Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Q4 2019 Earnings Presentation
48 slides from Howmet Aerospace's earnings presentation, Jan 27, 2020
Slide 1: Fourth Quarter 2019 Earnings Call
SENSITIVE Fourth Quarter 2019 Earnings Call John Plant – Chairman and Chief Executive Officer Ken Giacobbe – EVP and Chief Financial Officer January 27, 2020
Slide 2: Important Information
SENSITIVE Important Information Forward–Looking Statements This presentation contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements incl
Slide 3: Important Information (continued)
SENSITIVE Important Information (continued) Non-GAAP Financial Measures Some of the information included in this presentation is derived from Arconic’s consolidated financial information but is not presented in Arconic’s financial statements prepared in accordance with accounting principles generall
Slide 4: Arconic Inc. Reporting Structure
SENSITIVE Arconic Inc. Reporting Structure Arconic Inc. EP&F GRP Engineered Products & Forgings Global Rolled Products Current Engine Products Global Rolled Products Fastening Systems Aluminum Extrusions Engineered Structures Building and Construction Systems Forged Wheels Post Separation Howmet Aer
Slide 5: 4Q and Full Year 2019 Highlights
SENSITIVE 4Q and Full Year 2019 Highlights Revenue and Profitability 4Q 2019 (YoY) FY 2019 (YoY) 4Q Record6 in bold FY Record6 in bold Revenue $3.4B, down 2% $14.2B, up 1% Organic Revenue YoY % Up 1% Up 7% Operating Income Excluding Special Items1 $444M, up 37% $1.8B, up 29% Operating Income Excludi
Slide 6: Key Financial Results – 4Q 2019
SENSITIVE Key Financial Results – 4Q 2019 -2% ▪ Revenue decreased $71M or 2% YoY +1% organic ▪ Organic Revenue increased $38M or 1% YoY Revenue1 $3.5B $3.4B ▪ EP&F segment increased 2% YoY5, GRP segment flat YoY6 ▪ Organic Growth in Aerospace, Industrial, and Packaging markets; partially 4Q18 4Q19 o
Slide 7: Year-over-Year Margin Expansion
SENSITIVE Year-over-Year Margin Expansion 1Q19 2Q19 3Q19 4Q19 vs vs Vs vs 1Q18 2Q18 3Q18 4Q18 Arconic Inc Operating Income Margin +120 bps +240 bps +340 bps +380 bps Excluding Special Items1 Engineered Products & Forgings +210 bps +300 bps +330 bps +480 bps Segment Operating Profit Margin Global Rol
Slide 8: Special Items Summary – 4Q 2019
SENSITIVE Special Items Summary – 4Q 2019 Net favorable $75M ($M) 4Q 2019 FY 2019 Asset Impairments / Divestitures (Pre-Tax) ($10) $566 Costs Associated with Planned Separation (Pre-Tax) $34 $78 Severance Costs / Pension Settlement / OPEB Reduction (Pre-Tax) - $45 Other (Pre-Tax) $5 $77 Tax Impact o
Slide 9: Overview of Segment Results – 4Q 2019
SENSITIVE Overview of Segment Results – 4Q 2019 Revenue1 Segment Operating Profit1 Segment Operating Profit Comments $354M + Aerospace growth Engineered $1,733M Up 32%, or $86M + Price improvements Products & Up 1% Forgings Up 2% Organic 20.4% Margin + Lower raw material costs Up 480 bps + Net Cost
Slide 10: 4Q 2019 Key Achievements
SENSITIVE 4Q 2019 Key Achievements ▪ Record 4Q Revenue and Segment Operating Profit Engineered ▪ Aerospace Organic Revenue up 5% YoY1 Products & ▪ Price improvements of $29M YoY Forgings ▪ Expansions in Aerospace Airfoils, Aerospace Rings, and Forged Wheels ramping up ▪ Record 4Q Segment Operating P
Slide 11: Key Financial Results – Full Year 2019
SENSITIVE Key Financial Results – Full Year 2019 +1% ▪ Revenue increased $178M or 1% YoY +7% organic ▪ Organic Revenue increased $894M or 7% YoY Revenue 1 $14.0B $14.2B ▪ EP&F segment increased 6% YoY5, GRP segment increased 6% YoY6 ▪ Organic Growth in Aerospace, Industrial, Packaging and Commercial
Slide 12: Update on Key Focus Areas: Ahead or On Track
SENSITIVE Update on Key Focus Areas: Ahead or On Track Price • FY 2019 price increases of $153M Update / • FY 2019 operating cost reductions of $213M, ahead of 2019 annual commitment of $180M Cost • Annual run rate operating costs are projected to be reduced by ~$300M Reduction • Repurchased $1.15B
Slide 13: Introducing 2020 Arconic Inc. Guidance
SENSITIVE Introducing 2020 Arconic Inc. Guidance1 Full Year 2020 Guidance Revenue EPS Ex. Special Items Adjusted Free Cash Flow $13.9B – $14.2B $2.22 – $2.42 $800M – $900M Organic Growth of 1%-3% Growth of 7%-14% Capex: 3.4% to 3.9% of Revenue + Aerospace excluding Boeing 737 MAX + Cost Reduction FC
Slide 14: Arconic – Innovation, engineered.
