Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Q4 2021 Earnings Presentation
36 slides from Howmet Aerospace's earnings presentation, Feb 2, 2022
Slide 1: Fourth Quarter 2021 Earnings Call
Fourth Quarter 2021 Earnings Call John Plant: Executive Chairman and Chief Executive Officer Ken Giacobbe: EVP and Chief Financial Officer February 2, 2022
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 businesses into two independent, publicly-traded companies: Howmet Aerospace Inc. (the new name for Arconic Inc.) and Arconic Corporation. The historical results of the businesses that comprise Arconic C
Slide 4: Q4 and Full Year 2021 Highlights
Q4 and Full Year 2021 Highlights Revenue and Profitability Excluding Special Items1 Q4 2020 Q3 2021 Q4 2021 FY 20206 FY 2021 Revenue $1.238B $1.283B $1.285B $5.257B $4.972B Adj EBITDA1 $282M $292M $296M $1,083M $1,135M Adj EBITDA Margin1 22.8% 22.8% 23.0% 20.6% 22.8% Adj Operating Income2 $215M $224
Slide 5: Q4 2021 Revenue Up 4% YoY and Flat Sequentially
Q4 2021 Revenue Up 4% YoY and Flat Sequentially Revenue by Market Revenue by Market YoY Sequential (% of total) (% change) Aerospace - Commercial 13% 4% Industrial & Other1 ~60% in 2019 17% Aerospace - Defense (22%) (4%) Aerospace - Commercial Commercial Subtotal - Aerospace Flat 1% Transportation 4
Slide 6: FY 2021: Adj EPS +31%, Record Adj FCF $517M, Debt Reduction
FY 2021: Adj EPS2+31%, Record Adj FCF3$517M, Debt Reduction ~$845M, Share Repurchase $430M ▪ Price Increases Enhanced ▪ Structural Cost Reductions of ~$130M exceeded full year target of $100M Profitability ▪ Adj EBITDA Margin1 up 220 bps with ~$285M less revenue; Q4 2021 exit rate of 23.0% ▪ Adj Ear
Slide 7: Engine Products: Commercial Aerospace Recovery; Headcount Adds for Growth
Engine Products: Commercial Aerospace Recovery; Headcount Adds for Growth Revenue by Market $781M +9% (% of total) $585M $555M $534M $544M $599M $605M Aerospace - Commercial $485M Aerospace - Defense 3rd Party Industrial & Other Revenue 27% Aerospace - Commercial Industrial & Other Aerospace 53% - D
Slide 8: Fastening Systems: Commercial Aerospace Decline; Cost Reductions Continue
Fastening Systems: Commercial Aerospace Decline; Cost Reductions Continue Revenue by Market $385M (% of total) -3% $326M Aerospace - Commercial $271M $263M $272M $262M $254M $256M Industrial Aerospace - Defense & Other 3rd Party 12% Commercial Transportation Industrial & Other Revenue Commercial Tra
Slide 9: Engineered Structures: Defense Aerospace Decline; Cost Reductions Continue
Engineered Structures: Defense Aerospace Decline; Cost Reductions Continue Revenue by Market (% of total) $275M -12% Aerospace - Commercial $229M $206M $217M $199M $190M Industrial $176M $160M & Other Aerospace - Defense 3rd Party 8% Industrial & Other Revenue Aerospace - Defense Aerospace - Commerc
Slide 10: Forged Wheels: Steady Volumes Despite Customer Supply Chain Constraints
Forged Wheels: Steady Volumes Despite Customer Supply Chain Constraints Revenue by Region +15% (% of total) $227M $229M $231M $234M North America $191M $203M Other $172M Europe 3rd Party 15% $113M Other Revenue North America Europe 28% 57% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2020 2020 2020 2020 2021 2021 2021 2
Slide 11: Annualized Interest Expense Reduced ~$70M
Annualized Interest Expense Reduced ~$70M • Debt Reduction of ~$845M with Cash on Hand • All Debt Unsecured Oct $1,200M 5.125% • $1B Credit Facility Remains Undrawn $1,150 $1,000M $800M Jan 3.0% Feb $700 Feb May 5.9% 5.95% 6.875% $625 $625 $600 $600M $400M Jan 6.75% Aug $300 4.75% $250 $200M 2021 20
Slide 12: 2022 Guidance
2022 Guidance Q1 2022 Guidance FY 2022 Guidance What we expect in 2022 Low Midpoint High Low Midpoint High ▪ FY 2022 Revenue up ~13% vs. FY 2021 Revenue $1.280B $1.300B $1.320B $5.560B $5.640B $5.720B ▪ FY 2022 Revenue includes ~$125M+ of material pass through impacting Margin by ~50+ bps Adj EBITDA
