Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Q2 2021 Earnings Presentation
35 slides from Howmet Aerospace's earnings presentation, Aug 4, 2021
Slide 1: Second Quarter 2021 Earnings Call
Second 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 August 4, 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: Q2 2021 Highlights
Q2 2021 Highlights Revenue and Profitability Excluding Special Items1 Q2 2020 Q1 2021 Q2 2021 Revenue $1.253B $1.209B $1.195B Adjusted EBITDA1 $247M $275M $272M Adjusted EBITDA Margin1 19.7% 22.7% 22.8% Adjusted Operating Income2 $180M $208M $205M Adjusted Earnings Per Share from Continuing Operatio
Slide 5: Q2 2021 Above Expectations; Strong Profit and Cash Performance
Q2 2021 Above Expectations; Strong Profit and Cash Performance ▪ Q2 2021 Revenue down (5%) YoY driven by Commercial Aerospace ▪ Commercial Aerospace down (31%) YoY due to COVID-19 and Boeing 787 production declines Markets ▪ Industrial Gas Turbines up 13% YoY driven by new builds and spares ▪ Commer
Slide 6: Q2 2021 Adjusted EBITDA Margin 22.8%; Up 310 Basis Points YoY
Q2 2021 Adjusted EBITDA Margin 22.8%1; Up 310 Basis Points YoY on Less Revenue Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q2 2021 ▪ Revenue driven by COVID-19 and Boeing rd 3 Party Revenue $1,253M $1,134M $1,238M $1,209M $1,195M 787 production declines ▪ Q2 2021 at $1,195M versus Q2 2020 – Q1 2021 aver
Slide 7: Q2 2021 Revenue Down (5%) YoY; Commercial Aerospace ~40% of Revenue
Q2 2021 Revenue Down (5%) YoY; Commercial Aerospace ~40% of Revenue Revenue by Market Revenue by Market YoY (% of total) (% change) Aerospace - Commercial (31%) Industrial & Other1 19% Aerospace - Defense (1%) Aerospace - Commercial 39% Subtotal - Aerospace (24%) Commercial Transportation 23% Commer
Slide 8: Engine Products: Commercial Aero Decline; Headcount Adds for H2 Growth
Engine Products: Commercial Aero Decline; Headcount Adds for H2 Growth Revenue by Market (% of total) $781M -7% Aerospace - Commercial $585M $555M $544M $485M $534M Aerospace - Defense 3rd Party Industrial & Other Revenue 30% Aerospace - Commercial Industrial & Other 48% Aerospace - Defense 22% Q1 2
Slide 9: Fastening Systems: Commercial Aero Decline; Cost Reductions
Fastening Systems: Commercial Aero Decline; Cost Reductions Revenue by Market (% of total) -20% Aerospace - Commercial $385M $326M Industrial Aerospace - Defense & Other 3rd Party $271M $263M $272M $262M 16% Commercial Transportation Industrial & Other Revenue Commercial Aerospace - Commercial Trans
Slide 10: Engineered Structures: Commercial Aero Decline; Cost Reductions
Engineered Structures: Commercial Aero Decline; Cost Reductions Revenue by Market (% of total) $275M -30% Aerospace - Commercial Industrial $229M $217M Aerospace - Defense $206M & Other 3rd Party $176M $160M 11% Industrial & Other Aerospace - Revenue Commercial Aerospace 49% - Defense 40% Q1 2020 Q2
Slide 11: Forged Wheels: Market Recovery Moderated by Supply Chain Constraints
Forged Wheels: Market Recovery Moderated by Supply Chain Constraints +103% Revenue by Region (% of total) $227M $229M $191M $203M North America $172M Other Europe 3rd Party $113M 16% Other Revenue North America Europe 53% 31% Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q2 2021 YoY +917% + Commer
Slide 12: Redeemed all 2021 and 2022 Notes; Next Maturity October 2024
Redeemed all 2021 and 2022 Notes; Next Maturity October 2024 Oct • Redeemed all 2021/2022 notes with Cash on Hand 5.125% May $1,250 6.875% $1,200 • All debt unsecured $1,200M • $1B Credit Facility undrawn $1,000M $800M Feb Feb 5.9% 5.95% $625 $625 $600M $400M Jan 6.75% Aug $300 4.75% $250 $200M 2021
Slide 13: Howmet is Committed to a More Sustainable and Inclusive Future
Howmet is Committed to a More Sustainable and Inclusive Future Ensuring Employee Safety Commitment to Improving Diversity Total Recordable Incident Rate1 Howmet Employment by Gender2 Howmet Board of Directors Diversity3 1.23 1.08 0.90 25% 4 0.71 75% 7 2017 2018 2019 2020 Male Female Male Female 2019
Slide 14: 2021 Guidance
2021 Guidance Q3 2021 Guidance FY 2021 Guidance What we expect in 2021 Low Outlook High Low Outlook High ▪ Second half revenue up ~12% vs. first half ▪ Second half YoY Segment incremental Revenue $1.28B $1.30B $1.32B $5.05B $5.10B $5.15B margin ~50%+ Outlook Flat Change ▪ Price Increases greater tha
Slide 15: Summary
Summary ▪ Continued strong performance with profit and margin ahead of prior guidance Q2 ▪ Price increases continued in-line with expectations primarily tied to long-term agreements Revenue/Profit ▪ Structural Cost Reductions maintained with $37M YoY benefit in Q2 2021; $98M in H1 2021 ▪ Q2 2021 Adj
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Slide 17: Appendix
Appendix rR) HOWMET UILJ AEROSPACE
Slide 18: 2021 Assumptions
2021 Assumptions Full Year 2021 2021 Comments Corporate Overhead ~$74M • 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 26.0% - 28.0% • Cash
Slide 19: $22M of Special Items Driven By Redemption of Debt due in 2022
$22M of Special Items Driven By Redemption of Debt due in 2022 Income Income Earnings per Q2 2021 Special Items ($M, except per share amounts) Before Tax After Tax Share Diluted AS REPORTED $110 $74 $0.17 Debt redemption and other financing costs $23 $18 Other miscellaneous items ($2) ($2) Discrete
