Howmet Aerospace Reports Fourth Quarter and Full Year 2023 Results

FY 2023: Revenue Up 17% Year Over Year; Record Profit and Record Cash from Operations

FY 2023: Approx. $800 million Deployed for Debt Paydown, Common Stock Repurchase and Dividends

FY 2024: Expect Revenue Growth of Approx. 7% and Improved Cash Generation

Howmet Aerospace (NYSE:HWM):

Fourth Quarter 2023 Highlights

• Revenue of $1.7 billion, up 14% year over year, driven by commercial aerospace, up 22% year over year
• Net income of $236 million versus $111 million in the fourth quarter 2022; earnings per share of $0.57 versus $0.26 in the fourth quarter 2022; fourth quarter 2023 operating income margin of 18.8%
• Net income excluding special items of $218 million versus $160 million in the fourth quarter 2022; adjusted earnings per share excluding special items of $0.53, up 39% year over year
• Adjusted EBITDA excluding special items of $398 million, up 18% year over year
• Adjusted EBITDA margin excluding special items of 23.0%
• Generated $458 million cash from operations and $403 million of free cash flow; $222 million of cash used for financing activities; and $52 million of cash used for investing activities
• Cash balance at end of quarter of $610 million, including impacts of debt redemption, common stock repurchases and $0.05 per share dividend on common stock

Full Year 2023 Highlights

• Revenue of $6.6 billion, up 17% year over year, driven by commercial aerospace, up 24% year over year
• Net income of $765 million, or $1.83 per share, versus $469 million, or $1.11 per share, in the full year 2022
• Net income excluding special items of $766 million, or $1.84 per share, versus $593 million, or $1.40 per share, in the full year 2022
• Adjusted EBITDA excluding special items of $1.5 billion, up 18% year over year
• Generated $901 million cash from operations and $682 million of free cash flow; $868 million of cash used for financing activities; and $215 million of cash used for investing activities, $476 million of debt paydown; $250 million of common stock repurchases; $73 million in common stock dividends

2024 Guidance

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Key Announcements

• In the fourth quarter 2023, Howmet Aerospace entered into two senior unsecured term loan agreements totaling approximately $400 million, which together with associated interest rate swaps have a weighted average fixed interest rate of approximately 3.9%.
• On December 28, 2023, the Company completed an early partial redemption of its 5.125% Notes due October 2024 (the “2024 Notes”) in the aggregate principal amount of $500 million.
• In the fourth quarter 2023, the Company repurchased $100 million of common stock at an average price of $52.52 per share, retiring approximately 1.9 million shares. As of February 1, 2024, total share repurchase authorization available was $697 million.
• On November 27, 2023, the Company paid 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 December 15, 2023, S&P Global Ratings upgraded Howmet Aerospace’s Long-Term Issue Credit Rating to “BBB-” from “BB+” and updated the rating outlook to stable. With this upgrade, Howmet Aerospace is now rated as investment grade by two of the three credit rating agencies.

Howmet Aerospace (NYSE:HWM) today reported fourth quarter and full year 2023 results. The Company reported fourth quarter 2023 revenues of $1.7 billion, up 14% year over year, primarily driven by growth in the commercial aerospace market of 22%.

Howmet Aerospace reported net income of $236 million, or $0.57 per share, in the fourth quarter 2023 versus $111 million, or $0.26 per share, in the fourth quarter 2022. Net income excluding special items was $218 million, or $0.53 per share, in the fourth quarter 2023, versus $160 million, or $0.38 per share, in the fourth quarter 2022. Net income in the fourth quarter 2023 included approximately $18 million in net benefit from special items.

Fourth quarter 2023 operating income was $326 million, up 48% year over year. Fourth quarter adjusted operating income excluding special items was $330 million, up 23% year over year. Operating income margin was 18.8% in the fourth quarter 2023, up approximately 430 basis points year over year. Fourth quarter adjusted operating income margin excluding special items was 19.1%, up approximately 130 basis points year over year.

Fourth quarter 2023 adjusted EBITDA excluding special items was $398 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 80 basis points year over year at 23.0%, including approximately $15 million of inflationary cost pass through year over year. Excluding the year over year inflationary cost pass through, adjusted EBITDA margin excluding special items was 23.2%.

Howmet Aerospace reported full year 2023 revenues of $6.6 billion, up 17% year over year, primarily driven by growth in the commercial aerospace market of 24%.

