make future announcements regarding
Company developments and financial performance through its website
at www.howmet.com.
Forward-Looking Statements
This release contains statements that relate to future events
and expectations and as such constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include those containing such
words as "anticipates," "believes," "could," "estimates,"
"expects," "forecasts," "goal," "guidance," "intends," "may,"
"outlook," "plans," "projects," "seeks," "sees," "should,"
"targets," "will," "would," or other words of similar meaning. All
statements that reflect Howmet Aerospace’s expectations,
assumptions or projections about the future, other than statements
of historical fact, are forward-looking statements, including,
without limitation, statements, forecasts and outlook relating to
the condition of end markets; future financial results or operating
performance; future strategic actions; Howmet Aerospace's
strategies, outlook, and business and financial prospects; and any
future dividends and repurchases of its debt or equity securities.
These statements reflect beliefs and assumptions that are based on
Howmet Aerospace’s perception of historical trends, current
conditions and expected future developments, as well as other
factors Howmet Aerospace believes are appropriate in the
circumstances. Forward-looking statements are not guarantees of
future performance and are subject to risks, uncertainties and
changes in circumstances that are difficult to predict, which could
cause actual results to differ materially from those indicated by
these statements. Such risks and uncertainties include, but are not
limited to: (a) deterioration in global economic and financial
market conditions generally; (b) unfavorable changes in the markets
served by Howmet Aerospace; (c) the impact of potential cyber
attacks and information technology or data security breaches; (d)
the loss of significant customers or adverse changes in customers’
business or financial conditions; (e) manufacturing difficulties or
other issues that impact product performance, quality or safety;
(f) inability of suppliers to meet obligations due to supply chain
disruptions or otherwise; (g) failure to attract and retain a
qualified workforce and key personnel; (h) uncertainty of the
residual impact of the COVID-19 pandemic on Howmet Aerospace’s
business, results of operations, and financial condition; (i) the
inability to achieve revenue growth, cash generation, restructuring
plans, cost reductions, improvement in profitability, or
strengthening of competitiveness and operations anticipated or
targeted; (j) inability to meet increased demand, production
targets or commitments; (k) competition from new product offerings,
disruptive technologies or other developments; (l) geopolitical,
economic, and regulatory risks relating to Howmet Aerospace’s
global operations, including geopolitical and diplomatic tensions,
instabilities and conflicts, as well as compliance with U.S. and
foreign trade and tax laws, sanctions, embargoes and other
regulations; (m) the outcome of contingencies, including legal
proceedings, government or regulatory investigations, and
environmental remediation, which can expose Howmet Aerospace to
substantial costs and liabilities; (n) failure to comply with
government contracting regulations; (o) adverse changes in discount
rates or investment returns on pension assets; and (p) the other
risk factors summarized in Howmet Aerospace’s Form 10-K for the
year ended December 31, 2022 and other reports filed with the U.S.
Securities and Exchange Commission. Market projections are subject
to the risks discussed above and other risks in the market. The
statements in this release are made as of the date of this release,
even if subsequently made available by Howmet Aerospace on its
website or otherwise. Howmet Aerospace disclaims any intention or
obligation to update publicly any forward-looking statements,
whether in response to new information, future events, or
otherwise, except as required by applicable law.
Non-GAAP Financial Measures
Some of the information included in this release is derived from
Howmet Aerospace’s consolidated financial information but is not
presented in Howmet Aerospace’s financial statements prepared in
accordance with accounting principles generally accepted in the
United States of America (GAAP). Certain of these data are
considered “non-GAAP financial measures” under SEC rules. These
non-GAAP financial measures supplement our GAAP disclosures and
should not be considered an alternative to the GAAP measure.
Reconciliations to the most directly comparable GAAP financial
measures and management’s rationale for the use of the non-GAAP
financial measures can be found in the schedules to this
release.
