With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

Industry included in sector is aerospace and defense.

Fortune Sector Leaders: Aerospace and Defense

The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

This year’s Fortune 500 marks the 68th running of the list.

This year’s Fortune 500 marks the 67th running of the list.

This year's Fortune 500 marks the 66th running of the list.

This year's Fortune 500 marks the 65th running of the list.

Here are the World's Most Admired Companies for 2018 as ranked in their industries. See who made the list.

World's Most Admired Companies

This year's Fortune 500 marks the 64th running of the list.

Here are the World's Most Admired Companies for 2017 as ranked in their industries. See who made the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune Global 500 generated $27.6 trillion in revenues and $1.5 trillion in profits.

Fortune Global 500

This year's Fortune 500 marks the 62nd running of the list.

Key Financials (last Fiscal Year)

Revenues ($M)

Profits ($M)

Assets ($M)

Total Stockholder Equity ($M)

Profit Ratios

Profit as % of Revenues

Profits as % of Assets

Profits as % of Stockholder Equity

Company Info

Industry

Location

Industry Rank

Previous Industry Rank

Website

Overall Score

Key Attributes Of Reputation

Innovation

People Management

Use of Corporate Assets

Social Responsibility

Quality of Management

Financial Soundness

Long-Term Investment Value

Quality of Products/Services

Global Competitiveness

Earnings Per Share (last Fiscal Year)

Earnings Per Share ($)

EPS % Change (from prior fiscal year)

EPS % Change (5 year annual rate)

EPS % Change (10 year annual rate)

Total Return

Total Return to Investors (last year)

Total Return to Investors (5 year, annualized)

Total Return to Investors (10 year, annualized)

Q2 2026

Q1 2026

Q4 2025

Q3 2025

Q2 2025

Q1 2025

Get insights into Howmet Aerospace including business profile, stock information, news, and rankings from Fortune.

Howmet Aerospace (HWM): Company Profile, Stock Price, News, Rankings

legacy

Howmet Aerospace

howmet aerospace

note this event is being recorded. I would now like to turn the conference over to Paul Luther, Vice President, Investor Relations.

Thank you, Gary. Good morning and welcome to the HEMET Aerospace first quarter twenty twenty five results conference call. I'm joined by John Plant, Executive Chairman and Chief Executive Officer and Ken Giacobbe, Executive Vice President and Chief Financial Officer. After comments by John and Ken, we will have a question and answer session. I would like to remind you that today's discussion will contain forward looking statements relating to future events and expectations.

You can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation and earnings press release and in our most recent SEC filings. In today's presentation, references to EBITDA, operating income and EPS mean adjusted EBITDA, excluding special items adjusted operating income, excluding special items and adjusted EPS, excluding special items. These measures are among the non GAAP financial measures that we've included in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix in today's presentation. And with that, I'd like to turn the call over to John.

Thanks, BT, and good morning, everyone. I'll make my remarks at the outset fairly brief and then spend more time talking about the outlook after Ken has provided his commentary on market and BU commentary. So first of all, Q1 was a solid start to the year. Revenue was a record and increased six percent, while EBITDA margin was 28.8%. Operating margin was 25.3% and up 500 basis points year over year.

Free cash flow was a positive $134,000,000 All segments grew revenue and EBITDA compared to Q4 of twenty twenty four. Of the segments, the most notable margin progression was within Fastening Systems and Structures. Free cash flow was deployed with a 25% increase in dividends, plus $125,000,000 of share buyback in the first quarter, which was continued in Q2 with a further $100,000,000 in April. We had strong performance on all fronts. My comment on the outlook will be after Ken.

Okay. Thank you, John. Good morning, everybody. Let's move to Slide five. So end markets continue to be healthy in the first quarter with revenue up 6% year over year, a good start to the year and we are well positioned to the future with continued investments for growth.

Commercial aerospace was up 9% year over year, driven by accelerating demand for engine spares. Commercial aerospace growth is further supported by record backlog for new, more fuel efficient aircraft with reduced carbon emissions. Defense aerospace growth continued to be robust in the first quarter and was up 19% year over year. With the global fleet of over 1,100 F-thirty five fighter jets in service, Defense Aerospace growth was driven by engine spares demand in addition to new builds. As expected, commercial transportation was challenging with revenue down 14% in the first quarter.

