Slide 1: Second Quarter 2019 Earnings Call
Second Quarter 2019 Earnings Call John Plant – Chairman and Chief Executive Officer Ken Giacobbe – Chief Financial Officer August 2, 2019
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: 2Q 2019 Highlights
2Q 2019 Highlights Revenue (YoY) • Revenue up 3% to $3.7B, quarterly record since Separation – Organic Revenue up 10% with growth in all key markets Profitability (YoY) • Operating Income excluding special items up 27%1, Margin up 240 bps – Engineered Products & Solutions Segment Operating Profit Ma
Slide 5: Key Financial Results – 2Q 2019
Key Financial Results – 2Q 2019 +3% +10% organic ▪ Revenue increased $118M or 3% YoY Revenue1 $3.6B $3.7B ▪ Organic Revenue increased $344M or 10% YoY, growth in all Segments ▪ All key markets remain healthy 2Q18 2Q19 ▪ Price $41M: Engineered Products & Solutions and Global Rolled Products Operating
Slide 6: Overview of Segment Results – 2Q 2019
Overview of Segment Results – 2Q 2019 Revenue1 Segment Operating Profit1 Segment Operating Profit Comments + Aerospace Engine & Aerospace Defense growth $1,565M $286M + Price improvements EP&S Up 6% Up 28%, or $62M + Net Cost reductions Up 8% Organic + Margin improved by 310 bps YoY + Aerospace, Aut
Slide 7: Second Quarter 2019 Key Achievements
Second Quarter 2019 Key Achievements ▪ Record quarterly Revenue and Segment Operating Profit ▪ Aerospace Engines Organic Revenue up 10% YoY1 and Aerospace Defense Organic EP&S Revenue up 26% YoY2 ▪ Price improvements of $24M YoY ▪ Commercial Airframe Organic Revenue up 19% YoY3 GRP ▪ Industrial and
Slide 8: Executing on The Path Forward: Key Focus Areas
Executing on The Path Forward: Key Focus Areas • Operating Performance • Cost Reduction • Capital Allocation • Portfolio Separation 8
Slide 9: Operating Performance
Operating Performance • Quarterly Operating Reviews by Segment • Monthly Forecast Reviews by Segment • Robust reviews covering key areas to drive current and future profit improvement 9
Slide 10: Cost Reduction Update
Cost Reduction Update • Actions underway to reduce operating costs by ~$260M on a run- rate basis. Increased by $30M from the previous ~$230M commitment. • ~$140M of savings expected to be captured in 2019. Increased by $20M from the previous ~$120M commitment. • $27M severance charge was taken in t
Slide 11: Capital Allocation: Share Repurchase Update
Capital Allocation: Share Repurchase Update YTD Share Buybacks $900M at a weighted average price of ~$19.80 per share for 45.4M shares • Repurchased $700M of common stock and reduced share count by 36.4M shares – 31.9M shares delivered February 21st, 4.5M delivered April 29th at an average share pri
Slide 12: Separation Update: Execution
Separation Update: Execution • On track for Separation completion in 2Q 2020 Timing • Target initial Form 10 filing 4Q 2019 • Leadership search is underway • Receipt of tax opinion from counsel Critical Closing • Effectiveness of Form 10 filing with the U.S. Securities and Exchange Commission Condit
Slide 13: Separation Update: Structure
Separation Update: Structure Arconic Inc. Howmet Aerospace Inc. Arconic Corporation • Engine Components • Rolled Aluminum Products • Fastening Systems • Aluminum Extrusions • Engineered Structures • Building & Construction Systems • Forged Aluminum Wheels ▪ Identities of Remain Co. and Spin Co. to b
Slide 14: 2Q 2019 Additional Actions
2Q 2019 Additional Actions ✓ Completed 5-Year plans for each business ✓ Non-cash asset impairments of $444M ✓ Union negotiations with Steelworkers completed for USW Master Agreement and Titanium Structures Plant On Track Divestitures progressing, one complete & one agreement pending closure On Track
Slide 15: Arconic 2019 Guidance Update
Arconic 2019 Guidance Update1 Full Year 2019 Guidance Revenue EPS Ex. Special Items Adjusted Free Cash Flow EBITDA Ex. Special Items Prior $14.3B – $14.6B Prior $1.75 – $1.90 Prior $650M - $750M Prior n/a Unchanged Updated Updated New Current $14.3B – $14.6B Current $1.95 – $2.05 Current $700M - $80
Slide 16: Arconic
ARCONIC Innovation, engineered.
