Howmet Aerospace Reports Third Quarter 2023 Results

Third Quarter Revenue Up 16% Year Over Year; Strong Profit and Cash Generation

$200 Million Debt Redemption, $25 Million Share Repurchases, Increased Common Stock Dividend

Full Year 2023 Guidance Increased

2024 Preliminary Revenue Growth Guidance Approximately 7%

Howmet Aerospace (NYSE:HWM):

Third Quarter 2023 Highlights

• Revenue of $1.66 billion, up 16% year over year, driven by commercial aerospace, up 23% year over year
• Net income of $188 million versus $80 million in the third quarter 2022; earnings per share of $0.45 versus $0.19 in the third quarter 2022; third quarter 2023 operating income margin of 18.5%
• Net income excluding special items of $192 million versus $152 million in the third quarter 2022; adjusted earnings per share excluding special items of $0.46, up 28% year over year
• Adjusted EBITDA excluding special items of $382 million, up 18% year over year
• Adjusted EBITDA margin excluding special items of 23.0%
• Generated $191 million cash from operations and $132 million of free cash flow; $243 million of cash used for financing activities; and $58 million of cash used for investing activities
• Cash balance at end of quarter of $425 million including impacts of debt redemption, common stock repurchases and $0.04 per share dividend on common stock

2023 Guidance

Key Announcements

• On September 28, 2023, Howmet Aerospace completed an early partial redemption of its 5.125% Notes due October 2024 (the “2024 Notes”) in the aggregate principal amount of $200 million with cash on hand for approximately $205 million. Following this redemption, the aggregate outstanding principal amount of the 2024 Notes is approximately $705 million. This action will reduce annualized interest expense by approximately $10 million.
• In the third quarter 2023, the Company repurchased $25 million of common stock at an average price of $49.32 per share, retiring approximately 0.5 million shares. As of October 31, 2023, total share repurchase authorization available was $797 million.
• On September 28, 2023, the Company declared a quarterly dividend of $0.05 per share on its common stock. The quarterly dividend represents a 25% increase from the third quarter 2023 dividend of $0.04 per share.
• On August 23, 2023, Fitch Ratings upgraded Howmet Aerospace’s Long-Term Issuer Default Rating to “BBB” from “BBB-,” moving the Company from one to two notches above investment grade on its credit rating scale. On September 18, 2023, Moody’s Investors Service affirmed Howmet Aerospace’s Corporate Family Ratings at Ba1, and also upgraded its current outlook from stable to positive.

Howmet Aerospace (NYSE: HWM) today reported third quarter 2023 results. The Company reported third quarter revenues of $1.66 billion, up 16% year over year, primarily driven by growth in the commercial aerospace market of 23%.

Howmet Aerospace reported net income of $188 million, or $0.45 per share, in the third quarter 2023 versus $80 million, or $0.19 per share, in the third quarter 2022. Net income excluding special items was $192 million, or $0.46 per share, in the third quarter 2023, versus $152 million, or $0.36 per share, in the third quarter 2022. Net income included approximately $4 million in net charges from special items.

Third quarter 2023 operating income was $307 million, up 35% year over year. Third quarter adjusted operating income excluding special items was $314 million, up 22% year over year. Operating income margin was up approximately 260 basis points year over year at 18.5% in the third quarter 2023. Third quarter adjusted operating income margin excluding special items was 18.9%, up approximately 90 basis points year over year.

Third quarter 2023 adjusted EBITDA excluding special items was $382 million, up 18% 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 up approximately 50 basis points year over year at 23.0%, including approximately $15 million of additional inflationary cost pass through year over year. Excluding the additional year over year inflationary cost pass through, adjusted EBITDA margin excluding special items was 23.3%.

Howmet Aerospace Executive Chairman and Chief Executive Officer John Plant said, “The Howmet Aerospace team delivered solid results in the third quarter 2023 in all respects. Total revenue increased 16% year over year, led by commercial aerospace revenue up 23%. The Company exceeded the high end of all aspects of its guidance range with adjusted EBITDA margin* increasing to a healthy 23.0%, and adjusted earnings per share* up 28% year over year.”

Mr. Plant continued, “The outlook for the commercial aerospace market continues to be robust, supported by demand for new, more fuel-efficient aircraft, as well as increased spares demand. Our defense aerospace and industrial markets also continue to be healthy. Commercial transportation markets have been resilient, but we remain cautious given softening leading indicators. Given the Company’s solid execution and healthy market backdrop, we are again raising our full year 2023 guidance for revenue, adjusted EBITDA*, and adjusted earnings per share*. We expect above-trend growth to continue in full year 2024, with a cautious view on commercial aerospace growth until we see sustained achievement of build rate increases at aircraft OEMs. Our preliminary view envisions year over year revenue growth of approximately 7%.”

“Howmet Aerospace’s balance sheet continues to be a source of strength, with healthy cash flows supporting a $200 million bond redemption and $25 million in common stock repurchases in the third quarter 2023. In the first three quarters of 2023, the Company has reduced gross debt by approximately $376 million, generating $19 million of annualized interest expense savings, and repurchased $150 million of common stock.”