Slide 13: Summary
Summary ▪ Revenue down 5% YoY; Adj EBITDA1 up 5% YoY; Adj Earnings Per Share2 up 31% YoY despite 787 and COVID impacts Revenue / ▪ Price Increases Profit ▪ Structural Cost Reductions of ~$130M exceeded full year target of $100M FY 2021 ▪ Adj EBITDA Margin1 up 220 bps with ~$285M less revenue; Q4 202
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Slide 15: Appendix
Appendix FP HOWMET UILJ AEROSPACE
Slide 16: 2022 Assumptions
2022 Assumptions Full Year 2022 2022 Comments Corporate Overhead ~$80M • Adj Operating Income excluding special items Depreciation and Amortization ~$270M Interest Expense ~$232M • Excludes debt issuance, breakage and tender fees Operational Tax Rate 24.5% - 25.5% • Cash Tax Rate ~15% ~$20M Total Pe
Slide 17: Special Items Driven By Pension Plan Settlement Charges
Special Items Driven By Pension Plan Settlement Charges Income Income Earnings per Q4 2021 Special Items ($M, except per share amounts) Before Tax After Tax Share Diluted ~95% of AS REPORTED Special Items $78 $77 $0.18 are Non-cash Costs associated with pension plan settlement charges $66 $50 Costs
Slide 18: Combined Segment Incremental Margins
Combined Segment Incremental Margins1 Q4 2020 Q4 2021 Q4 2021 YoY Engine Products $555M $605M $50M Fastening Systems $263M $256M ($7M) Engineered Structures $217M $190M ($27M) Forged Wheels $203M $234M $31M Combined Segment 3rd Party Revenue2 $1,238M $1,285M $47M Engine Products $108M $119M $11M Fas
Slide 19: 2021 and 2022 Share Repurchases
2021 and 2022 Share Repurchases ($ in millions, except share and per-share amounts) Number of shares Average price per share(1) Total Q2 2021 share repurchases 5,878,791 $34.02 $200 Q3 2021 share repurchases 769,274 $32.50 $25 October 2021 share repurchases 879,307 $30.71 $27 November 2021 share rep
Slide 20: Reconciliation of Income from Continuing Operations Excluding Special Items
Reconciliation of Income from Continuing Operations Excluding Special Items ($ in millions, except per-share amounts) Q4 2020 Q3 2021 Q4 2021 FY 2020 FY 2021 Income from continuing operations $106 $27 $77 $211 $258 Diluted EPS $0.24 $0.06 $0.18 $0.48 $0.59 Special items: Restructuring and other char
Slide 21: Reconciliation of 2021 Operational Tax Rate
Reconciliation of 2021 Operational Tax Rate ($ in millions) Quarter ended December 31, 2021 Year ended December 31, 2021 As reported Special items (1)(2) As adjusted As reported Special items (1)(2) As adjusted Income from continuing operations before income taxes $78 $86 $164 $324 $265 $589 Provisi
Slide 22: Reconciliation of 2020 Operational Tax Rate
Reconciliation of 2020 Operational Tax Rate ($ in millions) Quarter ended December 31, 2020 Year ended December 31, 2020 As reported Special items (1)(2) As adjusted As reported Special items (1)(2) As adjusted Income from continuing operations before income taxes $71 $56 $127 $171 $317 $488 Provisi
Slide 23: Calculation of Segment Information
Calculation of Segment Information ($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 FY 2021 Engine Products Third-party sales $ 781 $ 585 $ 485 $ 555 $ 2,406 $ 534 $ 544 $ 599 $ 605 $ 2,282 Inter-segment sales $ 2 $ 1 $ 1 $ 1 $ 5 $ 1 $ 1 $ 1 $ 1 $ 4 Segment ope
Slide 24: Calculation of Segment Information (continued)
Calculation of Segment Information (continued) ($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 FY 2021 Engineered Structures Third-party sales $ 275 $ 229 $ 206 $ 217 $ 927 $ 176 $ 160 $ 199 $ 190 $ 725 Inter-segment sales $ 3 $ 2 $ 1 $ 1 $ 7 $ 1 $ 2 $ 1 $ 2 $
Slide 25: Calculation of Total Segment Operating Profit Margin