ARCONIC Innovation, engineered.
Slide 15: Appendix
SENSITIVE Appendix
Slide 16: 2020 Arconic Inc. Guidance Assumptions
SENSITIVE 2020 Arconic Inc. Guidance Assumptions1 2020 Assumptions Sensitivities and Comments Al prices = $2,200/MT • +$100/MT increase = +~$130M Revenue impact Annual Avg. LME Cash = $1,790/MT and ~($10M) Operating Income impact Al Price • +$100/MT increase = ~($25M) LIFO non-cash impact2 MWP = $41
Slide 17: New Segment Historical Performance
SENSITIVE New Segment Historical Performance 2018 1Q19 2Q19 3Q19 4Q19 2019 Full Year YoY Up 5% Revenue $6,798M $1,756M $1,822M $1,794M $1,733M $7,105M Organic up 6% Engineered Segment Products & Operating Profit $1,105M $313M $360M $363M $354M $1,390M Up 26% Forgings Segment Operating 16.3% 17.8% 19
Slide 18: Separation Status Update and Timeline
SENSITIVE Separation Status Update and Timeline Form 10 – Amended, Filed Jan. 22 ▪ Pro Forma Pension/OPEB and Debt Obligations New segment reporting – Oct. 30 Investor Days ▪ Arconic Corp. CEO Named ▪ EP&F: Howmet Aerospace Inc. ▪ Howmet Aerospace Inc. – Feb. 25 ▪ GRP: Arconic Corp. ▪ Arconic Corp.
Slide 19: Capital Structure: $4.2B of Net Debt
SENSITIVE Capital Structure: $4.2B of Net Debt Gross Debt ($M) Capitalization at December 31, 2019 Paid down $2.9B of debt since Separation on 11/1/2016 -27% ($M) Amount 8,084 8,093 6,844 6,857 6,844 6,354 6,357 6,357 6,330 6,334 6,335 6,339 5,940 Cash1 $1,703 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 2Q
Slide 20: Organic Revenue Growth for 4Q 2019
SENSITIVE Organic Revenue1 Growth for 4Q 2019 4Q 2018 4Q 2019 ($M) ($M) % Change Arconic Inc. Revenue $3,472 $3,401 -2% less Tennessee Packaging 18 - less Eger 6 - less UK Forgings 32 21 Subtotal: Portfolio Changes 56 21 less Aluminum Price2 - (60) less Foreign Currency2 - (14) Subtotal: Aluminum Pr
Slide 21: Organic Revenue by Market – 4Q 2019
SENSITIVE Organic Revenue by Market – 4Q 2019 Engineered Products & Forgings Engineered Products & Forgings Organic Revenue by Market Organic Revenue by Market YoY (% of total) 1 (% change) 2 12% Aerospace 5% 16% Commercial Transportation (8%) Industrial, Auto & Other 3% 72% Total Organic Revenue Gr
Slide 22: Organic Revenue by Market – 4Q 2019
SENSITIVE Organic Revenue by Market – 4Q 2019 Global Rolled Products Global Rolled Products Organic Revenue by Market Organic Revenue by Market YoY (% of total) 1 (% change) 2 9% 19% Aerospace 3% 17% Automotive (9%) Building & Construction (8%) Packaging (Russia, China and Brazil) 6% Industrial 21%
Slide 23: Organic Revenue Growth for Full Year 2019
SENSITIVE Organic Revenue1 Growth for Full Year 2019 FY 2018 FY 2019 ($M) ($M) % Change Arconic Inc. Revenue $14,014 $14,192 1% less Tennessee Packaging 144 - less Latin America Extrusions3 25 - less Eger 32 - less UK Forgings 131 116 Subtotal: Portfolio Changes 332 116 less Aluminum Price2 - (370)
Slide 24: Organic Revenue by Market – Full Year 2019
SENSITIVE Organic Revenue by Market – Full Year 2019 Engineered Products & Forgings Engineered Products & Forgings Organic Revenue by Market Organic Revenue by Market YoY (% of total)1 (% change) 2 11% Aerospace 8% 18% Commercial Transportation 4% Industrial, Auto & Other Flat 71% Total Organic Reve
Slide 25: Organic Revenue by Market – Full Year 2019
SENSITIVE Organic Revenue by Market – Full Year 2019 Global Rolled Products Global Rolled Products Organic Revenue by Market Organic Revenue by Market YoY (% of total)1 (% change) 2 9% 17% Aerospace 13% 17% Automotive (1%) Building & Construction (1%) Packaging (Russia, China and Brazil) 15% Industr
Slide 26: 2019 YoY Aluminum / Raw Material Price Tailwind
SENSITIVE 2019 YoY Aluminum / Raw Material Price Tailwind Year-over-Year Operating Income Impact from Aluminum / Raw Material Price Changes USD Millions 1Q’19 vs 1Q’18 2Q’19 vs 2Q’18 3Q’19 vs 3Q’18 4Q’19 vs 4Q’18 FY’19 vs FY’18 LIFO1/Metal Lag ($2) $21 $35 $24 $78 Trading Desk2 $9 ($5) $2 $10 $16 Sc
