Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Q1 2020 Earnings Presentation
38 slides from Howmet Aerospace's earnings presentation, May 5, 2020
Slide 1: First Quarter 2020 Earnings Call
First Quarter 2020 Earnings Call John Plant – Executive Chairman and Co-Chief Executive Officer Ken Giacobbe – EVP and Chief Financial Officer May 5, 2020 Formerly Arconic Inc.
Slide 2: Important Information
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 include those
Slide 3: Important Information (continued)
Important Information (continued) On April 1, 2020, Arconic Inc. completed the separation of its business into two independent, publicly-traded companies: Howmet Aerospace Inc. (the new name for Arconic Inc.) and Arconic Corporation. References herein to “Arconic Inc.” refer to Howmet Aerospace prio
Slide 4: Legal Separation completed on April 1
Legal Separation completed on April 1 Arconic Inc. EP&F GRP Engineered Products & Forgings Global Rolled Products Pre Separation Engine Products Global Rolled Products Fastening Systems Aluminum Extrusions (1Q 2020) Engineered Structures Building and Construction Systems Forged Wheels Post Separatio
Slide 5: 1Q 2020 Highlights: Arconic Inc. (EP&F, GRP, Corporate)
1Q 2020 Highlights: Arconic Inc. (EP&F, GRP, Corporate) Revenue and Profitability 1Q 2020 (YoY) 1Q Record in bold Revenue $3.21B, down 9% Organic Revenue YoY % Down 6% Operating Income Excluding Special Items1 $472M, up 19% Operating Income Excluding Special Items Margin Expansion 14.7%, up 350 bps
Slide 6: Revenue – 1Q 2020
Revenue – 1Q 2020 ▪ Revenue decreased 9% YoY (9%) Arconic Inc. (6%) organic ▪ Organic Revenue decreased 6% YoY Revenue $3.54B $3.21B ▪ Declines in Commercial Trans, Automotive, and Aerospace driven by COVID-19 and 737 MAX production declines partially offset by growth in Industrial 1Q19 1Q20 ▪ Dives
Slide 7: Organic Revenue by Market – 1Q 2020: EP&F
Organic Revenue by Market – 1Q 2020: EP&F Engineered Products & Forgings Engineered Products & Forgings Organic Revenue by Market Organic Revenue by Market YoY (% of total) 1 (% change) 2 12% Aerospace - Commercial (7%) Aerospace - Defense 17% 15% Sub-Total Aerospace (3%) Commercial Transportation (
Slide 8: Operating Profit – 1Q 2020
Operating Profit – 1Q 2020 + Net Cost reductions 19% Arconic Inc. + Lower raw material costs including aluminum price $472M Up 350 Adjusted $397M bps YoY + Growth in Industrial volume Operating 11.2% 14.7% Up 160 – Declines in Commercial Transportation, Automotive, Aerospace bps QoQ Profit1 – COVID-
Slide 9: Year-over-Year Margin Expansion
Year-over-Year Margin Expansion 1Q19 2Q19 3Q19 4Q19 1Q20 vs vs vs vs vs 1Q18 2Q18 3Q18 4Q18 1Q19 Arconic Inc. Operating Income Margin +120 bps +240 bps +340 bps +380 bps +350 bps Excluding Special Items1 Engineered Products & Forgings +210 bps +300 bps +330 bps +480 bps +300 bps Segment Operating Pr
Slide 10: Segment Historical Performance
Segment Historical Performance 4Q18 1Q19 2Q19 3Q19 4Q19 2019 1Q20 Revenue $1,715M $1,756M $1,822M $1,794M $1,733M $7,105M $1,631M Segment Engineered $268M $313M $360M $363M $354M $1,390M $339M Operating Profit Segment Products Operating Profit & Forgings Segment Operating 15.6% 17.8% 19.8% 20.2% 20.