We continue to outperform the market with Howmet's premium wheels and coatings. Although down year over year, commercial transportation was up 2% sequentially. Finally, the industrial and other markets were up 10% in the first quarter, driven by oil and gas up 21% and IGT up 12%, while general industrial was flat. Within our markets, the combination of spares for commercial aerospace, defense aerospace, IGT and oil and gas continues to accelerate and was up approximately 33% in the first quarter and represented 20% of total revenue. As a compare, total spares revenue in 2019 was 11% of total revenue on a smaller base.

In summary, continued strong performance in Commercial Aerospace, Defense Aerospace and Industrial partially offset by Commercial Transportation. Now let's move to Slide six, starting with the P and L. In the first quarter, EBITDA, EBITDA margin and earnings per share were all records and exceeded the high end of guidance. Revenue was also a record, up 6% year over year. EBITDA outpaced revenue growth and was up 28%.

EBITDA margin increased four eighty basis points to 28.8%. Incremental flow through of revenue to EBITDA was excellent at more than 100%. Earnings per share was $0.86 which was up a healthy 51% year over year. Now let's cover the balance sheet and cash flow. The balance sheet continues to strengthen.

Quarter end cash balance was a healthy $537,000,000 Free cash flow was $134,000,000 which was a record for the first quarter. Free cash flow included the acceleration of capital expenditures with approximately $120,000,000 invested in the quarter, which was up 45% year over year. Majority of the CapEx investment was in our engines business as we continue to invest for growth, which is backed by customer contracts. Net debt to trailing EBITDA continues to improve and remains at a record low of 1.4 All long term debt is unsecured and at fixed rates. Howmet's improved financial leverage and strong cash generation were reflected in Fitch's Q1 ratings upgrade from BBB to BBB plus which is three notches into investment grade.

Liquidity remains strong with a healthy cash balance and a $1,000,000,000 undrawn revolver complemented by the flexibility of a $1,000,000,000 commercial paper program. Regarding capital deployment, we deployed approximately 167,000,000 of cash to common stock repurchases and quarterly dividends. In the quarter, we repurchased $125,000,000 of common stock at an average price of approximately $124 per share. Q1 was the sixteenth consecutive quarter of common stock repurchases. The average diluted share count improved to a record low Q1 exit rate of $4.00 7,000,000 shares.

Additionally, in April of twenty twenty five, we repurchased $100,000,000 of common stock at an average price of $126 per share. Remaining authorization from the Board of Directors for share repurchases is approximately $2,000,000,000 as of the April. Finally, we continue to be confident in free cash flow. We increased the quarterly dividend 25% in the first quarter to $0.10 per share, which was double the Q1 twenty twenty four quarterly dividend. Now let's move to Slide seven to cover the segment results for the first quarter.

The Engines product team delivered a record quarter with revenue, EBITDA and EBITDA margin. Revenue increased 13% year over year to $996,000,000 Commercial aerospace was up 12% and defense aerospace was up 16% driven by engine spares growth. Oil and gas was up 21% and IGT was up 12%. Demand continues to be strong across all engine markets with record engine spares volume. EBITDA outpaced revenue growth with an increase of 31% year over year to $325,000,000 EBITDA margin increased four fifty basis points year over year to 32.6%, while absorbing approximately 500 net new employees in the quarter.

Now let's move to slide eight. The fastening systems team also delivered a record quarter for revenue, EBITDA and EBITDA margin. Revenue increased 6% year over year to $412,000,000 Commercial aerospace was up 13%, defense aerospace was up 8%, general industrial was up 5%, and commercial transportation, which represents approximately 13% of Faster's revenue, was down 20%. Year over year, EBITDA outpaced revenue growth with an increase of 38% to $127,000,000 despite the lower than expected recovery of the wide body aircraft. EBITDA margin increased an excellent seven ten basis points year over year to 30.8%.

