10-QPeriod: Q2 FY2014

Howmet Aerospace Inc. Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 24, 2014For Securities:HWM

Summary

Howmet Aerospace Inc. (HWM), formerly Alcoa Inc. at the time of this filing, reported a net income of $138 million ($0.12 per diluted share) for the second quarter of 2014, a significant improvement from a net loss of $119 million ($0.11 per diluted share) in the same quarter of the prior year. This turnaround was driven by net productivity improvements, higher energy sales, and the absence of a substantial legal charge incurred in 2013. However, the company also experienced a net loss of $40 million ($0.04 per diluted share) for the six months ended June 30, 2014, compared to a net income of $30 million ($0.03 per diluted share) in the corresponding period of 2013. This decline was primarily due to increased restructuring charges related to capacity reductions, lower realized prices for aluminum and alumina, and higher input costs. The company announced a definitive agreement to acquire Firth Rixson, a leader in aerospace jet engine components, for $2.85 billion, aiming to strengthen its aerospace business. This strategic move, alongside ongoing capacity adjustments and operational efficiency efforts, signals a focus on higher-value segments and long-term growth. Investors should monitor the integration of Firth Rixson and the impact of global aluminum market dynamics on profitability.

Financial Highlights

53 data points
Beta

Revenue

$5.84B

18.4% Gross Margin

Net Income

$138.00M

2.4% Net Margin

EPS (Diluted)

$0.12

Total Assets

$36.31B

Cash & Equivalents

$1.18B

Free Cash Flow

$260.00M

Financial Statements
Beta
Revenue$5.84B
Cost of Revenue$4.76B
Gross Profit$1.07B
R&D Expenses$50.00M
SG&A Expenses$245.00M
Operating Expenses$5.63B
Interest Expense$105.00M
Net Income$138.00M
EPS (Basic)$0.12
EPS (Diluted)$0.12
Shares Outstanding (Basic)1.17B
Shares Outstanding (Diluted)1.19B

Key Highlights

  • 1For Q2 2014, Alcoa reported a net income of $138 million, a significant turnaround from a net loss of $119 million in Q2 2013.
  • 2Diluted EPS for Q2 2014 was $0.12, compared to a loss of $0.11 in Q2 2013.
  • 3Despite the quarterly improvement, the six-month year-to-date results show a net loss of $40 million for 2014, down from a net income of $30 million in the same period of 2013.
  • 4The company announced an agreement to acquire Firth Rixson for $2.85 billion, a strategic move to bolster its aerospace business.
  • 5Restructuring and other charges were substantial, totaling $110 million in Q2 2014 and $571 million for the six-month period, largely related to capacity reductions and facility shutdowns.
  • 6Sales remained relatively flat year-over-year for the second quarter but declined by 3% for the six-month period.
  • 7Cash flow from operations significantly decreased year-over-year for the first six months, turning from positive $444 million in 2013 to negative $33 million in 2014, largely due to unfavorable working capital changes.

Frequently Asked Questions

The improvement in net income for the second quarter of 2014 was primarily driven by net productivity improvements across all segments, higher energy sales stemming from excess power due to curtailed smelter capacity, and the absence of a significant charge for a legal matter that impacted the prior year's results. These positive factors were partially offset by higher costs for most inputs and an unfavorable change in income taxes due to the shift from a pretax loss to pretax income.

The acquisition of Firth Rixson, a global leader in aerospace jet engine components, for $2.85 billion is a key strategic move to strengthen Alcoa's aerospace business. The company aims to capture additional aerospace growth with a broader range of high-growth, value-add jet engine components. This acquisition is expected to be neutral to earnings in 2015 and accretive thereafter, with projected cost savings of over $100 million by 2019.

Restructuring and other charges represent a significant impact on the company's financial performance. In the second quarter of 2014, these charges amounted to $110 million, and for the six-month period, they reached $571 million. These charges are primarily related to decisions to permanently shut down and demolish certain smelters and rolling mills, temporary curtailments of operations, asset impairments, and layoff costs. These actions are part of the company's strategy to reduce capacity and improve competitiveness.

For the third quarter of 2014, Alumina production is expected to increase due to efficiencies, though offset by reductions at a specific refinery. Primary Metals production is expected to decline due to smelter closures and curtailments, but average realized prices are anticipated to benefit from higher premiums. Global Rolled Products expects continued demand in automotive, but pricing pressures in packaging. Engineered Products and Solutions anticipates a strong commercial aerospace market and continued productivity improvements, further bolstered by the pending Firth Rixson acquisition.