Commercial Aerospace Revenue Up 23% YoY, Positive Cash Generation

$100 Million Share Repurchases, Doubled Quarterly Common Stock Dividend in Fourth Quarter 2022

2023 Preliminary Revenue Growth Guidance Approximately 10% (+/- 2%)

PITTSBURGH–(BUSINESS WIRE)–Howmet Aerospace (NYSE:HWM):

Third Quarter 2022 Highlights

  • Revenue of $1.43 billion, up 12% year over year, driven by Commercial Aerospace, up 23% YoY
  • Net income of $80 million, or $0.19 per share, versus $27 million, or $0.06 per share, in the third quarter 2021
  • Net income excluding special items of $152 million, or $0.36 per share, versus $120 million, or $0.27 per share, in the third quarter 2021
  • Adjusted EBITDA excluding special items of $323 million, up 11% year over year
  • Generated $65 million cash from operations; $23 million of free cash flow; $106 million of cash used for financing activities; and $41 million of cash used for investing activities
  • Cash balance at end of quarter of $454 million; $100 million of common stock repurchases; $0.02 per share dividend on common stock

2022 Guidance1

Q4 2022 Guidance

 

FY 2022 Guidance

Low

Baseline

High

 

Low

Baseline

High

Revenue

$1,450M

$1,470M

$1,500M

 

$5,600M

$5,620M

$5,650M

Adj. EBITDA*

$325M

$330M

$336M

 

$1,265M

$1,270M

$1,276M

Adj. EBITDA Margin*

22.4%

22.4%

22.4%

 

22.6%

22.6%

22.6%

Adj. Earnings per Share*

$0.37

$0.38

$0.39

 

$1.39

$1.40

$1.41

Free Cash Flow

 

 

 

 

$520M

$560M

$580M

* 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 “2022 Guidance” below.

Key Announcements

  • In the third quarter 2022, Howmet Aerospace repurchased approximately 2.8 million shares for $100 million. As of October 28, 2022, total share repurchase authorization available was $1.012 billion.
  • The Company increased the quarterly dividend of its common stock from $0.02 per share to $0.04 per share in the fourth quarter 2022.

Howmet Aerospace (NYSE:HWM) today reported third quarter 2022 results. The Company reported third quarter 2022 revenues of $1.43 billion, up 12% year over year, primarily driven by growth in the commercial aerospace market of 23%.

Howmet Aerospace reported net income of $80 million, or $0.19 per share, in the third quarter 2022 versus net income of $27 million, or $0.06 per share, in the third quarter 2021. Net income excluding special items was $152 million, or $0.36 per share, in the third quarter 2022, versus $120 million, or $0.27 per share, in the third quarter 2021. Net income included approximately $70 million in net charges from special items, primarily due to an adverse judgment from a legal proceeding relating to swaps that were entered into in 2007 and 2008 and assumed as part of the Firth Rixson acquisition in 2014, as well as wheels plant fire costs, partially offset by related tax impacts.

Third quarter 2022 Adjusted EBITDA excluding special items was $323 million, up 11% year over year. The year-over-year increase was driven by volume growth in the commercial aerospace market. Adjusted EBITDA margin, excluding special items, was down approximately 30 basis points year over year at 22.5% while passing through approximately $70 million of additional material costs year over year. Excluding material pass through costs, adjusted EBITDA margin excluding special items was 23.7% and year over year flow through of incremental revenue to Adjusted EBITDA excluding special items was strong at approximately 39%.

Howmet Aerospace Executive Chairman and Chief Executive Officer John Plant said, “The Howmet Aerospace team continued to execute well in the third quarter 2022. Net income performance has been solid since the middle of 2021. In fact, the third quarter 2022 marks the 5th consecutive quarter of year-over-year revenue, Adjusted EBITDA2, and Adjusted EPS2 growth. Adjusted EBITDA margin2 was healthy at 22.5%. Adjusted EPS2 matched the midpoint of guidance and grew 33% year over year. Although the commercial aerospace end market saw an uneven pace of recovery in the third quarter 2022, all of Howmet Aerospace’s aerospace-focused segments increased revenue sequentially.”