The team has continued to expand margins through commercial and operational performance. Now let's move to slide nine. Engineered structures performance continues to improve. Revenue increased 8% year over year to $282,000,000 Commercial Aerospace was flat and Defense Aerospace was up 36%, primarily driven by the F-thirty five program. Year over year segment EBITDA outpaced revenue growth with an increase of 62% to $60,000,000 despite the delay in the wide body recovery.

EBITDA margin increased an excellent seven twenty basis points to 21.3% as we continue to optimize the structures manufacturing footprint and rationalize the product mix to maximize profitability. Finally, let's move to slide 10. Forged wheels revenue was down 13% year over year. Although down year over year, the forged wheels revenue was up approximately 4% sequentially. EBITDA decreased 17% year over year.

Despite the challenging market, we were pleased with the Forged Wheels team delivering a healthy 27% EBITDA margin as the team flexed cost and reduced headcount on a year over year basis. Lastly, before turning back over to John, I wanted to highlight one additional item. Page 17 in the appendix highlights our ESG progress. We continue to leverage our differentiated technologies to help customers manufacture lighter, more fuel efficient aircraft and commercial trucks with lower carbon footprints. Howmet remains committed to managing our energy consumption and environmental impacts as we increase production.

In 2024, we met our three year target of reducing greenhouse gas emissions by achieving a 21.7% reduction versus our 2019 baseline. In April, we issued our annual ESG report highlighting the meaningful progress we made throughout 2024. The full report is available at howmet.com in the investor section. Now let me turn it back over to John.

Thanks, Ken. So turning to the outlook, let me comment first on tariffs. Clearly, they've increased uncertainty and reduced confidence in air travel. Regarding commercial aerospace, the passenger traffic has continued to grow, albeit more slowly, but that's mainly due to Europe and Asia Pacific, where growth has continued. There's been uncertainty in North America in particular, driven by a combination of political and economic statements.

Travel to The U. S. Is also reduced. Air cargo growth has moderated. Everything is a little less clear and passenger and freight data, of course, is backwards looking.

Nevertheless, our Hammett customers are showing resilience and growth, which is both due to the consistent underbuilding of aircraft in recent years and hence having very large backlogs. And the fact that airline fleets have become aged and more fuel efficient aircraft are needed with lower maintenance build those combined with the requirement for lower carbon footprints in order to meet emissions targets. Of note is the more optimistic mood around Boeing and their July MAX builds. We will provide improved build rate assumptions later in my commentary. Spares demand has also continued to be strong.

And while one quarter doesn't make a year, we did reach the 20% of total revenue milestone in 2025 in the first quarter, a year ahead of schedule. In the first quarter, spares increased by an average of 33% across our segments of Commercial Aero, Defense Aero, IGT and Oil and Gas. Within Defense, demand is steady and increasing, particularly around needed spares. The F-thirty five spares growth is notable. Moving to Industrial, demand continues to be solid, Addressing IGT turbine growth due to the electricity demand, which emanates from data center build out, we see the growth assumptions for the next few years remaining intact, with large expected growth for both spares and turbine builds.

These turbines cover the full spectrum from aero derivative turbines all the way through to the larger size of gas turbine builds. This demand is global. To this end, HAMET is building capacity in each of the major world's regions with additional building footprint investments in both Japan and Europe. These capacity expansions are backed by solid customer agreements for many years. IGT matches the aerospace margins.

The expected second half increase in commercial truck builds is now less certain given the North American economic uncertainties and some road freight concerns driven by tariffs. We're watching container shipment bookings very closely. Net tariff costs in total for HEMET are expected to be passed on to customers with up to one quarter or so of lag, with the impact included in the updated increased guidance. We, of course, avail ourselves of all the trade programs to mitigate the gross tariff impact. Wider inflation assumptions are unclear at this point.

The footprint build out of plants in The U. S. For aerospace and now Japan and Europe for IGT continues. We've been hiring to date for The U. S.

