Slide 1: Third Quarter 2018 Earnings Call
Third Quarter 2018 Earnings Call Chip Blankenship – Chief Executive Officer Ken Giacobbe – Chief Financial Officer October 30, 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: Third Quarter 2018 Highlights
Third Quarter 2018 Highlights Revenue (YoY)1 • Revenue growth 9% and organic revenue growth of 7% Profitability (YoY) • Operating Income excluding Special Items +4%2. Major underlying elements include: – Volume growth across all segments – Segment Operating Profit growth in EP&S’ Engines/Fastening S
Slide 5: Key Financial Results – 3Q 2018
Key Financial Results – 3Q 2018 +9% $3.2B $3.5B ▪ Revenue growth across all segments Revenue1 ▪ Organic revenue increased $233M or 7% YoY 3Q17 3Q18 Operating +4% ▪ Volume $56M: Aero $28M and Automotive $16M Income $336M $348M ▪ Price/Mix ($25M): Aero Engine mix and Aero pricing Excluding ▪ Net Cost
Slide 6: Overview of Segment Results – 3Q 2018
Overview of Segment Results – 3Q 2018 Revenue1 Segment Operating Profit1 Segment Operating Profit Comments + Aero Engine growth $1,566M $238M + Aero Defense growth EP&S Up 6% Approximately Flat ‒ Aero Engine mix and Aero pricing Up 6% Organic Aluminum price impact +$4M ‒ Manufacturing inefficiencies
Slide 7: Third Quarter 2018 Key Achievements
Third Quarter 2018 Key Achievements ▪ Aero Engines revenue up 15% YoY EP&S ▪ Aero Defense revenue up 38% YoY ▪ Auto organic revenue up 20% YoY1 GRP ▪ Industrial organic revenue up 6% YoY2 ▪ Commercial Transportation organic revenue up 7% YoY3 ▪ Commercial Transportation organic revenue up 8% YoY4 TC
Slide 8: 2018 Earnings Per Share Guidance Updated
2018 Earnings Per Share1 Guidance Updated2 + Next Gen Engine ramp ‒ Transportation and raw material costs + Auto Aluminization ‒ Aero Engine mix and Aero pricing + Commercial Transportation ‒ Wide-Body / Narrow-Body mix + Net Cost Savings ‒ IGT + Building and Construction ‒ Airbus inventory burn dow
Slide 9: ARCONIC
ARCONIC Innovation, engineered.
Slide 10: Appendix
Appendix SD ARCONIC
Slide 11: 3Q 2018 Special Items
3Q 2018 Special Items Income Earnings before Net per ($M) income Income diluted taxes share As reported $249 $161 $0.32 Restructuring-related ($2) ($3) Spain tax indemnification receivable ($29) ($28) Legal and other advisory costs related to Grenfell Tower $5 $4 Discrete tax items N/A $26 Special i
Slide 12: Capital Structure: $4.8B of Net Debt
Capital Structure: $4.8B of Net Debt Gross Debt ($M) Capitalization at September 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 6,357 Cash $1,535 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 Gross Debt $6,357 Net Debt-to-L
Slide 13: Key 2018 Guidance Assumptions
Key 2018 Guidance Assumptions 2018 Annual Avg. • +$100/MT increase = +~$115M Revenue impact / ~($10M) Assumed Al prices = $2,561/MT2 Operating Income impact Al Price1 • +$100/MT increase = ~($25M) LIFO non-cash impact to Operating 4Q Al Price3 Al prices = $2,520/MT4 Income on a full year basis and i
Slide 14: Aluminum price impacts 3Q 2018 vs. 3Q 2017
Aluminum price impacts 3Q 2018 vs. 3Q 2017 Year-over-Year Impact from Aluminum Price Changes 3Q 2018 Revenue Operating Income Operating Income ($M) ($M) % EP&S ($1) $4 +30 bps GRP $106 $9 +30 bps TCS $3 ($14) -280 bps Arconic $108 ($1) -30 bps 3Q 2018 Year-to-Date Revenue Operating Income Operating
Slide 15: Organic Revenue Growth for 3Q 2018
Organic Revenue1 Growth for 3Q 2018 3Q 2017 3Q 2018 3Q 2017 3Q 2018 ($M) ($M) % Change ($M) ($M) % Change Arconic Revenue $3,236 $3,524 9% GRP Revenue $1,234 $1,426 16% less Tennessee Packaging 45 37 less Tennessee Packaging 45 37 less Latin America Extrusions 30 - less Aluminum Price Impact2 - 106
Slide 16: LIFO (Non Cash) Charges Illustrated
