Howmet Aerospace Inc. (HWM) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Q2 Performance: Howmet Aerospace reported a strong second quarter, with revenue growth of 14% year-over-year, driven by a 27% increase in commercial aerospace. EBITDA reached $483 million with a margin rate of 25.7%, and operating income was $414 million with a margin of 22%.
• Record Financial Metrics: Q2 saw records in revenue, EBITDA, EBITDA margin, and earnings per share, all exceeding the high end of guidance. Earnings per share increased by 52% year-over-year.
• Healthy Cash Flow and Balance Sheet: The company ended the quarter with a cash balance of $752 million and a record Q2 free cash flow of $342 million. They also reduced annual interest expense by $12 million annually through strategic bond repurchases.
• Market Share Gains: Howmet secured additional market share at a second engine manufacturer, indicating future revenue growth starting in 2026.
• Dividend Increase and Share Buyback: The common stock dividend will increase to $0.08 per share, a 60% increase, starting with the August payment. The share buyback authorization was also increased by $2 billion.

Pessimistic Highlights

• Commercial Transportation Weakness: The market has weakened with revenue down 4%, although Howmet continues to gain share with its aluminum wheels.
• Challenges in Aircraft Delivery: Sales are currently constrained by the ability of aircraft manufacturers to build and deliver aircraft consistently, particularly noting issues with Boeing.
• Engine Orders Trimmed: Engine orders have been trimmed, affecting sales and inventory positions, particularly for Boeing and its affiliates.

Company Outlook

• Revenue and EBITDA Guidance Increased for 2024: Howmet raised its revenue guidance to $7.44 billion and EBITDA to $1.865 billion for the year, reflecting a 12% growth rate year-over-year. Free cash flow guidance was also increased to $870 million.
• Concerns Over Aircraft and Engine Production Rates: The company is cautious about the commercial aircraft build rates and inventory positions, particularly with Boeing, and has adjusted its guidance accordingly.

Q & A Highlights

• Q: Can you help understand what's been happening at Airbus on the LEAP-1A? (Douglas Harned, Bernstein)

  A: We've significantly increased our production of turbine blade and hot section, with a 40% increase in production in recent months. We are producing well above engine build rates. (John Plant)

• Q: Regarding the new engine technology, how much more market share could you potentially get? (Kristine Liwag, Morgan Stanley)

  A: We are taking technology to another level in terms of manufacturing and are able to help our customers with elevated temperature performance and increased pressures. (John Plant)

• Q: Can you talk a little bit about 787? (Seth Seifman, JPMorgan)

  A: Deliveries from Howmet are in line with previous guidance, although we note one European manufacturer is cutting back over the summer. We've adjusted our guidance accordingly. (John Plant)

• Q: How to think about incremental margins for the business? (David Strauss, Barclays)

  A: We've increased the balance of year incremental to just over 40% in Q3, taking account of seasonality and market declines in the Wheels business. (John Plant)

• Q: Could you elaborate on the terms of securing the second engine win? (Sheila Kahyaoglu, Jefferies)

  A: It's good business, otherwise we wouldn't take it. The share gain is pretty healthy, and it's similarly in line with the previous increase in share. (John Plant)

• Q: Do you think Howmet has the potential to eventually get to high-20s operating margins? (Scott Mikus, Melius Research)

  A: I've never been comfortable talking about what I think margin rates will be in the future. It's something I don't follow. (John Plant)

• Q: Given the incrementals were strong in the first half, when do you suspect you'll be back to hiring? (Noah Poponak, Goldman Sachs)

  A: We've been cautious where we need to and called out reductions where we see them, like in the Wheels business. (John Plant)

• Q: What kind of opportunity is there for Howmet to pick up more business due to a shortage of castings in the industry? (Gautam Khanna, TD Cowen)

  A: We're positioned well for the future, but it's not immediately transferable to produce more high-pressure turbine castings in the short term. (John Plant)

• Q: Has the Asheville RTX facility had any negative impact on the longer-term outlook for programs you service? (Ronald Epstein, Bank of America)

  A: I haven't heard any commentary coming out of RTX that would affect our requirements over the next few years. (John Plant)