Footprint with a net 500 people recruited in the first quarter, mainly for our engine segment. This will accelerate as we move through 2025 and into 2026. Overall, my summary is that this continues to be a good and exciting time for Hamed when we look forward to the next few years, albeit the near term is rather more uncertain. The specific guidance for Q2 is as follows: revenue of $1,990,000,000 plus or minus $10,000,000 EBITDA of $560,000,000 plus or minus $5,000,000 and earnings per share of $0.86 plus or minus $01 For the year, the midpoint of revenue guidance is similar to that provided last quarter. The strength in Commercial Aerospace is due to spares and the Boeing seven thirty seven build rate assumptions, which are being raised to an average of 25 per month compared to the prior assumption 28 per month compared to the prior assumption of 25 per month.

The offset is commercial truck build assumptions in the second half. We remain hopeful that the final builds achieved are better. Having said that, given the uncertainty around markets, we are widening the range of outcomes for the year compared to that given in February. The year's guidance is revenue of $8,030,000,000 which we and also widened the range to plus or minus $150,000,000 The EBITDA baseline has been increased 120,000,000 to $2,250,000,000 plus or minus $25,000,000 Earnings per share, the baseline has been increased $0.23 to $3.4 plus or minus $04 The free cash flow baseline has increased $75,000,000 to $1,150,000,000 plus or minus $50,000,000 The good news is that EBITDA margins and free cash flow are expected to be higher for the year. The increased free cash flow guidance includes an increase in our capital expenditure guidance as well as we continue to invest in future growth.

This increase is approximately $15,000,000 compared to prior guidance. Naturally, capital deployment continues to be on the same trajectory of uses as normal. At the same time, net leverage is going to further strengthen towards 1.1x net debt to EBITDA by the end of the year, which is important given the current volatility and our desire for an even stronger balance sheet. This further supports the recent credit agency upgrades. And now we'll move to the questions and answers.

We will now begin the question and answer session. Our first question today comes from Seth Seifman with JPMorgan. Please go ahead.

Thanks very much and good morning and good results. I guess, John, one thing I wanted to touch on, you mentioned in the release, where air traffic growth is, and I think the IATA number for March came out today, and it was something like 3% globally. I guess the question I had is, you know, how much does really matter? Just in that the, you know, the structures and fasteners will probably be dictated by by build rate and engine. If it's not for aftermarket, it seems like there's plenty of demand on the OEM side and new content.

And it would have to be pretty significant decline in traffic to affect your outlook?

I overall demand or end market demand for travel important. And it's important because it does affect, in particular, how we feel about '26 and '27. And, and therefore, for example, the rate at which we would invest and the volume underlying volume assumptions that are important to us. I think that we're protected for a significant period of time and maybe many years, it remains to be determined by the fact that the aircraft manufacturers in commercial aerospace have a very high backlog. And so even though with the current situation, for example, where China is no longer taking Boeing aircraft, then the question is, you know, what what does that mean?

I mean, for the industry where it like Airbus probably can't produce many more, which strengthens their underlying demand, whereas Boeing, maybe not so. At the same time, their backlog is so enormous that their movement to rate 38 and beyond, I think, is still assured. At the same time, could I envisage that certain airlines might begin to cancel aircraft in the, let's say, coming year? Well, I think it's possible, but that very much depends upon really what passenger traffic is. So at this point, I'd say it's okay, but I think all of us feel a little bit less certain than we did a few months ago given the current, I'll say, economic policies being, carried out, in in The US in particular.

So it's a long way of saying, you know, I think it's important for when you look forward into the future of having strong underlying fundamentals for demand that start with confidence in the traveling public, the confidence in freight moving around the world. But at the same time, do we have other areas with strength? Yes. We have strength in defense. We have strength coming from the, continued build out of data centers, which is giving us, quite an extraordinary opportunity of demand.

And also, as noted in the first quarter, at the moment, the demand for spares continues to be very high and possibly, will further increase. But the the, you know, the opposite side of that is should original aircraft engine production slow or, aircraft build slow, then it does affect, say, our structures business fastening business. And all of the other componentry beyond turbine airfoils, for example, structural castings, where there's limited aftermarket demand compared to the wearing part. So in the last call, I commented, for example, on the existing fleet where I've been saying for some time that probably the peak for the CFM56 was going to be '27, '20 '8. Well, I think it's at least that, and current demand has actually been increasing substantially.

