Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Q1 2021 Earnings Presentation
34 slides from Howmet Aerospace's earnings presentation, May 6, 2021
Slide 1: First Quarter 2021 Earnings Call
First Quarter 2021 Earnings Call John Plant: Executive Chairman and Co-Chief Executive Officer Tolga Oal: Co-Chief Executive Officer Ken Giacobbe: EVP and Chief Financial Officer May 6, 2021
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: Q1 2021 Highlights
Q1 2021 Highlights Revenue and Profitability Excluding Special Items1 Q1 2020 Q4 2020 Q1 2021 Revenue $1.634B $1.238B $1.209B Adjusted EBITDA1 $385M $282M $275M Adjusted EBITDA Margin1 23.6% 22.8% 22.7% Adjusted Operating Income2 $314M $215M $208M Adjusted Earnings Per Share from Continuing Operatio
Slide 5: Q1 2021 Above Expectations; Strong Profit and Cash Performance
Q1 2021 Above Expectations; Strong Profit and Cash Performance ▪ Q1 2021 Revenue same as Q2 – Q4 2020 average driven by declines in Commercial Aerospace ▪ Commercial Aerospace down (52%) due to customer inventory corrections Markets ▪ Defense Aerospace up 12% driven by Joint Strike Fighter new build
Slide 6: Q1 2021 Adjusted EBITDA Margin 22.7%; Consistent with Q4 2020 on less Revenue
Q1 2021 Adjusted EBITDA Margin 22.7%1; Consistent with Q4 2020 on less Revenue Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q1 2021 ▪ Revenue driven by Customer Inventory 3rd Party Revenue $1,253M $1,134M $1,238M $1,209M corrections in Commercial Aerospace • Q1 2021 at $1,209M Adjusted EBITDA1 $247M $168M $282M
Slide 7: Q1 2021 Revenue Down (26%) YoY; Commercial Aerospace ~40% of Revenue
Q1 2021 Revenue Down (26%) YoY; Commercial Aerospace ~40% of Revenue Revenue by Market Revenue by Market YoY (% of total) (% change) Industrial Aerospace - Commercial (52%) & Other 17% Aerospace - Defense 12% Aerospace - Commercial 38% Subtotal - Aerospace (39%) Commercial Transportation 23% Commerc
Slide 8: Engine Products: Commercial Aero Inventory Corrections; Cost Reductions
Engine Products: Commercial Aero Inventory Corrections; Cost Reductions Revenue by Market -32% (% of total) $781M Aerospace - Commercial $585M $555M Aerospace - Defense $485M $534M 3rd Party Industrial & Other Industrial & Other Aerospace - Revenue 29% Commercial 43% Aerospace - Defense 28% Q1 2020
Slide 9: Fastening Systems: Commercial Aero Inventory Corrections; Cost Reductions
Fastening Systems: Commercial Aero Inventory Corrections; Cost Reductions Revenue by Market -29% (% of total) Aerospace - Commercial $385M Aerospace - Defense $326M Industrial & Other Commercial Transportation 3rd Party $271M $263M $272M 14% Industrial & Other Revenue Commercial Transportation Aeros
Slide 10: Engineered Structures: Commercial Aero Inventory Corrections; Cost Reductions
Engineered Structures: Commercial Aero Inventory Corrections; Cost Reductions Revenue by Market -36% (% of total) Aerospace - Commercial $275M Industrial $229M $217M Aerospace - Defense $206M & Other 3rd Party $176M 11% Industrial & Other Revenue Aerospace - Commercial Aerospace 45% - Defense 44% Q1
Slide 11: Forged Wheels: Market Recovery; Q1 2021 Profitability Exceeded Q1 2020
Forged Wheels: Market Recovery; Q1 2021 Profitability Exceeded Q1 2020 +19% Revenue by Region $227M (% of total) $191M $203M North America $172M Other Europe 3rd Party $113M 17% Other Revenue North America Europe 53% 30% Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q1 2021 YoY +40% + Commercial Transport
Slide 12: Next Maturity October 2024