Calculation of Total Segment Operating Profit Margin ($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 FY 2021 Third-party sales – Engine Products $781 $585 $485 $555 $2,406 $534 $544 $599 $605 $2,282 Third-party sales – Fastening Systems $385 $326 $271 $263 $1,
Slide 26: Reconciliation of Total Segment to Consolidated Totals
Reconciliation of Total Segment to Consolidated Totals Reconciliation of Total Segment Operating Profit to Consolidated Income (Loss) Before Income Taxes ($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 FY 2021 Income (loss) from continuing operations before in
Slide 27: Reconciliation of Operating Income and Margin Excluding Special Items
Reconciliation of Operating Income and Margin Excluding Special Items ($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 FY 2021 Operating income $258 $74 $73 $221 $626 $189 $207 $205 $147 $748 Special items: Restructuring and other charges 39 105 22 16 182 9 5 8
Slide 28: Reconciliation of Adjusted EBITDA Excluding Special Items
Reconciliation of Adjusted EBITDA Excluding Special Items ($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 FY 2021 Income (loss) from continuing operations after income taxes $153 $(84) $36 $106 $211 $80 $74 $27 $77 $258 Add: Provision (benefit) for income taxe
Slide 29: Reconciliation of Adjusted Free Cash Flow
Reconciliation of Adjusted Free Cash Flow ($ in millions) Q1 2021 Q2 2021 Q3 2021 Q4 2021 FY 2021 Cash (used for) provided from operations $(6) $85 $67 $303 $449 Cash receipts from sold receivables 57 115 95 — 267 Capital expenditures (55) (36) (47) (61) (199) Adjusted free cash flow $(4) $164 $115
Slide 30: Reconciliation of Net Debt
Reconciliation of Net Debt ($ in millions) December 31, 2020 March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021 Short-term debt $376 $489 $13 $14 $5 Long-term debt, less amount due within one year 4,699 4,224 4,227 4,272 4,227 Total debt $5,075 $4,713 $4,240 $4,286 $4,232 Less: Cash,
Slide 31: Reconciliation of Net Debt to Adjusted EBITDA Excluding Special Items
Reconciliation of Net Debt to Adjusted EBITDA Excluding Special Items ($ in millions) Trailing-12 months ended September 30, 2021 December 31, 2021 Income from continuing operations after income taxes $ 287 $ 258 Add: Provision for income taxes 30 66 Other expense, net 87 19 Loss on debt redemption
Slide 32: Reconciliation of Corporate Expense Excluding Special Items
Reconciliation of Corporate Expense Excluding Special Items ($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 FY 2021 Corporate expense (income) $42 $21 $22 $(3) $82 $28 $10 $30 $33 $101 Special items: Costs associated with the Arconic Inc. Separation Transactio
Slide 33: Calculation of Segment End Markets Revenue
Calculation of Segment End Markets Revenue Engine Fastening Engineered Forged ($ in millions) Products Systems Structures Wheels Total Segment Fourth quarter ended December 31, 2020 Aerospace - Commercial $229 $158 $110 $— $497 Aerospace - Defense $163 $36 $87 $— $286 Commercial Transportation $— $3
Slide 34: Reconciliation of Segment Adjusted EBITDA
Reconciliation of Segment Adjusted EBITDA ($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 FY 2021 Engine Products Segment operating profit $165 $105 $39 $108 $417 $101 $100 $120 $119 $440 Provision for depreciation and amortization 30 31 31 31 123 31 30 31 32
Slide 35: Reconciliation of Adjusted Free Cash Flow as a Percentage of Income from Continuing Operations
Reconciliation of Adjusted Free Cash Flow as a Percentage of Income from Continuing Operations ($ in millions) FY 2021 Cash provided from operations $449 Cash receipts from sold receivables 267 Capital expenditures (199) Adjusted free cash flow (a) $517 Voluntary pension plan contributions for U.K.
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