Slide 17: Appendix
Appendix SD ARCONIC
Slide 18: Updated 2019 Guidance Assumptions
Updated 2019 Guidance Assumptions Prior 2019 Assumptions Updated 2019 Assumptions Sensitivities and Comments Al prices = $2,400/MT Al prices = $2,300/MT • +$100/MT increase = +~$130M Revenue impact / Annual Avg. LME Cash = $1,975/MT LME Cash = $1,885/MT ~($10M) Operating Income impact Al Price • +$1
Slide 19: Pension and OPEB Summary
Pension and OPEB Summary Obligations Expense and Cash Flow Unfunded pension and OPEB liability (6/30/2019) Expense ($M) FY 2017 FY 2018 FY 2019 Actual Actual Estimate $2.7B Total Liability OPEB Total Operating Income1,4 $97M $71M4 ~$30M $0.7B (26%) Non-Operating $154M $112M ~$120M Total Pension / OP
Slide 20: 2Q 2019 Special Items
2Q 2019 Special Items (Loss) Income Net (Loss) Earnings ($M) before income (Loss) per diluted share taxes Income AS REPORTED ($195) ($121) ($0.27) Asset Impairments / Divestitures: Asset impairments $444 $357 ~82% of special Sale of additive business / energy assets $22 $17 items are non-cash Costs
Slide 21: Capital Structure: $5.0B of Net Debt
Capital Structure: $5.0B of Net Debt Gross Debt ($M) Capitalization at June 30, 2019 Paid down $2.5B of debt since Separation on 11/1/2016 -22% ($M) Amount 8,084 8,093 6,844 6,857 6,844 6,354 6,357 6,357 6,330 6,334 6,335 Cash $1,357 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 4Q 18 1Q 19 2Q 19
Slide 22: Organic Revenue Growth for 2Q 2019
Organic Revenue1 Growth for 2Q 2019 2Q 2018 2Q 2019 2Q 2018 2Q 2019 ($M) ($M) % Change ($M) ($M) % Change Arconic Revenue $3,573 $3,691 3% GRP Revenue $1,573 $1,577 0% less Tennessee Packaging 46 - less Tennessee Packaging 46 - less Eger 9 - less Aluminum Price2 - (112) Subtotal: Portfolio Changes 5
Slide 23: Organic Revenue by Market – 2Q 2019
Organic Revenue by Market – 2Q 2019 Revenue by Market Revenue by Market (% of total) Year-over-Year 2 (% change) 7% 6% Aerospace - Defense 25% Aerospace - Commercial Airframe 7% 15% 20% Aerospace - Commercial Engine 10% Sub-Total Aerospace 11% Automotive 5% Building & Construction 2% 13% Commercial
Slide 24: 2Q 2019 YoY Aluminum Price Tailwind
2Q 2019 YoY Aluminum Price Tailwind Year-over-Year Operating Income Impact from Aluminum Price Changes 1Q’19 vs 1Q’18 2Q’19 vs 2Q’18 USD Millions Actual Actual LIFO1/Metal Lag ($2) $21 Trading Desk2 $9 ($5) Scrap Spreads ($2) $1 Operational $2 $2 Arconic Total $7 $19 1) LIFO includes more elements t
Slide 25: Aluminum price impacts 2Q 2019 vs. 2Q 2018
Aluminum price impacts 2Q 2019 vs. 2Q 2018 Year-over-Year Impact from Aluminum Price Changes 2Q 2019 Revenue Operating Income Operating Income ($M) ($M) % EP&S ($4) $9 +60 bps GRP ($112) $8 +110 bps TCS ($20) $2 +100 bps Arconic ($136) $19 +90 bps 1H 2019 Revenue Operating Income Operating Income ($
Slide 26: 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 June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018 Net (loss) income $(121) $120 $(0.27) $0.24 Specia
Slide 27: Reconciliation of Net income excluding Special items
Reconciliation of Net income excluding Special items ($ in millions, except per-share amounts) Net income excluding Special items Diluted EPS excluding Special items Six months ended Six months ended June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018 Net income $66 $263 $0.14 $0.53 Special item
Slide 28: Reconciliation of Operational Tax Rate