Howmet Aerospace Inc. and
subsidiaries
Statement of Consolidated Operations
(unaudited)
(in U.S. dollar millions, except
per-share and share amounts)
Quarter ended
June 30, 2023
March 31, 2023
June 30, 2022
Sales
$
1,648
$
1,603
$
1,393
Cost of goods sold (exclusive of expenses
below)
1,196
1,164
987
Selling, general administrative, and other
expenses
88
75
83
Research and development expenses
9
9
9
Provision for depreciation and
amortization
67
69
67
Restructuring and other charges(1)
3
1
6
Operating income
285
285
241
Loss on debt redemption
—
1
2
Interest expense, net
55
57
57
Other (income) expense, net(2)
(13
)
7
(1
)
Income before income taxes
243
220
183
Provision for income taxes
50
72
36
Net income
$
193
$
148
$
147
Amounts Attributable to Howmet
Aerospace Common Shareholders:
Earnings per share - basic(3)(4):
Net income per share
$
0.47
$
0.36
$
0.35
Average number of shares(4)(5)
413,240,220
412,164,982
417,064,041
Earnings per share - diluted(3)(4):
Net income per share
$
0.46
$
0.35
$
0.35
Average number of shares(5)
417,005,522
418,260,459
422,053,717
Common stock outstanding at the end of the
period
412,169,561
411,810,073
416,309,875
(1)
Restructuring and other charges for the
quarter ended June 30, 2023 included pension settlement charges.
Restructuring and other charges for the quarter ended March 31,
2023 included other exit costs and severance reversals.
Restructuring and other charges for the quarter ended June 30, 2022
included pension settlement charges, other exit costs, and
accelerated depreciation.
(2)
Other (income) expense, net for the
quarter ended June 30, 2023 included the reversal of $25, net of
legal fees of $1, of the $65 pre-tax charge taken in the third
quarter of 2022 related to the Lehman Brothers International
(Europe) (“LBIE”) legal proceeding.
(3)
In order to calculate both basic and
diluted earnings per share, preferred stock dividends declared of
$1 for the quarters presented need to be subtracted from Net
income.
(4)
For the quarters presented, the difference
between the diluted average number of shares and the basic average
number of shares related to share equivalents associated with
outstanding awards and employee stock options.
(5)
As average shares outstanding are used in
the calculation of both basic and diluted earnings per share, the
full impact of share repurchases is not realized in EPS in the year
of repurchase for the periods presented.
Howmet Aerospace Inc. and
subsidiaries
Consolidated Balance Sheet
(unaudited)
(in U.S. dollar millions)
June 30, 2023
December 31, 2022
Assets
Current assets:
Cash and cash equivalents
$
535
$
791
Receivables from customers, less
allowances of $1 in both 2023 and 2022
657
506
Other receivables
14
31
Inventories
1,715
1,609
Prepaid expenses and other current
assets
207
206
Total current assets
3,128
3,143
Properties, plants, and equipment, net
2,319
2,332
Goodwill
4,026
4,013
Deferred income taxes
52
54
Intangibles, net
513
521
Other noncurrent assets
195
192
Total assets
$
10,233
$
10,255
Liabilities
Current liabilities:
Accounts payable, trade
$
881
$
962
Accrued compensation and retirement
costs
209
195
Taxes, including income taxes
78
48
Accrued interest payable
73
75
Other current liabilities
169
202
Total current liabilities
1,410
1,482
Long-term debt, less amount due within one
year
3,989
4,162
Accrued pension benefits
626
633
Accrued other postretirement benefits
106
109
Other noncurrent liabilities and deferred
credits
327
268
Total liabilities
6,458
6,654
Equity
Howmet Aerospace shareholders’ equity:
Preferred stock
55
55
Common stock
412
412
Additional capital
3,782
3,947
Retained earnings
1,334
1,028
Accumulated other comprehensive loss
(1,808
)
(1,841
)
Total equity
3,775
3,601
Total liabilities and equity
$
10,233
$
10,255
Howmet Aerospace and
subsidiaries
Statement of Consolidated Cash Flows
(unaudited)
