10-QPeriod: Q3 FY2016

Howmet Aerospace Inc. Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 9, 2016For Securities:HWM

Summary

Howmet Aerospace Inc. (formerly Alcoa Inc.), operating as Arconic Inc. at the time of this filing, reported its financial results for the third quarter and the first nine months ended September 30, 2016. The company experienced a notable increase in net income attributable to Arconic in the third quarter of 2016 compared to the prior year, driven by productivity improvements across segments, though this was partially offset by unfavorable price/product mix and lower realized alumina pricing. For the nine-month period, net income saw a decrease primarily due to lower average realized prices for aluminum and alumina, and unfavorable price/product mix, though this was largely mitigated by productivity gains and reduced restructuring charges. A significant event impacting the company was the impending separation of Arconic into two distinct publicly-traded companies: Arconic Inc. (focusing on engineered products and solutions) and Alcoa Corporation (focusing on alumina and primary metals). This separation was completed on November 1, 2016. Costs associated with this separation were recognized in Selling, general administrative, and other expenses. Additionally, a 1-for-3 reverse stock split was completed on October 6, 2016, which impacted the common stock and additional capital accounts.

Financial Highlights

50 data points
Beta

Revenue

$3.14B

Net Income

$166.00M

5.3% Net Margin

EPS (Diluted)

$0.33

Total Assets

$37.45B

Cash & Equivalents

$1.86B

Free Cash Flow

$20.00M

Financial Statements
Beta
Revenue$3.14B
R&D Expenses$30.00M
SG&A Expenses$229.00M
Operating Expenses$4.88B
Operating Income$237.00M
Interest Expense$126.00M
Net Income$166.00M
EPS (Basic)$0.34
EPS (Diluted)$0.33
Shares Outstanding (Basic)438.00M
Shares Outstanding (Diluted)453.00M

Key Highlights

  • 1Arconic Inc. (formerly Alcoa Inc.) reported a significant increase in third-quarter 2016 net income attributable to the company ($166 million) compared to the same period in 2015 ($44 million), driven by productivity improvements.
  • 2Sales for the third quarter of 2016 decreased by 6% to $5,213 million compared to $5,573 million in the prior year's quarter, reflecting lower average realized prices for aluminum and alumina.
  • 3The company completed a 1-for-3 reverse stock split on October 6, 2016, adjusting its common stock and additional capital accounts accordingly.
  • 4Significant restructuring and other charges were incurred in both periods, totaling $18 million for Q3 2016 and $134 million for the nine months of 2016, primarily related to cost reduction initiatives, facility closures/curtailments, and the separation transaction.
  • 5The separation of Arconic into two companies, Arconic Inc. and Alcoa Corporation, was completed on November 1, 2016, following board approval and a pro rata distribution of Alcoa Corporation shares.
  • 6Costs related to the separation transaction amounted to $55 million in SG&A expenses for Q3 2016 and $118 million for the first nine months of 2016.
  • 7Cash from operations decreased substantially to $208 million for the first nine months of 2016 from $717 million in the same period of 2015, primarily due to lower operating results.

Frequently Asked Questions

For the third quarter of 2016, Arconic reported a significant increase in net income attributable to the company, rising to $166 million from $44 million in the prior year, driven by productivity improvements. However, sales declined by 6% to $5,213 million due to lower aluminum and alumina prices. For the nine-month period, net income decreased to $317 million from $379 million, primarily due to lower average realized prices and unfavorable price/product mix, though this was largely offset by productivity gains and reduced restructuring charges. Sales for the nine-month period were down 11%.

The most significant event was the planned separation of Arconic Inc. into two independent publicly traded companies: Arconic Inc. (focusing on engineered products and solutions) and Alcoa Corporation (focusing on alumina and primary metals). This separation was completed on November 1, 2016. The company also completed a 1-for-3 reverse stock split on October 6, 2016, and incurred substantial costs related to the separation transaction throughout the reporting periods.

The separation transaction resulted in significant expenses recognized within Selling, general administrative, and other expenses. For the third quarter of 2016, these costs amounted to $55 million, and for the nine-month period, they were $118 million. These costs are related to implementing the legal and structural separation between the two resulting companies.

Looking ahead to the fourth quarter of 2016, the company anticipates challenges and opportunities across its segments. In Alumina, production will be lower due to refinery curtailments, but bauxite sales are expected to increase. Primary Metals will see lower production and sales due to smelter closures and curtailments. Global Rolled Products expects stronger demand in automotive but softer conditions in aerospace and commercial transportation. Engineered Products and Solutions anticipates improved demand in the jet engine market but continued pricing pressure and destocking. Transportation and Construction Solutions expects strength in building and construction markets, with a decline in heavy-duty trucks in North America but improvements in other regions.