Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Q3 2016 Earnings Presentation
61 slides from Howmet Aerospace's earnings presentation, Oct 11, 2016
Slide 1: 3rd Quarter Earnings Conference
3rd Quarter Earnings Conference October 11, 2016
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 Alcoa’s consolidated financial information but is not presented in Alcoa’s financial statements prepared in accordance with accounting principles generally accepted in
Slide 4: Klaus Kleinfeld
Klaus Kleinfeld Chairman and Chief Executive Officer October 11, 2016
Slide 5: Alcoa Steady and Resilient in Spite of Near-Term Market Challenges
Alcoa Steady and Resilient in Spite of Near-Term Market Challenges 3Q 2016 Overview Arconic Segments Revenue of $3.4 billion, down 1 percent year over year; Reflects customer adjustments to delivery schedules in the aerospace industry, softness in the North America Commercial Transportation and Pr
Slide 6: William Oplinger
William Oplinger Executive Vice President and Chief Financial Officer October 11, 2016 6
Slide 7: Income Statement Summary
Income Statement Summary Prior Year Sequential $ Millions, except aluminum prices and per-share amounts 3Q15 2Q16 3Q16 Change Change Realized Aluminum Price ($/MT) $1,901 $1,849 $1,874 ($27) $25 Revenue $5,573 $5,295 $5,213 ($360) ($82) Cost of Goods Sold $4,559 $4,216 $4,217 ($342) $1 COGS % Revenu
Slide 8: Special Items
Special Items Income Statement $ Millions, except per-share amounts 3Q15 2Q16 3Q16 Segment Classification Net Income $44 $135 $166 Net Income per Diluted Share $0.06 $0.27 $0.33 Gain on Sale $25 $11 $77 Other Income, Net Corporate Acquisition Settlement - - $20 Other Income, Net Corporate Mark-to-Ma
Slide 9: Strong Productivity Drives Profitability
Strong Productivity Drives Profitability Adjusted Net Income excluding Special Items ($ Millions) $246 -$4 -$1 -$77 $161 $109 $3 -$37 -$35 $18 -$61 3Q15 Metal API Currency Volume Price / Productivity Energy Raw Cost 3Q16 Price Mix Materials Increases / Other Market Performance Cost Headwinds -$69 +$
Slide 10: GRP: Strong Productivity and Auto Sheet Growth Offset Headwinds
GRP: Strong Productivity and Auto Sheet Growth Offset Headwinds 3Q16 Actual and 4Q16 Outlook – Global Rolled Products 3rd Quarter ATOI Results 3rd Quarter Business Highlights 3Q15 2Q16 3Q16 Year-over-year EBITDA/MT2 up 7% excluding Warrick cold metal plan (EBITDA $29M, ATOI $18M) 3rd Party Revenue
Slide 11: EPS: Strong Productivity and Benefits from ATEP Acquisition
EPS: Strong Productivity and Benefits from ATEP Acquisition 3Q16 Actual and 4Q16 Outlook – Engineered Products and Solutions 3rd Quarter ATOI Results 3rd Quarter Business Highlights 3Q15 2Q16 3Q16 Record 3Q ATOI; up 7% year-over-year Strong aero engine demand with industry ramp-up challenges 3rd
Slide 12: TCS: Productivity Offsets N.A. Heavy Duty Truck and Brazil Headwinds
TCS: Productivity Offsets N.A. Heavy Duty Truck and Brazil Headwinds 3Q16 Actual and 4Q16 Outlook – Transportation and Construction Solutions 3rd Quarter ATOI Results 3rd Quarter Business Highlights 3Q15 2Q16 3Q16 ATOI up 7% year-over-year. Revenue down 5% on N.A. Heavy Duty Truck and Brazilian ma