(in U.S. dollar millions)
Six months ended June
30,
2023
2022
Operating activities
Net income
$
341
$
278
Adjustments to reconcile net income to
cash provided from operations:
Depreciation and amortization
136
133
Deferred income taxes
57
52
Restructuring and other charges
4
8
Net realized and unrealized losses
11
7
Net periodic pension cost
19
11
Stock-based compensation
26
29
Loss on debt redemption
1
2
Other
—
27
Changes in assets and liabilities,
excluding effects of acquisitions, divestitures, and foreign
currency translation adjustments:
Increase in receivables
(141
)
(169
)
Increase in inventories
(99
)
(191
)
(Increase) decrease in prepaid expenses
and other current assets
(9
)
1
(Decrease) increase in accounts payable,
trade
(80
)
118
Decrease in accrued expenses
(15
)
(40
)
Increase in taxes, including income
taxes
31
1
Pension contributions
(12
)
(20
)
Decrease (increase) in noncurrent
assets
1
(1
)
Decrease in noncurrent liabilities
(19
)
(33
)
Cash provided from operations
252
213
Financing Activities
Net change in short-term borrowings
—
(4
)
Repurchases and payments on debt
(176
)
(60
)
Premiums paid on early redemption of
debt
(1
)
(2
)
Repurchase of common stock
(125
)
(235
)
Proceeds from exercise of employee stock
options
9
10
Dividends paid to shareholders
(35
)
(18
)
Taxes paid for net share settlement of
equity awards
(75
)
(22
)
Cash used for financing
activities
(403
)
(331
)
Investing Activities
Capital expenditures
(105
)
(106
)
Proceeds from the sale of assets and
businesses
—
42
Other
—
(1
)
Cash used for investing
activities
(105
)
(65
)
Effect of exchange rate changes on
cash, cash equivalents and restricted cash
—
(1
)
Net change in cash, cash equivalents and
restricted cash
(256
)
(184
)
Cash, cash equivalents and restricted cash
at beginning of period
792
722
Cash, cash equivalents and restricted
cash at end of period
$
536
$
538
Howmet Aerospace Inc. and
subsidiaries
Segment Information (unaudited)
(in U.S. dollar millions)
1Q22
2Q22
3Q22
4Q22
2022
1Q23
2Q23
Engine
Products
Third-party sales
$
631
$
652
$
683
$
732
$
2,698
$
795
$
821
Inter-segment sales
$
1
$
1
$
1
$
1
$
4
$
2
$
5
Provision for depreciation and
amortization
$
31
$
31
$
31
$
32
$
125
$
32
$
32
Segment Adjusted EBITDA
$
173
$
179
$
186
$
191
$
729
$
212
$
223
Segment Adjusted EBITDA Margin
27.4
%
27.5
%
27.2
%
26.1
%
27.0
%
26.7
%
27.2
%
Restructuring and other charges
(credits)
$
3
$
4
$
2
$
20
$
29
$
—
$
(1
)
Capital expenditures
$
27
$
24
$
23
$
20
$
94
$
33
$
21
Fastening
Systems
Third-party sales
$
264
$
277
$
291
$
285
$
1,117
$
312
$
329
Provision for depreciation and
amortization
$
12
$
11
$
11
$
11
$
45
$
11
$
12
Segment Adjusted EBITDA
$
56
$
56
$
64
$
58
$
234
$
58
$
64
Segment Adjusted EBITDA Margin
21.2
%
20.2
%
22.0
%
20.4
%
20.9
%
18.6
%
19.5
%
Restructuring and other (credits)
charges
$
(3
)
$
—
$
—
$
11
$
8
$
—
$
—
Capital expenditures
$
15
$
8
$
7
$
9
$
39
$
9
$
5
Engineered
Structures
Third-party sales
$
182
$
185
$
193
$
230
$
790
$
207
$
200
Inter-segment sales
$
1
$
1
$
3
$
1
$
6
$
—
$
1
Provision for depreciation and
amortization
$
12
$
12
$
12
$
12
$
48
$
12
$
12
Segment Adjusted EBITDA
$
23
$
26
$
28
$
34
$
111
$
30
$
20
Segment Adjusted EBITDA Margin
12.6
%
14.1
%
14.5
%
14.8
%
14.1
%
14.5
%
10.0
%
Restructuring and other charges
$
2
$
1
$
1
$
3
$
7
$
1
$
5
Capital expenditures
$
7
$
2
$
3
$
5
$
17
$
10
$
5
Forged
Wheels
Third-party sales
$
247
$
279
$
266
$
266
$
1,058
$
289
$
298
Provision for depreciation and
amortization
$
10
$
10
$
10
$
10
$
40
$
9
$
10
Segment Adjusted EBITDA
$
67
$
75
$
64
$
72
$
278
$
79
$
81
Segment Adjusted EBITDA Margin
27.1
%
26.9
%
24.1
%
27.1
%
26.3
%
27.3
%
27.2
%
Restructuring and other charges
$
—
$
—
$
—
$
2
$
2
$
—
$
—
Capital expenditures
$
9
$
5
$
6
$
8
$
28
$
9
$
7
Differences between the total segment and
consolidated totals are in Corporate.
