10-QPeriod: Q3 FY2018

Howmet Aerospace Inc. Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 1, 2018For Securities:HWM

Summary

Howmet Aerospace Inc. (HWM), formerly Arconic, reported sales of $3,524 million for the third quarter of 2018, a 9% increase year-over-year, driven by strong volume growth across most segments, particularly in aerospace, automotive, and transportation. Net income for the quarter was $161 million, a significant increase from $119 million in the prior year period, resulting in diluted earnings per share of $0.32. The company demonstrated improved profitability and sales performance, although cost of goods sold as a percentage of sales increased due to higher aluminum prices and manufacturing inefficiencies. The nine-month period ending September 30, 2018, also showed revenue growth of 9% to $10,542 million, but net income decreased to $424 million from $653 million in the prior year. This decline was largely attributed to the absence of significant gains from asset sales recorded in the prior year and increased operational costs. The company continues to manage its portfolio through divestitures, such as the sale of its Latin America extrusions business, while also investing in strategic areas. Financial condition remains solid with total assets of $18,327 million and shareholders' equity of $5,375 million.

Financial Highlights

50 data points
Beta

Revenue

$3.52B

Net Income

$161.00M

4.6% Net Margin

EPS (Diluted)

$0.32

Total Assets

$18.33B

Cash & Equivalents

$1.54B

Free Cash Flow

-$158.00M

Financial Statements
Beta
Revenue$3.52B
R&D Expenses$25.00M
SG&A Expenses$134.00M
Operating Income$345.00M
Interest Expense$88.00M
Net Income$161.00M
EPS (Basic)$0.33
EPS (Diluted)$0.32
Shares Outstanding (Basic)483.00M
Shares Outstanding (Diluted)502.00M

Key Highlights

  • 1Third-quarter sales increased by 9% to $3,524 million, driven by strong volume growth in key end markets.
  • 2Net income for the third quarter rose by 35% to $161 million, with diluted EPS growing to $0.32.
  • 3The company divested its Latin America extrusions business in April 2018, aligning with its strategy to focus on higher-margin products.
  • 4Cost of goods sold as a percentage of sales increased in both the quarter and year-to-date periods, impacted by higher aluminum prices and manufacturing inefficiencies.
  • 5Restructuring and other charges resulted in a net benefit of $2 million in Q3 2018, a significant improvement from charges of $19 million in Q3 2017.
  • 6Interest expense decreased by 12% in the third quarter due to lower debt outstanding.
  • 7The company is facing potential litigation related to Reynobond PE and other matters, with outcomes yet to be determined.

Frequently Asked Questions

The primary driver of the 9% increase in sales to $3,524 million was strong volume growth across most segments, particularly in aerospace engines and defense, automotive, commercial transportation, industrial, and building and construction end markets. Higher aluminum prices also contributed to the increase.

The decrease in net income for the nine months ended September 30, 2018, to $424 million from $653 million in the prior year, was largely due to the absence of significant gains from asset sales (like the sale of Alcoa Corporation common stock and the Debt-for-Equity Exchange) that were recorded in the first nine months of 2017. Additionally, higher operational costs including manufacturing inefficiencies and costs related to customer claim settlements impacted profitability.

As of September 30, 2018, Howmet Aerospace had total debt of $6,318 million. The company has a $3,000 million revolving credit facility, of which no amounts were outstanding. Cash used for financing activities decreased significantly in the nine-month period compared to the prior year, primarily due to debt redemptions in 2017. The company maintained compliance with its debt covenants.

Yes, the company is involved in legal proceedings, including a purported class action complaint related to the Grenfell Tower fire alleging misleading statements about Reynobond PE sales, and tax-related matters in Spain. While the company believes these cases are without merit, the ultimate resolution and potential financial impact are uncertain and cannot be reasonably estimated at this time.