How did Howmet perform in full year 2023 relative to its guidance?

Howmet exceeded the high end of its 2023 guidance ranges for revenue, adjusted EBITDA, adjusted EPS, and free cash flow, according to management. Revenue reached $6.6 billion (up 17%), adjusted EBITDA excluding special items was $1.5 billion (up 18%), and free cash flow was $682 million.

What is driving growth at Howmet, and which segments performed best?

Growth was driven primarily by commercial aerospace, which rose 24% in 2023, supported by record aircraft OEM backlogs and accelerating spares demand. Engine Products was the largest segment at $3.3 billion in revenue (up 21%) with a 27.2% segment adjusted EBITDA margin. Engineered Structures was the weakest, with its margin down 120 basis points to 12.9% due to defense aerospace declines.

What are the main risks to the 2024 outlook?

Management is cautious on commercial aerospace until aircraft OEMs sustainably reach higher build rates, and the guidance depends on assumed builds of about 34 Boeing 737 MAX and 56 Airbus A320 aircraft per month. Commercial transportation leading indicators are softening, with management expecting a downcycle confined to 2024. The forward-looking statements also flag supply chain, labor, geopolitical, and pension discount-rate risks.

How is Howmet managing its balance sheet and shareholder returns?

The company paid down $476 million of debt in 2023 and partially redeemed $500 million of 2024 Notes in December, funded by term loans and cash. All outstanding long-term debt is unsecured and fixed-rate. Howmet also repurchased $250 million of stock in 2023, with $697 million of authorization remaining as of February 1, 2024, and increased its quarterly dividend to $0.05 per share.

Why does the cash flow and EBITDA margin matter for investors?

Record operating cash flow of $901 million, against EBITDA margins of about 23%, supports both debt reduction and shareholder returns. Management noted that 2023 adjusted EBITDA margin included about $90 million of inflationary cost pass-through; excluding this, the margin was about 23.0%. Q4 2023 margin of 23.0% was described as a solid exit rate, though near-term headcount additions are absorbing some costs.

HWM 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed February 13, 2024. Cited figures are marked; the original filing is the authoritative source.

Howmet Aerospace (HWM) reported fourth quarter and full year 2023 results on February 13, 2024, highlighted by strong top-line growth, record profitability, and record cash from operations.

Full year 2023 revenue rose 17% year over year to $6.6 billion^a, driven by 24% growth in commercial aerospace, with all end markets up. Net income was $765 million ($1.83 per diluted share), and net income excluding special items was $766 million ($1.84 per share, up 31%). Adjusted EBITDA excluding special items reached $1.5 billion (up 18%), with a 22.7% margin.

Cash from operations was $901 million^b and free cash flow was $682 million. The company exceeded the high end of its 2023 guidance for revenue, adjusted EBITDA, adjusted EPS, and free cash flow. Capital allocation was a major theme.

Howmet deployed roughly $800 million^c in 2023 across $476 million of debt paydown, $250 million of share repurchases, and $73 million of dividends. In Q4 it refinanced about $400 million of term loans at a weighted average fixed rate of roughly 3.9% and used them, plus cash on hand, to partially redeem $500 million of its 5.125% 2024 Notes, leaving about $205 million outstanding. Management says these actions reduce annualized interest expense by about $29 million.

The quarterly dividend was raised 25% to $0.05^d per share, and S&P upgraded the company to investment grade (BBB-), making it investment grade at two of three major agencies. Looking ahead, management guided 2024 revenue to $7.0-7.2 billion (baseline $7.10 billion, about 7% growth), adjusted EBITDA to $1.600-1.670 billion, adjusted EPS to $2.10-2.20, and free cash flow to $700-770 million.

Management expects above-trend commercial aerospace growth, tempered by caution until OEM build rates sustainably increase, and flags a softening commercial transportation downcycle expected to be confined to 2024. Investors should note the guidance assumes Boeing 737 MAX builds of about 34 per month and Airbus A320 builds of about 56 per month.

02—Key points

Key Highlights

FY 2023 revenue of $6.6 billion, up 17% year over year, led by 24% growth in commercial aerospace; Q4 revenue of $1.7 billion, up 14%.
FY 2023 net income of $765 million ($1.83 per diluted share); adjusted EPS excluding special items of $1.84, up 31% year over year.
FY 2023 adjusted EBITDA excluding special items of $1.5 billion (up 18%) with a 22.7% margin; Q4 margin of 23.0%.
Record cash from operations of $901 million and free cash flow of $682 million in FY 2023, exceeding guidance.
Debt reduction of $476 million in 2023 and Q4 refinancing (~$400 million term loans at ~3.9% fixed) reducing annualized interest expense by ~$29 million; 2024 Notes outstanding reduced to ~$205 million.
Quarterly dividend raised 25% to $0.05 per share; $250 million of share repurchases in 2023 with $697 million authorization remaining.
2024 guidance: revenue of $7.0-7.2 billion (~7% growth), adjusted EPS of $2.10-2.20, and free cash flow of $700-770 million; S&P upgraded to BBB- (investment grade).

03—Questions

Frequently Asked Questions

How did Howmet perform in full year 2023 relative to its guidance?
Howmet exceeded the high end of its 2023 guidance ranges for revenue, adjusted EBITDA, adjusted EPS, and free cash flow, according to management. Revenue reached $6.6 billion (up 17%), adjusted EBITDA excluding special items was $1.5 billion (up 18%), and free cash flow was $682 million.
What is driving growth at Howmet, and which segments performed best?
Growth was driven primarily by commercial aerospace, which rose 24% in 2023, supported by record aircraft OEM backlogs and accelerating spares demand. Engine Products was the largest segment at $3.3 billion in revenue (up 21%) with a 27.2% segment adjusted EBITDA margin. Engineered Structures was the weakest, with its margin down 120 basis points to 12.9% due to defense aerospace declines.
What are the main risks to the 2024 outlook?
Management is cautious on commercial aerospace until aircraft OEMs sustainably reach higher build rates, and the guidance depends on assumed builds of about 34 Boeing 737 MAX and 56 Airbus A320 aircraft per month. Commercial transportation leading indicators are softening, with management expecting a downcycle confined to 2024. The forward-looking statements also flag supply chain, labor, geopolitical, and pension discount-rate risks.
How is Howmet managing its balance sheet and shareholder returns?
The company paid down $476 million of debt in 2023 and partially redeemed $500 million of 2024 Notes in December, funded by term loans and cash. All outstanding long-term debt is unsecured and fixed-rate. Howmet also repurchased $250 million of stock in 2023, with $697 million of authorization remaining as of February 1, 2024, and increased its quarterly dividend to $0.05 per share.
Why does the cash flow and EBITDA margin matter for investors?
Record operating cash flow of $901 million, against EBITDA margins of about 23%, supports both debt reduction and shareholder returns. Management noted that 2023 adjusted EBITDA margin included about $90 million of inflationary cost pass-through; excluding this, the margin was about 23.0%. Q4 2023 margin of 23.0% was described as a solid exit rate, though near-term headcount additions are absorbing some costs.

04—Continue

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