Howmet Aerospace Inc. and
subsidiaries
Segment Information (unaudited)
(in U.S. dollar millions)
Reconciliation of Total Segment
Adjusted EBITDA to Consolidated Income Before Income Taxes
1Q22
2Q22
3Q22
4Q22
2022
1Q23
2Q23
Income before income taxes
$
171
$
183
$
104
$
148
$
606
$
220
$
243
Loss on debt redemption
—
2
—
—
2
1
—
Interest expense, net
58
57
57
57
229
57
55
Other expense (income), net
1
(1
)
67
15
82
7
(13
)
Operating income
$
230
$
241
$
228
$
220
$
919
$
285
$
285
Segment provision for depreciation and
amortization
65
64
64
65
258
64
66
Unallocated amounts:
Restructuring and other charges
2
6
4
44
56
1
3
Corporate expense(1)
22
25
46
26
119
29
34
Total Segment Adjusted EBITDA
$
319
$
336
$
342
$
355
$
1,352
$
379
$
388
Total Segment Adjusted EBITDA is a non-GAAP financial measure.
Management believes that this measure is meaningful to investors
because Total Segment Adjusted EBITDA provides additional
information with respect to the Company's operating performance and
the Company’s ability to meet its financial obligations. The Total
Segment Adjusted EBITDA presented may not be comparable to
similarly titled measures of other companies. Howmet’s definition
of Total Segment Adjusted EBITDA (Earnings before interest, taxes,
depreciation, and amortization) is net margin plus an add-back for
depreciation and amortization. Net margin is equivalent to Sales
minus the following items: Cost of goods sold; Selling, general
administrative, and other expenses; Research and development
expenses; and Provision for depreciation and amortization. Special
items, including Restructuring and other charges, are excluded from
net margin and Segment Adjusted EBITDA. Differences between the
total segment and consolidated totals are in Corporate.
(1)
For the quarter ended March 31, 2022,
Corporate expense included $5 of costs related to fires at two
plants and ($3) of reimbursement related to legal and advisory
charges. For the quarter ended June 30, 2022, Corporate expense
included $2 of costs related to fires at two plants and $1 of costs
associated with closures, shutdowns, and other items. For the
quarter ended September 30, 2022, Corporate expense included $25 of
costs related to fires at three plants and $1 of costs associated
with closures, shutdowns, and other items. In the third quarter of
2022, the Company’s cast house in Barberton, Ohio, which produces
aluminum ingot used in the production of wheels for the North
American commercial transportation market, experienced a mechanical
failure resulting in substantial heat and fire-related damage to
equipment. For the quarter ended December 31, 2022, Corporate
expense included $4 of costs related to fires at three plants, net
of reimbursement, and $1 of costs associated with closures,
shutdowns, and other items. For the quarter ended March 31, 2023,
Corporate expense included $4 of costs related to fires at two
plants and $1 of costs associated with closures, shutdowns, and
other items. For the quarter ended June 30, 2023, Corporate expense
included $9 of costs associated with closures, supply chain
disruptions, and other items, $7 of costs related to a collective
bargaining agreement negotiation, and ($4) of net reimbursements
related to fires at two plants.