Mr. Plant continued, “Looking ahead, we continue to expect the commercial aerospace end market to grow at above-trend rates for the next several years. Howmet Aerospace’s defense aerospace market should also return to growth starting in the middle of 2023. We expect 2023 revenue growth versus 2022 to be up approximately 10%, plus or minus 2%.”

“Cash generation was positive as expected. However, starting in September, cash flows were impacted as Howmet Aerospace carried higher inventory due to customer schedule rebalances, which we expect to persist in the fourth quarter. We ended the quarter with $454 million of cash after repurchasing $100 million in common stock and paying a $0.02 per share dividend on common stock. The Company’s balance sheet remains strong, and Howmet Aerospace is positioned to continue generating strong cash flows ahead. The Company doubled the quarterly dividend on common stock to $0.04 per share for the fourth quarter 2022, demonstrating confidence in the Company’s healthy free cash flows.”

2

Excluding Special Items

Third Quarter 2022 Segment Performance

Engine Products

Engine Products reported revenue of $683 million, an increase of 14% year over year, due to growth in the commercial aerospace and oil and gas markets and an increase in material cost pass through. Segment Adjusted EBITDA was $186 million, up 23% year over year, driven by commercial aerospace and oil and gas volumes as well as strong productivity gains. The segment added approximately 260 headcount in the quarter in anticipation of future revenue increases, which brings the total headcount added since the fourth quarter 2021 to approximately 1,040. Segment Adjusted EBITDA margin increased approximately 200 basis points year over year to 27.2%.

Fastening Systems

Fastening Systems reported revenue of $291 million, an increase of 15% year over year due to growth in the commercial aerospace market of 24% with narrow body recovery more than offsetting Boeing 787 production declines, as well as an increase in material cost pass through. Segment Adjusted EBITDA was $64 million, up 8% year over year, driven by favorable volume in the narrow body commercial aerospace market more than offsetting Boeing 787 production declines. The segment has added approximately 410 headcount since the fourth quarter 2021 in anticipation of future revenue increases. Segment Adjusted EBITDA margin decreased approximately 120 basis points year over year to 22.0%.

Engineered Structures

Engineered Structures reported revenue of $193 million, a decrease of 3% year over year due to declines in the defense aerospace market and Boeing 787 production declines partially offset by growth in the narrow body commercial aerospace market and an increase in material cost pass through. Segment Adjusted EBITDA was $28 million, up 8% year over year, driven by favorable volume in the narrow body commercial aerospace market more than offsetting Boeing 787 production declines and unfavorable volume in the defense aerospace market. Segment Adjusted EBITDA margin increased approximately 140 basis points year over year to 14.5%.

Forged Wheels

Forged Wheels reported revenue of $266 million, an increase of 15% year over year due to higher aluminum material and other inflationary cost pass through and a 2% increase in volume, partially offset by unfavorable foreign currency movements. Segment Adjusted EBITDA was $64 million, down 11% year over year, driven by unfavorable foreign currency movements partially offset by favorable volume. Segment Adjusted EBITDA margin decreased approximately 710 basis points year over year to 24.1% including the impact of higher aluminum material costs and higher European energy costs, which are passed through to customers. Additionally foreign currency movements were unfavorable.

Repurchased Approximately 2.8 Million Shares in Third Quarter 2022, 9.7 Million Shares Year To Date

In the third quarter 2022, Howmet Aerospace repurchased approximately 2.8 million shares for $100 million. Year to date through October 28, 2022, the Company has repurchased approximately 9.7 million shares for $335 million. As of October 28, 2022, total share repurchase authorization available was $1.012 billion.