Slide 11: Adj Free Cash Flow and Earnings Per Share – 1Q 2020
Adj Free Cash Flow and Earnings Per Share – 1Q 2020 44% Arconic Inc. +$19M Arconic Inc. $0.62 Adjusted Free Cash $0.43 Adjusted Earnings Flow, Excluding 11.2% 14.7% -$246M Per Diluted Share2 Separation Costs1 -$265M 1Q19 1Q20 1Q19 1Q20 1Q20: ~40% Howmet Aerospace 1Q20: ~65% Howmet Aerospace Income b
Slide 12: Howmet Aerospace: Actions in Response to COVID-19
Howmet Aerospace: Actions in Response to COVID-19 ▪ Restricted travel and encouraging employees to work from home when feasible ▪ Implemented social-distancing standards throughout manufacturing and office Employee Safety workspaces. We are ensuring that updated protocols are followed / Delivering t
Slide 13: 2020 Outlook: Howmet Aerospace
2020 Outlook: Howmet Aerospace • COVID-19 future impact uncertain and guidance withdrawn • Reduce costs by $100M on a run rate basis; incremental to $50M of previously announced actions from 2019 • Reduce annual Capex spend by ~$100M from the initial target provided at the February 25, 2020 Investor
Slide 14: Howmet Aerospace: Cash Flow Components
Howmet Aerospace: Cash Flow Components Expect to be Free Cash Flow Positive in 20201 1Q 20202 Estimated 2020 Annual2 ▪ Corporate Overhead ~$20M ▪ Corporate Overhead ~$80M ▪ Depreciation and Amortization ~$70M ▪ Depreciation and Amortization ~$280M Howmet ▪ Interest Cash Payments ~$100M ▪ Interest Ca
Slide 15: Howmet Aerospace: Target Debt Maturity Profile
Howmet Aerospace: Target Debt Maturity Profile April 6th Redeemed $1B of 2020 Bonds and $300M 2021 Bonds April 24th $1.2B Bond Issuance1, Two Tender Offers Totaling ($960M)1, ~$190M Cash to Balance Sheet after Fees $1,400 Oct New issuance May on April 24th $1,250 $1,200 $1,200 Tender 1: ~$760M Tende
Slide 16: Howmet Aerospace: Pro Forma Capital Structure as of April 24, 2020
Howmet Aerospace: Pro Forma Capital Structure as of April 24, 2020 $M Howmet Aerospace Pro Forma Cash1 ~$1,030 Pro Forma Gross Debt2 ~$4,860 Pro Forma Net Debt ~$3,830 Pro Forma Net-Debt-to-LTM Adj. EBITDA3 ~2.4x Financial Position Financial Stewardship ◼ Ample liquidity with undrawn $1.5B Five-Year
Slide 17: Howmet Aerospace
rr) HOWMET Lu AEROSPACE
Slide 18: Appendix
Appendix FP) HOWMET UELJ AEROSPACE
Slide 19: Howmet Aerospace: 2020 Additional Assumptions
Howmet Aerospace: 2020 Additional Assumptions1 1Q 2020 Full Year 2020 Sensitivities and Comments • 25 bps Discount Rate sensitivity = ~<$1M (after- Pension / OPEB- ~$10M Total ~$40M Total tax) related Expense (~$7M Non-Service) (~$30M Non-Service) • 25 bps Expected Return on Assets (EROA) sensitivit
Slide 20: Organic Revenue for 1Q 2020: Arconic Inc.
Organic Revenue1 for 1Q 2020: Arconic Inc. 1Q 2019 1Q 2020 ($M) ($M) % Change Arconic Inc. Revenue $3,541 $3,209 -9% less Itapissuma 40 11 less South Korea 13 8 less UK Forgings 32 - Subtotal: Portfolio Changes 85 19 less Aluminum Price2 - (55) less Foreign Currency2 - (4) Subtotal: Aluminum Price &
Slide 21: Organic Revenue by Market – 1Q 2020: GRP
Organic Revenue by Market – 1Q 2020: GRP Global Rolled Products Global Rolled Products Organic Revenue by Market Organic Revenue by Market YoY (% of total)1 (% change) 2 7% 18% Aerospace (3%) 19% Automotive (12%) Building & Construction (10%) Packaging (Russia and China) (7%) 11% 27% Industrial 14%
Slide 22: Reconciliation of Net income excluding Special items (QTD)
Reconciliation of Net income excluding Special items (QTD) ($ in millions, except per-share amounts) Net income excluding Special items Diluted EPS excluding Special items Quarter ended Quarter ended March 31, 2019 March 31, 2020 March 31, 2019 March 31, 2020 Net income $187 $215 $0.39 $0.49 Special
Slide 23: Reconciliation of Operational Tax Rate
Reconciliation of Operational Tax Rate ($ in millions) Quarter ended March 31, 2020 As reported Special items(1) As adjusted Income before income taxes $291 $80 $371 Provision for income taxes 76 21 97 Operational tax rate 26.1% 26.1% Operational tax rate is a non-GAAP financial measure. Management
Slide 24: Calculation of Engineered Products and Forgings Segment Operating Profit Margin
Calculation of Engineered Products and Forgings Segment Operating Profit Margin ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 Segment operating profit $313 $360 $363 $354 $1,390 $339 Third-party sales $1,756 $1,822 $1,794 $1,733 $7,105 $1,631 Segment operating profit margin 17.8% 19.8% 20.2% 20.4% 1
Slide 25: Calculation of Global Rolled Products Segment Operating Profit Margin
Calculation of Global Rolled Products Segment Operating Profit Margin ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 Segment operating profit $135 $179 $161 $150 $625 $169 Third-party sales $1,784 $1,868 $1,763 $1,667 $7,082 $1,578 Segment operating profit margin 7.6% 9.6% 9.1% 9.0% 8.8% 10.7% Third-