Howmet Aerospace Inc. and
subsidiaries
Calculation of Financial Measures
(unaudited), continued
(in U.S. dollars millions)
Reconciliation of Free cash
flow
Quarter ended
Six months ended
March 31, 2023
June 30, 2023
June 30, 2023
Cash provided from operations
$
23
$
229
$
252
Capital expenditures
(64
)
(41
)
(105
)
Free cash flow
$
(41
)
$
188
$
147
The Accounts Receivable Securitization program remains unchanged
at $250 outstanding.
Free cash flow is a non-GAAP financial measure. Management
believes that this measure is meaningful to investors because
management reviews cash flows generated from operations after
taking into consideration capital expenditures (due to the fact
that these expenditures are considered necessary to maintain and
expand the Company's asset base and are expected to generate future
cash flows from operations). It is important to note that Free cash
flow does not represent the residual cash flow available for
discretionary expenditures since other non-discretionary
expenditures, such as mandatory debt service requirements, are not
deducted from the measure.
Howmet Aerospace Inc. and
subsidiaries
Calculation of Financial Measures
(unaudited), continued
(in U.S. dollar millions, except
per-share and share amounts)
Reconciliation of Net income excluding
Special items
Quarter ended
Six months ended
June 30, 2022
March 31, 2023
June 30, 2023
June 30, 2022
June 30, 2023
Net income
$
147
$
148
$
193
$
278
$
341
Diluted earnings per share (EPS)
$
0.35
$
0.35
$
0.46
$
0.66
$
0.81
Special items:
Restructuring and other charges
6
1
3
8
4
Loss on debt redemption and related
costs
2
1
—
2
1
Plant fire costs (reimbursements), net
2
4
(4
)
7
—
Collective bargaining agreement
negotiation
—
—
7
—
7
Settlement from legal proceeding, net of
legal fees(1)
—
—
(24
)
—
(24
)
Legal and other advisory
reimbursements
—
—
—
(3
)
—
Costs associated with closures, supply
chain disruptions, and other items(2)
1
1
9
1
10
Subtotal: Pre-tax special items
11
7
(9
)
15
(2
)
Tax impact of Pre-tax special items(3)
(2
)
(1
)
2
(3
)
1
Subtotal
9
6
(7
)
12
(1
)
Discrete and other tax special
items(4)
(7
)
21
(5
)
(9
)
16
Total: After-tax special items
2
27
(12
)
3
15
Net income excluding Special items
$
149
$
175
$
181
$
281
$
356
Diluted EPS excluding Special items
$
0.35
$
0.42
$
0.44
$
0.66
$
0.85
Average number of shares - diluted EPS
excluding Special items
422,053,717
418,260,459
417,005,522
423,411,073
417,455,768
Net income excluding Special items and Diluted EPS excluding
Special items are non-GAAP financial measures. Management believes
that these measures are meaningful to investors because management
reviews the operating results of the Company excluding the impacts
of Restructuring and other charges, Discrete tax items, and Other
special items (collectively, “Special items”). There can be no
assurances that additional Special items will not occur in future
periods. To compensate for this limitation, management believes
that it is appropriate to consider both Net income determined under
GAAP as well as Net income excluding Special items and Diluted EPS
excluding Special items.
(1)
Settlement from legal proceeding, net of
legal fees for the quarter and six months ended June 30, 2023
related to the reversal of $25, net of legal fees of $1, of the $65
pre-tax charge taken in the third quarter of 2022 related to the
LBIE legal proceeding.
(2)
For the quarter and six months ended June
30, 2023, Costs associated with closures, supply chain disruptions,
and other items included costs for a site closure and inventory
disposal, an impact from supply disruptions, and remediation and
separation expenses.
(3)
The Tax impact of Pre-tax special items is
based on the applicable statutory rates whereby the difference
between such rates and the Company’s consolidated estimated annual
effective tax rate is itself a Special item.
