Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Q2 2020 Earnings Presentation
35 slides from Howmet Aerospace's earnings presentation, Aug 6, 2020
Slide 1: Second Quarter 2020 Earnings Call
Second Quarter 2020 Earnings Call John Plant: Executive Chairman and Co-Chief Executive Officer Ken Giacobbe: EVP and Chief Financial Officer August 6, 2020
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: Delivered Profit and Positive Adjusted Free Cash Flow in 2Q20
Delivered Profit and Positive Adjusted Free Cash Flow in 2Q20 -31% – Declines in Commercial Aerospace $1.8B – Declines in Commercial Transportation $1.3B Revenue + Growth in Defense Aerospace 2Q19 2Q20 + Growth in Industrial Gas Turbine (IGT) -42% – Declines in Commercial Aerospace, Commercial Trans
Slide 5: Rapid Response to COVID-19 and Market Declines
Rapid Response to COVID-19 and Market Declines ▪ Actively managing employee health risks; Programs meet or exceed local standards Employees / ▪ All sites are up and running Customers ▪ Reliable partner to our customers who are critical to national defense, commercial aviation, and the global economy
Slide 6: 2Q20 Revenue Down 31% YoY driven by COVID-19 and 737 MAX
2Q20 Revenue Down 31% YoY driven by COVID-19 and 737 MAX Revenue by Market Revenue by Market YoY (% of total) (% change) 16% Aerospace - Commercial (36%) Aerospace - Defense 3% 12% Sub-Total Aerospace (29%) 54% Commercial Transportation (54%) Industrial & Other (6%) 18% Total Revenue (31%) See appen
Slide 7: Historical Combined Segment Results
Historical Combined Segment Results1 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 2Q 2020 YoY Combined Segment Revenue Combined ▪ Declines in Commercial Segment $1,756M $1,822M $1,794M $1,734M $7,106M $1,632M $1,253M Aerospace and Commercial 3rd Party Transportation Revenue4 ▪ Growth in Defense Aerospace and
Slide 8: Engines: Defense and Industrial Gas Turbine Mitigate Aero Decline
Engines: Defense and Industrial Gas Turbine Mitigate Aero Decline -30% Revenue by Market (% of total) $813M $835M $844M $829M $781M Aerospace - Commercial 25% Aerospace - Defense $585M 3rd Party Industrial & Other Revenue 54% 21% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 2Q 2020 YoY -36% $163M $161M $157M $165M
Slide 9: Fasteners: Aero and Transportation Market Declines Compress Margin
Fasteners: Aero and Transportation Market Declines Compress Margin Revenue by Market -18% (% of total) $395M $399M $391M $376M $385M 8% Aerospace - Commercial $326M Aerospace - Defense 11% 3rd Party Commercial Transportation Industrial & Other Revenue 12% 69% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 2Q 2020 Yo
Slide 10: Structures: Improved Margins driven by Cost Reductions and Product Exits
Structures: Improved Margins driven by Cost Reductions and Product Exits Revenue by Market -31% (% of total) $331M $318M $312M 9% $294M $275M Aerospace - Commercial 3rd Party $229M Aerospace - Defense Revenue Industrial & Other 28% 63% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 2Q 2020 YoY -24% $40M $39M – Decli
Slide 11: Forged Wheels: Profitable Despite 56% YoY Reduction in Revenue
Forged Wheels: Profitable Despite 56% YoY Reduction in Revenue Revenue by Market -56% (% of total) $254M $257M $241M $217M $191M Commercial Transportation 3rd Party Revenue $113M 100% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 2Q 2020 YoY -92% Segment $73M – Decline in Commercial Transportation $60M $60M $60M Op
Slide 12: $171M of Pre-tax Special Items related to Pension, Financing, and Severance
$171M of Pre-tax Special Items related to Pension, Financing, and Severance Income before Income (Loss) from Earnings per 2Q 2020 Special Items ($M, except per share amounts) income taxes Continuing Ops diluted share AS REPORTED ($86) ($84) ($0.19) Pension plan settlement charges $64 $53 Debt tender
