10-QPeriod: Q1 FY2021

Howmet Aerospace Inc. Quarterly Report for Q1 Ended Mar 31, 2021

Filed May 6, 2021For Securities:HWM

Summary

Howmet Aerospace Inc. (HWM) reported its first quarter 2021 results, with sales decreasing 26% year-over-year to $1.21 billion, primarily impacted by the continued effects of the COVID-19 pandemic on the aerospace industry and specific aircraft production declines. Net income attributable to common shareholders also saw a significant decline, falling to $79 million, or $0.18 per diluted share, from $214 million, or $0.35 per diluted share, in the prior year's first quarter. Despite the revenue headwinds, the company demonstrated operational resilience with a slight improvement in cost of goods sold as a percentage of sales and controlled overhead expenses. Key financial adjustments include a reduction in restructuring and other charges compared to the prior year. The company also managed its debt effectively, with significant redemptions of outstanding notes, leading to lower interest expenses. Howmet Aerospace ended the quarter with a solid cash position of $1.238 billion, indicating adequate liquidity. While the aerospace market remains a significant factor, the company is experiencing growth in commercial transportation and defense, signaling potential diversification benefits.

Financial Highlights

48 data points
Beta

Revenue

$1.21B

Net Income

$80.00M

6.6% Net Margin

EPS (Diluted)

$0.18

Total Assets

$10.97B

Cash & Equivalents

$1.24B

Free Cash Flow

-$61.00M

Financial Statements
Beta
Revenue$1.21B
R&D Expenses$5.00M
SG&A Expenses$65.00M
Operating Income$189.00M
Interest Expense$72.00M
Net Income$80.00M
EPS (Basic)$0.18
EPS (Diluted)$0.18
Shares Outstanding (Basic)434.00M
Shares Outstanding (Diluted)439.00M

Key Highlights

  • 1Sales decreased by 26% to $1.21 billion in Q1 2021 compared to $1.63 billion in Q1 2020, largely due to lower commercial aerospace volumes impacted by COVID-19 and specific aircraft production issues (e.g., Boeing 737 MAX).
  • 2Net income attributable to common shareholders decreased to $79 million ($0.18/share) in Q1 2021 from $214 million ($0.35/share) in Q1 2020.
  • 3Cost of Goods Sold (COGS) as a percentage of sales improved slightly to 72.2% from 72.4% year-over-year, driven by net cost savings and favorable pricing.
  • 4Restructuring and other charges significantly decreased to $9 million in Q1 2021 from $39 million in Q1 2020.
  • 5Interest expense decreased by 14% to $72 million due to lower debt outstanding from early redemptions.
  • 6The company maintained a strong liquidity position with $1.238 billion in cash and cash equivalents at the end of Q1 2021.
  • 7The Forged Wheels segment showed strong performance, with sales increasing by 19% and operating profit up 40% due to higher volumes in the commercial transportation market.

Frequently Asked Questions

The primary driver of the sales decline was a 26% decrease to $1.21 billion, predominantly due to lower sales volumes in the commercial aerospace market. This was significantly impacted by the ongoing effects of the COVID-19 pandemic, as well as production declines for the Boeing 737 MAX and Boeing 787 aircraft. These factors were partially offset by growth in the commercial transportation, defense aerospace, and industrial gas turbine markets.

Howmet Aerospace has actively managed its debt. In the first quarter of 2021, they redeemed the remaining $361 million of its 5.400% Notes due 2021 and later announced the redemption of its 5.870% Notes due 2022. These actions, along with prior redemptions, have led to a decrease in interest expense by 14% year-over-year, from $84 million to $72 million in the first quarter of 2021.

The company derived 60% of its revenue from the aerospace end-market in Q1 2021. Management acknowledges the potential for sustained impact from the COVID-19 pandemic on operations and financial results. While all manufacturing facilities are currently operating, the duration and ultimate impact of the pandemic remain uncertain. The company has implemented headcount reductions and reduced capital expenditures to preserve liquidity.

The Arconic Inc. Separation Transaction, which occurred on April 1, 2020, resulted in the spin-off of the Global Rolled Products businesses into Arconic Corporation. For financial reporting purposes in this 10-Q, the results of Arconic Corporation prior to the separation have been retrospectively reflected as 'discontinued operations' and are excluded from 'continuing operations' and segment results. This means that the Q1 2020 results presented include both continuing and discontinued operations, while Q1 2021 results only include continuing operations.