10-QPeriod: Q3 FY2020

Howmet Aerospace Inc. Quarterly Report for Q3 Ended Sep 30, 2020

Filed November 9, 2020For Securities:HWM

Summary

Howmet Aerospace Inc. (HWM) reported a significant revenue decline in the third quarter and the first nine months of 2020 compared to the prior year, primarily driven by the severe impact of the COVID-19 pandemic on the aerospace and commercial transportation sectors. Sales fell by 37% year-over-year in Q3 and 25% year-to-date. Despite the revenue headwinds, the company focused on cost control, including headcount reductions and a suspension of common stock dividends, to preserve liquidity. The separation from Arconic Corporation in April 2020 also reshaped the company's operational and financial structure, with Arconic Corporation's prior results now classified as discontinued operations. The company's profitability was significantly impacted by lower volumes and operational disruptions related to COVID-19, leading to a substantial decrease in operating income. Restructuring and other charges also contributed to the financial results, particularly in the nine-month period. However, the company demonstrated a commitment to managing its debt, evidenced by early redemptions and adjustments to its credit facilities to provide covenant relief. Despite the challenging environment, Howmet Aerospace continued to operate its manufacturing facilities and highlighted its efforts to mitigate the adverse effects of the pandemic on its business and financial performance.

Financial Highlights

48 data points
Beta

Revenue

$1.13B

Net Income

$36.00M

3.2% Net Margin

Total Assets

$11.34B

Cash & Equivalents

$1.37B

Free Cash Flow

-$1.00M

Financial Statements
Beta
Revenue$1.13B
R&D Expenses$5.00M
SG&A Expenses$66.00M
Operating Income$73.00M
Interest Expense$77.00M
Net Income$36.00M
Shares Outstanding (Basic)436.00M
Shares Outstanding (Diluted)439.00M

Key Highlights

  • 1Significant revenue decline due to COVID-19 impact on aerospace and commercial transportation markets (-37% in Q3, -25% YTD).
  • 2Focus on cost containment and liquidity preservation through headcount reductions and dividend suspension.
  • 3Completion of Arconic Inc. Separation Transaction on April 1, 2020, with Arconic Corporation's prior results reported as discontinued operations.
  • 4Operating income significantly decreased due to lower volumes and COVID-19 related disruptions.
  • 5Restructuring and other charges amounted to $22 million in Q3 and $166 million year-to-date.
  • 6Debt management actions included early redemption of notes and amendments to credit facilities for covenant relief.
  • 7The company's long-term debt fair value ($5.1 billion) exceeded its carrying value ($4.7 billion) as of September 30, 2020.

Frequently Asked Questions

The primary driver of the revenue decrease was the significant negative impact of the COVID-19 pandemic on the aerospace and commercial transportation markets, leading to lower volumes and production declines, including the impact of the Boeing 737 MAX production suspension.

The separation on April 1, 2020, resulted in the historical financial results of Arconic Corporation being classified as discontinued operations for all periods presented. Howmet Aerospace now operates with its retained Engineered Products and Forgings businesses.

The company is implementing several measures to preserve cash and maintain liquidity, including announcing headcount reductions, reducing certain cash outflows, suspending dividends on common stock, and reducing capital expenditures.

The company performed a quantitative impairment test for the Engineered Structures reporting unit in Q1 2020 and concluded it was not impaired, though the margin between fair value and carrying value declined. In Q2 and Q3 2020, no indicators of impairment were identified. However, the company notes that if actual results or market factors decline significantly, future goodwill impairment charges could be material.