Slide 1: Second Quarter 2018 Earnings Call
Second Quarter 2018 Earnings Call Chip Blankenship – Chief Executive Officer Ken Giacobbe – Chief Financial Officer July 31, 2018
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) 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 generally accepted
Slide 4: Strategy Review: On Track to Complete in 3Q18, Initiating Sale of BCS
Strategy Review: On Track to Complete in 3Q18, Initiating Sale of BCS Phase 1: Segment-Based Strategy Approach - COMPLETE Phase 2: Analyze Alternatives 25 individual product lines being evaluated Considerations: • Competitive / Owner’s Advantage Core Criteria Practical Considerations • Minimize dist
Slide 5: BCS: Leading Design and Product Development Capabilities
BCS: Leading Design and Product Development Capabilities US Bank / Minnesota Vikings Stadium, USA Profile Products and Capabilities OptiQ • Products provide increased UltraThermal • ~$1B of Revenue thermal performance +40% thermal performance • Offering enhanced Museum at Prairiefire, • 29 locations
Slide 6: 2Q Highlights
2Q Highlights • New Organization led by VP Manufacturing and Continuous Improvement – Lean training, surge teams, quality engineers, automation experts and data scientists – Already driving results – Hosting first-ever plant manager summit in August • Signed largest multiyear supply contract with Bo
Slide 7: Key Financial Results
Key Financial Results +$312M Revenue growth across all segments $3.3B $3.6B Revenue1 Organic revenue increased $169M or 5% YoY Includes settlements of certain customer claims of ($38M) 2Q17 2Q18 Volume $53M: Transportation $32M and Aero $17M Operating -$7M Mix ($29M): Aero wide-body produc
Slide 8: Overview of Segment Results
Overview of Segment Results Revenue1 Segment Operating Profit1 Segment Operating Profit Comments + Aero Engine growth $1,596M $212M ‒ Continued challenges and opportunities EP&S Up 7% Down 15%, or $38M in Rings and Disks Up 6% Organic Aluminum price impact ($10M) ‒ Inventory adjustment $1,451M $123M
Slide 9: 2Q Key Achievements
2Q Key Achievements Aero Engines revenue up 11% YoY Investment Castings costs improving EP&S Aero Airframes revenue up 2% YoY Aero Defense revenue up 25% YoY Auto organic revenue up 13%1 YoY GRP Contract wins at Boeing and Jeep® Record Segment Operating Profit up 37% YoY TCS Record S
Slide 10: 2018 Guidance Unchanged
2018 Guidance1 Unchanged + Net Cost Savings ‒ Raw material costs + Next Gen Engine ramp ‒ Wide-Body / Narrow-Body mix + Commercial Transportation ‒ IGT / Power + Auto Aluminization ‒ Aerospace pricing + Aerospace and Military Aircraft deliveries ‒ NA Packaging ramp down + Building and Construction ‒
Slide 11: ARCONIC
ARCONIC Innovation, engineered.
Slide 12: Appendix
Appendix SD ARCONIC
Slide 13: 2Q 2018 Special Items
2Q 2018 Special Items Income Earnings before Net per ($M) income income diluted taxes share As reported $194 $120 $0.24 Restructuring-related ($15) ($12) Legal and other advisory costs related to Grenfell Tower ($4) ($3) Settlements of certain customer claims principally related to ($38) ($29) produ
Slide 14: Capital Structure: $4.9B of Net Debt
Capital Structure: $4.9B of Net Debt Gross Debt ($M) Capitalization at June 30, 2018 Paid down $2.5B of debt since Separation on 11/1/2016 -21% ($M) Amount 8,084 8,093 6,844 6,857 6,844 6,354 6,357 Cash $1,455 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 Gross Debt $6,357 Net Debt-to-LTM EBITDA1 -26% N
Slide 15: Key 2018 Guidance Assumptions
Key 2018 Guidance Assumptions 2018 Annual Avg. • +$100/MT increase = Assumed Al prices = $2,664/MT2 o +~$115M Revenue impact / ~($10M) Operating Income impact Al Price1 • +$100/MT increase = ~($25M) LIFO impact to Operating Income 3Q–4Q Al Price3 Al prices = $2,720/MT4 on a full year basis and is pr
Slide 16: 2018 Pension, OPEB, and Adjusted Free Cash Flow Guidance