Reconciliation of Operational Tax Rate ($ in millions) Quarter ended June 30, 2019 Six months ended June 30, 2019 As reported Special items(1) As adjusted As reported Special items(1) As adjusted (Loss) income before income taxes $(195) $565 $370 $62 $588 $650 (Benefit) provision for income taxes (7
Slide 29: Calculation of Engineered Products and Solutions Segment Operating Profit Margin
Calculation of Engineered Products and Solutions Segment Operating Profit Margin ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 Segment operating profit $209 $224 $235 $216 $884 $253 $286 Third-party sales $1,426 $1,474 $1,445 $1,487 $5,832 $1,502 $1,565 Segment operating profit margin 14.7% 15.
Slide 30: Calculation of Global Rolled Products Segment Operating Profit Margin
Calculation of Global Rolled Products Segment Operating Profit Margin ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 Segment operating profit(1) $124 $111 $77 $81 $393 $107 $145 Third-party sales $1,481 $1,573 $1,547 $1,487 $6,088 $1,503 $1,577 Segment operating profit margin 8.4% 7.1% 5.0% 5.4%
Slide 31: Calculation of Transportation and Construction Solutions Segment Operating Profit Margin
Calculation of Transportation and Construction Solutions Segment Operating Profit Margin ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 Segment operating profit $67 $97 $77 $63 $304 $87 $107 Third-party sales $537 $562 $530 $497 $2,126 $535 $548 Segment operating profit margin 12.5% 17.3% 14.5%
Slide 32: Calculation of Total Segment Operating Profit Margin
Calculation of Total Segment Operating Profit Margin ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 Sales – Engineered Products and Solutions $1,426 $1,474 $1,445 $1,487 $5,832 $1,502 $1,565 Sales – Global Rolled Products 1,481 1,573 1,547 1,487 6,088 1,503 1,577 Sales – Transportation and Const
Slide 33: Reconciliation of Total segment operating profit to Consolidated income before income taxes
Reconciliation of Total segment operating profit to Consolidated income before income taxes ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 Total segment operating profit(1) $400 $432 $389 $360 $1,581 $447 $538 Unallocated amounts: Restructuring and other charges (7) (15) 2 11 (9) (12) (499) Corp
Slide 34: Reconciliation of Operating Income Excluding Special Items and Operating Income Margin
Reconciliation of Operating Income Excluding Special Items and Operating Income Margin, Excluding Special Items ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 Operating income (loss) $333 $324 $345 $323 $1,325 $374 $(81) Special items: Restructuring and other charges 7 15 (2) (11) 9 12 499 Costs
Slide 35: Reconciliation of Adjusted Free Cash Flow
Reconciliation of Adjusted Free Cash Flow ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 Cash (used for) provided from operations $(436) $176 $51 $426 $217 $(258) $106 Cash receipts from sold receivables 136 284 273 323 1,016 160 257 Capital expenditures (117) (171) (209) (271) (768) (168) (136)
Slide 36: Reconciliation of Organic Revenue
Reconciliation of Organic Revenue ($ in millions) Quarter ended Quarter ended Six months ended June 30, March 31, June 30, 2019 2018 2019 2018 2019 2018 Arconic Sales – Arconic $3,691 $3,573 $3,541 $3,445 $7,232 $7,018 Less: Sales – Tennessee packaging — 46 — 43 — 89 Sales – Eger forgings — 9 — 10 —
