10-QPeriod: Q2 FY2023

Howmet Aerospace Inc. Quarterly Report for Q2 Ended Jun 30, 2023

Filed August 1, 2023For Securities:HWM

Summary

Howmet Aerospace Inc. (HWM) reported a solid second quarter and first half of 2023, demonstrating robust sales growth driven by a recovery in commercial aerospace and continued strength in defense and commercial transportation markets. Total sales increased by 18% in Q2 and 20% for the first half of the year, reaching $1.65 billion and $3.25 billion, respectively. Net income saw a significant rise of 31% in Q2 and 24% for the first half, reaching $193 million and $341 million, respectively, leading to improved diluted EPS of $0.46 and $0.81. The company's performance was bolstered by favorable pricing, inflationary cost pass-throughs, and strong demand across its segments, particularly Engine Products and Fastening Systems. While facing some operational headwinds like production bottlenecks and increased headcount for future growth, Howmet managed these effectively. The company also continued its proactive debt management, repurchasing a portion of its notes and maintaining a strong liquidity position with a renewed credit facility.

Financial Highlights

48 data points
Beta

Revenue

$1.65B

Net Income

$193.00M

11.7% Net Margin

EPS (Diluted)

$0.46

Total Assets

$10.23B

Cash & Equivalents

$536.00M

Free Cash Flow

$188.00M

Financial Statements
Beta
Revenue$1.65B
R&D Expenses$9.00M
SG&A Expenses$88.00M
Operating Income$285.00M
Interest Expense$55.00M
Net Income$193.00M
EPS (Basic)$0.47
EPS (Diluted)$0.46
Shares Outstanding (Basic)413.00M
Shares Outstanding (Diluted)417.00M

Key Highlights

  • 1Howmet Aerospace reported strong top-line growth with an 18% increase in Q2 sales to $1.65 billion and a 20% increase year-to-date to $3.25 billion, driven by commercial aerospace recovery and demand in other key markets.
  • 2Net income surged by 31% year-over-year in Q2 to $193 million and by 24% year-to-date to $341 million, translating to improved diluted EPS of $0.46 for Q2 and $0.81 for the first half.
  • 3Segment Adjusted EBITDA increased by 15.5% to $388 million in Q2 and by 17.9% to $767 million year-to-date, reflecting operational efficiencies and strong market demand, although margins saw some pressure from increased headcount and inflationary costs.
  • 4The company actively managed its debt, repurchasing $176 million in aggregate principal amount of its 5.125% Notes in the first half of 2023, with plans to redeem an additional $200 million in September.
  • 5Howmet demonstrated a commitment to shareholder returns, with $125 million in share repurchases in the first half of 2023 and $18 million in dividends paid to common shareholders.
  • 6The company successfully renewed its $1 billion senior unsecured revolving credit facility, extending its maturity to July 2028, ensuring robust liquidity.
  • 7Commercial aerospace, a key market, continues its recovery, with revenue from this segment up significantly, though the product mix is still shifting compared to pre-pandemic levels, with narrow-body demand recovering faster than wide-body.

Frequently Asked Questions

The primary drivers for the increased sales were higher volumes in the commercial aerospace, defense aerospace, and commercial transportation markets. Additionally, the company benefited from inflationary cost pass-throughs and favorable product pricing, with price increases exceeding inflationary cost pass-throughs.

While inflationary costs and increased headcount, particularly in anticipation of future revenue increases, have put some pressure on margins (e.g., in the Engine Products and Fastening Systems segments), Howmet has largely offset these impacts through higher volumes and favorable product pricing. The company also benefits from proactive debt management, which has reduced interest expense.

Howmet Aerospace expects continued growth in the commercial aerospace market, with narrow-body aircraft demand recovering faster than wide-body. This is creating a shift in product mix compared to 2019. While domestic air travel has rebounded to 2019 levels, international air travel is at approximately 90% of 2019 levels, indicating ongoing recovery and potential for further growth.

Yes, Howmet has been actively managing its debt. In the first half of 2023, the company repurchased $176 million of its 5.125% Notes due 2024 and plans to redeem an additional $200 million of these notes in September 2023. These actions are expected to reduce annual interest expense.