Howmet Aerospace Increased Common Stock Dividend in the Fourth Quarter 2022

The Company increased the quarterly dividend of its common stock from $0.02 per share to $0.04 per share in the fourth quarter 2022. The dividend is to be paid on November 25, 2022 to holders of record at the close of business on November 4, 2022.

2022 Guidance

Q4 2022 Guidance

 

FY 2022 Guidance

Low

Baseline

High

 

Low

Baseline

High

Revenue

$1,450M

$1,470M

$1,500M

 

$5,600M

$5,620M

$5,650M

Adj. EBITDA1, 2

$325M

$330M

$336M

 

$1,265M

$1,270M

$1,276M

Adj. EBITDA Margin1, 2

22.4%

22.4%

22.4%

 

22.6%

22.6%

22.6%

Adj. Earnings per Share1, 2

$0.37

$0.38

$0.39

 

$1.39

$1.40

$1.41

Free Cash Flow2

 

 

 

 

$520M

$560M

$580M

(1)

Excluding Special Items

 

 

(2)

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 Monday, October 31, 2022. 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 October 31, via the “Investors” section of the Howmet Aerospace website. A link to the press release will also be available via Howmet Aerospace’s Twitter handle @HowmetAerospace at https://twitter.com/howmetaerospace.

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. Follow: LinkedIn, Twitter, Instagram, Facebook, and YouTube.

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) uncertainty of the duration, extent and impact of the COVID-19 pandemic on Howmet Aerospace’s business, results of operations, and financial condition; (b) deterioration in global economic and financial market conditions generally (including as a result of COVID-19 and its effects, among other things, on global supply, demand, and distribution disruptions); (c) unfavorable changes in the markets served by Howmet Aerospace; (d) the impact of potential cyber attacks and information technology or data security breaches; (e) the loss of significant customers or adverse changes in customers’ business or financial conditions; (f) manufacturing difficulties or other issues that impact product performance, quality or safety; (g) inability of suppliers to meet obligations due to supply chain disruptions or otherwise; (h) the inability to achieve revenue growth, cash generation, cost savings, restructuring plans, cost reductions, improvement in profitability, or strengthening of competitiveness and operations anticipated or targeted; (i) inability to meet increased demand, production targets or commitments; (j) competition from new product offerings, disruptive technologies or other developments; (k) 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; (l) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose Howmet Aerospace to substantial costs and liabilities; (m) failure to comply with government contracting regulations; (n) adverse changes in discount rates or investment returns on pension assets; and (o) the other risk factors summarized in Howmet Aerospace’s Form 10-K for the year ended December 31, 2021 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

 

September 30, 2022

 

June 30, 2022

 

September 30, 2021

Sales

$

1,433

 

$

1,393

 

 

$

1,283

 

 

 

 

 

 

 

Cost of goods sold (exclusive of expenses below)

 

1,056

 

 

987

 

 

 

928

 

Selling, general administrative, and other expenses

 

73

 

 

83

 

 

 

70

 

Research and development expenses

 

7

 

 

9

 

 

 

4

 

Provision for depreciation and amortization

 

65

 

 

67

 

 

 

68

 

Restructuring and other charges(1)

 

4

 

 

6

 

 

 

8

 

Operating income

 

228

 

 

241

 

 

 

205

 

 

 

 

 

 

 

Loss on debt redemption

 

 

 

2

 

 

 

118

 

Interest expense, net

 

57

 

 

57

 

 

 

63

 

Other expense (income), net(2)

 

67

 

 

(1

)

 

 

1

 

 

 

 

 

 

 

Income before income taxes

 

104

 

 

183

 

 

 

23

 

Provision (benefit) for income taxes

 

24

 

 

36

 

 

 

(4

)

Net income

$

80

 

$

147

 

 

$

27

 

 

 

 

 

 

 

Amounts Attributable to Howmet Aerospace Common Shareholders:

 

 

 

 

 

Earnings per share – Basic(3)(4):

 

 

 

 

 

Net income per share

$

0.19

 

$

0.35

 

 

$

0.06

 