LIFO (Non Cash) Charges Illustrated Annual Annual Annual Annual Al Al LIFO2 Estimate 1Q 2Q 3Q 4Q LIFO2 Estimate 1Q 2Q 3Q 2017 Prices Estimate To Book ($M) ($M) ($M) ($M) 2018 Prices Estimate To Book ($M) ($M) ($M) ($/MT)1 ($/MT)1 ($M) YTD ($M) YTD 1Q $2,174 ($76M) 25% ($19M) ($19M) ($19M) ($19M) 1Q
Slide 17: Lower Annual YoY Aluminum Price Headwind; Favorable $30M
Lower Annual YoY Aluminum Price Headwind; Favorable $30M Year-over-Year Operating Income Impact from Aluminum Price Changes Year’18 vs Year’17 Year’18 vs Year’17 USD Millions ($M) ($M) Prior Guidance Current Guidance Full Year LIFO1 / Metal Lag ~($50) ~($15) 2018 Current Guidance: $2,561 2018 Prior
Slide 18: Revenue by Market – 3Q 2018
Revenue by Market – 3Q 2018 Revenue by Market Year-over-Year (% of total) (% change) 7% 6% Aerospace - Defense 34% 13% Aerospace - Commercial Airframe (1%) 20% Aerospace - Commercial Engine 15% Automotive 1 31% Building & Construction 3% 13% Commercial Transportation 12% 2 Industrial & Other (5%) 16
Slide 19: ARCONIC
ARCONIC Innovation, engineered.
Slide 20: Reconciliation of Net income excluding Special items
Reconciliation of Net income excluding Special items ($ in millions, except per-share amounts) Net income excluding Special items Diluted EPS excluding Special items Quarter ended Quarter ended September 30, September 30, September 30, September 30, 2018 2017 2018 2017 Net income $161 $119 $0.32 $0.
Slide 21: Reconciliation of Net income excluding Special items
Reconciliation of Net income excluding Special items ($ in millions, except per-share amounts) Net income excluding Special items Diluted EPS excluding Special items Nine months ended Nine months ended September 30, September 30, September 30, September 30, 2018 2017 2018 2017 Net income $424 $653 $
Slide 22: Reconciliation of Operational Tax Rate
Reconciliation of Operational Tax Rate ($ in millions) Quarter ended September 30, 2018 Nine months ended September 30, 2018 Special Special As reported items(1) As adjusted As reported items(1) As adjusted Income before income taxes $249 $(26) $223 $642 $62 $704 Provision for income taxes 88 (25) 6
Slide 23: EP&S Segment Operating Profit Margin
Calculation of Engineered Products and Solutions Segment Operating Profit Margin ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 3Q18 Segment operating profit(1) $247 $250 $239 $228 $964 $221 $212 $238 Third-party sales $1,487 $1,485 $1,477 $1,494 $5,943 $1,541 $1,596 $1,566 Segment operating pro
Slide 24: GRP Segment Operating Profit Margin
Calculation of Global Rolled Products Segment Operating Profit Margin ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 3Q18 Segment operating profit $136 $133 $64 $91 $424 $112 $123 $74 Third-party sales $1,248 $1,271 $1,234 $1,247 $5,000 $1,366 $1,451 $1,426 Segment operating profit margin 10.9%
Slide 25: TCS Segment Operating Profit Margin
Calculation of Transportation and Construction Solutions Segment Operating Profit Margin ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 3Q18 Segment operating profit $68 $71 $74 $77 $290 $67 $97 $77 Third-party sales $456 $504 $523 $528 $2,011 $537 $562 $530 Segment operating profit margin 14.9%
Slide 26: Total Segment Operating Profit Margin
Calculation of Total Segment Operating Profit Margin ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 3Q18 Sales – Engineered Products and Solutions $1,487 $1,485 $1,477 $1,494 $5,943 $1,541 $1,596 $1,566 Sales – Global Rolled Products 1,248 1,271 1,234 1,247 5,000 1,366 1,451 1,426 Sales – Transp
Slide 27: Total segment operating profit to income before income taxes
Reconciliation of Total segment operating profit to Consolidated income (loss) before income taxes ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 3Q18 Total segment operating profit(1) $451 $454 $377 $396 $1,678 $400 $432 $389 Unallocated amounts: Restructuring and other charges (73) (26) (19) (
Slide 28: Operating Income Excluding Special Items