Slide 37: Reconciliation of Net Debt
Reconciliation of Net Debt June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30, June 30, ($ in millions) 2019 2019 2018 2018 2018 2018 2017 2017 2017 Short-term debt $434 $435 $434 $42 $45 $45 $38 $55 $48 Long-term debt, less amount due within one year 5,901 5,
Slide 38: Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items
Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items ($ in millions) Trailing-12 months ended June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30, June 30, 2019 2019 2018 2018 2018 2018 2017 2017 2017 Net income (loss) attributable to Arconic $
Slide 39: Reconciliation of Return on Net Assets (RONA)
Reconciliation of Return on Net Assets (RONA) Quarter ended Quarter ended Six months ended June 30, March 31, June 30, ($ in millions) 2019 2018 2019 2018 2019 2018 Net (loss) income $(121) $120 $187 $143 $66 $263 Special items(1) 390 65 21 26 411 91 Net income excluding Special items $269 $185 $208
Slide 40: Reconciliation of Days Working Capital
Reconciliation of Days Working Capital Quarter ended June 30, ($ in millions) 2019 2018 Receivables from customers, less allowances $ 1,155 $ 1,159 Add: Deferred purchase program(1) 426 313 Add: Inventories 2,606 2,659 Less: Accounts payable, trade 2,095 2,024 Working capital $ 2,092 $ 2,107 Sales $
Slide 41: Reconciliation of Corporate Expense Excluding Special Items
Reconciliation of Corporate Expense Excluding Special Items ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 Corporate expense $60 $93 $46 $48 $247 $61 $120 Special items: Costs associated with planned separation — — — — — 3 16 Legal and other advisory costs related to Grenfell Tower 5 4 5 4 18 2
Slide 42: Reconciliation of EP&S Aerospace Engines and Defense Organic Revenue
Reconciliation of Engineered Products and Solutions Aerospace Engines and Aerospace Defense Organic Revenue Reconciliation of Engineered Products and Solutions (EPS) Aerospace Engines Organic Revenue ($ in millions) 2Q19 2Q18 EP&S Aerospace Engines Revenue $616 $565 Foreign currency impact (4) n/a E
Slide 43: Reconciliation of GRP Commercial Airframe and Industrial Organic Revenue
Reconciliation of Global Rolled Products Commercial Airframe and Industrial Organic Revenue Reconciliation of Global Rolled Products (GRP) Commercial Airframe Organic Revenue ($ in millions) 2Q19 2Q18 GRP Commercial Airframe Revenue $312 $263 Aluminum price impact (3) n/a Foreign currency impact 1 n
Slide 44: Reconciliation of GRP Automotive and Commercial Transportation Organic Revenue
Reconciliation of Global Rolled Products Automotive and Commercial Transportation Organic Revenue Reconciliation of GRP Automotive Organic Revenue ($ in millions) 2Q19 2Q18 GRP Automotive Revenue $487 $496 Aluminum price impact (32) n/a Foreign currency impact (2) n/a GRP Packaging Organic Revenue $
Slide 45: Reconciliation of 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) 2Q19 2Q18 TCS Commercial Transportation Reve
Slide 46: Reconciliation of Arconic End Markets Organic Revenue
Reconciliation of Arconic End Markets Organic Revenue Aero Aero Commerical Building and Industrial ($ in millions) Aero Engine Airframe Defense Transportation Packaging Automotive Construction and Other 2Q19 Revenue $618 $758 $236 $469 $241 $505 $345 $519 Aluminum price impact — (3) — (18) (23) (32)