Slide 20: Segment Incremental / Decremental Margins
Segment Incremental / Decremental Margins1 Q2 2021 Q2 2021 Q2 2020 Q2 2021 Q2 2020 Q2 2021 YoY YoY Engine Products $585M $544M ($41M) Forged Wheels Segment: Fastening Systems $326M $262M ($64M) 3rd Party Revenue2 $113M $229M $116M Engineered Structures $229M $160M ($69M) Segment Operating Profit3 $6
Slide 21: Reconciliation of Income from Continuing Operations excluding Special items
Reconciliation of Income from Continuing Operations excluding Special items ($ in millions, except per-share amounts) Q2 2020 Q1 2021 Q2 2021 YTD 2021 (Loss) income from continuing operations $(84) $80 $74 $154 Diluted EPS $(0.19) $0.18 $0.17 $0.35 Special items: Restructuring and other charges $105
Slide 22: Reconciliation of Operational Tax Rate
Reconciliation of Operational Tax Rate ($ in millions) Quarter ended June 30, 2021 Six months ended June 30, 2021 As reported Special items (1)(2) As adjusted As reported Special items (1)(2) As adjusted Income from continuing operations before income taxes $110 $21 $131 $223 $40 $263 Provision (ben
Slide 23: Calculation of Segment Information
Calculation of Segment Information Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Engine Products Third-party sales $ 828 $ 3,320 $ 781 $ 585 $ 485 $ 555 $ 2,406 $ 534 $ 544 Inter-segment sales $ 2 $ 11 $ 2 $ 1 $ 1 $ 1 $ 5 $ 1 $ 1 Segment operating profit $ 156 $ 621 $ 165 $
Slide 24: Calculation of Segment Information (continued)
Calculation of Segment Information (continued) Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Engineered Structures Third-party sales $ 312 $ 1,255 $ 275 $ 229 $ 206 $ 217 $ 927 $ 176 $ 160 Inter-segment sales $ 3 $ 13 $ 3 $ 2 $ 1 $ 1 $ 7 $ 1 $ 2 Segment operating profit $ 3
Slide 25: Calculation of Total Segment Operating Profit Margin
Calculation of Total Segment Operating Profit Margin ($ in millions) Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Third-party sales – Engine Products $828 $3,320 $781 $585 $485 $555 $2,406 $534 $544 Third-party sales – Fastening Systems $376 $1,561 $385 $326 $271 $263 $1,2
Slide 26: Reconciliation of Total Segment to Consolidated Totals
Reconciliation of Total Segment to Consolidated Totals Reconciliation of Total Segment Operating Profit to Consolidated Income Before Income Taxes ($ in millions) Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Income (loss) from continuing operations before income taxes $198
Slide 27: Reconciliation of Operating Income and Margin Excluding Special Items
Reconciliation of Operating Income and Margin Excluding Special Items ($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Operating income $258 $74 $73 $221 $626 $189 $207 Special items: Restructuring and other charges 39 105 22 16 182 9 5 Costs associated with the Arconic Inc. S
Slide 28: Reconciliation of Adjusted EBITDA excluding Special Items
Reconciliation of Adjusted EBITDA excluding Special Items ($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Income (loss) from continuing operations after income taxes $153 $(84) $36 $106 $211 $80 $74 Add: Provision (benefit) for income taxes $45 $(2) $(48) $(35) $(40) $33 $36
Slide 29: Reconciliation of Adjusted Free Cash Flow
Reconciliation of Adjusted Free Cash Flow ($ in millions) Q1 2021 Q2 2021 YTD 2021 Cash (used for) provided from operations $(6) $85 $79 Cash receipts from sold receivables 57 115 172 Capital expenditures (55) (36) (91) Adjusted free cash flow $(4) $164 $160 The net cash funding from the sale of acc
Slide 30: Reconciliation of Net Debt
Reconciliation of Net Debt ($ in millions) September 30, June 30, 2020 2020 December 31, 2020 March 31, 2021 June 30, 2021 Short-term debt $391 $384 $376 $489 $13 Long-term debt, less amount due within one year 4,695 4,697 4,699 4,224 4,227 Total debt $5,086 $5,081 $5,075 $4,713 $4,240 Less: Cash, c
Slide 31: Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items
Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items ($ in millions) Trailing-12 months ended March 31, 2021 June 30, 2021 Income from continuing operations after income taxes $ 138 $ 296 Add: Benefit for income taxes (52) (14) Other expense, net 102 94 Interest expense 369 314 Rest
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 Corporate expense (income) $42 $21 $22 $(3) $82 $28 $10 Special items: Costs associated with the Arconic Inc. Separation Transaction 4 3 — — 7 — — Legal and other advis
Slide 33: Calculation of Segment End Markets Revenue
Calculation of Segment End Markets Revenue Engine Fastening Engineered Forged Total ($ in millions) Products Systems Structures Wheels Segment Second quarter ended June 30, 2020 Aerospace - Commercial $312 $224 $144 $— $680 Aerospace - Defense $125 $39 $64 $— $228 Commercial Transportation $— $34 $—
Slide 34: Reconciliation of Segment Adjusted EBITDA
Reconciliation of Segment Adjusted EBITDA ($ in millions) Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Engine Products Segment operating profit $156 $621 $165 $105 $39 $108 $417 $101 $100 Provision for depreciation and amortization 31 131 30 31 31 31 123 31 30 Adjusted EBI
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