Third Quarter 2023 Segment Performance

Engine Products

Engine Products reported revenue of $798 million, an increase of 17% year over year, due to growth in the commercial aerospace, defense aerospace, oil and gas, and industrial gas turbine markets. Segment revenue declined 3% sequentially from the second quarter 2023, reflecting expected seasonality. Adjusted EBITDA was $219 million, up 18% year over year, driven by favorable volume in the commercial aerospace, defense aerospace, oil and gas, and industrial gas turbine markets. The Segment absorbed approximately 500 net headcount in the quarter and approximately 850 net headcount year to date in support of expected revenue increases. Segment Adjusted EBITDA margin increased approximately 20 basis points year over year to 27.4%.

Fastening Systems

Fastening Systems reported revenue of $348 million, an increase of 20% year over year due to growth in the commercial aerospace market, including emerging wide body recovery, and growth in the commercial transportation market. Segment Adjusted EBITDA was $76 million, up 19% year over year, driven by favorable volume in the commercial aerospace and commercial transportation markets. Segment Adjusted EBITDA margin decreased approximately 20 basis points year over year to 21.8%. Segment EBITDA margin increased approximately 230 basis points sequentially from the second quarter 2023.

Engineered Structures

Engineered Structures reported revenue of $227 million, an increase of 18% year over year due to growth in the commercial aerospace market driven by Russian titanium share gains and emerging wide body recovery, partially offset by declines in the defense aerospace market driven by certain legacy fighter programs. Segment Adjusted EBITDA was $30 million, up 7% year over year, driven by favorable volume in the commercial aerospace market, partially offset by unfavorable volume in the defense aerospace market. The Segment absorbed approximately 145 net headcount in the quarter and approximately 195 net headcount year to date in support of expected revenue increases. Segment Adjusted EBITDA margin decreased approximately 130 basis points year over year to 13.2%. The Segment improved production rates in the third quarter 2023 and increased sequential revenue by 14% and Segment Adjusted EBITDA margin by 320 basis points versus the second quarter 2023.

Forged Wheels

Forged Wheels reported revenue of $285 million, an increase of 7% year over year due to a 13% increase in volume driven by growth in the commercial transportation market, partially offset by lower aluminum prices. Segment Adjusted EBITDA was $77 million, up 20% year over year, driven by favorable volume. Segment Adjusted EBITDA margin increased approximately 290 basis points year over year to 27.0% as the impact of lower aluminum prices was partially offset by inflationary cost pass through.

Redeemed $200 Million of Debt in Third Quarter 2023

On September 28, 2023, Howmet Aerospace completed an early partial redemption of its 5.125% Notes due October 2024 in the aggregate principal amount of $200 million. Such 2024 Notes were redeemed with cash on hand at an aggregate redemption price of approximately $205 million, including accrued interest of approximately $5 million. Following this redemption, the aggregate outstanding principal amount of the 2024 Notes is approximately $705 million. This action 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 three combined actions reduce annualized interest expense by approximately $19 million. All of the Company’s outstanding debt is unsecured and at fixed interest rates.

Repurchased $25 Million of Common Stock in Third Quarter 2023

In the third quarter 2023, Howmet Aerospace repurchased $25 million of common stock at an average price of $49.32 per share, retiring approximately 0.5 million shares, which represents the 10^th consecutive quarter of share repurchase activity. Year to date, the Company repurchased $150 million of common stock at an average price of $45.05 per share, retiring approximately 3.3 million shares. As of October 31, 2023, total share repurchase authorization available was $797 million.

Quarterly Common Stock Dividend Increased to $0.05 Per Share in Fourth Quarter 2023

On September 28, 2023, the Company declared a quarterly dividend of $0.05 per share on its common stock to be paid on November 27, 2023, to the holders of record on November 10, 2023. The quarterly dividend represents a 25% increase from the third quarter 2023 dividend of $0.04 per share.

Fitch Rating Upgrade; Moody’s Outlook Upgrade

On August 23, 2023, Fitch Ratings upgraded Howmet Aerospace’s Long-Term Issuer Default Rating to “BBB” from “BBB-,” moving the Company from one to two notches above investment grade on its credit rating scale. On September 18, 2023, Moody’s Investors Service affirmed Howmet Aerospace’s Corporate Family Ratings at Ba1, and also upgraded the Company’s current outlook from stable to positive. Earlier in the year, on April 25, 2023, S&P affirmed Howmet’s long-term debt rating at BB+ and upgraded the current outlook from stable to positive.

2023 Guidance

Howmet Aerospace will hold its quarterly conference call at 9:30 AM Eastern Time on Thursday, November 2, 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 November 2, 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," “envisions,” "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, conflicts and wars, 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, 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.

Differences between the total segment and consolidated totals are in Corporate.

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.

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.

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.

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.

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.

Adjusted operating income excluding Special items and Adjusted operating income margin 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 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 Operating income determined under GAAP as well as Operating income excluding Special items.

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.

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