Slide 13: All Debt Unsecured; Next Significant Maturity in 2024
All Debt Unsecured; Next Significant Maturity in 2024 $1B 5-Year Oct 5.125% May Undrawn Revolving $1,250 6.875% $1,200 Credit Facility $1,200M $1,000M $800M Feb Feb 5.9% 5.95% $625 $625 $600M Feb 5.87% $476 Apr 5.4% Jan $400M $361 6.75% Aug $300 4.75% $250 $200M 2020 2021 2022 2023 2024 2025 2026 20
Slide 14: 2020 Assumptions
2020 Assumptions 1Q 2020 2Q 2020 Full Year 2020 Sensitivities and Comments • Adjusted Operating Income excluding special items Corporate Overhead ~$20M ~$20M ~$75M • 1Q 2020 reflects estimate of Howmet Corporate costs Depreciation & ~$70M $67M ~$275M • Excludes special items Amortization Interest Ex
Slide 15: 2020 Outlook
2020 Outlook Outlook Comments 3Q Full Year3 Annual ~$1,100M ~$5,200M ▪ Cost Reduction increased to ~$100M in-year plus Revenue +/- $50M +/- $100M 2019 carryover of ~$50M ▪ Continuing to flex variable cost with revenue decline ~$1,030M Full Year Adjusted EBITDA1 ▪ Annual Capex reduced to ~$175M, from
Slide 16: Howmet Aerospace
rr) HOWMET Lw.JJ AEROSPACE
Slide 17: Appendix
Appendix (Pl HOWMET UL AEROSPACE
Slide 18: Historical Combined Segment Results
Historical Combined Segment Results 1 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 Engine Products $813M $835M $844M $829M $3,321M $781M $585M Fastening Systems $395M $399M $391M $376M $1,561M $385M $326M Engineered Structures $294M $331M $318M $312M $1,255M $275M $229M Forged Wheels $254M $257M $241M $217M $
Slide 19: Historical Combined Segment Results (continued)
Historical Combined Segment Results 1 (continued) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 Engine Products $34M $35M $31M $31M $131M $30M $31M Fastening Systems $12M $12M $12M $12M $48M $12M $12M Engineered Structures $17M $14M $15M $12M $58M $13M $14M Forged Wheels $8M $8M $8M $8M $32M $10M $9M Combined
Slide 20: Estimated Adjusted EBITDA Historical Results
Estimated Adjusted EBITDA Historical Results1 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 Combined Segment $1,756M $1,822M $1,794M $1,734M $7,106M $1,632M $1,253M 3rd Party Revenue2 Combined Segment $384M $429M $429M $418M $1,660M $404M $266M Adjusted EBITDA3 Combined Segment 21.9% 23.5% 23.9% 24.1% 23.4% 24
Slide 21: Reconciliation of income (loss) from continuing operations excluding Special items
Reconciliation of income (loss) from continuing operations excluding Special items ($ in millions, except per-share amounts) Income (loss) from continuing Diluted EPS excluding Special items operations excluding Special items Quarter ended Quarter ended June 30, 2019 June 30, 2020 June 30, 2019 June
Slide 22: Reconciliation of Operational Tax Rate
Reconciliation of Operational Tax Rate ($ in millions) Quarter ended June 30, 2020 Six months ended June 30, 2020 As reported Special items (1) As adjusted As reported Special items (1) As adjusted Income (loss) from continuing operations before income taxes $(86) $171 $85 $112 $234 $346 Provision (
Slide 23: Calculation of Segment Operating Profit Margin
Calculation of Segment Operating Profit Margin 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 Engine Products Third-party sales $ 813 $ 835 $ 844 $ 829 $ 3,321 $ 781 $ 585 Inter-segment sales $ 5 $ 3 $ 1 $ 2 $ 11 $ 2 $ 1 Segment operating profit $ 141 $ 163 $ 161 $ 157 $ 622 $ 165 $ 105 Segment operating profit
Slide 24: Calculation of Segment Operating Profit Margin (continued)
Calculation of Segment Operating Profit Margin (continued) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 Engineered Structures Third-party sales $ 294 $ 331 $ 318 $ 312 $ 1,255 $ 275 $ 229 Inter-segment sales $ 3 $ 3 $ 4 $ 3 $ 13 $ 3 $ 2 Segment operating profit $ 16 $ 25 $ 40 $ 39 $ 120 $ 28 $ 19 Segment oper
Slide 25: Calculation of Total Segment Operating Profit Margin