Slide 13: Alumina: Market Factors API and FX Impact Earnings
Alumina: Market Factors API and FX Impact Earnings 3Q16 Actual and 4Q16 Outlook – Alumina 3rd Quarter ATOI Results 3rd Quarter Business Highlights 3Q15 2Q16 3Q16 API pricing down 6% sequentially, down 23% year-over-year Production (kmt) 3,954 3,316 3,310 Production down 6 kmt driven by Pt Comfor
Slide 14: Primary Metals: Favorable Performance Drives Improvement
Primary Metals: Favorable Performance Drives Improvement 3Q16 Actual and 4Q16 Outlook – Primary Metals 3rd Quarter ATOI Results 3rd Quarter Business Highlights 3Q15 2Q16 3Q16 Realized price up 1% sequentially Production (kmt) 700 595 586 Production down 9 kmt due to production instability at Fja
Slide 15: Q4'16 Will Be Reported Separately for Arconic and Alcoa Corp
Q4’16 Will Be Reported Separately for Arconic and Alcoa Corp Expected format and selected items of Q4’16 results for Arconic and Alcoa Corp. based on November 1 target date Arconic Q4’16 Reporting Alcoa Corp Q4’16 Reporting • 3 Months of Arconic results (Oct – Dec) • 2 Months of Alcoa Corp results (
Slide 16: FCF at $31M in Q3'16
FCF at $31M in Q3’16 3Q15, 2Q16 and 3Q16 Cash Flow ($ Millions) 3Q15 2Q16 3Q16 Net Income before Noncontrolling Interests $106 $178 $186 Depreciation, Depletion and Amortization $318 $313 $316 Change in Working Capital $38 $5 $50 Pension Expense in Excess of Contributions ($72) $8 ($2) Australian Ga
Slide 17: Almost $1.2 Billion Expected to be Generated by Asset Sales in 2016
Almost $1.2 Billion Expected to be Generated by Asset Sales in 2016 2016 Expected Asset Sales Cash Expected Proceeds Closing DBNG Pipeline Sell all of Alcoa of Australia’s1 20% minority interest in the $145M 2Q16 Australia Dampier to Bunbury Natural Gas Pipeline Remmele A $70M2 contract manufact
Slide 18: Strong Liquidity, with Cash on Hand at $1.9 Billion
Strong Liquidity, with Cash on Hand at $1.9 Billion Debt, Net Debt ($ Millions) Cash Net Debt 10,306 9,273 9,052 8,744 8,787 1,863 8,246 1,939 1,919 Alcoa Corp. 1,861 1,877 1,250 1,437 new issue 7,334 6,883 6,809 6,910 7,133 7,193 2011 2012 2013 2014 2015 3Q16 Note: Debt amounts for 2011 – 2015 have
Slide 19: Demand Growth at 5% While Supply Grows at 3% in 2016
Demand Growth at 5% While Supply Grows at 3% in 2016 Primary aluminum demand and supply by region (figures in grey denote 2Q16 estimates) 2016 Primary Aluminum Demand & YoY Growth (Mt) 2016 Primary Aluminum Supply & YoY Growth (Mt) Russia -1.0% Global +5% Global +3% Brazil 0.9 1.0 -4.0% 2.1 3.0% Rus
Slide 20: Aluminum Market Remains in Deficit at 615 kmt
Aluminum Market Remains in Deficit at 615 kmt Aluminum fundamentals overview Continue to see global deficit in 2016 Global Inventories at 54 days, -7.5 days YoY 2016E Aluminum Balance (kmt) Financed Stocks China Incl SRB Producer Japan Port Global 100 China Deficit Rest of World 80 (615) Surplus Def
Slide 21: Alumina Market Remains in Deficit at 1.6 Mmt
Alumina Market Remains in Deficit at 1.6 Mmt Alumina fundamentals overview Continue to see large deficit for 2016 Demand growth at 5% while supply only grows at 1% in 2016 2016E Alumina Balance (kmt) Demand & YoY Growth (Mt) Supply & YoY Growth (Mt) Deficit ROW 52.6 3.3% ROW 51.2 -2.4% (1,600) China
