Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Q3 2020 Earnings Presentation
37 slides from Howmet Aerospace's earnings presentation, Nov 9, 2020
Slide 1: Third Quarter 2020 Earnings Call
Third Quarter 2020 Earnings Call John Plant: Executive Chairman and Co-Chief Executive Officer Tolga Oal: Co-Chief Executive Officer Ken Giacobbe: EVP and Chief Financial Officer November 9, 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: 3Q 2020 In Line with Expectations; Strong Cash Generation
3Q 2020 In Line with Expectations; Strong Cash Generation -37% – Declines in Commercial Aerospace (56%). Inventory corrections $1.8B – Commercial Transportation down. Sequential improvement of 42% Revenue $1.1B + Growth in Defense Aerospace 3Q19 3Q20 + Growth in Industrial Gas Turbine (IGT) -69% – D
Slide 5: Operations Adapting to COVID-19 and 737 Max Impacts
Operations Adapting to COVID-19 and 737 Max Impacts All plants running with Employee and Partner safety being a top priority Markets / Operations Managing daily adjustments for customer inventory corrections and shutdowns Most North America permanent personnel reductions completed, ahead of th
Slide 6: Segments Drive Cost Reduction & Cash Preservation
Segments Drive Cost Reduction & Cash Preservation Strong Defense Aerospace & Industrial Gas Turbine growth mitigate Commercial Aerospace declines Engine 3Q 2020 is expected to be lowest revenue quarter of 2020, permanent cost reduction ahead of plan Products Long Term Agreement (LTA) pricing n
Slide 7: 3Q20 Revenue Down (37%) YoY, Commercial Aero now ~40% of Revenue
3Q20 Revenue Down (37%) YoY, Commercial Aero now ~40% of Revenue Revenue by Market Revenue by Market YoY (% of total) (% change) 17% Aerospace - Commercial (56%) Aerospace - Defense 15% 42% Sub-Total Aerospace (43%) 18% Commercial Transportation (31%) Industrial & Other 1 (4%) Total Revenue (37%) 23
Slide 8: Combined Segment Results
Combined Segment Results1 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 3Q 2020 YoY Combined Segment Operating Income $1,756M $1,822M $1,794M $1,734M $7,106M $1,632M $1,253M $1,134M 3rd Party Revenue3 Price increase YoY: Combined 3Q of $14M Segment 3Q YTD of $28M $313M $360M $363M $355M $1,391M $339
Slide 9: Engines: Commercial Aero Inventory Correction; Defense Aero and IGT Growth
Engines: Commercial Aero Inventory Correction; Defense Aero and IGT Growth Revenue by Market -43% (% of total) $813M $835M $844M $829M Aerospace - Commercial $781M Aerospace - Defense $585M 30% Industrial & Other 3rd Party $485M Revenue 41% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 29% -76% 3Q 2020 YoY $14
Slide 10: Fastening Systems: Commercial Aero Inventory Correction
Fastening Systems: Commercial Aero Inventory Correction Revenue by Market -31% (% of total) $395M $399M $391M $376M $385M 10% Aerospace - Commercial $326M Aerospace - Defense $271M Commercial Transportation 3rd Party 14% Industrial & Other Revenue 62% 14% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 -68% 3Q 2
Slide 11: Engineered Structures: Commercial Aero Inventory Correction; Price Increases
Engineered Structures: Commercial Aero Inventory Correction; Price Increases Revenue by Market (% of total) -35% $331M $318M $312M 10% $294M $275M Aerospace - Commercial Aerospace - Defense $229M $206M 3rd Party Industrial & Other Revenue 50% 40% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 -75% 3Q 2020 YoY $
Slide 12: Forged Wheels: Market Recovery Underway; Sequential Improvement
Forged Wheels: Market Recovery Underway; Sequential Improvement Revenue by Market -29% (% of total) $254M $257M $241M $217M $191M $172M Commercial Transportation 3rd Party $113M Revenue 100% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 3Q 2020 YoY $73M -42% $60M $60M $60M – Decline in Commercial Transportatio
Slide 13: $23M of Favorable Special Items Driven By Tax
$23M of Favorable Special Items Driven By Tax Income (loss) Income (Loss) from Earnings per 3Q 2020 Special Items ($M, except per share amounts) before income taxes Continuing Ops diluted share AS REPORTED ($12) $36 $0.08 Severance costs $17 $12 St. Cosme fasteners / Barberton wheels plant fire cost