Calculation of Total Segment Operating Profit Margin ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 Sales – Engine Products $813 $835 $844 $829 $3,321 $781 $585 Sales – Fastening Systems $395 $399 $391 $376 $1,561 $385 $326 Sales – Engineered Structures $294 $331 $318 $312 $1,255 $275 $229 Sales
Slide 26: Reconciliation of Total segment operating profit to Consolidated income before income taxes
Reconciliation of Total segment operating profit to Consolidated income before income taxes ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 Total segment operating profit $313 $360 $363 $355 $1,391 $339 $200 Unallocated amounts: Restructuring and other charges (44) (472) (56) (10) (582) (39) (105
Slide 27: Reconciliation of Operating Income Excluding Special Items and Operating Income Margin
Reconciliation of Operating Income Excluding Special Items and Operating Income Margin, Excluding Special Items ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 Operating income (loss) $214 $(176) $256 $285 $579 $258 $74 Special items: Restructuring and other charges 44 472 56 10 582 39 105 Costs
Slide 28: Reconciliation of Adjusted EBITDA excluding Special Items
Reconciliation of Adjusted EBITDA excluding Special Items ($ in millions) Quarter ended June 30,2020 Income (loss) from continuing operations after income taxes $(84) Add: Provision (benefit) for income taxes (2) Other (income) expense, net 16 Interest expense 144 Restructuring and other charges 105
Slide 29: Reconciliation of Adjusted Free Cash Flow
Reconciliation of Adjusted Free Cash Flow ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 Cash (used for) provided from operations $(258) $106 $52 $506 $406 $(291) $31 Cash receipts from sold receivables 160 257 213 365 995 48 66 Capital expenditures (168) (136) (111) (171) (586) (69) (32) Adjust
Slide 30: Reconciliation of Net Debt
Reconciliation of Net Debt ($ in millions) September 30, December 31, June 30, 2019 2019 2019 March 31, 2020 June 30, 2020 Short-term debt $434 $1,434 $1,034 $1,336 $391 Long-term debt, less amount due within one year 5,901 4,905 4,906 4,608 4,695 Total debt 6,335 6,339 5,940 5,944 5,086 Less: Cash,
Slide 31: Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items
Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items ($ in millions) Trailing-12 months ended March 31, 2020 June 30, 2020 Income (loss) from continuing operations after income taxes $ 193 $ 245 Add: Provision for income taxes 98 228 Other (income) expense, net (5) 5 Interest expens
Slide 32: Reconciliation of Corporate Expense Excluding Special Items
Reconciliation of Corporate Expense Excluding Special Items ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 Corporate expense $55 $64 $51 $60 $230 $42 $21 Special items: Costs associated with the Arconic Inc. Separation Transaction 1 1 1 2 5 4 3 Legal and other advisory costs related to Grenfell
Slide 33: Howmet Aerospace End Markets Revenue
Howmet Aerospace End Markets Revenue Commerical ($ in millions) Aero Commercial Aero Defense Transportation Industrial and Other Total Second quarter ended June 30, 2019 $1,062 $221 $324 $211 $1,818 Third-party sales Second quarter ended June 30, 2020 $680 $228 $148 $197 $1,253 Third-party sales 33
Slide 34: Segment End Markets Revenue
Segment End Markets Revenue Commercial ($ in millions) Aero Commercial Aero Defense Transportation Industrial and Other Total Engine Products Second quarter ended June 30, 2019 Third-party Sales $560 $116 $5 $154 $835 Second quarter ended June 30, 2020 Third-party Sales $313 $124 $— $148 $585 Fasten
Slide 35: Reconciliation of Segment Adjusted EBITDA
Reconciliation of Segment Adjusted EBITDA ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 Engines Products Segment operating profit $141 $163 $161 $157 $622 $165 $105 Provision for depreciation and amortization 34 35 31 31 131 30 31 Adjusted EBITDA $175 $198 $192 $188 $753 $195 $136 Third-party s