Slide 22: Klaus Kleinfeld
Klaus Kleinfeld Chairman and Chief Executive Officer October 11, 2016
Slide 23: Aerospace End-Market in Transition; Strength in Narrow bodies
Aerospace End-Market in Transition; Strength in Narrow bodies Alcoa Current Assessment of Aerospace Market Market Growth (1) Global Commentary Aerospace(1) Solid Airline Fundamentals(2): Airline profitability at an all time high ($39B net profit for 2016); travel demand up 5.8% YTD (vs. 20-year av
Slide 24: Continued Growth in Automotive; HDT- N.A. Further Decline, China/EU Strength
Continued Growth in Automotive; HDT- N.A. Further Decline, China/EU Strength Alcoa End Markets: Current Assessment of 2016 vs. 2015 End Market 2016 Growth Global and Regional Commentary • Production Up: +2.4%YTDAug’16(11.9M units); Truck up +7.3% YTDAug’16 and Car down -4.6% YTDAug’16, OEMs align ou
Slide 25: Packaging Stable; Commercial B&C and Global Airfoil Markets Grow
Packaging Stable; Commercial B&C and Global Airfoil Markets Grow Alcoa End Markets: Current Assessment of 2016 vs. 2015 End Market 2016 Growth Global and Regional Commentary Packaging • Demand decline : Weakness (0% to -1%) in Carbonated Soft Drinks (CSD) N.A. 0% to 1% • Improved growth in Beer Segm
Slide 26: ARCONIC
ARCONIC Innovation, engineered.
Slide 27: Revenue Goals Adjusted for Market Changes; Holding Margin Goals
Revenue Goals Adjusted for Market Changes; Holding Margin Goals 3Q16 Arconic Performance and 2016 Goals 3rd Party Revenue($B) EBITDA (%, $/MT) 3Q 2016 Highlights 2016 Goal and Outlook1 ATOI up ~23% and Q4’16 ATOI to be flat at $49M 5.0-5.23 Drivers for Full Year 2016 revenue goal change: 4.8 –
Slide 28: Alcoa
Alcoa
Slide 29: Achievements Continue across Alcoa Corporation Businesses
Achievements Continue across Alcoa Corporation Businesses Q3 developments in Alcoa Corporation business segments Bauxite Alumina Energy Aluminum Cast Products Rolled Products • All-time Juruti • Saudi refinery • Brazil 3rd party • Smelting cash • 3Q EBITDA/mt • Warrick production record achieves 90%
Slide 30: Exceeded our Cost Curve Target in Alumina and Met our Target in Aluminum
Exceeded our Cost Curve Target in Alumina and Met our Target in Aluminum Cost curve target achievement Alumina Aluminum 30th 51st cost curve cost curve (percentile) (percentile) 2010 2010 Target 21st Percentile 17th 2016 38th 2016 Target 38th Percentile Source: Alcoa and CRU Analysis 30
Slide 31: Alcoa Inc. has Generated $1,116M in Productivity and a Record 20K+ Ideas
Alcoa Inc. has Generated $1,116M in Productivity and a Record 20K+ Ideas Alcoa Degrees of Implementation Ideas and Gross Productivity Program through Q3 2016 Productivity Procurement Savings Price negotiation 2016 3Q YTD Productivity Tracking Ahead of Targets Overhead Reductions 2016 Productivity
Slide 32: Get Ready for The Launch of Two Strong, New Companies
Get Ready for The Launch of Two Strong, New Companies 32
Slide 33: Arconic – Launching a Strong Company
Arconic – Launching a Strong Company Arconic – Key Messages Strongly Positioned in Attractive Markets Differentiated driver of Innovation / Advanced - Secular-growth, compelling margins: Technology Solutions Aerospace / Automotive (~50% revenues) - Development partner to industry leaders driving