The Company reported net income of $765 million, or $1.83 per share, in the full year 2023 versus $469 million, or $1.11 per share, in the full year 2022. Net income excluding special items was $766 million, or $1.84 per share, in the full year 2023, versus $593 million, or $1.40 per share, in the full year 2022. Net income included approximately $1 million in net charges from special items.

Full year 2023 operating income was $1.2 billion, up 31% year over year. Full year adjusted operating income excluding special items was $1.2 billion, up 22% year over year. Operating income margin was 18.1% in the full year 2023, up approximately 190 basis points year over year. Full year adjusted operating income margin excluding special items was 18.6%, up approximately 70 basis points year over year.

Full year 2023 adjusted EBITDA excluding special items was $1.5 billion, 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 22.7%, up approximately 20 basis points year over year, including approximately $90 million of inflationary cost pass through year over year. Excluding the year over year inflationary cost pass through, adjusted EBITDA margin excluding special items was 23.0% for the full year 2023.

Howmet Aerospace Executive Chairman and Chief Executive Officer John Plant said, “The Howmet Aerospace team drove very strong results in 2023. The Company exceeded the high end of its guidance range for revenue, adjusted EBITDA^*, adjusted earnings per share^*, and free cash flow. Total revenue grew 17% with all end markets up in 2023, led by 24% growth in commercial aerospace. Adjusted EBITDA* grew 18% with a healthy adjusted EBITDA margin* of 22.7% in full year 2023, while absorbing near-term costs associated with headcount additions to support the continued revenue ramp. Adjusted earnings per share* of $1.84 increased 31% year over year. The healthy fourth quarter adjusted EBITDA margin* of 23.0% represents a solid exit rate as we head into 2024.”

Mr. Plant continued, “The outlook for commercial aerospace continues to be strong, supported by record backlogs at the aircraft OEMs, as well as accelerating spares demand due to the increased service requirements of the newer, more fuel-efficient aircraft engines. We expect above-trend growth to continue in full year 2024, albeit with a cautious view until we see sustained achievement of build rate increases at aircraft OEMs. We expect healthy growth in 2024 in our defense aerospace and industrial end markets. In commercial transportation, softening leading indicators warrant a cautious view, though we expect a downcycle to be confined to 2024. Our 2024 outlook envisions total revenue growth of approximately 7%.”

“Howmet Aerospace’s balance sheet has never been stronger, with solid cash generation supporting $476 million of debt paydown in 2023. Combined with debt refinancing in the fourth quarter 2023, these actions generate approximately $29 million of annualized interest expense savings. The Company also continued to return cash to shareholders, with $250 million of common stock repurchased in 2023. The 25% increase in the quarterly common stock dividend per share in the fourth quarter 2023 illustrates the Company’s confidence in cash generation ahead.”

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Fourth Quarter 2023 Segment Performance

Engine Products

Engine Products reported revenue of $852 million, an increase of 16% year over year, due to growth in the commercial aerospace, defense aerospace, industrial gas turbine, and oil and gas markets. Segment Adjusted EBITDA was $233 million, up 22% year over year, driven by favorable volume in the commercial aerospace, defense aerospace, industrial gas turbine, and oil and gas markets. The Segment absorbed approximately 180 net headcount in the quarter and approximately 1,030 net headcount in full year 2023 in support of expected revenue increases. Segment Adjusted EBITDA margin increased approximately 120 basis points year over year to 27.3%.

Fastening Systems

Fastening Systems reported revenue of $360 million, an increase of 26% year over year due to growth in the commercial aerospace market, including emerging wide body aircraft recovery, and the commercial transportation market. Segment Adjusted EBITDA was $80 million, up 38% year over year, driven by favorable volume in the commercial aerospace and commercial transportation markets. The Segment absorbed approximately 50 net headcount in the quarter and approximately 435 net headcount in full year 2023 in support of expected revenue increases. Segment Adjusted EBITDA margin increased approximately 180 basis points year over year to 22.2%.

Engineered Structures

Engineered Structures reported revenue of $244 million, an increase of 6% year over year due to growth in the commercial aerospace market, including emerging wide body aircraft recovery, partially offset by declines in the defense aerospace market. Segment Adjusted EBITDA was $33 million, down 3% year over year, driven by unfavorable volume in the defense aerospace market, partially offset by favorable volume in the commercial aerospace market. The Segment absorbed approximately 85 net headcount in the quarter and approximately 280 net headcount in full year 2023 in support of expected revenue increases. Segment Adjusted EBITDA margin decreased approximately 130 basis points year over year to 13.5%.