And so all of that's playing well at the moment. And I think the future's fine, but, do we should I get my worry beads out? Yes. I think it's appropriate, and that's one of the reasons why, I've said we'll further strengthen the balance sheet as we go through this year and have a fortress balance sheet, totally fortress by the end of the year.

The next question is from David Strauss with Barclays. Please go ahead. Mr. Strauss, your line is open on our end.

Great. Yes, thanks. Thanks very much. John, I wanted to ask you progress on yields on the upgraded 1A blades and how things are going on in GTFA and when you expect timing of the one blade upgrade certification? Thanks.

Okay. So, we've moving along our typical, learner curves for, for new, I'll say turbine airfoil production. So everything is going to plan, and we're in very good stead in terms of, of being ahead of, I'll say, the engine manufacture requirements. You may recall, I think it was in November of last year when I said we'd already put in 500 engine sets worth of turbine airfoils for the LEAP-1A. As we look at our production of raw castings, my assumption is that we're actually further ahead at this point, albeit we don't have perfect information of then what the subsequent processes are in terms of machining and hole drilling and etcetera, etcetera.

But at the moment, our production is going well, but in line with where we expected it to be. So nothing extraordinary at this point. In terms of certification, it feels as though I mean, we now have, first of all, the 1A certified, the GTF Advantage certified, and the remaining one to, I'll say, fall into place is the LEAP one b, which is still to be done. And my current thought is that it's probably heading towards certification by the end of the calendar year. And then with, let's say, then the final cutover date is yet to be determined as we move in from the end of this year into 2026.

The next question is from Doug Harned with Bernstein. Please go ahead.

Good morning. Thank you. On, you know, q four, you had good margins in fastening systems and engineered structures. This quarter, they're even much better. And you commented that for each of those businesses, haven't it's been disappointing to see the ramp on wide body demand.

It's a little slower. Can you talk about what drove the margins up? Are these sustainable? And what additions might you expect once that wide body ramp occurs?

Yeah. So maybe I'll use structures as a poster child for the conversation, Doug. Clearly, the year on year improvement is excellent. Obviously, the quarter on quarter increase is somewhat less, but nevertheless, I think still, notable. And I'm gonna say, and it goes towards, I'm sure, the question on incremental margins, which is going to be, you know, what what what have we been able to achieve?

So in structures, for example, I'd say we've had a a large effort on improved process control, And I'll give you an example of that. So for ex as an example, in our aircraft wheels business, for the last now, I'm gonna say, seven months, we've been having, I think, a regular detailed reviews, including myself with not only the business unit leadership, but also the plant management and even the departmental head so that we could examine, you know, the the control of temperatures within our forging metals, the dyes. We've looked at, for example, the dispensation of oiling and, not just quantity, but, in terms of coverage, then also the controls within our furnaces and chemical composition and temperature in our edge tanks. And, it's it's not for that just by itself, which has actually led to probably an increase in production of, I'll say, 10% to 15%, but the improvement in scrap has been extraordinary. The improvement in productivity has been really, really good.

But it's meant to then obviously try to encourage increased process control across other areas. And you could point to, for example, titanium melt as well. So we've been, let's say, doing a lot, and I'm really pleased with the way that the team has done all of that. So when you are achieving those sort of yield improvements and scrap reductions with productivity. Combine that, if you recall, last year, I think it was in the May timeframe, we told you that we had exited one business and sold one business in the structure segment.

So got rid of some, I'll say, fundamentally underperforming lower margin entities. So you get a positive mix effect. And then you combine that with some price, then you get some really good outcomes. And so I would say it's, it's been a really great story of, let's say, beginning to fire on, all cylinders. So you may recall my statement when we'd we'd held it for some years with all the downdraft in, the, you know, so inventory overhang on F 35 and the wide body, you know, say lower build, including cessation of the seven eighty seven for a period of time.