Slide 34: Alcoa Corp.: Reshaped Aluminum Leader – Compelling Industry Play
Alcoa Corp.: Reshaped Aluminum Leader – Compelling Industry Play Alcoa Corporation key elements Experienced Global Disciplined management World-class, partnerships approach to An exciting Well team low-cost with access capital industry with positioned for promoting a assets across to key, high alloc
Slide 35: Additional Information
Additional Information Matthew Garth Vice President, Investor Relations and FP&A Alcoa 390 Park Avenue New York, NY 10022-4608 Telephone: (412) 553-2500 Email: matthew.garth@alcoa.com www.alcoa.com 35
Slide 36: Appendix
APPENDIX Advancing each generation. 6] ALCOA 36
Slide 37: Exceeded our Cost Curve Target in Alumina and Met our Target in Aluminum
Exceeded our Cost Curve Target in Alumina and Met our Target in Aluminum Alcoa moves to 17th Percentile in 2016 Alcoa moves to the 38th Percentile in 2016 $/MT ALUMINA $/MT ALUMINUM 500 3,000 450 2010: 400 2010: 2,500 51st Percentile 30th Percentile 350 2,000 300 250 1,500 200 150 2016 Target: 1,000
Slide 38: GRP Revenue Goal Bridge
GRP Revenue Goal Bridge Drivers of GRP’s 2016 Full Year Revenue ($B) Goal Revision EBITDA / MT Includes Tolling 6.0 – 6.2 agreement impact ~1.0 5.0 – 5.2 4.8 – 5.0 ~0.2 ~0.2 ~0.1 ~0.1 $344+ $344+ $344+ Prior Warrick Transfer Tennessee LME / FX Adjusted Prior N.A. Auto Build CT/Industrial Current to
Slide 39: TCS Revenue Goal Bridge
TCS Revenue Goal Bridge Drivers of TCS’s 2016 Full Year Revenue ($B) Goal Revision EBITDA Margin Primarily AWTP-related 2.1 ~0.1 ~0.1 1.7 – 1.8 ~0.1 ~15% ~15% Prior Deployment Latin American North America Current Extrusion Heavy Duty Truck Market Decline Market Decline 39
Slide 40: EPS Revenue Goal Bridge
EPS Revenue Goal Bridge Drivers of EPS’s 2016 Full Year Revenue ($B) Goal Revision EBITDA Margin Aero engine industry Airframe de-stocking ramp-up challenges Airframe de-stocking and Aero engine industry Exiting unprofitable aero engine industry ramp-up challenges businesses ramp-up uncert
Slide 41: Arconic Segment Bridges – 3Q16
Arconic Segment Bridges – 3Q16 EPS Sequential Quarter Bridge GRP Sequential Quarter Bridge $ Millions $ Millions $180 -$1 -$11 $68 $1 -$8 -$10 $1 -$8 $7 -$3 $4 $162 $58 2Q16 Currency Volume Price / Productivity Cost 3Q16 2Q16 Currency Volume Price / Productivity Cost 3Q16 Mix Increases/ Mix Increase
Slide 42: Alcoa Corp Segment Bridges – 3Q16
Alcoa Corp Segment Bridges – 3Q16 Alumina Year-over-Year Bridge Primary Metals Year-over-Year Bridge $ Millions $ Millions $212 -$5 -$137 $20 $56 $66 -$4 $62 $4 -$25 -$28 $72 -$7 $0 -$4 -$3 -$8 $0 3Q15 LME API Currency Volume Price / Prod- Energy Cost 3Q16 -$59 $44 Mix uctivity Increases 3Q15 Metal
Slide 43: Revenue Change by Market – 3Q16
Revenue Change by Market – 3Q16 Sequential Year-Over-Year 3Q16 Third-Party Revenue Change Change Aerospace (4%) 1% Automotive 13% 34% 25% Brazing (9%) (8%) 22% B&C 1% 4% Comm. Transport (2%) (18%) Industrial Products (7%) (11%) 13% 5% IGT (5%) 19% 2% Packaging (3%) (2%) 6% 3% Distribution/Other (15%
Slide 44: Special Items