(4)
Discrete tax items for each period
included the following:
- for the quarter ended June 30, 2022, a benefit to release a
valuation allowance related to an interest carryforward tax
attribute in the U.K. ($6) and a net benefit for other small items
($1);
- for the quarter ended March 31, 2023, a charge for a tax
reserve established in France $20 and a net charge for other small
items $1;
- for the quarter ended June 30, 2023, an excess benefit for
stock compensation ($8) and a net charge for other small items
$1;
- for the six months ended June 30, 2022, a benefit to release a
valuation allowance related to an interest carryforward tax
attribute in the U.K. ($6), an excess benefit for stock
compensation ($5), and a net charge for other small items $2;
and
- for the six months ended June 30, 2023, a
charge for a tax reserve established in France $20, an excess
benefit for stock compensation ($8), and a net charge for other
small items $2.
Howmet Aerospace Inc. and
subsidiaries
Calculation of Financial Measures
(unaudited), continued
(in U.S. dollar millions)
Reconciliation of Operational tax
rate
Quarter ended June 30,
2023
Six months ended June 30,
2023
Effective tax rate, as
reported
Special items(1)(2)
Operational tax rate, as
adjusted
Effective tax rate, as
reported
Special items(1)(2)
Operational tax rate, as
adjusted
Income before income taxes
$
243
$
(9
)
$
234
$
463
$
(2
)
$
461
Provision for income taxes
$
50
$
3
$
53
$
122
$
(17
)
$
105
Tax rate
20.6
%
22.6
%
26.3
%
22.8
%
Operational tax rate is a non-GAAP financial measure. Management
believes that this measure is meaningful to investors because
management reviews the operating results of the Company excluding
the impacts of Special items. There can be no assurances that
additional Special items will not occur in future periods. To
compensate for this limitation, management believes that it is
appropriate to consider both the Effective tax rate determined
under GAAP as well as the Operational tax rate.
(1)
Special items for the quarter ended June
30, 2023 included settlement from legal proceeding, net of legal
fees ($24) and net reimbursements related to fires at two plants
($4), partially offset by costs associated with closures, supply
chain disruptions, and other items $9, costs related to a
collective bargaining agreement negotiation $7, and Restructuring
and other charges $3. Special items for the six months ended June
30, 2023 included settlement from legal proceeding, net of legal
fees ($24), partially offset by costs associated with closures,
supply chain disruptions, and other items $10, costs related to a
collective bargaining agreement negotiation $7, Restructuring and
other charges $4, and loss on debt redemption and related costs
$1.
(2) Tax Special items includes discrete tax items, the tax impact
on Special items based on the applicable statutory rates, the
difference between such rates and the Company’s
consolidated estimated annual effective
tax rate and other tax related items. Discrete tax items for each
period included the following:
- for the quarter ended June 30, 2023, an excess benefit for
stock compensation ($8) and a net charge for other small items $1;
and
- for the six months ended June 30, 2023, a
charge for a tax reserve established in France $20, an excess
benefit for stock compensation ($8), and a net charge for other
small items $2.