Now we see a stronger demand in the defense segments, including F-thirty five. We, I'll say, look, still afford to increase wide body. And my statement was that we would probably get up to a high teens margin business, in which we managed to exceed this quarter. So I'm convinced that the statement I've made in terms of high teens is absolutely solid now. And clearly, we aspire to try to hold where we are.

And so that gives you an example. And you could write Ditto for aspects of our fastening system, and indeed, for engines as So really good controls and improving productivity yields have been really outstanding.

The next question is from Robert Stallard with Vertical Research. Please go ahead.

John, I was wondering if you could give us an update on where you currently are on the seven thirty seven, obviously noting you've increased your full year production rate guide. And also where you are on the widebody? So obviously, you did make those comments about the ramp there being a bit slower than expected. Thank you.

Maybe I'll start with the widebody first. As you know from public commentary, the $7.87 increase in ramp rate was delayed for three months, I think, until the I think it's the second half. And so while we think the demand for that aircraft is extraordinary and the backlog is very high, so we have confidence that the full demand for that aircraft is there, it has caused a little bit of, I'll say, perturbation in the first half of this year. On the A350, again, probably a well publicized commentary is that there's been difficulty getting some of the fuselage componentry from Spirit Aero Systems. And so on that one, our rate assumption, which was six, is probably more like a five and a half now.

And our rate assumption on the seven eighty seven, which was going to seven earlier, is now pushed back a little bit. So that's the picture on wide body. But having said that, with absolute confidence that the demand is there, which will carry us through into 2026 and 2027. Narrow body, while we've and feel more confident in the pickup in build that's been going on in Boeing, and so there we've moved from a 25 rate assumption to a 28 rate assumption as an average for the year. And so that implies that we will see a higher rate of production in the second half.

What we've been experiencing in the quarter, because if you look at commercial aerospace sequentially between Q4 and Q1, while the year on year plus 9% is really good, the sequential is a much more modest increase than that. And that's basically because of, I'll say, inventory takeout that Boeing has been doing. So the I think it's the increased rate of production. We haven't seen that come through in the first quarter. In fact, if anything, a little bit of reduction in certain component risk, particularly at the second tier level in terms of machining shops, which take our components and then go and machine them.

So as that inventory through the chain has been, I will say, brought down, we have noted that reduction, albeit we are seeing we feel as though we're going to see and are seeing already some pickup in that rate as we move forward in the latter part of Q2 into Q3 as the rate further improvements occurs in Boeing. On Airbus A320, same assumptions before in the mid-50s, with hopefully improvements as we go through the year. So I think that pretty much covers it.

The next question is from Myles Walton with Wolfe Research. Please go ahead.

Thanks. Good morning. John, the fastening margins, Doug started to ask on that, but you sort of used structures as a case study. If we could focus on fasteners, did you get much benefit in the quarter from the PCC fire tightness that's likely been created? And have you closed on any share gain contracts under LTA or just general improvement that you saw in that business?

In the quarter, there was nothing of any note. I mean, we did do a few parts where one of our customers had an absolute need to have something in the quarter. So we did that, but it's not measurable in terms of any meaningful revenue number. We have been booking orders. And I'll say at the moment, we are probably in that, you know, between 20 to 30,000,000, probably, let's say, mid mid twenties in terms of orders booked at the moment, but we're still hundreds of parts yet to quote.

And so we are hoping that number moves up as we go through the year. And then, again, hopeful that by the time we get into the into mid year and beyond, this that we'll start to produce a meaningful quantity to cover the, say, some of those SPS related issues.

Would that target potentially be over a hundred million by the end of the year if if those quotes No.

I don't think so. I think that's that's too much. It's a signal signal. I think the whole of their output was somewhere between a hundred and 50 and 200,000,000 of revenue. For sure, PCC are going to reallocate some of that production to to the other sites.

And and then obviously, we'll get a, hopefully, a slice of what remains, which can't be done. And it's pretty difficult to take all of that production and and move it in in house because nobody sits there with that capacity. But how it all falls out, think we'll be well short of the $100,000,000 number maybe. I don't know. Total guesses would be half of that, but I don't really know.