Slide 27: Aluminum / Raw Material Impacts 4Q 2019 vs. 4Q 2018
SENSITIVE Aluminum / Raw Material Impacts 4Q 2019 vs. 4Q 2018 Year-over-Year Impact from Aluminum / Raw Material Price Changes 4Q 2019 Revenue Operating Income Operating Income ($M) ($M) % Engineered Products & Forgings $0 $11 +60 bps Global Rolled Products ($60) $23 +160 bps Arconic Inc. ($60) $34
Slide 28: Reconciliation of Net income excluding Special items
SENSITIVE Reconciliation of Net income excluding Special items ($ in millions, except per-share amounts) Net income excluding Special items Diluted EPS excluding Special items Quarter ended Quarter ended December 31, December 31, December 31, December 31, 2018 2019 2018 2019 Net income $218 $309 $0.
Slide 29: Reconciliation of Net income excluding Special items
SENSITIVE Reconciliation of Net income excluding Special items ($ in millions, except per-share amounts) Net income excluding Special items Diluted EPS excluding Special items Year ended Year ended December 31, December 31, December 31, December 31, 2018 2019 2018 2019 Net income $642 $470 $1.30 $1.
Slide 30: Reconciliation of Operational Tax Rate
SENSITIVE Reconciliation of Operational Tax Rate ($ in millions) Quarter ended December 31, 2019 Year ended December 31, 2019 As reported Special items(1) As adjusted As reported Special items(1) As adjusted Income before income taxes $304 $29 $333 $575 $766 $1,341 (Benefit) provision for income tax
Slide 31: Calculation of Engineered Products and Forgings Segment Operating Profit Margin
SENSITIVE Calculation of Engineered Products and Forgings Segment Operating Profit Margin ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 Segment operating profit $261 $292 $284 $268 $1,105 $313 $360 $363 $354 $1,390 Third-party sales $1,666 $1,734 $1,683 $1,715 $6,798 $1,756 $1,82
Slide 32: Calculation of Global Rolled Products Segment Operating Profit Margin
SENSITIVE Calculation of Global Rolled Products Segment Operating Profit Margin ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 Segment operating profit(1) $140 $141 $107 $93 $481 $135 $179 $161 $150 $625 Third-party sales $1,754 $1,875 $1,839 $1,755 $7,223 $1,784 $1,868 $1,763 $1,
Slide 33: Calculation of Total Segment Operating Profit Margin
SENSITIVE Calculation of Total Segment Operating Profit Margin ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 Sales – Engineered Products and Forgings $1,666 $1,734 $1,683 $1,715 $6,798 $1,756 $1,822 $1,794 $1,733 $7,105 Sales – Global Rolled Products 1,754 1,875 1,839 1,755 7,223
Slide 34: Reconciliation of Total segment operating profit to Consolidated income before income taxes
SENSITIVE Reconciliation of Total segment operating profit to Consolidated income before income taxes ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 Total segment operating profit(1) $401 $433 $391 $361 $1,586 $448 $539 $524 $504 $2,015 Unallocated amounts: Restructuring and other
Slide 35: Reconciliation of Operating Income Excluding Special Items
SENSITIVE Reconciliation of Operating Income Excluding Special Items and Operating Income Margin, Excluding Special Items ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 Operating income (loss) $333 $324 $345 $323 $1,325 $374 $(81) $326 $416 $1,035 Special items: Restructuring and
Slide 36: Reconciliation of Adjusted Free Cash Flow and Free Cash Flow Conversion
SENSITIVE Reconciliation of Adjusted Free Cash Flow and Free Cash Flow Conversion ($ in millions) 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 Cash (used for) provided from operations $426 $217 $(258) $106 $52 $506 $406 Cash receipts from sold receivables 323 1,016 160 257 213 365 995 Capital expenditures (27
Slide 37: Reconciliation of Organic Revenue
SENSITIVE Reconciliation of Organic Revenue ($ in millions) Quarter ended Quarter ended Year ended September 30, December 31, December 31, 2018 2019 2018 2019 2018 2019 Arconic Sales $3,524 $3,559 $3,472 $3,401 $14,014 $14,192 Less: Sales – Eger forgings 7 — 6 — 32 — Sales – UK forgings — — 32 21 13