Next Maturity October 2024 Oct 5.125% May • Redeemed all 2021/2022 notes with Cash on Hand $1,250 6.875% $1,200M $1,200 • All debt unsecured • $1B Credit Facility undrawn $1,000M Paid on May 3rd with $800M Cash on Hand Feb Feb 5.9% 5.95% $625 $625 $600M Feb 5.87% $476 $400M Jan 6.75% Aug $300 4.75%
Slide 13: 2021 Guidance
2021 Guidance Q2 21 Guidance FY 2021 Guidance What we expect in 2021 Low Outlook High Low Outlook High ▪ Second half revenue up ~12% vs first half Revenue $1.17B $1.2B $1.23B $5.05B $5.1B $5.20B ▪ Price Increases greater than 2020 Outlook Change Flat ▪ Cost Reduction Carryover of ~$100M+ Adj EBITDA1
Slide 14: Summary
Summary ▪ Healthy start with profit and margin exceeding prior baseline guidance Q1 ▪ Price increases continued in line with expectations primarily tied to long term agreements Revenue/Profit ▪ Structural Cost Reductions maintained with $61M YoY benefit ▪ Q1 2021 Ending Cash balance of $1.24B; early
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rr) HOWMET Lw.J AEROSPACE
Slide 16: Appendix
Appendix fri HOWMET UELJ AEROSPACE
Slide 17: 2021 Assumptions
2021 Assumptions Full Year 2021 2021 Comments Corporate Overhead ~$76M • Adj Operating Income excluding special items Depreciation and Amortization ~$270M • Excludes special items Interest Expense ~$270M • Excludes debt issuance, breakage and tender fees Operational Tax Rate for 26.5% - 28.5% • Cash
Slide 18: Combined Segment Decremental Margins
Combined Segment Decremental Margins1 Q3 2020 Q4 2020 Q1 2021 Q3 2019 Q3 2020 Q4 2019 Q4 2020 Q1 2020 Q1 2021 YoY YoY YoY Engine Products $844M $485M ($359M) $828M $555M ($273M) $781M $534M ($247M) Fastening Systems $391M $271M ($120M) $376M $263M ($113M) $385M $272M ($113M) Engineered Structures $3
Slide 19: $16M of Special Items Driven By Plant Fire Costs and Restructuring
$16M of Special Items Driven By Plant Fire Costs and Restructuring Income Income Earnings per Q1 2021 Special Items ($M, except per share amounts) Before Tax After Tax Share Diluted AS REPORTED $113 $80 $0.18 St. Cosme Fasteners/Barberton Wheels plant fire costs $10 $7 Restructuring and other charge
Slide 20: Reconciliation of Income from Continuing Operations Excluding Special Items
Reconciliation of Income from Continuing Operations Excluding Special Items ($ in millions, except per-share amounts) Income from continuing operations excluding Special items Diluted EPS excluding Special items Quarter ended Quarter ended March 31, December 31, March 31, March 31, December 31, Marc
Slide 21: Reconciliation of Operational Tax Rate
Reconciliation of Operational Tax Rate ($ in millions) Quarter ended March 31, 2021 As reported Special items (1)(2) As adjusted Income from continuing operations before income taxes $113 $19 $132 Provision for income taxes $33 $3 $36 Operational tax rate 29.2% 27.3% Operational tax rate is a non-GA
Slide 22: Calculation of Segment Operating Profit Margin
Calculation of Segment Operating Profit Margin Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Engine Products Third-party sales $ 844 $ 828 $ 3,320 $ 781 $ 585 $ 485 $ 555 $ 2,406 $ 534 Inter-segment sales $ 1 $ 2 $ 11 $ 2 $ 1 $ 1 $ 1 $ 5 $ 1 Segment operating profit $ 161 $
Slide 23: Calculation of Segment Operating Profit Margin (continued)
Calculation of Segment Operating Profit Margin (continued) Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Engineered Structures Third-party sales $ 318 $ 312 $ 1,255 $ 275 $ 229 $ 206 $ 217 $ 927 $ 176 Inter-segment sales $ 4 $ 3 $ 13 $ 3 $ 2 $ 1 $ 1 $ 7 $ 1 Segment operatin
