10-QPeriod: Q2 FY2008

Howmet Aerospace Inc. Quarterly Report for Q2 Ended Jun 30, 2008

Filed July 24, 2008For Securities:HWM

Summary

Howmet Aerospace Inc. (HWM), formerly Alcoa Inc., reported its second quarter and year-to-date results for the period ending June 30, 2008. The company experienced a notable decline in net income and earnings per share compared to the same periods in 2007, primarily driven by increased raw material, energy, and freight costs. Sales also saw a decrease, impacted by the divestiture of the packaging and consumer businesses and the soft alloy extrusion business, although higher realized prices for primary aluminum provided some offset. Despite the challenges, Alcoa reported positive cash flow from operations and continued its investment in strategic growth projects, particularly in Brazil for bauxite mining and refinery expansion. The company also actively managed its financial resources, including debt and share repurchases. Investors should note the significant divestitures and the ongoing efforts to streamline operations and manage costs in a challenging economic environment.

Financial Highlights

33 data points
Beta

Revenue

$7.25B

21.0% Gross Margin

Net Income

$546.00M

7.5% Net Margin

EPS (Diluted)

$0.66

Cash & Equivalents

$815.00M

Free Cash Flow

-$813.00M

Financial Statements
Beta
Revenue$7.25B
Cost of Revenue$5.72B
Gross Profit$1.52B
R&D Expenses$61.00M
SG&A Expenses$298.00M
Operating Income$852.00M
Interest Expense$87.00M
Net Income$546.00M
EPS (Basic)$0.67
EPS (Diluted)$0.66

Key Highlights

  • 1Net income decreased by 24% to $546 million for the second quarter of 2008, and by 38% to $849 million for the first six months, compared to the prior year.
  • 2Diluted earnings per share from continuing operations were $0.66 for the second quarter and $1.03 for the first six months, down from $0.81 and $1.58, respectively, in 2007.
  • 3Sales decreased by 6% to $7.62 billion for the second quarter and by 6% to $14.995 billion for the first six months, primarily due to divestitures of non-core businesses.
  • 4The company experienced higher costs for raw materials, energy, and freight, impacting profitability across segments.
  • 5Alcoa completed the sale of its packaging and consumer businesses in February 2008, contributing to a significant reduction in reported sales and operating income for those segments.
  • 6Cash provided from operations was $719 million for the first six months of 2008, a substantial decrease from $1.876 billion in the same period of 2007, largely due to lower earnings and working capital changes.
  • 7Capital expenditures remained significant, with $1.544 billion invested in the first six months of 2008, primarily for growth projects in Brazil.

Frequently Asked Questions

The primary drivers for the decline in net income were significantly higher costs for raw materials, energy, and freight. Additionally, unfavorable foreign currency movements, the absence of contributions from divested businesses (packaging and consumer, soft alloy extrusion), and operational disruptions like a gas outage in Western Australia and a smelter curtailment in Texas negatively impacted profitability.

The sale of the packaging and consumer businesses, completed in February 2008, significantly reduced reported sales and operating income for that segment. While it contributed to a loss recognized in restructuring and other charges, it also eliminated ongoing operational costs and allowed the company to focus on its core aluminum and alumina businesses.

The gas outage in Western Australia caused a significant earnings impact in the second quarter of 2008, with a further negative impact anticipated for the third quarter, dependent on partial restoration of supply. The curtailment at the Rockdale smelter in Texas due to power supply issues also negatively impacted earnings in the second quarter, with a similar impact expected in the third quarter. The company anticipates insurance recoveries for the Western Australia loss, subject to deductibles.

Alcoa generated positive cash flow from operations and actively managed its financing activities. Despite a decrease from the prior year, cash from operations remained substantial. The company also issued new long-term debt, repurchased shares under its program, and maintained a revolving credit facility, demonstrating efforts to ensure liquidity and financial flexibility.