Slide 14: All Debt Unsecured; Next Significant Maturity in 2024
All Debt Unsecured; Next Significant Maturity in 2024 Oct 5.125% May $1,250 6.875% $1,200 $1B 5-Year Undrawn Revolving Credit Facility $1,200M Reduced 3Q 2020 YTD A/R Securitization from $350M to $255M $1,000M Expect to $800M Paydown with Cash on Hand Feb Feb 5.9% 5.95% $625 $625 $600M Feb 5.87%
Slide 15: 2020 Assumptions
2020 Assumptions 1Q 20201 2Q 2020 3Q 2020 4Q 2020 Full Year 2020 Sensitivities and Comments • Adj Operating Income excluding special items Corporate Overhead ~$20M $20M $17M ~$18M ~$75M • 1Q 2020 reflects estimate of Howmet Corporate costs Depreciation & ~$67M $67M $68M ~$68M ~$270M • Excludes speci
Slide 16: 2020 Outlook Improves; Year End Cash ~$1.5B
2020 Outlook Improves; Year End Cash ~$1.5B Revenue and Profit Outlook Comments 4Q 2020 Full Year3 Prior Updated Prior Updated • Price Increases Continue ~$1,215M ~$1,230M ~$5,200M ~$5,250M • Defense Aero and IGT Growth Revenue +/- $50M +/- $ 30M +/- $100M +/- $30M • Commercial Transportation Recove
Slide 17: Highlights: 3Q 2020 and Outlook
Highlights: 3Q 2020 and Outlook Revenue and Profit in line with expectations and implied outlook Revenue/Profit Price Increases continued and accelerated; 2020 Long Term Agreements complete Cost Reductions continued and accelerated Capex continued to be reduced to ~3% of revenue for the quar
Slide 18: rr) HOWMET
rr) HOWMET LL AEROSPACE
Slide 19: Appendix
Appendix fri HOWMET UJ AEROSPACE
Slide 20: Historical Combined Segment Results
Historical Combined Segment Results 1 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 Engine Products $813M $835M $844M $829M $3,321M $781M $585M $485M Fastening Systems $395M $399M $391M $376M $1,561M $385M $326M $271M Engineered Structures $294M $331M $318M $312M $1,255M $275M $229M $206M Forged Wheels $2
Slide 21: Historical Combined Segment Results (continued)
Historical Combined Segment Results 1 (continued) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 Engine Products $34M $35M $31M $31M $131M $30M $31M $31M Fastening Systems $12M $12M $12M $12M $48M $12M $12M $12M Engineered Structures $17M $14M $15M $12M $58M $13M $14M $13M Forged Wheels $8M $8M $8M $8M $32
Slide 22: Combined Segment Decremental Margins
Combined Segment Decremental Margins 1 2Q19 2Q20 2Q20 YoY 3Q19 3Q20 3Q20 YoY Engine Products $835M $585M ($250M) $844M $485M ($359M) Fastening Systems $399M $326M ($73M) $391M $271M ($120M) Engineered Structures $331M $229M ($102M) $318M $206M ($112M) Forged Wheels $257M $113M ($144M) $241M $172M ($
Slide 23: Estimated Adjusted EBITDA Historical Results
Estimated Adjusted EBITDA Historical Results1 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 Combined Segment $1,756M $1,822M $1,794M $1,734M $7,106M $1,632M $1,253M $1,134M 3rd Party Revenue2 Combined Segment $384M $429M $429M $418M $1,660M $404M $266M $183M Adjusted EBITDA3 Combined Segment 21.9% 23.5% 2
Slide 24: Reconciliation of income (loss) from continuing ops. excluding Special items
Reconciliation of income (loss) from continuing ops. excluding Special items ($ in millions, except per-share amounts) Income (loss) from continuing Diluted EPS excluding Special items operations excluding Special items Quarter ended Quarter ended September 30, September 30, September 30, September
Slide 25: Reconciliation of Operational Tax Rate
Reconciliation of Operational Tax Rate ($ in millions) Quarter ended September 30, 2020 Nine months ended September 30, 2020 As reported Special items (1)( 2) As adjusted As reported Special items (1)( 2) As adjusted Income (loss) from continuing operations before income taxes $(12) $27 $15 $100 $26
Slide 26: Calculation of Segment Operating Profit Margin
Calculation of Segment Operating Profit Margin 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 Engine Products Third-party sales $ 813 $ 835 $ 844 $ 829 $ 3,321 $ 781 $ 585 $ 485 Inter-segment sales $ 5 $ 3 $ 1 $ 2 $ 11 $ 2 $ 1 $ 1 Segment operating profit $ 141 $ 163 $ 161 $ 157 $ 622 $ 165 $ 105 $ 39 Segm