Howmet Aerospace Inc. and
subsidiaries
Calculation of Financial Measures
(unaudited), continued
(in U.S. dollars millions)
Reconciliation of Adjusted EBITDA and
Adjusted EBITDA margin excluding Special items
Quarter ended
June 30, 2022
March 31, 2023
June 30, 2023
Sales
$
1,393
$
1,603
$
1,648
Operating income
$
241
$
285
$
285
Operating income margin
17.3
%
17.8
%
17.3
%
Net income
$
147
$
148
$
193
Add:
Provision for income taxes
$
36
$
72
$
50
Other (income) expense, net
(1
)
7
(13
)
Loss on debt redemption
2
1
—
Interest expense, net
57
57
55
Restructuring and other charges
6
1
3
Provision for depreciation and
amortization
67
69
67
Adjusted EBITDA
$
314
$
355
$
355
Add:
Plant fire costs (reimbursements), net
$
2
$
4
$
(4
)
Collective bargaining agreement
negotiation
—
—
7
Costs associated with closures, supply
chain disruptions, and other items
1
1
10
Adjusted EBITDA excluding Special
items
$
317
$
360
$
368
Adjusted EBITDA margin excluding Special
items
22.8
%
22.5
%
22.3
%
Incremental margin
Quarter ended
June 30, 2022
June 30, 2023
Q2 2023 YoY
Third-party sales
$
1,393
$
1,648
Year-over-Year Material and other
inflationary cost pass through
(25
)
Third-party sales excluding Material and
other inflationary cost pass through (b)
$
1,393
$
1,623
$
230
Adjusted EBITDA excluding Special items
(a)
$
317
$
368
$
51
Incremental margin (a)/(b)
22
%
Adjusted EBITDA, Adjusted EBITDA excluding Special items,
Adjusted EBITDA margin excluding Special items, Third-party sales
excluding Material and other inflationary cost pass through, and
Incremental margin are non-GAAP financial measures. Management
believes that these measures are meaningful to investors because
they provide additional information with respect to the Company's
operating performance and the Company’s ability to meet its
financial obligations. The Adjusted EBITDA presented may not be
comparable to similarly titled measures of other companies. The
Company's definition of Adjusted EBITDA (Earnings before interest,
taxes, depreciation, and amortization) is net margin plus an
add-back for depreciation and amortization. Net margin is
equivalent to Sales minus the following items: Cost of goods sold,
Selling, general administrative, and other expenses, Research and
development expenses, and Provision for depreciation and
amortization.
Howmet Aerospace Inc. and
subsidiaries
Calculation of Financial Measures
(unaudited), continued
(in U.S. dollars millions)
Reconciliation of Adjusted EBITDA and
Adjusted EBITDA margin excluding Special items and Material and
other inflationary cost pass through
Quarter ended
March 31, 2023
June 30, 2023
Net income
$
148
$
193
Add:
Provision for income taxes
$
72
$
50
Other expense (income), net
7
(13
)
Loss on debt redemption
1
—
Interest expense, net
57
55
Restructuring and other charges
1
3
Provision for depreciation and
amortization
69
67
Adjusted EBITDA
$
355
355
Add:
Plant fire costs (reimbursements), net
$
4
$
(4
)
Collective bargaining agreement
negotiation
—
7
Costs associated with closures, supply
chain disruptions, and other items
1
10
Adjusted EBITDA excluding Special items
(a)
$
360
$
368
Third-party sales (b)
$
1,603
$
1,648
Year-over-Year Material and other
inflationary cost pass through
(35
)
(25
)
Third-party sales excluding Year-over-Year
Material and other inflationary cost pass through (c)
$
1,568
$
1,623
Adjusted EBITDA margin excluding Special
items (a)/(b)
22.5
%
22.3
%
Adjusted EBITDA margin excluding Special
items and Year-over-Year Material and other inflationary cost pass
through (a)/(c)
23.0
%
22.7
%
Adjusted EBITDA, Adjusted EBITDA excluding Special items,
Third-party sales excluding Year-over-Year Material and other
inflationary cost pass through, Adjusted EBITDA margin excluding
Special items, and Adjusted EBITDA margin excluding Special items
and Year-over-Year Material and other inflationary cost pass
through are non-GAAP financial measures. Management believes that
these measures are meaningful to investors because they provide
additional information with respect to the Company's operating
performance and the Company’s ability to meet its financial
obligations. The Adjusted EBITDA presented may not be comparable to
similarly titled measures of other companies. The Company's
definition of Adjusted EBITDA (Earnings before interest, taxes,
depreciation, and amortization) is net margin plus an add-back for
depreciation and amortization. Net margin is equivalent to Sales
minus the following items: Cost of goods sold, Selling, general
administrative, and other expenses, Research and development
expenses, and Provision for depreciation and amortization.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230801424965/en/
Investor Contact Paul T. Luther (412) 553-1950
Paul.Luther@howmet.com
Media Contact Rob Morrison (412) 553-2666
Rob.Morrison@howmet.com
Howmet Aerospace (NYSE:HWM)
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