Average number of shares(4)(5)

 

414,646,509

 

 

417,064,041

 

 

 

428,574,630

 

 

 

 

 

 

 

Earnings per share – Diluted(3)(4):

 

 

 

 

 

Net income per share

$

0.19

 

$

0.35

 

 

$

0.06

 

Average number of shares(5)

 

419,748,839

 

 

422,053,717

 

 

 

434,180,960

 

 

 

 

 

 

 

Common stock outstanding at the end of the period

 

413,704,596

 

 

416,309,875

 

 

 

428,179,879

 

(1)

Restructuring and other charges for the quarters ended September 30, 2022 and June 30, 2022 included pension settlement charges, other exit costs, and accelerated depreciation. Restructuring and other charges for the quarter ended September 30, 2021 included asset impairments, pension settlement charges, and other exit costs.

(2)

Other expense (income), net for the quarter ended September 30, 2022 includes the $65 adverse judgment from the Lehman Brothers International (Europe) (“LBIE”) legal proceeding which was assumed as part of the Firth Rixson acquisition in 2014.

(3)

In order to calculate both basic and diluted earnings per share, preferred stock dividends declared of $1 for the quarters ended September 30, 2022, June 30, 2022, and September 30, 2021 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)

For the quarters presented, basic and diluted average number of shares and common stock outstanding at the end of the period do not reflect the full impact of the share repurchases made at different times during the third quarter of 2022, second quarter of 2022, and third quarter of 2021, respectively.

Howmet Aerospace Inc. and subsidiaries

Consolidated Balance Sheet (unaudited)

(in U.S. dollar millions)

 

 

September 30, 2022

 

December 31, 2021

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

453

 

 

$

720

 

Receivables from customers, less allowances of $— in both 2022 and 2021

 

550

 

 

 

367

 

Other receivables

 

50

 

 

 

53

 

Inventories

 

1,612

 

 

 

1,402

 

Prepaid expenses and other current assets

 

181

 

 

 

195

 

Total current assets

 

2,846

 

 

 

2,737

 

Properties, plants, and equipment, net

 

2,288

 

 

 

2,467

 

Goodwill

 

3,965

 

 

 

4,067

 

Deferred income taxes

 

106

 

 

 

184

 

Intangibles, net

 

523

 

 

 

549

 

Other noncurrent assets

 

201

 

 

 

215

 

Total assets

$

9,929

 

 

$

10,219

 

 

 

 

 

Liabilities

 

 

 

Current liabilities:

 

 

 

Accounts payable, trade

$

812

 

 

$

732

 

Accrued compensation and retirement costs

 

204

 

 

 

198

 

Taxes, including income taxes

 

56

 

 

 

61

 

Accrued interest payable

 

68

 

 

 

74

 

Other current liabilities

 

240

 

 

 

183

 

Short-term debt

 

1

 

 

 

5

 

Total current liabilities

 

1,381

 

 

 

1,253

 

Long-term debt, less amount due within one year

 

4,170

 

 

 

4,227

 

Accrued pension benefits

 

689

 

 

 

771

 

Accrued other postretirement benefits

 

147

 

 

 

153

 

Other noncurrent liabilities and deferred credits

 

269

 

 

 

307

 

Total liabilities

 

6,656

 

 

 

6,711

 

 

 

 

 

Equity

 

 

 

Howmet Aerospace shareholders’ equity:

 

 

 

Preferred stock

 

55

 

 

 

55

 

Common stock

 

414

 

 

 

422

 

Additional capital

 

3,998

 

 

 

4,291

 

Retained earnings

 

917

 

 

 

603

 

Accumulated other comprehensive loss

 

(2,111

)

 

 

(1,863

)

Total equity

 

3,273

 

 

 

3,508

 

Total liabilities and equity

$

9,929

 

 

$

10,219

 

Howmet Aerospace and subsidiaries

Statement of Consolidated Cash Flows (unaudited)