2018 Pension, OPEB, and Adjusted Free Cash Flow Guidance Adjusted Free Cash Flow Guidance Items FY 2018 Pension Expense Add-back ~$220M Pension and OPEB Contributions including New Employer Contributions to DC Plan1 ~($465M) Capital Expenditures ~($750M) YoY Working Capital Change ~($110M) Cash Taxe
Slide 17: Aluminum price impacts 2Q 2018 vs. 2Q 2017
Aluminum price impacts 2Q 2018 vs. 2Q 2017 Year-over-Year Impact from Aluminum Price Changes 2Q 2018 Revenue Operating Income Operating Income ($M) ($M) % EP&S $2 ($10) -60 bps GRP $128 ($5) -120 bps TCS $19 ($5) -150 bps Arconic $149 ($20) -100 bps 1H 2018 Revenue Operating Income Operating Income
Slide 18: Organic Revenue Growth for 2Q 2018
Organic Revenue1 Growth for 2Q 2018 2Q 2017 2Q 2018 ($M) ($M) % Change 2Q 2017 2Q 2018 ($M) ($M) % Change Arconic Revenue $3,261 $3,573 10% GRP Revenue $1,271 $1,451 14% less Tennessee Packaging 51 46 less Tennessee Packaging 51 46 less Latin America Extrusions 30 - less Fusina Rolled Products 9 - l
Slide 19: LIFO Charges Illustrated
LIFO Charges Illustrated Annual Annual Annual Annual Al Al LIFO2 Estimate 1Q 2Q 3Q 4Q LIFO2 Estimate 1Q 2Q 2017 Prices Estimate To Book ($M) ($M) ($M) ($M) 2018 Prices Estimate To Book ($M) ($M) ($/MT)1 ($/MT)1 ($M) YTD ($M) YTD 1Q $2,174 ($76M) 25% ($19M) ($19M) ($19M) ($19M) 1Q $2,433 ($56M) 25% (
Slide 20: Revenue by Market – 2Q 2018
Revenue by Market – 2Q 2018 Revenue by Market Year-over-Year (% of total) (% change) 8% 5% Aerospace - Defense 21% Aerospace - Commercial Airframe Flat 14% 20% Aerospace - Commercial Engine 11% Automotive 1 26% Building & Construction 7% 13% Commercial Transportation 29% 16% Industrial & Other (2%)
Slide 21: Historical Segment Adjusted EBITDA to Segment Operating Profit Bridges
Historical Segment Adjusted EBITDA to Segment Operating Profit Bridges Engineered Products and Solutions: 1Q17 2Q17 3Q17 4Q17 2017 Adjusted EBITDA - As Reported in 2017 306 310 312 296 1,224 Depreciation and Amortization (64) (66) (68) (70) (268) LIFO1 (4) (4) (13) (11) (32) Derivative Activities1 1
Slide 22: Reconciliation of Net income excluding Special items
Reconciliation of Net income excluding Special items ($ in millions, except per-share amounts) Net income excluding Special items Diluted EPS excluding Special items Quarter ended Quarter ended June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 Net income $120 $212 $0.24 $0.43 Special items: Re
Slide 23: Reconciliation of Net income excluding Special items
Reconciliation of Net income excluding Special items ($ in millions, except per-share amounts) Net income excluding Special items Diluted EPS excluding Special items Six months ended Six months ended June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 Net income $263 $534 $0.53 $1.07 Special ite
Slide 24: Reconciliation of Operational Tax Rate
Reconciliation of Operational Tax Rate ($ in millions) Quarter ended June 30, 2018 Six months ended June 30, 2018 Special Special As reported items(1) As adjusted As reported items(1) As adjusted Income before income taxes $194 $57 $251 $393 $88 $481 Provision for income taxes 74 (8) 66 130 (3) 127
Slide 25: Calculation of Engineered Products and Solutions Segment Operating Profit Margin
Calculation of Engineered Products and Solutions Segment Operating Profit Margin ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 Segment operating profit(1) $247 $250 $239 $228 $964 $221 $212 Third-party sales $1,487 $1,485 $1,477 $1,494 $5,943 $1,541 $1,596 Segment operating profit margin 16.6%
Slide 26: Calculation of Global Rolled Products Segment Operating Profit Margin
Calculation of Global Rolled Products Segment Operating Profit Margin ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 Segment operating profit $136 $133 $64 $91 $424 $112 $123 Third-party sales $1,248 $1,271 $1,234 $1,247 $5,000 $1,366 $1,451 Segment operating profit margin 10.9% 10.5% 5.2% 7.3%
Slide 27: Calculation of Transportation and Construction Solutions Segment Operating Profit Margin