Forged Wheels

Forged Wheels reported revenue of $275 million, an increase of 3% year over year due to an 8% increase in volume in the commercial transportation market, partially offset by lower aluminum prices. Segment Adjusted EBITDA was $72 million and remained flat year over year. Segment Adjusted EBITDA margin decreased approximately 90 basis points year over year to 26.2%.

Full Year 2023 Segment Performance

Segment performance in 2023 included the following:

• Engine Products revenue of $3.3 billion, up 21% year over year; segment Adjusted EBITDA of $887 million, up 22% year over year; segment Adjusted EBITDA margin of 27.2%, up 20 basis points year over year.
• Fastening Systems revenue of $1.3 billion, up 21% year over year; segment Adjusted EBITDA of $278 million, up 19% year over year; segment Adjusted EBITDA margin of 20.6%, down 30 basis points year over year.
• Engineered Structures revenue of $878 million, up 11% year over year; segment Adjusted EBITDA of $113 million, up 2% year over year; segment Adjusted EBITDA margin of 12.9%, down 120 basis points year over year.
• Forged Wheels revenue of $1.1 billion, up 8% year over year; segment Adjusted EBITDA of $309 million, up 11% year over year; segment Adjusted EBITDA margin of 26.9%, up 60 basis points year over year.

Completed Debt Actions in Fourth Quarter 2023, Reducing Outstanding 2024 Notes to $205 Million

In the fourth quarter 2023, Howmet Aerospace entered into two senior unsecured term loan agreements. One term loan facility is U.S. dollar denominated, and the other is Japanese yen denominated. In December 2023, the Company drew $200 million from the USD term loan facility and approximately $200 million from the JPY term loan facility. The term loans are prepayable without penalties or premiums and mature in November 2026.

In December 2023, the Company also entered into interest rate swaps to exchange the floating interest rates of the approximately $400 million in term loans into fixed interest rates with a weighted average fixed interest rate of approximately 3.9%.

On December 28, 2023, the Company completed an early partial redemption of the 2024 Notes in the aggregate principal amount of $500 million. The 2024 Notes were redeemed with approximately $106 million of cash on hand and approximately $400 million from the term loans at an aggregate redemption price of approximately $506 million, including accrued interest of approximately $6 million. Following this redemption, the aggregate outstanding principal amount of the 2024 Notes, which were inherited from Alcoa Inc. at an original outstanding principal balance of $1.25 billion, is approximately $205 million.

The combined impact of the term loans and the early partial redemption of the 2024 Notes is expected to reduce annualized interest expense by approximately $10 million.

In the full year 2023, Howmet Aerospace paid down $476 million of debt. The combined debt reduction and refinancing actions reduce interest expense by approximately $29 million on an annualized basis.

All of Howmet Aerospace’s outstanding long-term debt continues to be unsecured and at fixed interest rates, which will provide stability of interest expense into the future.

Repurchased $100 Million of Common Stock in Fourth Quarter 2023, $250 Million in Full Year 2023

In the fourth quarter 2023, Howmet Aerospace repurchased $100 million of common stock at an average price of $52.52 per share, retiring approximately 1.9 million shares, which represents the 11^th consecutive quarter of share repurchase activity. In the full year 2023, the Company repurchased $250 million of common stock at an average price of $47.76 per share, retiring approximately 5.2 million shares. As of February 1, 2024, total share repurchase authorization available was $697 million.

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

On November 27, 2023, the Company paid 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.

S&P Upgraded Howmet Aerospace Rating to Investment Grade

On December 15, 2023, S&P Global Ratings upgraded Howmet Aerospace’s Long-Term Issue Credit Rating to “BBB-” from “BB+” and updated the rating outlook to stable. With this upgrade, Howmet Aerospace is now rated as investment grade by two of the three credit rating agencies.

2024 Guidance

Full Year 2024 Guidance assumes the following aircraft build rates:

• Boeing 737-MAX: approximately 34 builds per month on average
• Airbus A320 family: approximately 56 builds per month on average

Howmet Aerospace will hold its quarterly conference call at 10:00 AM Eastern Time on Tuesday, February 13, 2024. 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 February 13, 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 approximately 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, labor disputes or other employee relations issues; (h) the inability to achieve revenue growth, cash generation, 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, conflicts and wars, 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 (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.

Other Information

In this press release, the acronym “FY” means “full year”; and references to Howmet Aerospace performance that is “record” means its best result since April 1, 2020 when Howmet Aerospace Inc. (the new name for Arconic Inc.) separated from Arconic Corporation.