Slide 24: Calculation of Total Segment Operating Profit Margin (continued)
Calculation of Total Segment Operating Profit Margin (continued) ($ in millions) Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Sales – Engine Products $844 $828 $3,320 $781 $585 $485 $555 $2,406 $534 Sales – Fastening Systems $391 $376 $1,561 $385 $326 $271 $263 $1,245 $272
Slide 25: Reconciliation of Total Segment to Consolidated Totals
Reconciliation of Total Segment to Consolidated Totals Reconciliation of Total Segment Operating Profit to Consolidated Income Before Income Taxes ($ in millions) Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Income (loss) from continuing operations before income taxes $163
Slide 26: Reconciliation of Operating Income and Margin Excluding Special Items
Reconciliation of Operating Income and Margin Excluding Special Items ($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Operating income $258 $74 $73 $221 $626 $189 Special items: Restructuring and other charges 39 105 22 16 182 9 Costs associated with the Arconic Inc. Separation Trans
Slide 27: Reconciliation of Adjusted EBITDA Excluding Special Items
Reconciliation of Adjusted EBITDA Excluding Special Items ($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Income (loss) from continuing operations after income taxes $153 $(84) $36 $106 $211 $80 Add: Provision (benefit) for income taxes $45 $(2) $(48) $(35) $(40) $33 Other (income) e
Slide 28: Reconciliation of Adjusted Free Cash Flow
Reconciliation of Adjusted Free Cash Flow ($ in millions) Q1 2021 Cash used for operations $(6) Cash receipts from sold receivables 57 Capital expenditures (55) Adjusted free cash flow $(4) The net cash funding from the sale of accounts receivables was neither a use of cash nor a source of cash in t
Slide 29: Reconciliation of Net Debt
Reconciliation of Net Debt ($ in millions) March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 March 31, 2021 Short-term debt $1,336 $391 $384 $376 $489 Long-term debt, less amount due within one year 4,608 4,695 4,697 4,699 4,224 Total debt $5,944 $5,086 $5,081 $5,075 $4,713 Less: Cas
Slide 30: Reconciliation of Net Debt to Adjusted EBITDA Excluding Special Items
Reconciliation of Net Debt to Adjusted EBITDA Excluding Special Items ($ in millions) Trailing-12 months ended December 31, 2020 March 31, 2021 Income from continuing operations after income taxes $ 211 $ 138 Add: Benefit for income taxes (40) (52) Other expense, net 74 102 Interest expense 381 369
Slide 31: 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 Corporate expense (income) $42 $21 $22 $(3) $82 $28 Special items: Costs associated with the Arconic Inc. Separation Transaction 4 3 — — 7 — Legal and other advisory reimbursem
Slide 32: Calculation of Segment End Markets Revenue
Calculation of Segment End Markets Revenue Engine Fastening Engineered Forged Total ($ in millions) Products Systems Structures Wheels Segment First quarter ended March 31, 2020 Aerospace - Commercial $507 $257 $184 $— $948 Aerospace - Defense $127 $44 $70 $— $241 Commercial Transportation $— $46 $—
Slide 33: Reconciliation of Segment Adjusted EBITDA
Reconciliation of Segment Adjusted EBITDA ($ in millions) Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Engine Products Segment operating profit $161 $156 $621 $165 $105 $39 $108 $417 $101 Provision for depreciation and amortization 31 31 131 30 31 31 31 123 31 Adjusted EBI
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rr) HOWMET Lw.J AEROSPACE