(in U.S. dollar millions)

 

 

Nine months ended September 30,

 

2022

 

2021

Operating activities

 

 

 

Net income

$

358

 

 

$

181

 

Adjustments to reconcile net income to cash provided from operations:

 

 

 

Depreciation and amortization

 

198

 

 

 

203

 

Deferred income taxes

 

58

 

 

 

24

 

Restructuring and other charges

 

12

 

 

 

22

 

Net realized and unrealized losses

 

12

 

 

 

7

 

Net periodic pension cost

 

17

 

 

 

13

 

Stock-based compensation

 

43

 

 

 

28

 

Loss on debt redemption

 

2

 

 

 

141

 

Other

 

26

 

 

 

28

 

Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:

 

 

 

Increase in receivables

 

(246

)

 

 

(382

)

(Increase) decrease in inventories

 

(271

)

 

 

49

 

Decrease in prepaid expenses and other current assets

 

5

 

 

 

6

 

Increase in accounts payable, trade

 

130

 

 

 

63

 

Increase (decrease) in accrued expenses

 

18

 

 

 

(121

)

Decrease in taxes, including income taxes

 

(1

)

 

 

(15

)

Pension contributions

 

(34

)

 

 

(68

)

Increase in noncurrent assets

 

(5

)

 

 

(1

)

Decrease in noncurrent liabilities

 

(44

)

 

 

(32

)

Cash provided from operations

 

278

 

 

 

146

 

Financing Activities

 

 

 

Net change in short-term borrowings (original maturities of three months or less)

 

(4

)

 

 

 

Additions to debt (original maturities greater than three months)(1)

 

 

 

 

700

 

Payments on debt (original maturities greater than three months)(2)

 

(60

)

 

 

(1,491

)

Debt issuance costs

 

 

 

 

(11

)

Premiums paid on early redemption of debt

 

(2

)

 

 

(133

)

Repurchase of common stock

 

(335

)

 

 

(225

)

Proceeds from exercise of employee stock options

 

14

 

 

 

17

 

Dividends paid to shareholders

 

(27

)

 

 

(11

)

Other

 

(23

)

 

 

(20

)

Cash used for financing activities

 

(437

)

 

 

(1,174

)

Investing Activities

 

 

 

Capital expenditures

 

(148

)

 

 

(138

)

Proceeds from the sale of assets and businesses

 

42

 

 

 

8

 

Sales of debt securities

 

 

 

 

5

 

Cash receipts from sold receivables

 

 

 

 

267

 

Other

 

 

 

 

2

 

Cash (used for) provided from investing activities

 

(106

)

 

 

144

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(3

)

 

 

(1

)

Net change in cash, cash equivalents and restricted cash

 

(268

)

 

 

(885

)

Cash, cash equivalents and restricted cash at beginning of year

 

722

 

 

 

1,611

 

Cash, cash equivalents and restricted cash at end of period

$

454

 

 

$

726

 

(1)

The proceeds from financing activities in 2021 was related to the long-term debt issuance of $700 in the third quarter of 2021.

(2)

The use of cash from financing activities in 2021 was related to the repayment of the aggregate outstanding principal amount of the 6.875% Notes due 2025 of approximately $600 in the third quarter of 2021, the 5.870% Notes due 2022 of approximately $476 in the second quarter of 2021, and the 5.400% Notes due 2021 of approximately $361 in the first quarter of 2021. Additionally in 2021, the Company repurchased in the open market the aggregate principal amount of the 5.125% Notes due 2024 (the “5.125% Notes”) of approximately $53 in the third quarter of 2021. The use of cash from financing activities in 2022 was related to the repurchases in the open market of approximately $60 of the aggregate principal amount of the 5.125% Notes in the second quarter of 2022.

Contacts

Investor Contact
Paul T. Luther

(412) 553-1950

Paul.Luther@howmet.com

Media Contact
Rob Morrison

(412) 553-2666

Rob.Morrison@howmet.com

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