Special Items Pre-tax, Before NCI After-tax, After NCI Income Statement $ Millions, except per-share amounts 2Q16 3Q16 2Q16 3Q16 Classification Segment Income from Continuing Operations $330 $333 $135 $166 Income per Diluted Share - - $0.27 $0.33 Gain on Sale $27 $118 $11 $77 Other Income, Net Corpo
Slide 45: Composition of Upstream Production Costs
Composition of Upstream Production Costs Refining Cost Structure Input Cost Inventory flow Pricing Annual ATOI Fuel Oil convention Sensitivity Natural gas 7% Conversion 13% Fuel oil 1 – 2 months Prior month $2m per $1/bbl 44% Caustic 10% Natural gas1 N/A N/A N/A Spot & semi- $6m per Caustic soda 3 -
Slide 46: Alcoa Upstream Capacity Closed, Sold and Idled
Alcoa Upstream Capacity Closed, Sold and Idled Smelting Capacity Refining Capacity Closed/sold since December 2007 Idled Closed/sold since December 2007 Idled Facility Year kmt Facility Year kmt Facility Year kmt Facility Year kmt Baie Comeau 2008 53 Portland 2008 30 Jamalco (sale) 2014 779 Point Co
Slide 47: 2016 Alcoa Inc. Market Sensitivities by Segment
2016 Alcoa Inc. Market Sensitivities by Segment Alcoa Inc. Segment Annual ATOI1 Sensitivities Alcoa Corporation Arconic Primary Benchmark Alumina1 Metals GRP2 TCS EPS LME +/- $100/MT $19M $169M $1M ($5M) ($1M) API +/- $10/MT $72M ($28M) N/A N/A N/A AUD +/- 0.01 USD/AUD $17M $2M N/A Min Min BRL +/- 0
Slide 48: Reconciliation of ATOI to Consolidated Net Income (Loss) Attributable to Alcoa
Reconciliation of ATOI to Consolidated Net Income (Loss) Attributable to Alcoa (in millions) 1Q15 2Q15 3Q15 4Q15 2015 1Q16 2Q16 3Q16 (1) Total segment ATOI $656 $567 $410 $273 $1,906 $291 $444 $395 Unallocated amounts (net of tax): Impact of LIFO 7 36 50 43 136 4 (10) 1 Metal price lag (23) (39) (48
Slide 49: Reconciliation of ATOI to Net Income – Supplemental View
Reconciliation of ATOI to Consolidated Net Income (Loss) Attributable to Alcoa(1) – Supplemental View (in millions) 2014 1Q15 2Q15 3Q15 4Q15 2015 1Q16 2Q16 3Q16 (2) Total segment ATOI $1,968 $656 $567 $410 $273 $1,906 $291 $444 $395 Unallocated amounts (net of tax): Impact of LIFO (54) 7 36 50 43 13
Slide 50: Reconciliation of Adjusted Income
Reconciliation of Adjusted Income (in millions, except Income Diluted EPS(5) per-share amounts) Quarter ended Quarter ended September 30, June 30, September 30, September 30, June 30, September 30, 2015 2016 2016 2015 2016 2016 Net income attributable to Alcoa $44 $135 $166 $0.06 $0.27 $0.33 Special
Slide 51: Reconciliation of Adjusted Income, continued
Reconciliation of Adjusted Income, continued (3) Other special items include the following: • for the quarter ended September 30, 2015, a gain on the sale of land in the United States and an equity investment in a China rolling mill ($39), a write-down of inventory related to a refinery in Suriname
Slide 52: Reconciliation of Alcoa Adjusted EBITDA
Reconciliation of Alcoa Adjusted EBITDA ($ in millions) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q15 2Q16 3Q16 Net income (loss) attributable to Alcoa $1,233 $2,248 $2,564 $(74) $(1,151) $254 $611 $191 $(2,285) $268 $(322) $44 $135 $166 Add: Net income (loss) attributable to noncontro