Slide 38: Reconciliation of Net Debt
SENSITIVE Reconciliation of Net Debt December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, ($ in millions) 2017 2018 2018 2018 2018 2019 2019 2019 2019 Short-term debt $38 $45 $45 $42 $434 $435 $434 $1,434 $1,034 Long-term debt, less amount due with
Slide 39: Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items
SENSITIVE Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items ($ in millions) Trailing-12 months ended December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, 2017 2018 2018 2018 2018 2019 2019 2019 2019 Net (loss) income $ (74) $ (2
Slide 40: Reconciliation of Return on Net Assets (RONA)
SENSITIVE Reconciliation of Return on Net Assets (RONA) Year ended December 31, ($ in millions) 2018 2019 Net income $642 $470 Special items(1) 34 501 Net income excluding Special items $676 $971 December 31, December 31, Net Assets: 2018 2019 Add: Receivables from customers, less allowances $1,047
Slide 41: Reconciliation of Days Working Capital
SENSITIVE Reconciliation of Days Working Capital Quarter ended December 31, ($ in millions) 2018 2019 Receivables from customers, less allowances $ 1,047 $ 967 Add: Deferred purchase program(1) 234 246 Add: Inventories 2,492 2,429 Less: Accounts payable, trade 2,129 2,043 Working capital $ 1,644 $ 1
Slide 42: Reconciliation of Corporate Expense Excluding Special Items
SENSITIVE Reconciliation of Corporate Expense Excluding Special Items ($ in millions) 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 Corporate expense $49 $252 $62 $121 $79 $98 $360 Special items: Costs associated with planned separation — — 3 16 25 34 78 Legal and other advisory costs related to Grenfell Tower
Slide 43: Reconciliation of Arconic End Markets Organic Revenue
SENSITIVE Reconciliation of Arconic End Markets Organic Revenue Commerical Building and Industrial and ($ in millions) Aero Engine Aero Airframe Aero Defense Transportation Packaging Automotive Construction Other 4Q18 Revenue $574 $743 $201 $442 $217 $516 $324 $455 Sales – Eger forgings — — — 6 — —
Slide 44: Reconciliation of Segment End Markets Organic Revenue
SENSITIVE Reconciliation of Segment End Markets Organic Revenue Aero Commercial Building and ($ in millions) Aero Engine Airframe Aero Defense Transportation Packaging Automotive Construction Industrial Other Engineered Products and Forgings 4Q18 Revenue $572 $449 $183 $306 $— $15 $— $15 $175 Sales
Slide 45: Reconciliation of Arconic End Markets Organic Revenue
SENSITIVE Reconciliation of Arconic End Markets Organic Revenue Commerical Building and Industrial and ($ in millions) Aero Engine Aero Airframe Aero Defense Transportation Packaging Automotive Construction Other 2018 Revenue $2,242 $2,812 $784 $1,797 $1,006 $2,056 $1,366 $1,951 Sales – Eger forging
Slide 46: Reconciliation of Segment End Markets Organic Revenue
SENSITIVE Reconciliation of Segment End Markets Organic Revenue Aero Commercial Building and ($ in millions) Aero Engine Airframe Aero Defense Transportation Packaging Automotive Construction Industrial Other Engineered Products and Forgings 2018 Revenue $2,233 $1,763 $726 $1,246 $— $57 $— $60 $713
Slide 47: Reconciliation of Capital Expenditures, Excluding Costs Associated with Planned Separation
SENSITIVE Reconciliation of Capital Expenditures, Excluding Costs Associated with Planned Separation Quarter ended Year ended December 31, December 31, ($ in millions) 2018 2019 2018 2019 Capital expenditures $271 $171 $768 $586 Costs associated with planned separation — 4 — 7 Capital expenditures,
Slide 48: Reconciliation of Segment Adjusted EBITDA
SENSITIVE Reconciliation of Segment Adjusted EBITDA ($ in millions) 2018 1Q19 2Q19 3Q19 4Q19 2019 Engineered Products and Forgings Segment operating profit $1,105 $313 $360 $363 $354 $1,390 Provision for depreciation and amortization 289 71 70 65 63 269 Adjusted EBITDA $1,394 $384 $430 $428 $417 $1,