10-QPeriod: Q3 FY2017

Howmet Aerospace Inc. Quarterly Report for Q3 Ended Sep 30, 2017

Filed November 6, 2017For Securities:HWM

Summary

Howmet Aerospace Inc. (HWM), reported for the third quarter ending September 30, 2017, a net income of $119 million ($0.22 per diluted share) attributable to Arconic shareholders. This represents a decrease from the $166 million ($0.33 per diluted share) reported in the same period of the prior year. Revenue for the quarter was $3,236 million, a slight increase from $3,138 million in the prior year's third quarter. This growth was driven by higher volumes in the Engineered Products and Solutions and Transportation and Construction Solutions segments, along with increased aluminum pricing. However, this was partially offset by a planned ramp-down in the Global Rolled Products segment and unfavorable product pricing in certain areas. The company continued to manage its cost structure, with selling, general, and administrative expenses decreasing year-over-year due to cost reduction efforts and the absence of separation transaction costs. However, restructuring and other charges increased significantly, primarily related to layoff costs and the sale of the Fusina, Italy rolling mill. The company also saw a substantial increase in 'Other income, net' for the nine-month period due to significant gains from the sale of its investment in Alcoa Corporation, impacting the overall profitability comparison with the prior year.

Financial Highlights

48 data points
Beta

Revenue

$3.24B

Net Income

$119.00M

3.7% Net Margin

EPS (Diluted)

$0.22

Total Assets

$19.24B

Cash & Equivalents

$1.82B

Free Cash Flow

-$188.00M

Financial Statements
Beta
Revenue$3.24B
R&D Expenses$24.00M
SG&A Expenses$152.00M
Operating Income$310.00M
Interest Expense$100.00M
Net Income$119.00M
EPS (Basic)$0.23
EPS (Diluted)$0.22
Shares Outstanding (Basic)442.00M
Shares Outstanding (Diluted)462.00M

Key Highlights

  • 1Net income attributable to Arconic shareholders was $119 million for Q3 2017, a decrease from $166 million in Q3 2016.
  • 2Total sales increased to $3,236 million in Q3 2017 from $3,138 million in Q3 2016, driven by volume and pricing.
  • 3Restructuring and other charges increased significantly to $19 million in Q3 2017 from $3 million in Q3 2016.
  • 4Selling, general, administrative, and other expenses decreased due to cost reductions and reduced separation transaction costs.
  • 5The company completed the sale of its Fusina, Italy rolling mill, resulting in a $60 million charge in the nine-month period.
  • 6Significant gains from the sale of Arconic's investment in Alcoa Corporation contributed substantially to 'Other income, net' for the nine-month period.
  • 7The company is facing legal proceedings and investigations related to the Reynobond PE product following the Grenfell Tower fire.

Frequently Asked Questions

The decrease in net income for the third quarter of 2017 compared to 2016 was primarily driven by increased restructuring and other charges, unfavorable product pricing in certain segments, and higher LIFO inventory expense, partially offset by higher sales volumes and net cost savings. The nine-month period was significantly impacted by gains from the sale of Arconic's investment in Alcoa Corporation, which boosted the current year's results compared to the prior year's restructuring charges and the financial impact of the separation of Alcoa Inc.

The Separation Transaction, completed in November 2016, continued to influence the financial reporting. For the third quarter and nine months ended September 30, 2016, the financial results of Alcoa Corporation were presented as discontinued operations. In 2017, Arconic realized significant gains from the sale of its retained investment in Alcoa Corporation common stock and from a debt-for-equity exchange involving these shares, which were recorded in 'Other income, net'. The Toll Processing and Services Agreement with Alcoa Corporation also impacted sales in the Global Rolled Products segment.

For the fourth quarter of 2017, Arconic anticipated continued growth in demand from the commercial aerospace and automotive end markets. However, it also expected continued ramp-up costs for new aerospace engine parts, unfavorable product pricing, and declining demand in the packaging market due to pricing pressures and the ramp-down of a specific business. Growth in the Transportation and Construction Solutions segment was expected to continue due to increasing demand in commercial transportation and building and construction.

Yes, Arconic is involved in several significant legal matters. Most notably, the company is facing investigations and lawsuits related to the Reynobond PE product supplied for the Grenfell Tower cladding. While Arconic believes these cases are without merit, the ultimate resolution is uncertain and could potentially impact the company. Additionally, the company continues to manage environmental remediation liabilities at various sites, with a significant reserve for the Grasse River in Massena, NY.