Slide 53: Reconciliation of Alumina Adjusted EBITDA
Reconciliation of Alumina Adjusted EBITDA ($ in millions, except per metric ton amounts) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q15 2Q16 3Q16 After-tax operating income (ATOI) $682 $1,050 $956 $727 $112 $301 $607 $90 $259 $370 $746 $212 $109 $72 Add: Depreciation, depletion, and amo
Slide 54: Reconciliation of Primary Metals Adjusted EBITDA
Reconciliation of Primary Metals Adjusted EBITDA ($ in millions, except per metric ton amounts) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q15 2Q16 3Q16 After-tax operating income (ATOI) $822 $1,760 $1,445 $931 $(612) $488 $481 $309 $(20) $594 $155 $(59) $41 $56 Add: Depreciation, deple
Slide 55: Reconciliation of Upstream Adjusted EBITDA
Reconciliation of Upstream(1) Adjusted EBITDA (in millions) 2008 2009 2010 2011 2012 2013 2014 2015 3Q15 2Q16 3Q16(2) After-tax operating income (ATOI) $1,658 $(500) $789 $1,088 $399 $239 $964 $901 $153 $150 $128 Add: Depreciation, depletion, and amortization 771 852 977 1,000 987 952 881 725 177 16
Slide 56: Reconciliation of Global Rolled Products Adjusted EBITDA
Reconciliation of Global Rolled Products Adjusted EBITDA ($ in millions, except per metric ton amounts) 2005 2006 2007 2008 2009 2010(1) 2011(1) 2012(1) 2013 2014 2015 3Q15 2Q16 3Q16 After-tax operating income (ATOI) $278 $233 $178 $(3) $(49) $220 $266 $358 $292 $245 $244 $62 $68 $58 Add: Depreciati
Slide 57: Reconciliation of Transportation and Construction Solutions Adjusted EBITDA
Reconciliation of Transportation and Construction Solutions Adjusted EBITDA ($ in millions) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q15 2Q16 3Q16 After-tax operating income (ATOI) $94 $129 $94 $82 $5 $73 $109 $126 $167 $180 $166 $44 $46 $47 Add: Depreciation, depletion, and amortizat
Slide 58: Reconciliation of Engineered Products and Solutions Adjusted EBITDA
Reconciliation of Engineered Products and Solutions Adjusted EBITDA ($ in millions) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q15 2Q16 3Q16 After-tax operating income (ATOI) $183 $237 $351 $465 $321 $355 $436 $484 $569 $579 $595 $151 $180 $162 Add: Depreciation, depletion, and amortiza
Slide 59: Reconciliation of Value-Add Adjusted EBITDA
Reconciliation of Value-Add(1) Adjusted EBITDA ($ in millions) 2008 2009 2010 2011 2012 2013 2014 2015 3Q15 2Q16 3Q16 After-tax operating income (ATOI) $544 $277 $648 $811 $968 $1,028 $1,004 $1,005 $257 $294 $267 Add: Depreciation, depletion, and amortization 387 410 400 402 393 392 414 503 128 129
Slide 60: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow Year ended Quarter ended (in millions) December 31, December 31, December 31, December 31, December 31, September 30, June 30, September 30, 2011 2012 2013 2014 2015 2015 2016 2016 Cash from $2,193 $1,497 $1,578 $1,674 $1,582 $420 $332 $306 operations Capital expendi
Slide 61: Reconciliation of Net Debt
Reconciliation of Net Debt (in millions) December 31, March 31, June 30, September 30, (1) (1) (1) (1) (1) 2011 2012 2013 2014 2015 2016 2016 2016 Short-term borrowings $62 $53 $57 $54 $38 $40 $33 $32 Commercial paper 224 – – – – – – – Long-term debt due within one year 445 465 655 29 21 772 774 773