Slide 26: Calculation of Total Segment Operating Profit Margin
Calculation of Total Segment Operating Profit Margin ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 Sales – Engineered Products and Forgings $1,756 $1,822 $1,794 $1,733 $7,105 $1,631 Sales – Global Rolled Products 1,784 1,868 1,763 1,667 7,082 1,578 Total segment sales $3,540 $3,690 $3,557 $3,400 $14
Slide 27: Reconciliation of Total segment operating profit to Consolidated income before income taxes
Reconciliation of Total segment operating profit to Consolidated income before income taxes ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 Total segment operating profit $448 $539 $524 $504 $2,015 $508 Unallocated amounts: Restructuring and other charges (12) (499) (119) 10 (620) (21) Corporate expen
Slide 28: Reconciliation of Corporate Expense Excluding Special Items
Reconciliation of Corporate Expense Excluding Special Items ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 Corporate expense $62 $121 $79 $98 $360 $88 Special items: Costs associated with the Arconic Inc. Separation Transaction 3 16 25 34 78 38 Legal and other advisory costs related to Grenfell Tower
Slide 29: Reconciliation of Operating Income Excluding Special Items and Operating Income Margin
Reconciliation of Operating Income Excluding Special Items and Operating Income Margin, Excluding Special Items ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 Operating income (loss) $374 $(81) $326 $416 $1,035 $399 Special items: Restructuring and other charges 12 499 119 (10) 620 21 Costs associate
Slide 30: Reconciliation of Adjusted Free Cash Flow and Free Cash Flow Conversion
Reconciliation of Adjusted Free Cash Flow and Free Cash Flow Conversion ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 Cash (used for) provided from operations $(258) $106 $52 $506 $406 $(291) Cash receipts from sold receivables 160 257 213 365 995 48 Capital expenditures (168) (136) (111) (171) (586
Slide 31: Reconciliation of Organic Revenue
Reconciliation of Organic Revenue ($ in millions) Quarter ended Quarter ended December 31, March 31, 2018 2019 2019 2020 Howmet Sales $3,472 $3,401 $3,541 $3,209 Less: Sales – Eger forgings 6 — — — Sales – UK forgings 32 21 32 — Sales – Tennessee packaging 18 — — — Sales – Itapissuma — — 40 11 Sales
Slide 32: Reconciliation of Net Debt
Reconciliation of Net Debt ($ in millions) March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, 2018 2018 2018 2018 2019 2019 2019 2019 2020 Short-term debt $45 $45 $42 $434 $435 $434 $1,434 $1,034 $1,342 Long-term debt, less amount due within one yea
Slide 33: Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items
Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items ($ in millions) Trailing-12 months ended March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, 2018 2018 2018 2018 2019 2019 2019 2019 2020 Net (loss) income $ (253) $ (345) $ (303)
Slide 34: Reconciliation of Return on Net Assets (RONA)
Reconciliation of Return on Net Assets (RONA) Quarter ended Quarter ended December 31, March 31, ($ in millions) 2018 2019 2019 2020 Net income $218 $309 $187 $215 Special items(1) (56) (75) 21 59 Net income excluding Special items 162 234 208 274 Annualized net income excluding Special items 648 93
Slide 35: Reconciliation of Days Working Capital
Reconciliation of Days Working Capital Quarter ended March 31, ($ in millions) 2019 2020 Receivables from customers, less allowances $ 1,170 $ 1,290 Add: Deferred purchase program(1) 430 65 Add: Inventories 2,612 2,512 Less: Accounts payable, trade 2,193 1,799 Working capital $ 2,019 $ 2,068 Sales $
Slide 36: Reconciliation of Howmet Aerospace End Markets Organic Revenue (QTD)
Reconciliation of Howmet Aerospace End Markets Organic Revenue (QTD) Commerical Transportatio Building and ($ in millions) Aero Engine Aero Airframe Aero Defense n Packaging Automotive Construction Industrial Other Total First quarter ended March 31, 2019 Revenue $598 $728 $226 $470 $210 $521 $330 $
Slide 37: Reconciliation of Segment End Markets Organic Revenue (QTD)
Reconciliation of Segment End Markets Organic Revenue (QTD) Commercial Building and ($ in millions) Aero Engine Aero Airframe Aero Defense Transportation Packaging Automotive Construction Industrial Other Total Engineered Products and Forgings First quarter ended March 31, 2019 Revenue $596 $442 $21
Slide 38: Reconciliation of Capital Expenditures, Excluding Separation Transaction Costs
Reconciliation of Capital Expenditures, Excluding Costs Associated with the Arconic Inc. Separation Transaction Quarter ended March 31, ($ in millions) 2019 2020 Capital expenditures $168 $69 Costs associated with the Arconic Inc. Separation Transaction — 3 Capital expenditures, excluding costs asso