The next question is from Christine Lewag with Morgan Stanley. Please go ahead.

Hey. Good morning, everyone. Hey. So so, John, maybe taking a hindsight view, I mean, the earnings power of HAMET today is just so much stronger in the previous forms of this company with Arconic, Alcoa Aerospace over the years. Your market share wins and the engine upgrades focus on the higher value tech items and operating efficiencies are clearly paying off.

And look, I know you don't give a long term outlook, but to the extent that you could, how should we think about incremental margins for the company once we do get to the 50 plus per rate per month for the 7 30 7 Max and 10 plus per month for the $7.87? I mean, how high can margins really go?

I I I don't know that I can answer that question given where we are and it's been moving. I I think the the majority of the benefits of having Hamed as a pure play company has been, increasingly the luxury of some of the conversations that we're able to to have because of that focus and time and, you know, knocking problems over one by one. And so, you know, the the example I gave, which was just focused on aircraft wheels. You know, I obviously, it's a it's a it's a segment of a of a single plan, and therefore, it's it's meant to convey what we're doing more generally. But having those sort of conversations and the luxury to have the time to have those sort of conversations is really good.

But where you go in the future, it's always a function of what's the angle of demand, because margin rate assumptions are affected not only by the, I'll say, internal, let's say efficiencies that you do, but also it's fundamentally different than when you're growing at a like a 2% versus a 12%. And so, you know, at the moment, it's really difficult to know how to answer that question when, you know, we've seen such violent rate swing assumptions, for both wide body and narrow body over the last few years. And here we are again, now grappling with a set of circumstances that we had not really envisaged in terms of how we manage through the current tariff situation. So it it it's it's so difficult to to be able to respond, you know, and and appear any for to be in any form of, let's say, clear thinking at this point in time. And as you know, when we went through inflation in the, let's say, two time frame, as that picked up, when you're just getting a dollar for a dollar, that impacts and flattens your margin.

And if we're successful, I think we are, and, it's been interesting. We haven't had a question on tariffs so far, but if we get a dollar for a dollar there, again, that's dampener on margin. So I don't know how to answer the question that would be anything meaningful for you, Christine.

Thanks, John. And maybe pivoting to cash, despite this uncertain environment and yet you had COVID, had inflation, now you have tariff risks, but at the same time, free cash flow is still positive for the enterprise. You're able to support your CapEx increase with cash generated and you've got extra and the balance sheet is under levered. There's a point in time as the economic environment stabilizes for demand for aerospace. Could we see a period where you could return 100% of excess free cash flow to shareholders?

And even if you should do that, the delevering aspect is still pretty meaningful. So how do we think about priorities of capital, especially as we emerge from this period of uncertainty?

I think we've had a pretty good record in returning the cash flow to our owners. And I may have the year wrong, and I'll let Ken have a look. But I think, for example, in 2023, we actually returned more than 100 of the available free cash flows to shareholders. You could say, you know, I also treat repayment of debt as effectively returning money to shareholders. So our conversion, if you look at those five year, if I looked at this recently, if you look at the five year average, we're exactly at a % conversion of net income into free cash flow, albeit it's been, let's say, closer to 90% the last year, couple of years if we've kicked up the CapEx in particular.

So when I look at cash flows at the moment, clearly, we're able to afford to invest. And I think that takes away for our customers any uncertainty about the supply base and for us in particular, can we invest to meet the future demands. And so when you look at the investment we made back in 2020, that was a quarter of a billion in our engine products. We're investing more than that currently in our, I'll say, aerospace turbine airfoil increase in production. And that ignores the IGT aspect.

So we're able to fund that. This year, in terms of the contours of, say, capital deployment, clearly, we've already mentioned that we've increased the dividend. I think the buyback of shares will actually be at a higher number than it was in 2024. And at the same time, I expect that our balance sheet will be further strengthened by the end of the year because we've got, I think, improved EBITDA that's within the guide. We need to look at any further tranche of debt we should be wanting to pay down.