Reconciliation of Operating Income Excluding Special Items ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 3Q18 Operating income (loss) $283 $320 $310 $(433) $480 $333 $324 $345 Special items: Restructuring and other charges 73 26 19 47 165 7 15 (2) Impairment of goodwill — — — 719 719 — — — Sepa
Slide 29: Reconciliation of Adjusted Free Cash Flow
Reconciliation of Adjusted Free Cash Flow ($ in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 3Q18 Cash (used for) provided from operations $(395) $79 $(57) $323 $(50) $(436) $176 51 Capital expenditures (103) (126) (131) (236) (596) (117) (171) (209) Cash receipts from sold receivables 95 190 229 28
Slide 30: Reconciliation of Organic Revenue
Reconciliation of Organic Revenue ($ in millions) Quarter ended Quarter ended Nine months ended September 30, June 30, September 30, 2018 2017 2018 2017 2018 2017 Arconic Sales – Arconic $3,524 $3,236 $3,573 $3,261 $10,542 $9,689 Less: Sales – Tennessee packaging 37 45 46 51 126 150 Sales – Fusina r
Slide 31: Reconciliation of Net Debt
Reconciliation of Net Debt September 30, June 30, March 31, December 31, September 30, June 30, March 31, December 31, ($ in millions) 2018 2018 2018 2017 2017 2017 2017 2016 Short-term debt $42 $45 $45 $38 $55 $48 $47 $40 Long-term debt, less amount due within one year 6,315 6,312 6,309 6,806 6,802
Slide 32: Net debt to Adjusted EBITDA Excluding Special Items
Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items ($ in millions) Trailing-12 months ended September 30, June 30, March 31, December 31, September 30, June 30, March 31, December 31, 2018 2018 2018 2017 2017 2017 2017 2016 Net loss attributable to Arconic $ (303) $ (345) $ (253)
Slide 33: Reconciliation of Return on Net Assets (RONA)
Reconciliation of Return on Net Assets (RONA) Nine months ended September 30, ($ in millions) 2018 2017 Net income $424 $653 Special items(1) 90 (187) Net income excluding Special items $514 $466 Annualized net income excluding Special items $685 $621 Net Assets: Add: Receivables from customers, les
Slide 34: Reconciliation of Days Working Capital
Reconciliation of Days Working Capital Quarter ended September 30, ($ in millions) 2018 2017 Receivables from customers, less allowances $ 1,147 $ 1,150 Add: Deferred purchase program(1) 362 238 Add: Inventories 2,622 2,453 Less: Accounts payable, trade 2,061 1,656 Working capital $ 2,070 $ 2,185 Sa
Slide 35: Arconic Auto and Aero Engines Organic Revenue
Reconciliation of Arconic Auto1 and Aero Engines Organic Revenue Reconciliation of Arconic Auto1 Organic Revenue ($ in millions) 3Q18 3Q17 Arconic Auto1 Revenue $525 $400 Aluminum price impact 42 n/a Arconic Auto1 Organic Revenue $483 $400 Arconic auto1 organic revenue is a non-GAAP financial measur
Slide 36: Commercial Transportation and Building and Construction Organic Revenue
Reconciliation of Arconic Commercial Transportation and Building and Construction Organic Revenue Reconciliation of Arconic Commercial Transportation Organic Revenue ($ in millions) 3Q18 3Q17 Arconic Commercial Transportation Revenue $449 $402 Aluminum price impact 21 n/a Foreign currency impact (3)
Slide 37: GRP Auto, Industrial, Commercial Transportation Organic Revenue
Reconciliation of Global Rolled Products Auto1, Industrial, and Commercial Transportation Organic Revenue Reconciliation of Global Rolled Products (GRP) Auto 1 Organic Revenue ($ in millions) 3Q18 3Q17 GRP Auto1 Revenue $481 $366 Aluminum price impact 42 n/a GRP Auto1 Organic Revenue $439 $366 GRP a
Slide 38: TCS Commercial Transportation and Building and Construction Organic Revenue
Reconciliation of Transportation and Construction Solutions Commercial Transportation and Building and Construction Organic Revenue Reconciliation of Transportation and Construction Solutions (TCS) Commercial Transportation Organic Revenue ($ in millions) 3Q18 3Q17 TCS Commercial Transportation Reve