Slide 27: Calculation of Segment Operating Profit Margin (continued)
Calculation of Segment Operating Profit Margin (continued) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 Engineered Structures Third-party sales $ 294 $ 331 $ 318 $ 312 $ 1,255 $ 275 $ 229 $ 206 Inter-segment sales $ 3 $ 3 $ 4 $ 3 $ 13 $ 3 $ 2 $ 1 Segment operating profit $ 16 $ 25 $ 40 $ 39 $ 120 $ 28 $
Slide 28: Calculation of Total Segment Operating Profit Margin
Calculation of Total Segment Operating Profit Margin ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 Sales – Engine Products $813 $835 $844 $829 $3,321 $781 $585 $485 Sales – Fastening Systems $395 $399 $391 $376 $1,561 $385 $326 $271 Sales – Engineered Structures $294 $331 $318 $312 $1,255
Slide 29: Reconciliation of Total Segment to Consolidated Totals
Reconciliation of Total Segment to Consolidated Totals Reconciliation of Total segment operating profit to Consolidated income before income taxes ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 Total segment operating profit $313 $360 $363 $355 $1,391 $339 $200 $117 Unallocated amounts: Res
Slide 30: Reconciliation of Operating Income Excluding Special Items and Margin
Reconciliation of Operating Income Excluding Special Items and Operating Income Margin, Excluding Special Items ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 Operating income (loss) $214 $(176) $256 $285 $579 $258 $74 $73 Special items: Restructuring and other charges 44 472 56 10 582 39 1
Slide 31: Reconciliation of Adjusted EBITDA excluding Special Items
Reconciliation of Adjusted EBITDA excluding Special Items ($ in millions) Quarter ended Quarter ended Juner 30, 2020 September 30, 2020 Income (loss) from continuing operations after income taxes $(84) $36 Add: Provision (benefit) for income taxes (2) $(48) Other (income) expense, net 16 $8 Interest
Slide 32: Reconciliation of Adjusted Free Cash Flow
Reconciliation of Adjusted Free Cash Flow ($ in millions) 1Q20 2Q20 3Q20 Cash (used for) provided from operations $(208) $31 $35 Cash receipts from sold receivables $48 $66 $144 Capital expenditures (152) (32) (36) Adjusted free cash flow (312) 65 143 Costs associated with the Arconic Inc. Separatio
Slide 33: Reconciliation of Net Debt
Reconciliation of Net Debt ($ in millions) September 30, December 31, September 30, 2019 2019 March 31, 2020 June 30, 2020 2020 Short-term debt $1,434 $1,034 $1,336 $391 $384 Long-term debt, less amount due within one year 4,905 4,906 4,608 4,695 4,697 Total debt 6,339 5,940 5,944 5,086 5,081 Less:
Slide 34: Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items
Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items ($ in millions) Trailing-12 months ended June 30, 2020 September 30, 2020 Income (loss) from continuing operations after income taxes $ 245 $ 223 Add: Provision for income taxes 228 75 Other (income) expense, net 5 5 Interest expe
Slide 35: Reconciliation of Corporate Expense Excluding Special Items
Reconciliation of Corporate Expense Excluding Special Items ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 Corporate expense $55 $64 $51 $60 $230 $42 $21 $22 Special items: Costs associated with the Arconic Inc. Separation Transaction 1 1 1 2 5 4 3 — Legal and other advisory costs related t
Slide 36: Reconciliation of Segment End Markets Revenue
Reconciliation of Segment End Markets Revenue Engineered ($ in millions) Engine Products Fastening Systems Structures Forged Wheels Total Segment Third quarter ended September 30, 2019 Aerospace - Commercial $571 $267 $226 $— $1,064 Aerospace - Defense $120 $41 $65 $— $226 Commercial Transportation
Slide 37: Reconciliation of Segment Adjusted EBITDA
Reconciliation of Segment Adjusted EBITDA ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 Engines Products Segment operating profit $141 $163 $161 $157 $622 $165 $105 $39 Provision for depreciation and amortization 34 35 31 30 130 30 31 31 Adjusted EBITDA $175 $198 $192 $187 $752 $195 $136 $