Calculation of Transportation and Construction Solutions Segment Operating Profit Margin ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 Segment operating profit $68 $71 $74 $77 $290 $67 $97 Third-party sales $456 $504 $523 $528 $2,011 $537 $562 Segment operating profit margin 14.9% 14.1% 14.1% 1
Slide 28: Calculation of Total Segment Operating Profit Margin
Calculation of Total Segment Operating Profit Margin ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 Sales – Engineered Products and Solutions $1,487 $1,485 $1,477 $1,494 $5,943 $1,541 $1,596 Sales – Global Rolled Products 1,248 1,271 1,234 1,247 5,000 1,366 1,451 Sales – Transportation and Const
Slide 29: Reconciliation of Total segment operating profit to Consolidated income before income taxes
Reconciliation of Total segment operating profit to Consolidated income (loss) before income taxes ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 Total segment operating profit $451 $454 $377 $396 $1,678 $400 $432 Unallocated amounts: Restructuring and other charges (73) (26) (19) (47) (165) (7)
Slide 30: Reconciliation of Operating Income Excluding Special Items
Reconciliation of Operating Income Excluding Special Items ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 Operating income $283 $320 $310 $(433) $480 $333 $324 Special items: Restructuring and other charges 73 26 19 47 165 7 15 Impairment of goodwill — — — 719 719 — — Separation costs 18 — — — 1
Slide 31: Reconciliation of Adjusted Free Cash Flow
Reconciliation of Adjusted Free Cash Flow ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 Cash (used for) provided from operations $(395) $79 $(57) $325 $(48) $(436) $176 Capital expenditures (103) (126) (131) (236) (596) (117) (171) Cash receipts from sold receivables 95 190 228 287 800 136 284
Slide 32: Reconciliation of Organic Revenue
Reconciliation of Organic Revenue ($ in millions) Quarter ended Quarter ended Six months ended June 30, March 31, June 30, 2018 2017 2018 2017 2018 2017 Arconic Sales – Arconic $3,573 $3,261 $3,445 $3,192 $7,018 $6,453 Less: Sales – Tennessee packaging 46 51 43 54 89 105 Sales – Fusina rolling mill
Slide 33: Reconciliation of Net Debt
Reconciliation of Net Debt June 30, March 31, December 31, September 30, June 30, March 31, December 31, ($ in millions) 2018 2018 2017 2017 2017 2017 2016 Short-term debt $45 $45 $38 $55 $48 $47 $40 Long-term debt, less amount due within one year 6,312 6,309 6,806 6,802 6,796 8,046 8,044 Total debt
Slide 34: Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items
Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items ($ in millions) Trailing-12 months ended June 30, March 31, December 31, September 30, June 30, March 31, December 31, 2018 2018 2017 2017 2017 2017 2016 Net loss attributable to Arconic $ (345) $ (253) $ (74) $ (605) $ (558) $ (6
Slide 35: Reconciliation of Return on Net Assets (RONA)
Reconciliation of Return on Net Assets (RONA) Six months ended June 30, ($ in millions) 2018 2017 Net income $263 $534 Special items(1) 91 (200) Net income excluding Special items $354 $334 Annualized net income excluding Special items $708 $668 Net Assets: Add: Receivables from customers, less allo
Slide 36: Reconciliation of Days Working Capital
Reconciliation of Days Working Capital Quarter ended June 30, ($ in millions) 2018 2017 Receivables from customers, less allowances $ 1,159 $ 1,170 Add: Deferred purchase program(1) 313 222 Add: Inventories 2,659 2,416 Less: Accounts payable, trade 2,024 1,667 Working capital $ 2,107 $ 2,141 Sales $
Slide 37: Reconciliation of GRP Auto Organic Revenue and Corporate Expenses
Reconciliation of Global Rolled Products Auto Organic Revenue Reconciliation of Corporate Expenses Excluding Special Items Reconciliation of Global Rolled Products Auto Organic Revenue ($ in millions) 2Q18 2Q17 Global Rolled Products (GRP) Auto Revenue $470 $374 Aluminum price impact 48 n/a GRP Auto
Slide 38: ARCONIC
ARCONIC Innovation, engineered.