Because what I when I recognize that at 1.1 times net debt to EBITDA, we're a little bit under levered. But at the same time, I think given all of the uncertainties, it's, it's appropriate for us to have that as a as a year end view currently. And, obviously, if some of the immediate gray clouds, you know, pass over and that we're looking to further deploy. But it's going to be a good return for shareholders this year with increased share buyback over last year, increased dividend. And so it's all going to be good.

The next question is from Ron Epstein with Bank of America. Please go ahead. So let me ask

the tariff question that everybody asks. How are you thinking about that John? You guys were, I think, really the first to come out with the force majeure concept on tariffs and, yeah, I mean, how pass throughable is it and how are you broadly thinking about it?

Yeah. Well, I thought for a second even despite my prompting that no one would ask the question. So I was gonna have to find a way of talking to it so that, it could be out there. I mean, first of all, on the, let's say, the wider picture in tariffs has been very fast moving and changing both in terms of the percentages and also exemptions either by product or by country. So, you know, it's it's been tough to keep up with all of the, the the changes there.

But say, at the same time, we do understand the thrust of the of the administration to, I'll say, try to reassure production in a way it's appropriate. Having said that, our duty is to, first of all, minimize the impact, And we do that with a series of trade programs. And I'm sure you're familiar with all of the names, let's say, whether it is the USMCA, whether it's duty drawback using a bonded warehouse, it's free trade zones. And then you've got some other exemptions, which you can, talk to. I could quote, like, eight zero one, two and three exemptions and and and and inward processing relief and so on.

So there's a lot of programs that, you know, you look at to see, first of can you minimize the impact for the company and also for for our our customers? The third point is clearly we want to and want to protect HAMAT. And when we examined contracts, while we have very solid, for example, material escalators in place, in certain cases, tariff is not called out in the contract language. And so we wanted to protect for that, so there was no ambiguity. And also then, we, as you know, issued letters of force majeure, which we had to issue to all of our customers so that we would have consistent messaging.

You can't say to one and not the other, etcetera. So it's a stance in the company. So today, let's now move to impact. At the at the gross level, and assuming after all the mitigation actions that we've taken and assuming that after the ninety day period, there is a bounce back to the previous levels, which hopefully won't be the case, but we envisage the gross impacts for the company in worst case position to be at about $80,000,000 And that's if the ninety day period, it goes and passes, comes and goes and there's a bounce back there. And then the next point would be, so what is the net impact after all the mitigation and then pass through?

We see that as less than $15,000,000 in 2025. And the the majority of that 15, but not all of it, but the majority of it is is the what call the drag impact. That is when you incur costs, know, we'll be having to fund certain importers because they haven't got the working capital to pay the duties. And so we have all of that, and we see it as a drag in we will be paying out, but then invoicing either as a supplement to to existing invoices or or surcharges. And obviously, that affects you in the quarter.

That's why we see you'll see in Q2, we assumed a lower margin rate than we had in Q1, essentially because of tariff drag. And then it just goes on for a period of time, but hopefully, by we get into the second half of the year and into the fourth quarter, then it will be just normal course of business in terms of invoicing recovery, but we'll still have had that drag in 2025. So that's how we see it today. But of course, it could be still fast moving. To give you a little bit more granularity, you know, the the majority I'll say there's two there's two real impacts for us.

One is the imports from Europe, and the second one are the imports from China, not surprisingly given the percentage of tariffs for China at the moment. Two of our business units out of the four are primarily affected. And in one, we've already secured individual customer agreements covering more than 90% of revenue to cover the tariffs. So that's cleared one. And then the second one, then about 50% is covered through distribution where it's it's it's it's contract to contract, and therefore, it's a small net overhang, which is yet to be locked out with, let's say, larger customers.

So that's all within the net 50,000,000 that I told you about. So I hope that gives you a pretty comprehensive walkthrough from how we see it, what the gross impact might be, what the net impact is and what our assumptions are.

Gotcha, gotcha, and that's helpful. And if I can, just one quick follow on. How exposed are you to rare earths and maybe rare minerals? I mean, that a question mark for you guys or do you have that covered?

Howmet Aerospace (HWM) Q1 2025 Earnings Call Transcript

Company Participants